Initial response to the COVID-19 pandemic: April to August
When the NHS stepped up its response to coronavirus in March, block contracts were established across the entire provider sector to support a clear operational focus on the pandemic. By allocating fixed sums to providers, removing financial penalties, halting trusts’ efficiency programmes, and compensating additional costs attributed to coronavirus activity, financial constraints were removed to enable necessary and rapid changes to services.
Contracting rounds between providers and commissioners were also suspended in 2020/21. This was welcome, as it would have been an unhelpful distraction while the NHS was responding to the first wave of the COVID-19 pandemic.
September to year end
In September, NHS England and NHS Improvement published contracts and payment guidance for the remainder of 2020/21. This detailed the introduction of the first system funding envelopes, and changes to the use of block contracts and top-ups.
Systems were given funding envelopes for the second half of 2020/21, built up from individual provider block allocations based on COVID-19 costs incurred during Q1 of 2020/21. An elective incentive scheme was also introduced, to encourage systems to reduce their backlogs of elective surgery and outpatient appointments.
Because systems were given the freedom to reallocate provider blocks, share out COVID-19 top up funding, and distribute elective incentives and penalties, this package represented a major step towards systems playing a more significant role in managing NHS finances. You can find NHS Providers’ On the day briefing explaining these changes in more detail here.
Capital allocations 2020/21
NHS England and NHS Improvement also introduced a new approach to capital funding in 2020/21, establishing system-level limits which providers have to work together to prioritise spending within. This change was outlined before the COVID-19 pandemic. The majority of system-level expenditure on capital projects is self-financed by providers, though emergency capital projects can be financed via emergency funding from NHS England and NHS Improvement and the Department of Health and Social Care, provided the investment is affordable within system envelopes.
NHS England and NHS Improvement also established a specific capital allocation framework for COVID-19 related infrastructure projects (such as service reconfigurations in acute wards). This funding has been allocated centrally.