- The government’s new five-year funding settlement for the NHS has enabled national leaders to redraw the service’s financial architecture and has created a strong expectation that trust deficits can begin to be eliminated.
- A number of significant changes are being made to NHS finances from 2019/20 to support the overarching goal of provider sector financial recovery. These include increasing core funding for providers by removing the risk reserve previously held by commissioners, an extra £1bn for emergency care, reducing CQUIN incentives by half to 1.25% of contract value, a new £1bn financial recovery fund and a strengthened mental health investment standard.
- National leaders expected that the new funding settlement, combined with these changes, would result in a significantly more realistic financial task for trusts in 2019/20, with a consequent reduction in the provider sector deficit. Initial trust reaction to their 2019/20 control totals is the first test of whether this proposed approach is likely to deliver as required.
- The process of agreeing control totals is, inevitably, a moving picture as trusts agree contracts with commissioners and also undertake a detailed dialogue with NHS Improvement as part of the annual planning process. NHS Providers surveyed trusts in February 2019 to gauge their initial reaction to their control totals, with 99 trusts responding. This report combines that February survey data with informal feedback on the progress that has been made since.
- The impact of the proposed more realistic financial task for providers is definitely being felt:
- 38% of trusts felt more positive in February, after receiving their 2019/20 control totals, compared to 28% of providers feeling more negative.
- The number of trusts that said in February they would not sign up to their control totals was 13%, with 28% unsure. This compares favourably with the similar survey in 2018/19 which showed that 18% would not sign up to their control total and a further 29% unsure. It is therefore reasonable to assume that more trusts will agree their control totals compared to last year. Feedback on progress since the February survey confirms this direction of travel and the latest information suggests that nearly all trusts will agree their 2019/20 control totals (in 2018/19 201 of the 227 trusts agreed their control total).
- However, as the last few years have shown, agreeing a control total is different from then actually delivering it. Despite best efforts, the financial pressures on providers have meant that provider financial performance has deteriorated against plan over each of the last few years. Therefore, it is important to assess how deliverable 2019/20 control totals will be. Trusts tend to measure the difficulty of their forward financial task in the level of cost improvement programme (CIP) savings they need to make. Different trusts use different methods to calculate these savings but they can be a useful year on year comparison. Our survey shows that the impact of the more realistic financial task is being felt here as well. The median CIP savings level for 2019/20 is 3.6%. This represents a significant reduction on our 2018/19 survey average of 5%. There is also a welcome, significant, increase in the number of trusts with CIP levels below 3%. There are, however, a significant number of trusts reporting higher levels of required CIP savings and the overall task facing providers remains very challenging. Whilst the 2019/20 CIP savings task of 3.6% of turnover is exactly in line with third quarter forecast 2018/19 performance, a third of these savings are non-recurrent and this is not sustainable.
- Our survey, however, highlighted two issues that we believe NHS England and NHS Improvement will need to address if the planned provider sector financial recovery is to be consistently delivered and the number of providers returning to financial surplus maximised:
- Providers with local authority sector contracts have not received the funding they need, and were promised, to meet the cost of the recent Agenda for Change pay rises agreed by the government. It is significant that the sector with the highest percentage of trusts indicating in our February survey that they will not agree their control totals is standalone community providers.
- National system leaders argued that individual providers, and the sector as a whole, would benefit from the more realistic provider financial task that has been set. However, our February survey data shows a cohort of providers reporting higher than expected levels of required CIP savings: 12% of survey respondents report CIPs in excess of 6%, with the highest reported CIP being 8%. This suggests that the attempt to provide a more realistic, deliverable, financial task for the sector may not have been universally and consistently achieved. Our survey data and feedback suggests that, unusually compared to previous years, it is not easy to identify the reasons for this variation. Given the need to ensure consistent delivery of financial recovery, we believe that more work needs to be done to identify the reasons for this variability. NHS Improvement may believe that most of this variability is due to provider failure to realise appropriate levels of 2018/19 recurrent savings. However, some trusts tell us that they believe the reasons lie more in the trust by trust impact of a combination of micro factors. These include the impact of how funding for the Agenda for Change pay rise interacts with individual trust grade mix, the impact of the changes to the market forces factor and clinical commissioning group (CCG) allocations, and the changes to specialist tariffs.
- The NHS is moving away from a focus on individual institutions to integrated local health and care systems. This is reflected in the development of system control totals that set the financial performance of a group of providers and commissioners together. Our survey shows trusts are less likely to believe they can achieve their system control total than their own individual organisational control total. Although they do not believe system control totals trump the need to deliver on an individual organisation basis, they do consider them helpful for fostering collaborative working. This may reflect the varying degrees of maturity in system working across the country.
- We have been unable to make a detailed assessment of the difficulty of the performance task for 2019/20 as the access standards for elective surgery and accident and emergency care are currently being reviewed. The performance ask in these areas is therefore significantly less detailed than in previous years.
- Our briefing suggests seven ways in which trusts could be more effectively supported to deliver what is needed in 2019/20 and beyond:
- fully fund the required Agenda for Change pay rises for those trusts holding local authority community contracts
- review the impact of 2019/20 specialist tariff changes that our survey suggests have had a significant impact on providers with a case mix skewed to the clinical areas affected;
- conduct a quick deep-dive review of why the 2019/20 financial arrangements have not consistently delivered the more realistic financial task expected, identifying why the financial task is higher than expected in some trusts
- given the transition to a new, regionally led, NHS England/Improvement oversight structure, assure the robustness of the financial management oversight arrangements given this transition
- quickly set up a collaborative, national/local, co-creation process to devise the access rules for the new financial recovery fund (FRF) as this is a key missing piece of the 2019/20 financial framework
- create a collaborative national/local co-creation process to develop the journey to system level financial management, including clarity on how this will relate to ongoing individual institutional level financial management
- give trusts a clear, fully funded, workforce planned, recovery trajectory in the core areas of accident and emergency and elective surgery performance.