HSJ’s expert briefing on NHS finances, savings and efforts to get the health service back in the black.

Greater consolidation within the NHS provider sector has long been desired in the corridors of Whitehall, but there hasn’t quite been the resolve or political will to force it through.

However, in recent years, the Treasury and Department of Health have devised a funding system that should have the same impact – just with a slower burn.

First, where trusts in deficit had previously been offered non-repayable bailouts, they are now expected to repay the money with interest.

As a result, dozens of providers are racking up unsustainable debts to the DH and will lack the power and independence to decide their own future.

Second, most of the new funding given to the provider sector since 2015 has come through the sustainability and transformation fund, which is paid to trusts according to their performance against their control total.

As shown previously, the consequence has been huge disparity in the funding received by different providers, with some getting millions more than their allocation and others getting nothing.

The effect of this has been to give larger shares of the pot to providers that display the necessary financial competence (and accounting flexibilities), which makes them more secure and better equipped to swallow up a neighbouring trust.

Third, the squeeze on capital budgets has led to a more commercial approach in dealing with providers’ requests for loans.

The DH’s decisions in relation to two recent loan applications illustrate this point particularly well.

In June, Aintree University Hospital Foundation Trust applied for £14m to complete some essential building and maintenance work.

But the DH refused the bid, saying there was little prospect of the loan being repaid, and suggested the trust go away and assess its long talked about merger and service rationalisation with Royal Liverpool and Broadgreen Hospitals Trust (which is expected deliver significant savings). The trusts have since completed an outline business case.

A few months later, an application from the two acute trusts in Manchester, which were about to complete a merger, for £125m of capital investment, was approved.

So if trusts can’t provide evidence that loan funding can be repaid, they had better come up with some radical proposals that offer some better prospects for investment.

Whether mergers are the right way to drive savings and ensure sustainability is an argument for another day. But in the absence other game changing proposals, it seems to be something the DH is taking seriously when it decides who gets to feed on the scraps.