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Contracting chaos (the 2016 re-release)

Well, it wasn’t supposed to be like this.

This year, readers will recall, was supposed to be the one in which the whole of the NHS was seen pulling in the same direction, with a collective will to drag the provider sector out of the multibillion pound deficit hole it found itself in in 2015-16.

Taking up his role as chief executive designate of NHS Improvement last November, Jim Mackey called for “a more realistic efficiency ask” for providers in the coming years. He said that the savings target imposed on trusts last year “just looked beyond reach for most people” and the system needed to get back to a point where productivity requirements were “challenging but within reach”. 

For a while, it looked like a system-wide consensus was forming behind that position. The spending review saw NHS England funding significantly frontloaded into 2016-17 (tied to an explicit commitment to eliminate the provider side deficit). The tariff “efficiency requirement” was slashed to 2 per cent for 2016-17. A fund of £1.8bn was established to reduce or remove acute provider deficits.

The money didn’t necessarily look like it was going to be enough, and there was a fair bit of arm-twisting involved too (notably in the push to get providers signed up to “control total” financial targets in early February, while contract negotiations were still at an early stage), but it broadly felt like a shared enterprise.

But the past few weeks have seen gaping cracks appear in that hastily constructed consensus.

The first came after NHS England published in mid-March its proposals for 2016-17 CQUIN (commissioning for quality and innovation) incentive payments, to the shock and anger of many providers of specialised services. Providers’ complaints about the specialised commissioning CQUINs are too complex to rehash in this newsletter (HSJ has reported them fairly extensively this week), but broadly there is a suspicion that some of the targets have been set up to fail, reducing the commissioner-side liability. Pertinently, providers have warned that the CQUIN targets are incompatible with the assumption on which control totals were signed in February – that providers would be able to transfer most of the potential benefit from 2016-17 CQUINs straight to their bottom line.

NHS England has robustly defended much of its CQUIN offer to HSJ. However, Mr Mackey this week acknowledged that providers were “very unhappy” with the CQUIN proposals, and said NHSI was in discussions with NHS England to look for a solution.

Meanwhile, some commissioners have been playing hardball in the contracting negotiations to an extent that has clearly exasperated NHS Improvement. The situation came to a head this week, with Mr Mackey’s deputy Bob Alexander revealing that “very few” contracts had been signed by 31 March, that some commissioners had yet to make offers, and others had made offers that “do not appear to be a reasonable basis for negotiation” (translation: “that are derisory”). 

Commissioners have been given a deadline of today (Friday) to issue sensible offers to all their providers.

All this friction rather conveys the impression that not everyone in the commissioning system is totally on board with the view that provider finances collapsed last year because the ask that was made of providers was too great. The merits or otherwise of that view, however, are probably less important at this stage than the opportunity cost of the 2016-17 contracting round degenerating into another protracted fight between commissioners and providers.

Interestingly, NHS Improvement has taken a rather more forthright approach to this situation than might have been expected under the previous Monitor regime. The statement issued by Mr Mackey on Thursday morning merits close attention. 

Good luck to everyone writing or waiting for contract offers today. Have a good weekend. 

Following the Money

This is the latest edition of HSJ’s new weekly email briefing on NHS finances.

Following the Money features analysis of the most pressing and novel issues in healthcare finance; tracks the story of the unprecedented squeeze on NHS finances and the efforts to pull providers back into the black; and covers anything else that matters to those concerned with the funding and finances of the health service.

Please get in touch to let me know how I can improve it, and to tip me off about stories: crispin.dowler@emap.com.