HSJ’s new weekly email briefing on NHS finances, savings, and efforts to get the health service back in the black

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Does the Treasury trust NHS England?

There’s been so much focus in recent months on the iron grip HM Treasury plans to exert on NHS provider finances in 2016 (see, for example this and this) that clinical commissioning groups would be forgiven for feeling starved of attention.

Happily, we now know that’s not the case. There is plenty of room for all stripes of NHS organisation in the cold mechanical embrace of the health service’s new partners from Horse Guards Road.

As HSJ revealed this week, commissioners will be barred from spending around £800m of their budgets for 2016-17 without explicit Treasury approval. The £800m in question is the 1 per cent of funding CCGs have always had (in theory) to set aside at the start of the year for one-off costs. In the past, this rule was seen partly as risk management, partly as a way of setting aside some funding for investment in service change. In the coming year, it will mainly be a Treasury tool to help rectify Department of Health finances.

A CCG will not be able to invest any of its 1 per cent in anything until the Treasury has satisfied itself that the money is not needed to offset provider deficits elsewhere in the commissioner’s “transformation footprint” (ie the geography it is included in for the purposes of NHS England’s “sustainability and transformation planning”). If the money is needed to cover a provider deficit, the CCG won’t be able to do anything so obvious as to pay a hospital more to get it back in the black. It will instead have to leave the money unspent, so the CCG’s underspend balances out the hospital’s deficit and the DH avoids blowing its budget.

These rules clearly suggest the Treasury has limited confidence in NHS England’s ability to assert financial discipline over CCGs – otherwise why not leave it to NHS England to sign off the 1 per cent?

But more interestingly, the rules look like they’re going to add a whole new layer of tension to the already fraught “sustainability and transformation planning” process. To recap: all health economies must jointly agree five year STPs by this summer; the quality of those plans will determine access to future funding; organisations were given little more than a month to decide what the actual boundaries of those health economies should be; and many now feel they have been bounced into joining very big “footprints” that have limited relevance to what they’re doing locally. The average STP will cover a population of more than a million people.

That’s bad enough. But now it turns out that in joining these footprints they were also – actually – signing up to a compulsory, quasi-regional, Treasury-administered credit union. It’s hard to believe that’s not going to cause a little friction. Imagine you’re a well-run provider that manages to turn around your deficit next year – would you be pleased to learn that your CCG has no money to invest in transformation projects because its 1 per cent fund is needed to cover worsening deficits in a hospital that’s two hours away and treats no one from your catchment? How would you explain that to local people?

Resentment about that kind of thing has two likely consequences:

  1. It will encourage attempts by some areas to secede from the STP they have so recently joined;
  2. It will encourage finance directors to look for a way to game the rules.

As the Treasury will know, it’s rare that you can use a crude financial lever of this kind in a system as big as the NHS without creating perverse incentives. The only real fun to be had in these situations is guessing what the unintended consequences will be this time around. Please send your suggestions to Following the Money, at the usual email: crispin.dowler@emap.com

Perplexing financial directive of the week

“We have a substantial increase in funding going into the NHS in the next financial year… We can have cautious optimism if we continue to make smart reforms. And we need to continue to make smart reforms to make sure that those extra resources go into delivering the Forward View, and not into ballooning deficits.” –  Health Secretary Jeremy Hunt, speaking at this week’s Nuffield Trust summit.

Of the £2.14bn of “sustainability and transformation funding” available next year, £1.8bn has been earmarked to cover deficits; £0.34bn is earmarked for actual Forward View projects.

Welcome to Following the Money

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

Following the Money will feature analysis of the most pressing and novel issues in healthcare finance; track the story of the unprecedented squeeze on NHS finances and the efforts to pull providers back into the black; and cover 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 you think I should cover: crispin.dowler@emap.com.

Following the Money replaces our previous finance newsletter, but still includes links to the top stories. You will need to be an HSJ subscriber to read this in future. Subscribe here.