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

System controls

The introduction of financial “control total” targets for each regional health system – in addition to individual organisations – represents a potentially radical shift in the regulation of the service.

As outlined in the two-year planning guidance published last week, all providers and clinical commissioning groups will be “held accountable for delivering both their individual control total and the relevant overall system control total”.

But can these regional targets really be effective, given that the 44 health systems covered by “sustainability and transformation plans” have no statutory basis or, often, formal governance processes?

Why should an individual provider or clinical commissioning group pay any attention to the system control total, so long as their own target is met?

Well, NHS England has tried to give some teeth to the system control totals by linking them to transformation funding, quality incentive payments, and the release of a “risk reserve” held by every clinical commissioning group.

And this will be complemented by the gradual introduction of “flexible” systems – where the targets for individual organisations could be changed so long as the health system’s target is met.

But while this feels like a step in the right direction, which should encourage greater collaboration, it also seems to be undermined by a continued insistence on national-level controls.

While the regional targets should incentivise cross-sector working between providers and commissioners within the STPs, the planning guidance also insists that both the commissioner and provider sector need to be in financial balance at a national level.

This brings extra complexity to an already devilishly complex arrangement, while the two requirements could easily come into conflict and stymie the local efforts.

The need for each sector to balance at a national level feels unnecessary, and seems to contradict the move to a whole-system approach. What does it matter if providers are £500m in deficit and CCGs £500m underspent, especially at a time when the system is undergoing serious repair?

Battleships

Imagine the Department of Health playing the board game, Battleships, against all the rising cost and demand pressures facing the NHS.

Its biggest boat on the board is the provider sector, which was sunk last year but has been newly repaired and set afloat thanks to the £1.8bn sustainability fund.

But in order for 2016-17 to be a successful year for the NHS, the sector will need to minimise the “hits” that are sure to come, and to stay above water.

Realistically, that means coming somewhere close to the planned £580m deficit come next April (after accounting for the full sustainability fund), which would help avoid another breach of the DH spending limit.

The Q1 performance data delivered the first minor hit, with the forecast deficit growing to about £650m, but the damage was limited compared to previous years.

Perhaps a more worrying hit was taken last week, when the new chief executive at Gloucestershire Hospitals Foundation Trust suddenly revealed a large unexpected deficit.

This is significant because Gloucestershire was one of the few acute trusts still in surplus, and therefore held up as an example for the rest.

Discounting sustainability funding, the trust had forecast to finish 2016-17 with a £5.3m surplus, but at the end of August had already amassed a deficit of £11m, which was £13.4m worse than planned.

Finance director Helen Simpson resigned prior to these numbers being revealed, but we will have to wait for more details of what’s gone on because the trust has declined to release its “high level review” of the situation until an unconfirmed date in the future.

Although the full picture is yet to be explained, the story should ring alarm bells about the pressure on finance teams to produce acceptable numbers – just look at the financial misreporting at Doncaster and Bassetlaw Hospitals Foundation Trust to understand how this can work.

As some of the experts have already warned, the financial incentives in 2016-17 are geared towards strong performance at the start of the year, so it wouldn’t be a great surprise if we get more “big reveals” like Gloucestershire over the next six months.

Just a few more “hits” and the provider sector ship can probably stay afloat, but many more and the DH has got a big, big problem.

How much money do we need?

Most commentators seem to agree the NHS is going to require more money, and economic projections from the Office for Budget Responsibility gave a broad idea of how much might be needed.

The projections suggest that UK health services would require a greater proportion of GDP to be spent on public healthcare, rising from 7.4 per cent currently to 8.8 per cent over the next 14 years.

Analysts said this equates to an annual increase in NHS funding of around 3.5 per cent – substantially greater than the current 1 per cent yearly increase – requiring an extra £2.7bn per year in real terms.

Prior to the projections being published, an article in The Economist magazine, which has since been referenced by Simon Stevens, suggested the NHS requires “higher taxes, new charges and more rationed services”.

But John Appleby, now chief economist at the Nuffield Trust, has dismissed the idea of introducing more charges for services, and said the long term projections showed the NHS “continues to be affordable through general taxation”.

Meanwhile, foreign secretary Boris Johnson on Sunday told the BBC he still believed there should be a substantial Brexit dividend for the NHS, once the UK has left. The £350m-a-week claim, later modified to £100m-a-week, has always been treated as a bit of a joke in NHS circles, but it’s one that BoJo is stuck with.

Asked by Andrew Marr about the prospect of a “really substantial” increase for the NHS by 2020, he said: “Well, yes, in the sense that clearly once we leave, and that isn’t possible until the final moment that of the change in our arrangements, and we take back control of the budgets we contribute to the EU.

“Once that happens, clearly it will be possible for the UK government to spend people’s money on our priorities. And the number one priority for most people is the NHS.”