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The commissioner/provider split

In the flurry of activity that attended last week’s furore over 2016-17 contract disagreements, I feel Following the Money ended up giving too little space to the commissioner side of the argument. In the noble interest of impartiality, I’ll try to redress that balance in this week’s email.

The story so far, readers will recall, is that commissioners were given a hard deadline of last Friday (8 April) to issue (in many cases, somewhat belated) contract offers to all of their providers. This came after NHS Improvement found that few contracts had been signed by the start of 2016-17, some commissioners had still not made offers, and others had made offers that appeared unrealistic.

Providers had warned that these offers would leave trusts unable to hit the “control total” surplus/deficit targets they agreed in February, which are the lynchpin of NHS Improvement’s plan to bring the provider sector out of deficit this year.

However, as NHS Clinical Commissioners rightly pointed out later in the week, the contracting squeeze was not simply a case of clinical commissioning groups being intransigent. While CCGs have received average budget growth of 3.4 per cent for the current financial year, the system has built in numerous claims on that money that restrict their sphere of movement.

To name but a few: the increase in tariff prices, the expectation that mental health funding will increase in line with allocations growth, and the requirement to hold 1 per cent of funding uncommitted at the start of the year in a Treasury-controlled risk pool to offset potential provider overspends. When you tot up all the pre-commitments, NHSCC chief executive Julie Wood told HSJ, there was “no spare money in the system to close down contracts”.

The implication is that if the money doesn’t cover all of the system’s must-dos then something has to give – in which case there needs to be frank discussion about what it should be.

(Following the Money has heard anecdotally that a number of providers received improved offers after last week’s brouhaha. It will be interesting to see what has been sacrificed as a result.)

Ms Wood’s comments build on those made at the NHS England board meeting a fortnight ago, where non-executive director David Roberts warned that in 2016-17 the “stresses on the commissioner sector will be the highest they have ever been”. NHS England chief financial officer Paul Baumann highlighted requirements to help rebuild provider finances, to put in place tougher “risk management” (eg the Treasury-administered 1 per cent) and to fund a backlog of patients waiting for operations as pressures that mean commissioners face “no less” a challenge than providers in 2016-17.

It is entirely reasonable to assert that commissioners are squeezed too, and there is probably not enough money around to deliver everything the health service is expected to do this year.

But this is not the only driver of the contracting row. In the background, there is also the view held by some within the commissioning system that providers have not done enough in recent years to contain their costs. This view was examined in HSJ editor Alastair McLellan’s recent “subtextual analysis” of Simon Stevens’ latest board report. The NHS England chief executive praised the commissioning system at the last board meeting for funding demand growth and a range of service improvements last year with “less than £500m extra real terms purchasing power”, while also delivering a £500m underspend to help offset spiralling provider deficits.

Given Following the Money’s already-stated interest in impartiality, it’s worth noting that providers might argue their deficit spending in 2015-16 was also part of what was needed to fund demand growth and service improvements.

However, the best counterargument to those who would paint 2015-16 as a story of profligate trusts is that advanced by Mr Stevens’ predecessor, Sir David Nicholson, in a lecture to NHS providers last November.

“For those of you who believe this is a provider issue, you are wrong,” Sir David said. “This is an issue for the NHS overall. I am partly responsible for some of this.”

He explained that one of the lessons of the NHS’s 2005-06 financial crisis was “that we could not find one example of a commissioner who turned round their financial position during that period without being given substantially larger amounts of money”.

He continued: “We made the judgement that, however we constructed the system after then, we would ensure that the financial pressure was not evenly distributed between commissioning and provision, but was organised so that providers would take the bulk of that responsibility. That is how we did the tariff, and all of the rest. We always had to make a judgement about what was possible, and one of the dangers that we have here is people asking you to do things that they know – and you know – you cannot do.”