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

Turning tide

NHS policy over the last three decades has been marked by series of inconclusive battles over the system used to pay providers for their work.

Twenty-seven years on from the NHS and Community Care Act 1990 – which introduced the purchaser/provider split – the outcome of this ongoing war looks as uncertain as ever.

The Health and Social Care Act 2012 seemed to be a decisive victory for a competitive, activity driven system, but just five years later the tide appears to be turning again.

NHS England has recently cleared the path for hospitals to come off the national payment tariff, and analysis by HSJ suggests a significant shift is under way.

In some cases, the move involves a maximum cap on the annual value of the contract, while in others it seems to mean marginal rates being applied above a certain activity level.

For others, the shift may just formalise an existing arrangement, in which a payment by results contract has been monitored throughout the year until a deal is struck between finance directors in the final months.

Either way, it seems clear that more providers are now willing to contemplate a joined up approach, rather than maxing out their activity to hit their own growth plan.


There will be endless debate over the pros and cons of switching to block contracts, and it remains to be seen how far this shift will reach and how long it will last.

But it’s clear the challenges facing the NHS are quite different from those of the early 2000s, when the badly named “payment by results” tariff was introduced.

This was a time when the NHS was receiving annual funding increases of around 7 per cent, and shorter waiting times were the undoubted priority.

Annual growth is now running at just 1 per cent and containing costs is the overriding concern, while national leaders prefer to compare waiting times with past performance, rather than a standard that would require continued improvement.

Within the NHS at least, there does appear to be a consensus that a more collaborative approach is the best way to tackle the funding crisis.

The one near certainty is that NHS organisations will still be operating with a mishmash of different payment systems in five years’ time due to the continuing difficulties of bringing through new legislation.

At the risk of sounding like Simon Stevens: perhaps flexibility is OK, given the priorities and challenges in Liverpool, for example, will be different to those in Cornwall, and will change over time.

Private angst

The private sector is not pleased about this – block contracts effectively freeze them out by making commissioners unable to buy services from alternative providers – and they may well be right to warn of growing waiting lists for elective care.

They also point to communications issued by national leaders in March 2016, which said block contracts should not generally be used for elective treatment.

But things have moved on quite a bit since then with NHS England now offering tacit approval.

There also seems to be clear encouragement from the NHS finance community.

The last two winners of the Healthcare Financial Management Association’s finance director of the year award have been from Bolton Clinical Commissioning Group and Bolton Foundation Trust, which agreed a block contract for 2016-17.

Costing concern

One problem with block contracts that will need greater attention will be the accuracy of costing data, which is important for helping trusts and commissioners understand where efficiencies can be made.

There have been serious concerns over costing ever since the tariff was introduced, and a move away from PbR will mean there is even less incentive for trusts to collect accurate data.

NHS Improvement says it recognises the importance of accurate costing, and is still intending to introduce patient level information and costing systems to replace the discredited reference costs collection.

But as Professor Andrew Street argues, simply telling trusts to collect PLICS is not going to make a difference. There will need to be powerful new incentives to persuade hospitals it is worth their time and effort, especially in the absence of a tariff based contract, which in theory demands greater diligence in terms of coding and costs.

Frontloading the £8bn

In the short term at least, last week’s election result is likely to be good news for the NHS.

The Conservatives appear to be signalling an end to austerity, which could mean additional headline funding and possibly an end to public sector pay restraint.

The manifesto promised an extra £8bn of revenue cash by the end of the parliament – effectively just more of the same – along with a significant capital injection in the autumn.

The size of that capital injection and the extent to which the £8bn is frontloaded will be key questions for the government to answer, and given the difficulties in releasing cost savings without investment in transformation and buildings, the NHS should push hard on both.

In the longer term, the performance of the UK economy will be the all-important factor, and it’s far from clear what the election means on that front.

Given that none of the main parties’ funding pledges came close to bridging the “gap” projected by the Office of Budget Responsibility, it’s fair to say finance is going to remain at the top of the agenda for a long while yet.

Underlying intentions

Sally Gainsbury of the Nuffield Trust asks an interesting question about the distribution of the £1.8bn sustainability and transformation fund, which appears to have delivered the greatest benefit to organisations that need it least.

She asks whether there is an underlying intention to help “cash rich” trusts take over hospitals that are “drowning in debt”, and says that if that is the case we should be told.