NHS England’s plan to ask CCGs to withhold funds from hospital providers in order to boost their own surpluses has extremely worrying ramifications, writes Sally Gainsbury

The Department of Health has a problem.

In the heated months of a spending review which will decide its funding envelope for the next three years and lock down its baseline for potentially many more after that, NHS hospitals are overspending at a rate that seems certain to breach the department’s spending limits.

The timing couldn’t be worse: just when the Department is asking the Treasury to believe in its business plans, costings and savings forecasts, these projected deficits at over three quarters of hospital trusts up and down the country are a palpable illustration that something has gone badly wrong.

It is perhaps therefore not surprising that the department’s biggest spending arm is exploring somewhat desperate measures.

Worrying development

A draft letter circulated to NHS commissioners in some parts of the country earlier this month reveals an NHS England plan to counterbalance at least part of the expected £2bn worth of hospital deficits at the end of this financial year by boosting its own planned surplus.

There are generally only two ways NHS England can boost its surplus: not spending, or flogging off assets. In this iteration, NHS England has opted for the former.

‘As the purpose of commissioners is not to make or hoard money, where income was withheld it was generally passed “back” to the provider’

The letter – which has not yet been, and perhaps never will be, circulated officially – instructs NHS England’s local commissioning groups (CCGs) to withhold funds from hospital providers. But it is the specific way it commands them to do this which is so concerning.

Over recent years, NHS commissioners have been able to withhold funds from hospital providers if national quality standards are breached. The size of these funds has risen steeply in recent years as hospitals have missed more targets and commissioners have become more ardent in enforcing penalties. Total penalties for this financial year are set to be in the region of £240m.

As the purpose of commissioners is not to make or hoard money, but rather to spend it on the provision of good value healthcare, where income was withheld, it was, until now, generally been passed “back” to the provider.

Totemic issues

Commissioners were then able to require that such “returned” funds were spent on addressing the cause of the breach in standards – in opening additional capacity, for example. In other words, commissioners used the system as a way to effectively ring-fence some of their local provider’s income to ensure it was spent directly on improving their performance against missed standards.

These national standards address totemic issues including cancer treatment, ambulance and A&E waiting times as well as hospital-acquired infections: the stuff of newspaper headlines and questions in the House of Commons. So there is some logic in giving commissioners the ability to leverage a bit of clout.

What a draft NHS England letter now commands, however, is that from 1 October this year, none of the resulting withheld cash should be passed back to providers and should be used instead to boost the planned CCG surplus for this financial year.

’The cash will be used to boost the CCG’s end of year surplus at the expense of the provider, and – potentially – the patients’

It is worth thinking about real world examples. A hospital breaches a national standard – let’s say the 62 day wait for cancer treatment from urgent GP referral. For every patient that breaches, the hospital is fined £1,000. Until now, the hospital will have eventually received that money back, but “with a steer towards applying the resource to resolve the cause of the penalty” (as NHS England put it) – perhaps by running additional diagnostic clinics.

Now, however, CCGs have been instructed, very clearly, to ensure the withheld income “flows directly through to the bottom line, resulting in a reduction in expenditure for each organisation”. In other words, the cash will be used to boost the CCG’s end of year surplus at the expense of the provider, and – potentially – the patients who will wait even longer for their care. As the letter says: “there should be no further reinvestment of financial sanctions [funds] with providers or in any other way”.

Threat of action

It is doubtless possible to imagine a money-saving plan that would more directly impact the quality of care in hospitals and tie financial failure to clinical decline, but one does not spring immediately to mind. If a provider is struggling to meet national standards in a given area, it seems perverse to starve that area of even more funds.

Perhaps NHS England’s hope is that the move – coupled with the threat of action from regulators – will force hospitals to reprioritise spending from elsewhere in their organisation to improve performance on standards. More conspiratorial minds smell a plot to force dozens of foundation trusts into regulatory failure and the eventual stripping of their independence.

’The fact that the letter has not (yet) been issued officially suggests there is some degree of uncertainty over the prudence and economics of the measure’

The other risk for NHS England is that the withheld cash will not be additional; that in a substantial number of cases, withholding cash from providers will result in larger provider deficits, cancelling out, pound for pound, the benefit of a boosted NHS England surplus. That will depend on the extent to which penalty levies were previously being used to fund 100 per cent additional costs and capacity as opposed to contribute to the core costs of each service.

Watching for dangers

And then there are the more intangible impacts this could have – undermining the local collaboration between providers and commissioners so badly needed to implement the Five Year Forward View and find £22bm worth of efficiencies by 2021.

The fact that the letter has not (yet) been issued officially suggests there is some degree of uncertainty over the prudence and economics of the measure – the draft seen by the Nuffield Trust indicates NHS England was hoping it would be a “tri-partite” affair, signed off also by the Trust Development Agency and Monitor – now merged as the single regulator NHS Improvement.

However, with the pressure now on CCGs to overachieve their surplus targets and this idea on the loose, people concerned for the NHS would be well advised to keep watching for the dangers it raises.

Sally Gainsbury is senior policy analyst at Nuffield Trust. This story is also available on the trust’s website.