• NHS England has been unable to create a large enough risk reserve to offset potential overspends of local organisations in 2017-18
  • It will hold back £120m that would normally have been paid to CCGs
  • Fund relates to reductions in the nationally set prices commissioners pay for generic drugs

“Urgent steps” have been taken to hold back funding intended for clinical commissioning groups, to help the Department of Health deliver financial balance this year.

In a letter seen by HSJ, NHS England said it has not been able to create a large enough risk reserve to offset potential overspends in 2017-18, so will hold back a further £120m that would normally have been paid to CCGs.

Paul Baumann

Paul Baumann said the decision ‘has not been taken lightly’

It said the intention is to release the funds later this year, or in subsequent years, depending on the overall position of the sector and the performance of individual CCGs.

The £120m relates to reductions in the nationally set prices commissioners pay for generic drugs, which NHS England said would normally accrue to CCGs as a “windfall benefit”.

The letter, from chief financial officer Paul Baumann, said: “We fully recognise the challenges CCGs are facing in 2017-18, and we want to assure you that the decision to utilise a windfall benefit which would have made these challenges easier to manage has not been taken lightly.

“However, ignoring the need to secure the required commissioner contribution to the system risk reserve in a year when this may well again prove vital is simply not an option.”

NHS England had hoped to create a £830m commissioner risk reserve for 2017-18, with £200m of this expected to be released via reduced drawdown of surpluses from previous years. But increased pressure on CCG finances has meant £400m of previous years’ surpluses have been used, compared to £280m last year, so extra headroom is needed.

A risk reserve was adopted by NHS England last year, when an £800m fund was created by withholding 1 per cent of CCG budgets, which helped the DH report a small underspend despite significant overspending by local providers and commissioners.

Mr Baumann added: “The necessity of a system reserve at this level was clearly demonstrated in 2016-17, and it is already evident that risks in both the commissioner and provider sectors are no less challenging this year.

“It is therefore vital that we take urgent steps to restore the reserve to the specified level in the most expedient manner.”

He said an alternative approach of taking the required funding from planned investment in areas such as transformation and general practice was considered, but that this would “not have been consistent with our commitment to the goals of the Five Year Forward View”.

The reductions in the nationally agreed drug prices were a result of a deal struck between national leaders and the pharmaceuticals industry, meaning higher than expected profits would trigger lower prices.

An NHS England spokesman said: “Given the financial pressures faced across the NHS, this one-off repayment of the higher than expected profits made by pharmacy businesses in previous years is going to be held in reserve. This is necessary because there remains a risk that CCGs’ and trusts’ final plans, including the additional savings from the capped expenditure process, will not balance in 2017-18.”

NHS England 'no option' but to hold back £120m from CCGs