• At least 50 per cent of “financial recovery fund” will be linked to system level performance, not organisational
  • Changes to phasing of central funding payments, along with a new taper system
  • Full coverage of the NHS operational planning guidance

Half of the centrally held financial support available to NHS providers will be tied to the performance of their wider system, in new rules outlined by regulators.

In previous years, a trust’s receipt of central funding has typically been fully dependent on its own financial performance. However, last year, some well-developed health economies voluntarily linked a small amount of central funding to system level performance.

The new rules — in operational planning guidance for 2020-21 — will apply to the “financial recovery fund”, which is available to organisations in deficit, as well as a smaller fund available to trusts able to breakeven. The FRF is worth £1bn this year but will increase to at least £2bn in 2020-21. The final amount is still to be determined as it depends on the outturn this year.

The measures from NHS England and NHS Improvement are aimed to encourage increased collaboration between different organisations within each sustainability and transformation partnership and integrated care system.

It could prove difficult in some areas, however, because one organisation could lose access to central funding on the basis of a neighbour’s poor performance.

The planning guidance document, published today, said: “Systems may agree to link a higher proportion of their FRF allocations to system performance if they wish. In exceptional circumstances we will also consider, with the agreement of the organisations and systems involved, and the relevant regional team, requests to change the composition of the systems to which FRF payments are linked.”

The document did not outline plans to convert around £10bn of trust debt into a form of investment which does not have to be repaid, as revealed yesterday by HSJ. But Julian Kelly, chief finance officer at NHSE/I, confirmed to a public board meeting that discussions on this are being held with government officials.

The document also outlines the following measures:

  • FRF payments (which are linked to financial targets being met) will now be made early within the quarter to which they relate, rather than quarter-end, to help improve cash flow. In another change to previous years, entitlement to FRF will depend on full year performance. Where a trust has received a payment and the full year target has subsequently been missed, the payment will be converted into public dividend capital — a form of investment which does not have to be repaid, but attracts and annual equity charge. For clinical commissioning groups, the money could be recouped by adjusting allocations.
  • In another policy change, FRF payments will be tapered so a proportion can still be earned if targets are not met. It will apply to the system and the organisational element. Organisations and systems will each lose £1 of FRF from the respective element of their FRF allocations (up to its total value) for every £1 of underperformance.
  • Cumulative deficits recorded against CCGs — which cannot feasibly be repaid — will be subject to large write offs, typically of around 50 per cent. This will involve CCGs with a cumulative overspend which is worth more than 4 per cent of allocation. The document added: “The CCG will agree a repayment profile with NHS England and NHS Improvement showing the element of the cumulative debt that will be repaid, which will take account of historic funding levels — typically this will be 50 per cent of the cumulative debt but will be assessed case by case… the CCG must address the underlying issues that caused the overspends such that it delivers in-year financial balance, and the agreed repayment profile achieved.” 
  • Some capital and revenue transformation funding will be allocated to systems to agree how it is to be used to deliver national objectives. Regulators said they would also seek to increase the proportion of national funding that goes through this route in future years. However, continued access to this money will depend on delivering revenue targets.
  • System leaders will continue to be able to agree with regional directors net neutral changes in individual organisational financial trajectories in the planning process and during the year.

The role of STP/ICS system leaders has been strengthened under the new guidance, with a greater role in managing performance and finances. The document said: “System leaders [are to] agree individual commissioner and provider plans to ensure they are consistent with the goals, assumptions and financial trajectories in [2020/21 operational] system plans that have been agreed with NHS England and NHS Improvement.”

Leaders will also be taking a role, along with NHSE/I regional teams, in deciding whether organisations that missed their individual control totals should be given any of the financial recovery fund that the system has a whole might have won through meeting its system control total.

The guidance says system leaders must have “sufficient capacity” to take on this and other new roles — although it did not say how this translated to days a week, or what sort of job shares, where STP/ICS leaders combine the role with managing a trust CCGs, were viable. 

CCGs have also been told their minimum contributions to the Better Care Fund “will grow by an average of 5.3 per cent in cash terms”. There will also be a review of “the underpinning financial architecture for specialised commissioning” to encourage STPs/ICS to take on some specialist services in the next financial year.

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