• CEO of NHS Improvement says trusts will have to make savings higher than 4.3 per cent in 2018-19
  • Ian Dalton says national leaders will have to consider writing off some of the debts amassed by NHS trusts
  • The “significant delta” between tariff prices and actual costs will need to be addressed, including the marginal rate for emergency care

Ian Dalton says NHS providers will need to achieve higher levels of productivity than those achieved last year, despite the extra funding provided by the government.

In an interview with HSJ, the chief executive of NHS Improvement said the implied productivity rate of 1.2 per cent achieved by trusts in 2017-18 was already “very productive” compared to the wider economy.

But he added: “You could say that we could continue with the current levels of productivity and that might be enough, but I would not take that view.”

Mr Dalton said further savings opportunities could be developed through programmes such as Getting it Right First Time programme, transformation projects, and further cuts to agency, procurement, back office and corporate costs. He said this would give the NHS additional financial headroom above the 3.4 per cent real terms annual uplift announced by the government in June.

NHSI has begun publishing an implied productivity rate within its quarterly reports. Last year, trusts’ total costs grew by 0.5 per cent in real terms, while cost weighted activity (elective and outpatient activity) grew by 1.7 per cent. The productivity rate is the difference between these figures.

Mr Dalton also said:

  • National leaders will have to consider writing off some of the debts amassed by NHS trusts over the last three years;
  • The current “control total” system will be replaced with a new financial architecture from April 2019;
  • The current fines and sanctions regime, including the marginal rate for emergency care, is likely to be reviewed;
  • The “significant delta” between the price of the tariff and the actual cost of providing care will need to be addressed.

As reported by HSJ last month, a steep increase in emergency bailouts means NHS trusts’ total borrowing from the Department of Health and Social Care has overtaken their private finance initiative liabilities.

According to year end accounts for 2017-18, NHS providers owed the DHSC more than £11bn, up from £2.9bn at the end of 2014-15.

Asked about a potential debt write off, Mr Dalton said: “I think we have to have a serious look at that… the realistic prospect of that being repaid seems deeply unlikely, so I think we’ll absolutely have to look at that as part of the overall financial architecture we have to consider.”

On control totals and the future of provider sustainability fund, Mr Dalton said: “Control totals have run their course and I think they’ve had some adverse side effects which we need to deal with going forward.

“I’d particularly highlight that the control total regime focuses management attention at a particular income and expenditure number and encourages the use of non-recurrent asset disposals to get to that number as opposed to the normal, and what we’ll need in the future, focus on the underlying financial sustainability of the organisation.

“Of course, in year [provider plans have to] add up to the right number. But I think at the very least we need a more intelligent approach to control totals than we’ve had before.

“We also need to have a look at the PSF as well. Clearly, it’s positive that it’s provider ringfenced money but the distributional effects of that have again not necessarily been equal across the system.”

Meanwhile, despite a move towards greater integration and accountable care models, Mr Dalton said it would be “too simplistic to say there’ll be an end to the purchase provider split, given that I believe we’ll need to continue with strong providers”.

In terms of provider finances in the current financial year, Mr Dalton said NHSI is still “in discussions to improve the plan with our NHS England colleagues as we speak”.

But he said the average cost improvement requirement, which is different to an implied productivity rate, across the trust sector “maybe a shade higher” than the 4.3 per cent targeted in 2017-18. Performance against the 4.3 per cent target last year was 3.7 per cent.

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