More than a third of clinical commissioning groups that are underfunded according to the new NHS allocations formula will be even further behind their target share of funding by the end of 2015-16, HSJ analysis has found.

The changing funding picture

Source: NHS England, HSJ analysis

NHS England figures showing how funding will be distributed over the next two years reveal 33 of the 95 underfunded CCGs will be further below their target allocations at the end of 2015-16 than they are due to be at the end of 2014-15. Among them are six of the 24 groups expecting to finish the current financial year in the red (see table, below).

The chief clinical officer of one of those six said his CCG was “very disappointed” with its allocations. Sam Hullah, of North Hampshire CCG, said the total funding growth of 2.32 per cent that it will receive in 2014-15 was only a fraction above the minimum rise CCGs were being offered and “seemed to virtually ignore our position away from fair share”. 

Winners and losers under the new formula

The policy adopted by NHS England’s board last month ensures every CCG− even those ranked among the most overfunded − will receive increases of at least 2.14 per cent in 2014-15 and 1.7 per cent the following year. This reduced the amount of money available to bring underfunded CCGs closer to their fair share, and the biggest above-inflation increases were targeted at areas more than 5 per cent below target. This left a situation where some in-deficit CCGs which are less than 5 per cent below target will move further away from their fair share of funding over the coming two years.

NHS England strategic finance director Sam Higginson told HSJ it had “tried to come up with a formula that targeted resources on those CCGs under financial strain”, and “over two thirds” of in-deficit CCGs would be “doing better” under the agreed allocations policy.

He continued: “Yes, there is an issue with the fact that there are a small proportion who are experiencing financial strain and moving slightly further away from target, but I guess we would argue that we’re trying to do what we can to focus resources on those under financial pressure.”

The board concluded that the benefit of moving every CCG quickly towards its target allocation had to be balanced against the need to “maintain stability in various local health economies”, he added.

In the long term, the North of England stands to lose most under the new funding formula, despite the board’s decision to “weight” the formula according to a measure of unmet healthcare needs linked to deprivation.

Figures published by NHS England show that overall, northern CCGs are 4 per cent above target and London CCGs are 0.79 per cent above target. The Midlands and East and the South are both below target, and therefore stand to increase their total share of funding over the longer term.

In broad terms, this picture is unchanged compared with a previous version of the formula that was published for discussion in August 2013, which was not weighted for health inequalities (see graph, above).

Mr Higginson said there were several reasons why the adopted formula still implied a transfer of resources away from the North and London.

First, the measure of unmet need in the new formula − the under-75s standardised mortality ratio − was a “more micro measure” than disability-free life expectancy, which was used as a proxy for unmet need in past NHS allocations.

“The impact of that at a global level is you’re picking up more bits of deprivation in the South… and pockets of affluence in the North, which means that you see some movement in resources,” he said.  

Second, the new formula uses a different measure of population to the old primary care trust allocations formula, and is more sensitive to anticipated changes in population. NHS England’s figures show that population growth over the next two years is expected to be slowest in the North of England.

How CCG allocations work

CCGs’ “target allocations” are set using a complex formula to determine what share of the total commissioning budget should be going to each group. These targets are then compared with the funding each group is actually receiving to determine their “distance from target”.

NHS England then sets a “pace of change policy” to determine future allocations, which will typically target the highest percentage increases in funding at those CCGs furthest below target. The idea is to move CCGs towards their target allocations over a period of years to avoid dramatic shifts.