HSJ’s email briefing on NHS finances, savings and efforts to get the health service back in the black.

The 18 week balancing act

The recent downgrading of the elective care target resulted in plenty of criticism for the Department of Health and NHS England, which largely overshadowed the more positive messages in the Next Steps document.

The de-prioritisation of 18 weeks seems certain to result in larger waiting lists, and growing backlogs of patients waiting more than 18 weeks for an operation.

We could even get close to the “do nothing” scenario calculated by regulators, which would see the waiting list grow from 4 million to 5.5 million by 2019, and the backlog doubling to 800,000.

But while taking a hit in terms of the negative media coverage, national leaders have will have kept their eyes firmly on the financial benefits.

Because in many areas, maintaining or improving elective performance would require commissioners to pay for extra private hospital capacity, putting added pressure on the NHS bottom line. Although spending on NHS trusts also scores against CCG expenditure, it at least creates an equivalent income stream and profit margin.

No doubt private providers will be jumping up and down with their hands in the air, eager to persuade clinical commissioning groups to use their services and get waiting lists under control.

But I can well imagine national bodies being torn between controlling the waiting list and holding out for the financial benefits. They will certainly want to avoid a repeat of what happened in 2015-16, when almost half of the £2bn funding increase given to the health service was spent on non-NHS providers (NHS Improvement has hinted at a similar pattern in 2016-17).

However, this is not to say that CCGs can sit back and reap the financial benefits by simply letting performance slide.

Waiting list expert Rob Findlay argues persuasively that this would be a false economy, as bigger lists are difficult and expensive to manage, while more patients forget their appointments, or find their clinical conditions get worse and more expensive to treat.

And commissioners will also need to be wary of limiting the elective activity carried out by their NHS provider, because many trusts are set up to maximise their electives and have all the relevant fixed costs in place to do so.

So, if their elective activity does not keep pace with their costs (often due to emergency pressures) this puts huge pressure on their bottom line. The shared financial envelope obviously means this is a problem for the whole health economy, not just the provider.

In other words then, make sure the NHS hospital gets the activity it needs to cover its fixed costs, but avoid paying for private capacity even if it means allowing the waiting list to grow (within reason).

Hampering the real ambition

This balancing act means the payment by results tariff is likely to stick around for some time yet, because it remains the most effective way for trusts to simultaneously draw in enough income to cover their costs, while taking the necessary chunks out of the waiting list to avoid the false economy scenarios.

And it’s also why health systems seeking to split ‘hot’ emergency and urgent care from ‘cold’ elective care will be offered support from national leaders. Because this is not only geared at improving accident and emergency performance, it can also help prevent NHS elective plans being constantly kiboshed by the front door pressures.

The danger though, is that both these things (continued reliance on the tariff and the renewed focus on hospital development) potentially cut across and hamper the NHS’s more fundamental ambitions - to move more care out of hospital and to switch to accountable care models where the financial incentives for increased activity are removed.