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Pie in the sky

Pie in the sky


Following the announcement of financial allocations for clinical commissioning groups, who will be getting a decent slice?

We now know that, during the week commencing 16 December, NHS England notified clinical commissioning groups (CCGs) of their financial allocations for both 2014-15 and 2015-16, as well as “broad assumptions” for three further years. So what can we already reasonably anticipate on the three key financial questions:

 - The size of the overall CCG financial ‘pie’ for 2014-15.

 - How the ‘pie’ will be divided between individual CCGs.

 - The likely ‘hunger’ of those hoping to feed upon it in the next financial year.

CCG funding in 2014-15: how big a pie?

The headline financial parameters – a 4.0% efficiency requirement, a 2.1% allowance for inflation and average price deflation of 1.9% - were published by NHS England in early November. In themselves they are unsurprising. Indeed, to anyone familiar with the ‘Nicholson challenge’ (“the problem is £20 billion, the answer is QIPP”) over the last three years, they may appear depressingly familiar. The 4.0% efficiency expectation is identical with the current year; inflation is slightly lower.

There are, however, a number of nuances.

Firstly, NHS England has indicated that the commissioning for quality and innovation (CQUIN) incentive scheme is being ‘refreshed’, with the renewed scheme and associated guidance due in December. The nature of this ‘refreshment’ is not yet fully clear, but NHS England’s discussion paper issued last July suggested the current (2.5%) value of the scheme would be retained for 2014-15, though possibly within a more rigorous framework of incentives and sanctions. It seems likely that local discretion will be trimmed, with sanctions for failing to meet national performance standards becoming mandatory.

Secondly, there’s continuing uncertainty around how much of the NHS commissioning resource will be retained by NHS England for specialised commissioning, never reaching CCGs. Certainly 2013-14 has seen many CCG leaders disappointed at the amount of funding controlled centrally by NHS England, with implications for the balance of power when negotiating with local providers.

Then there is the Integration Transformation Fund. In June the government announced its intent to pool a total of £3.8 billion to support integrated health and social care services, the lion’s share of which is to come from CCG commissioning budgets. In 2014-15 the expected value of this pooled fund is £1.1 billion. What is not yet known is how much of this pooled fund will be available to support NHS services. Published guidance for 2014-15 stresses the need for “robust plans… coherent long term strategic plans, underpinned by medium-term detailed operational plans… developed applying consistent ground rules as articulated in national policy, eg. standard national contract and payment by results…commissioner and provider plans should have a shared view of the future shape of services.”

In the language of sports commentators, it’s a big ask. Templates issued by NHS England and the Local Government Association require, for instance, detail of the acute sector implications, “clearly identifying where any NHS savings will be realised and the risk of those savings not being realised”, and “developed with the relevant NHS providers.”

Tricky. The political sensitivity of disinvestment from acute hospitals, especially in a pre-election period, goes without saying. Moreover, in some areas effective partnership working remains a dream. Yet pooled funds are being created, and the seven conditions for their use specified in the 2013 Spending Review are plain enough. So one of the big unknowns for 2014-15 must be: if agreement proves hard to engineer, what happens to the money?

Government, it’s worth remembering, has grown used to NHS commissioners returning unspent funds to the Treasury each year. In 2012-13 primary care trusts and strategic health authorities between them returned a total of £1.51 billion. Comparable underspends of £1.58 billion and £1.37 billion in the two previous years show this to be no flash in the pan. Chancellor George Osborne is no doubt grateful. Some see in the 2013-14 CCG financial regime – which forces CCGs to ring fence 2.0% of budgets for (NHS England-approved) non-recurrent spending, maintain a 0.5% contingency reserve and plan for a 1.0% “surplus” – devices designed to achieve the same broad level of underspend this year.

So a further big unknown is: whatever the size of the 2014-15 CCG budget, how free will the CCG sector actually be to spend it?

How will the pie be divided up?

Meanwhile, recent weeks have seen much speculation about a new ‘fair shares’ formula that revises the target level of funding for each CCG. In December the NHS England board is expected to approve this new formula, designed around advice from an independent panel, for implementation from 2014-15. 

The new formula is understood to give more weighting to population age, and less to social deprivation. London and the north of England are potential losers of resource, with the south, midlands and east of England due to gain. An adjustment for an area’s unmet need, where low life expectancy can be linked to poor access to care, is also expected.

Politicians have been quick to respond. Yet the real impact of any change in the formula is likely to be slow. Target funding is not actual funding; one needs to look not only at a CCG’s distance from target, but also at the pace of change allowed by NHS England. This is likely to be slow. Paul Baumann, NHS England’s finance director, recently advised the Commons health select committee that, in the absence of any real funding growth, the transition from old to new formula would be “measured”. Distributing new money is easy, but it takes a brave administration to reduce an area’s resources, knowing the political pain that will follow. 

Yet the impact on CCGs due to receive more money, yet denied it in the short term, is real enough. Baumann also told the committee NHS England considers 37 CCGs at high risk of running a deficit; 31 of them currently get materially less funding than under the new formula.

The CCG financial pie and a hungry NHS

Managing such deficits is only one aspect of the financial pressure likely to fall on CCGs in 2014-15. We may project the resources available in 2014-15 for CCG commissioning plans, but estimating the claims on those resources is more challenging. The impact of sustained provider cost improvement programmes is telling, and in 2014-15, where a Trust is being reimbursed at less than full tariff, it will also be “engaged” in reinvestment decisions. Nationally, this includes the marginal rate (30%) emergency tariff and non-payment for emergency readmissions, both of which have eased the financial exposure of commissioners.

There is also a mounting burden of expectations, driven by public crises and system failures, falling upon the NHS. From embarrassing queues in A&E to the catastrophe of Mid-Stafford, commissioners will be expected to generate improvement: in outcomes, in access, in quality and in patient safety. Achieving this within existing resources will stretch CCG talent to the limits.

Integration, it is hoped, will offer solutions. But pooled budgets do not of themselves offer new money, and the hope that financial savings and quality gains will magically emerge from identifying waste and duplication appears optimistic in the extreme. Efficiency may well improve, but the transition process may prove painful for both individuals and organisations, and yet frustratingly slow for NHS England and its political masters. 


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