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Sharing the money

Sharing the money
23 February 2015

Shortly before Christmas, NHS England announced that more than half of the extra £2bn that has been freed up for health service spending in 2015-16 would go to underfunded clinical commissioning groups (CCGs) to bring them closer to their ‘fair share’ of allocations.

Shortly before Christmas, NHS England announced that more than half of the extra £2bn that has been freed up for health service spending in 2015-16 would go to underfunded clinical commissioning groups (CCGs) to bring them closer to their ‘fair share’ of allocations.

In total it announced that £1.1bn of the new money will go to CCG allocations next financial year [April 2015] after Chancellor George Osborne’s Autumn Statement confirmed that “£2bn of additional funding” would be made available “for the frontline NHS in England in 2015-16”.

NHS England said that the new allocations for CCGs should be made on the principles that no CCG should get less in cash terms than was previously agreed, that everyone should get their fair share of the £350m winter pressures funding that has been moved into their baseline budgets, and that all the remaining money should be used to bring underfunded CCGs closer to their target allocations.

In total £645m will go to underfunded CCGs in what NHS England describes as ‘challenged health economies’, where both the commissioner and provider are forecasting deficits this year.

According to NHS England this means that only 17 of England’s 211 CCGs will still be significantly underfunded at the end of 2015-16.

What has been clear since 2013 is that there is a very high correlation between CCGs that are in deficit and those that are underfunded, according to NHS England’s allocations formulae. However, tight finances have so far meant that NHS England has had little scope to move these CCGs closer to target without imposing cuts, in real terms, on other areas.

Announcing the new funding arrangement, Paul Baumann, NHS England’s chief financial officer (above) admitted that some CCGs had previously not received the funding per head that they need, “particularly where population has grown quickly and funding has remained relatively static”.

“These areas are now at risk of not being able to provide the services needed by their population, so we need to tackle these differences in funding as a matter of urgency,” he explained.

He said that changes to the funding formula would mean that some local health services would receive a settlement that is bigger than inflation to “start reducing the local underfunding which has arisen, whether this reflects deprivation, ageing or population growth”.

“Over the last year we have developed and refined the funding formulae to ensure that they accurately predict the needs of individual communities,” he said.

A particular challenge in this respect is the best way to reflect the needs of the most deprived communities, who may not currently be accessing the services they need at the right time. The new formula now includes a measure for “unmet need” which aims to address this.

He added: “This is a very testing period for the NHS and every pound we spend needs to be invested wisely to drive the best outcomes for the patients and communities we serve. We now have a funding formula that we think does this more accurately and more fairly.

However, despite the latest announcement Julie Wood, director of NHS Clinical Commissioners, says that CCGs confidence in achieving the 1% surplus next year was still decreasing.

“Commissioners have their own statutory responsibility to balance their budgets but they also need to be supported through a place-based approach to commissioning budgets and longer term funding settlements.

“We support the NHS Confederation’s call for a ten-year settlement on the NHS, which would give commissioners financial certainty to plan health services,” she said.

The Government’s apparent U-turn on its NHS spending plans seems to have been prompted after the publication of the pessimistic CCG and NHS England forecasts mid-way through last year which showed an aggregate overspend of £137m against the commissioning system’s £97.3bn spending limit for the year.

The definite threat that the commissioning system would end 2014-2015 in debt seems to have prompted the Government to act.

John Appleby, chief economist at The King’s Fund, said that CCGs were in the strange situation of acting “intermediary or holding account for NHS England”.

“If a CCG is in trouble then the local trust is in trouble. There is very much a symbiotic relationship between commissioners and providers in the NHS,” he explained.

“There is definitely a worse financial position for CCGs this year than last year…everything is up in terms of elective and non-elective procedures and CCGs have to pay for this out of a fixed budget.”

The King’s Fund Quarterly Monitoring Report, based on a survey of trust finance directors and CCG finance leads in September, showed that 30% of the CCG respondents reported their forecast position for 2014/15 would be worse than their outturn for 2013/14.

When asked how they felt about the financial state over the next year of their wider local health and care economy, 75% of CCG finance leads were fairly or very pessimistic.

With the £20 billion ‘Nicholson Challenge’ in its final year, views on the risk of achieving this value of productivity improvements were also highly pessimistic. The majority of CCG finance leads assessed the risk of failure to achieve the targets as fairly or very high.

Of the CCGs forecasting unplanned deficits for 2013-14, three are in the South of England, two in the North and one in London. The majority, however, are in the Midlands and East region, including four in the Staffordshire health economy.

The proportion and geographical spread of CCGs forecasting deficit are also now both significantly greater than was the case in recent years for their predecessor primary care trusts (PCTs).

Luton is one of the CCGs reporting an unplanned deficit. A spokeswoman said: “The deficit of money spent by us on health services for Luton compared to what we received in 2013/14 was £5.3m after the application of non-recurrent measures, and this deficit must be repaid in 2014/15. The underlying recurrent deficit is £9.3m.

“The original planned deficit was £6.9m, which includes the repayment of the 2013/14 £5.3m deficit. However, the recently revised forecast deficit [for 2014/15] is £14m, and the main reasons for this are the repayment of last year’s deficit; significant over-performance in acute care, including A&E activity, outpatients and critical care; mental health overspend, particularly on out of area placements; contribution to the Continuing Healthcare (CHC) risk pool; and failure to fully deliver all the CCG’s quality, innovation, productivity and preventions (QIPP) savings.”

While it has been apparent for some time now that providers are finding life very difficult, the commissioning system has always been more financially robust, but if commissioners cannot balance their books this presents a real threat to the overall financial viability of the NHS.

To date, deficits in the provider side have been offset by underspends on the commissioning side. It remains to be seen what happens over the coming year but, as some predict, this new situation could result in a tipping point for the NHS as we know it.

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