Reshaping NHS funding flows

13 June 2018


In recent months the topic of NHS finances has rarely been off the news. The NHS is under severe financial pressure and as a result is struggling to meet expected service standards. Expectations are high as the prime minister has indicated that the government is considering a new long-term plan and multi-year funding settlement for the NHS.

A recent report by the Institute for Fiscal Studies and Health Foundation stated that NHS funding needs to increase on average by 3.3% per year for 15 years to maintain current service levels and by at least 4% if services are to be improved. This week the Nuffield Trust, King’s Fund and NHS Providers have written an open letter to the prime minister reiterating that an annual real terms increase of 4% per year is the minimum needed to meet future demand and deliver NHS England’s Five-year forward view.

But additional NHS funding should not be looked at in isolation. We also need to change the way the money moves around the NHS. Over the last nine months the HFMA has worked in conjunction with PwC to review the current financial flows in the NHS and how they can be reformed.

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As part of the research we asked HFMA members for their views. The most striking statistic is that 76% of respondents believe that the current approach to funding is not fit for purpose. In some ways this is not surprising. The current arrangements were put in place about 15 years ago – the NHS was in a different place then and the overriding need was to reduce waiting times. Since then additional funding mechanisms have been layered on top to incentivise particular activities or limit expenditure and it has become incredibly complex.

The main concern is that the way the money currently flows round the NHS does not easily enable new ways of working. The NHS is trying to move to a different model of healthcare that is more joined-up across acute, community, primary and social care, that focuses on prevention and, where possible, enables people to receive treatment in the community.

The PwC/HFMA report, Making money work in the health and care system, makes a series of short and long term recommendations to drive the new ways of working. The short-term recommendations cover redesigning the capital funding system, restructuring internal NHS debt, the expansion of personal health budgets and faster progress on the use of system wide control totals. The longer term recommendations focus on the reform of the payment system to simplify the arrangements and reward outcomes rather than volume of activity, and the alignment of local health, social care and public health budgets.

 The government’s promised long-term settlement is a pivotal moment for the NHS. But it is not the only decision that needs to be right. We have a duty to ensure that all NHS funding is used well. We also need to maximise the value we can get out of any new money and that means having funding mechanisms and payment systems that are aligned with the new ways we want to work – as systems delivering more integrated care and supporting more patients in the community.

Mark Knight, chief executive, Healthcare Financial Management Association (HFMA)