All change: big moves in the NHS’ planning guidance

14 February 2020

by David Morris Public Sector Health Leader

Email +44 (0)7841 784 180

The annual guidance released at the end of last month reflects an increased focus on Integrated Care System (ICS) development and the two core ICS roles of ‘system transformation’ and the ‘collective management of system-wide performance’. It incorporates significant changes in governance and operating arrangements. Our blog picks up the key system elements.

Further development of the system architecture

In regard to the collective management of performance, the implementation and maturing of some consistent system-wide operating arrangements will likely lead to an increasing risk of overlap between system self-regulation through ICS activities and the current role of the regulators. It is not yet clear what the local regulator’s roles will evolve into, but there is a medium-term challenge to avoid potential duplication.

Changes to the Provider Sustainability Fund (PSF) and the Financial Recovery Fund (FRF)

The PSF is being removed and the FRF significantly changed. The FRF will now act as a ‘balancing figure’ between planned deficits and break-even, and should enable the NHS to deliver its Long Term Plan (LTP) promise to return the provider sector to balance in 2020/21. The commitment to payments being phased equally and transacted early during the related quarter, should lessen financial incentives for bullish in-year reporting allowing earlier intervention where plans go off track.

Interestingly, achievement of FRF funding will be half driven by the organisation’s own performance, and half by the broader system’s ICS aggregate control total management. This creates a challenge for boards. To take assurance over their own organisation’s budget, they will need some minimum assurances from the broader system around the system financial baseline (see our previous blog post on this subject) together with mechanisms for internal monitoring and accountability within the ICS, including a framework for shared decision making to agree net neutral changes.

Although this is to be welcomed, it is far from a perfect solution. FRF being set at the level of planned deficits, combined with bonuses for overachievement through the Breakeven and Surplus Trust ‘incentive’ scheme, should lead to very prudent planning. However, regulators will need to be strong in their challenge of assumptions made in the plans they receive in early March. Preferably, system stakeholders should operate sustainably on the basis of ‘core’ funding, rather than relying on top ups from the centre and the short-term incentives these create.

 Forgiving historical CCG deficits

In our experience, we have found that CCGs with significant deficits are having to develop very challenging and, arguably unrealistic, QIPP programmes often amounting to over 5% of their allocations. Add to this the burden of historical debt repayments and the prospects of financial recovery are minimal. It would also significantly reduce funding to support system transformation and slow the pace of change.

Whilst from 2020/21 regulators write-off of historic debt is welcomed, it is subject to certain conditions, and, in our view, not all the debt will be written off. CCGs may need to build some repayment of up to 1% per annum over 4 years into their plans, as well as addressing the underlying issues that caused the overspends on order that financial balance and the agreed repayment profile is achieved.

This remains a very significant challenge and there is a real risk of debt re-instatement if CCGs continue to overspend in the following two years. This will also impact on their ability to achieve control totals and qualify for FRF, and therefore will have a wider negative impact on other system partners.

It is surprising that a similar approach to historical borrowing has not been taken with providers, despite indications that it is under consideration. This was one of the suggestions we made in Making Money Work in the Health and Care System. With £14bn provider debt at the end of the last financial year, there is little prospect of repayment and skews financial performance making it harder for them to get back to financial balance.

by David Morris Public Sector Health Leader

Email +44 (0)7841 784 180