We have been misled over NHS funding

Forgive me if I’m being a little slow. Yes, I know April 2013 is fast approaching, but I’m still struggling to understand the 2013-14 NHS financial settlement.

‘The emphasis throughout Everyone Counts appears to translate into commissioners sitting on large piles of money’

On the face of it, the total funding level is plain enough. NHS commissioners in England get 2.6 per cent more funding from April. That’s not just clinical commissioning groups: there’s the NHS Commissioning Board itself, of course, and there’s also a wedge intended for local authorities to pay for joint health and social care activities. Together these add up to £91 billion.

The board says this adds up to a real-terms increase of 0.6 per cent. That’s a guess. Nobody yet knows what the impact of inflation will be in 2013-14. But it’s not an unreasonable guess. The consumer price index − the government’s preferred measure of UK price inflation − stood at 2.7 per cent in December, but salaries and wages account for most NHS provider funding and NHS pay continues to be suppressed, dragging down the total inflation burden.

Leaving aside the fairness of funding distribution, the core message is that more government money is going into the NHS in 2013-14. It may even be just enough to constitute real-terms growth.

What is also pretty plain is that NHS providers will continue to be squeezed mercilessly. Everyone Counts, the commissioning board’s overview of planning assumptions for 2013-14, confirms a provider efficiency requirement of 4.0 per cent.

Business as usual

The tariff has been designed to extract this money automatically. Moreover, the net tariff uplift (after allowing for inflation) of -1.3 per cent also becomes the baseline for negotiations on non-tariff healthcare, so in principle there’s no hiding place.

Business as usual for providers then. And, with a continued 30 per cent marginal cost tariff for extra non-elective hospital admissions, and with further shifts to non-acute care settings on the way, many acute hospitals face a true savings target of 6 per cent or more. Again.

For providers, remember, this is real money. No slippery accounting for inflation here. A hospital has no scope to withhold staff salaries, or to hold back payments to energy suppliers.

So where exactly does that extra 2.6 per cent end up?

Saving for a rainy day

The emphasis throughout Everyone Counts is on “managing risk” and “resilience”. This appears to translate into commissioners sitting on large piles of money. Two per cent of next year’s funding is ring-fenced for non-recurrent spending, released only on the say so of the board’s local area teams.

‘Where is the understanding that an adequate response to the Francis report will require money?’

At least a further 0.5 per cent must be set aside in contingency funds to “mitigate risk” in local health economies. And each commissioning organisation must “make a cumulative surplus… of at least 1 per cent of revenue” while planning to be in 2 per cent recurrent surplus by the end of 2013-14.

For surplus, read underspend. A commissioning body doesn’t achieve surplus. It simply hangs on to the money it was allocated.

So NHS commissioners are getting 2.6 per cent more funding but must hold back at least 3.5 per cent, presumably for a rainy day? Why?

In fairness, this analysis only tracks the biggest numbers. There are numerous twists and turns within the funding settlement. There’s the commissioning, quality and innovation framework and the residual costs of defunct organisations. Yet the big numbers have a logic of their own, one that leads inexorably to another large NHS underspend being returned to the Treasury in 2014.

Intensely politicised

To refresh your memory: in 2010-11 strategic health authorities and primary care trusts underspent by nearly £1.4 billion. In 2011-12 their combined underspend amounted to almost £1.6 billion. Then, last autumn, HSJ highlighted how nearly £3 billion of these unspent NHS funds was being clawed back by the Treasury.

This disregards foundation trust and NHS trust surpluses.

‘To include large sums of money in a funding settlement, knowing they will never find their way to provider budgets, is just a little misleading’

Some pointed questions from the Commons health committee ensued. Meanwhile, however, SHAs and PCTs are forecasting an underspend of £1.2 billion in 2012-13. A pattern would appear to be emerging. Looking at Everyone Counts, the signs are that it will continue in 2013-14.

For in reality clinical commissioning groups, like their predecessors, won’t get the extra money. Nor, indeed, will the NHS Commissioning Board. In all probability the cash will never leave the Treasury.

The logic of the “Nicholson challenge” is that savings − the £20 billion of popular understanding − are reinvested in the NHS. But where is the transparent reinvestment addressing strategic pressures such as population growth and age profile? Where, indeed, is the understanding that an adequate response to the Francis report will require money?

What’s emerging is that resource growth in the NHS, which has become intensely politicised, must be assessed on actual levels of spend. To include large sums of money in a funding settlement, knowing they will never find their way into provider budgets, is just a little misleading.

Noel Plumridge is an independent consultant and former NHS finance director