Following the Money: How to shift money out of hospitals

Julian Kelly made a telling remark at this year’s Healthcare Financial Management Association conference.

The opposite of a fantasy financial plan, according to ChatGPT, is a “realistic financial plan”, he told the annual gathering.

“I only say that as there are some really properly important and difficult conversations for us to have, but we are going to need to get into them, and fast.”

NHS England’s chief finance officer no doubt had in mind recent criticism from trust leaders that there was no in point having “honest conversations” about the money.

This is a view that has been expressed privately by many a finance director, although it is rare for such concerns to be put on the record as clearly as they have in recent weeks.

In response to this, Mr Kelly was attempting to reframe the looming 2025-26 planning round. As he pointed out, this year’s initial cut of plans warned of a deficit close to £6bn.

This was eventually whittled down to a £2.2bn deficit plan, which, although it will probably end up closer to £3bn, is still a long way off the severity of the initial estimate.

As much as critics complain about pressure from NHSE to submit unrealistically positive financial plans, there has undoubtedly been some game-playing on the other side, which the national team will again be very keen to avoid.

Ultimately, NHSE has to live within its own budget – and any local overspends reduce the headroom for national investments in areas like tech and prevention.

Instead of asking for billions more, Mr Kelly said leaders should quickly get into conversations with the centre about what clinical services they might have to stop delivering.

Lee Outhwaite, the chief finance officer of South Yorkshire Integrated Care Board and new president of the HFMA, said his system was one of those getting into those “really uncomfortable” positions.

“What I’m personally struggling with is how we coordinate that conversation at a local versus national level… It’s just really hard to get your head around in a nationally-funded service.”

‘Force acute hospital to shift money to community’

During his speech, Mr Kelly said the “Service Development Fund” – which in recent years has seen multiple pots of money ringfenced for transformation projects covering mental health, prevention, primary care and other priorities – would be much smaller next year. The funding released will instead be rolled into core allocations, giving ICBs more autonomy and a little more headroom.

Critics could – and likely will, in months to come – deploy the postcode lottery argument, arguing that this undermines the “national” in NHS. But in practice, the SDF has been widely raided in recent years, with NHSE last year allowing “sensible” underspends to be used to support the wider financial position.

It’s another indication, if any more were needed, that the government’s three shifts are unlikely to be backed by additional funding to allow investment in community services while avoiding cuts to hospitals.

Jason Dorsett, chief finance officer of Oxford University Hospitals Foundation Trust, had a go at answering this by proposing a Mental Health Investment Standard-type mechanism to force acute trusts to shift funding into community services.

In a blog post on LinkedIn, he wrote: “How about we make acute hospitals shift some budget to community services they run? What if we ring fence that amount and audit it?”

Mr Dorsett said setting hospitals a target of moving 1 per cent of their budget into the community each year – without any relaxation of financial or waiting times targets – would force them to focus on length of stay and admission avoidance.

He said: “I don’t claim to know a lot about primary care or prevention, but I know where the NHS spends most of its money — in hospitals. Make hospitals at least partly responsible for working out how to do things differently.”

NHS has ‘lost operational rigour’

Listening to Mr Kelly and others, it’s clear the focus on productivity will only intensify next year.

NHSE was keen to paint a picture of improvement at its board last week, and Mr Kelly has attributed the NHS’s productivity problems to the massive pandemic shock on an already-stretched system.

At the HFMA conference, national director of transformation Vin Diwakar built on the theme, telling DoFs the NHS had seen a “loss of operational knowledge and rigour in how we run our services”.

“That’s because we’ve got a new and younger generation of people that came into the service during the pandemic that didn’t have what I had, and what many of you had when we were training, which was training in basic management processes, things like flow management, demand and capacity management and so on.”

He said NHSE had contributed to this by producing hundreds of guidelines of “varying quality”, which it was now trying to rationalise.

Graham Urwin, the retiring chief executive of NHS Cheshire and Merseyside, who has a finance background as well as plenty of CEO experience, said the service had to “earn the trust” of government by fixing its short-term productivity challenges.

He pointed to the example of one trust on his patch that had recruited around 1,000 extra staff during covid, just 14 per cent of whom were patient-facing.

Mr Urwin – who said Cheshire and Merseyside’s outturn position was likely to rise from £150m to a £190m deficit – struck a more positive note about future investment under Labour.

“When we get into the third or the fourth year of this Parliament, we need to have earned the trust of this government,” he said.

“We need to fix the short-term productivity challenges, because they will [ultimately] invest in the NHS and start to invest in those three shifts that are being talked about.”