New NHS finance regime will spotlight struggling trusts

In the coming weeks, national leaders will start outlining the new architecture governing the flows of funding within the NHS from April 2020.

The new system is expected to bring an end to the four-year-old “control total” regime and “provider sustainability fund”.

Together, these measures have been moderately successful at reigning in provider deficits - which had threatened to spiral out of control after 2015-16 - but they also encouraged short-term thinking and produced some deeply unfair distortions.

The increased revenue settlement from the government (3.4 per cent a year on average) has offered breathing space and means the majority of providers can now be given a longer leash. 

The extra money should ensure a big reduction in the number of trusts in deficit – there were about 100 last year (out of 230) and regulators expect that to be halved by March 2020.

Broadly, that will leave three groups of providers.

The strugglers

First, there will be 50-odd strugglers likely to report a deficit in 2019-20 and which will subsequently remain in a control total-type regime. They will be given an improvement trajectory to reach breakeven by 2023-24, with help along the way from the new “financial recovery fund” (which the remaining PSF will be rolled into). 

They will be given an efficiency assumption of 1.5 per cent – half a percentage point greater than trusts which do not rely on this hand out.

Clearly, this group is going to attract plenty of regulatory attention, and, for many of them, getting above water within five years will be a tall order.

Rural trusts such as Wye Valley, United Lincolnshire, and King’s Lynn might be able to chart improvement trajectories that get them close, but without radical changes to funding flows and employment incentives, they will struggle to get the workforce and activity volumes to stay on track.

Some urban trusts will struggle too, particularly those which spend more than 5 per cent of their turnover purely on finance charges relating to their private finance initiative contracts, such as North Bristol Trust and Barking, Havering and Redbridge.

Then there are the trusts that really need big injections of capital funding before they can address their structural problems, such as Lancashire Teaching Hospitals or Epsom and St Helier.

NHS Providers has been calling for a more flexible and transparent system which recognises factors outside of trusts’ control. This might mean bespoke financial targets, as opposed to those set by a central formula, to account for those uncontrollables.

That would be a complex and potentially controversial piece of work, and we’ll have to see whether NHS England/Improvement has the capacity and willingness to do it.

The middle

The second, much larger, group of around 130 providers includes most mental health trusts and acutes, like Bolton and Dorset County, that expect to end the current year in surplus and will hope to get steadily stronger amid far more realistic efficiency expectations. 

This group is unlikely to make headlines for their finances, but will largely determine whether the task of reaching a sustainable position for the NHS overall is achieved or not.

If, once they are given relative freedom, the majority of these trusts slip back into deficit then we’re back to square one. But, if they continue on the right trajectory, it will enable more time and intensive support to be given to the first group.

The brilliant

The third group also numbers about 50, including specialists such as The Christie, asset-rich giants like University College London Hospitals, and the consistently robust like Northumbria Healthcare.

Many of these trusts (as well as some in the second group) have done extremely well out of control totals and PSF, through what might feel like their own brilliance – but that money will effectively now be cut and redistributed to the lesser off.

The new regime is going to upset some influential people.

That means more discomfort for Julian Kelly, the NHS’ new chief financial officer, who has already had to start the job in a tricky situation not of his own making.

His first two letters to provider chiefs told them to cut their capital spending plans by a fifth, before subsequently having to reverse that instruction following Boris Johnson’s introductory giveaway.