NHS Reset: The future NHS financial regime in England

When thinking about how the NHS is responding to the COVID-19 pandemic, how the finances of the NHS are working is unlikely to be at the forefront of the average member of the public’s mind – or even perhaps those working in the NHS in clinical roles. 

However, a lot has been going on behind the scenes. The NHS financial regime has been substantially changed for the duration of the pandemic, reflecting the government’s commitment that ‘whatever extra resources our NHS needs to cope with coronavirus – it will get’. 

At the beginning of the pandemic, the senior finance team at NHS England and NHS Improvement took swift steps to make temporary changes to the financial regime. The most significant change being the immediate suspension of normal contracting arrangements in favour of block contracts across the whole system, with payment in advance to ensure that cash was able to flow as needed. The aim was to remove finance, and particularly cash flow, as a potential block to making the changes that were necessary in order to tackle the pandemic. 

These changes were welcomed by the finance community and have led to questions about what the financial regime will look like in England when the NHS returns to business as usual, whatever business as usual may look like after the pandemic. 

Consequently, during May 2020, the Healthcare Financial Management Association (HFMA) asked NHS finance directors for their views on how the financial regime should operate in the future. The results have been used to inform a discussion paper, The Future NHS financial Regime in England, which was published on 24 June. 

There is a clear appetite for change. The consensus among the finance directors responding to the survey is that the pre COVID-19 financial regime does not support the way in which organisations need to work now in order to combat the virus and prepare for future epidemics and pandemics. Nor does it reflect the activity levels or demand that are anticipated.

Many finance directors commented on the need for the financial regime to focus on improving population health and facilitating system working. The majority of respondents assumed that the commissioner/ provider arrangements will remain, but some have questioned whether this has to be the case and if it represents the best use of resources. There is a consensus that the post-COVID-19 contracting arrangements should be on a block or aligned incentive basis, where strategy is aligned across the system with incentives for providers to develop and improve services as well as meet access criteria. 

Aligned incentive contracts are becoming more common within the NHS and recognise that the limited resources available to a system have to be used in the most effective way. By aligning objectives and assigning a block value to them, with associated risk and gain share arrangements, NHS organisations have greater freedom to innovate as there is certainty over the provider income that will be received and the cost to the commissioner. It also enables system-level management of the overall financial envelope and avoids creating an environment where organisations have competing priorities. 

If the NHS does move in this direction, it will be essential that organisations and systems retain the richness of activity data that the case-based system allows. Good activity data across the whole health and care system will support systems to plan for their populations, particularly addressing health inequalities with local authority colleagues. Working across organisational boundaries has been an essential part of the response to COVID-19 and finance directors are clear that this unexpected positive outcome from the pandemic should be preserved if at all possible.

There is, of course, the constant issue of funding, for both the NHS and social care. Funding should reflect the services that need to be delivered and consider how services can effectively integrate with wider public sector provision to support the population. This needs to take account of the additional capacity that is needed and the costs of running safe, non-COVID-19 services that meet ongoing demand and enable the backlog of elective activity to be addressed. There need to be clear links between the requirements placed on local services and the level of funding allocated for delivery.

The NHS must not be allowed to slip back to how it was before without taking this opportunity to consider where beneficial changes could be made, learning from good practice across the country and seeking out ideas and innovations to meet the challenges of a 21st century health system. This must be done in the context of delivering a financially and environmentally sustainable health and care system. 

Emma Knowles is director of policy and research at the Healthcare Financial Management Association. Follow the organisation on Twitter @HFMA_UK

*Throughout the HFMA discussion paper, the organisation asked a number of questions and these are drawn together in a short survey.