Elective recovery funding system revealed

NHS England and NHS Improvement have identified £2.3bn for elective recovery in 2022/23 as part of promised funding of £8bn over the next three years. New guidance from the two bodies, published in draft, has now set out how the funds will be allocated.

Systems will be funded to deliver 104% of 2019/20 levels of value-based activity, covering elective ordinary, day case, outpatient procedures and first and follow-up outpatient attendance activity. This equates to 104% of activity delivered in 2019/20 valued at healthcare resource group and treatment function code level using the 2022/23 tariff.

The draft guidance said the delivery of the 104% baseline would support achievement of the target to increase elective activity by 10%, set out in the planning guidance for the year.

The 10% increase target is being measured using NHS referral to treatment completed pathways. A planned increase in pre-referral advice in primary care is expected to see more pathways completed, contributing six percentage points towards the completed pathway activity target. However, because the value of these pathways is significantly lower than the value of an average pathway, the contribution towards the value-based activity target is expected to be less than one percentage point.

According to further draft technical guidance on the payment arrangements, systems’ elective funding allocation will be adjusted up or down by 75% of tariff value if activity delivered is above or below the 104% baseline value. Actual activity delivered will be calculated on a monthly basis for each commissioner and financial adjustments made quarterly.

Any downwards adjustment will be by a maximum of 75% of the initial allocation from the £2.3bn fund – referred to as the elective funding adjustment floor.

Payments from commissioners to providers will be via the aligned payment and incentive system, proposed for introduction in April and described in the national tariff consultation notice, first published in December. The new payment approach will include a fixed element to provide funding for an agreed level of activity and a variable element for elective activity over the agreed baseline.

The elective recovery technical guidance says that providers should be paid 75% of tariff price for activity above plan, and lose 75% for shortfalls against plan. This is a change from the initial tariff consultation, which had proposed a 50% rate for deductions relating to under-performance. NHS England and NHS Improvement this week re-issued the consultation on tariff proposals to align with the elective recovery plan.

‘Elective funding adjustments made to commissioners for performance against the 104% baseline should flow down to providers in an appropriate way, and commissioner funding and payments to providers should stay in sync,’ the guidance said.

There had been concerns that a 75% marginal rate for additional activity could inhibit use of available independent sector capacity, as providers or commissioners would face a 25% shortfall in funding compared to costs. However, the guidance said that performance against baseline will be broken down into NHS provider and independent sector activity.

Additional elective funding would be made available to systems at 100% of tariff for independent sector delivered activity, either directly commissioned or sub-contracted by NHS providers, if two conditions are met. These include the system delivering over 104% of independent sector activity and 104% of elective activity overall. The revised tariff consultation also makes it clear that services subcontracted to a separate provider will not be covered by the aligned payment and incentive approach.

The same system for elective recovery will apply to NHS England direct commissioning.