Flexible future

A new five-year financial plan for health and social care in Scotland and new flexibilities will aim to reset health boards’ finances and give them headroom to bring more services out of hospital and into the community.

The Medium-term health and social care financial framework, published in October, sets out the challenges facing health and care services in Scotland. These are substantial, with a ‘do nothing’ gap between costs and funding standing at £1.8bn by 2023/24.

Measures announced alongside the new framework will allow Scottish health boards
to balance their books over three years rather than one. They also give boards the flexibility to overspend or underspend their annual budgets by 1% from 2019/20, allowing them to invest in developing new services with payback over the medium term. And brokerage given to health boards over the past five years will be written off.

The framework, which covers 2019/20 to 2023/24, aims to support reform of the health and social care system in Scotland to help close the £1.8bn gap. This includes shifting care out of hospitals and into primary, community and social care settings. To facilitate this, it includes an aspiration that frontline hospital spending be reduced to less than half of total spending from the current 51%.

It also recognises that shifting care will require investment in primary, community and social care provision. Approximately half of the savings released from moving care out of hospital will be redirected into these services by integration authority strategic commissioning plans.

Primary care funding will increase to 11% of the frontline NHS budget by 2021/22 and half of the growth will go directly to GP services.

The report expects further savings to be made (see box). Even so, this would not completely close the financial gap – the framework acknowledges a residual £159m would remain across the health and social care system in 2023/24. It anticipates that as assumptions on reforms savings are updated, the gap will be addressed.

Christine McLaughlin, Scottish government director of health finance, corporate governance and value, urged finance staff to throw themselves into supporting the framework.

‘It’s really important that the finance community takes a leading role in ensuring that health and social care services are sustainable over the long term,’ she said.

‘We need to be planning for the future and making sure that all of our efforts to invest and reform are focused on delivering better health, better care and better value.

‘So that’s what the medium-term financial framework is all about. It’s a joint effort by the Scottish government, NHS boards, integration authorities and COSLA [local government leaders] to set out the challenges and opportunities ahead.

‘It also looks at the types of approach to address key priorities such as shifting the balance of care towards community health services.’

HFMA Scotland Branch chair Derek Lindsay said the framework addresses many of the issues the association has been raising, including the need for a clear view of future demand pressures on the local NHS.

The HFMA submission in August 2017 to the Scottish Parliament Health and Sport Committee inquiry on the draft budget for 2018/19 said it would be helpful to have an assessment of the impact of demographic changes and technological advances to support the scrutiny of the budget.

The new financial framework provides an analysis of pay, price, demographic and non-demographic cost pressures. These exceed 5% a year. Mr Lindsay said this was consistent with the report in May 2018 from the Institute for Fiscal Studies and the Health Foundation, which said that UK spending on healthcare would need to increase in real terms by an average of 3.3% a year over the next 15 years to maintain NHS provision at current levels.

The framework assumes receipt of the full consequential from the UK government announcement of an extra £20bn for health in England. ‘The use of the additional funding is not specified within the financial framework, although policy commitments include increasing primary care expenditure by £500m a year,’ Mr Lindsay said.

Announcements were expected at the end of October on improving compliance with waiting times targets, together with the funding to make this happen.

The financial framework does not identify the level of future year general allocation uplifts to boards, Mr Lindsay added.

‘The HFMA has called for multi-year budgets as they would aid the development of longer term plans and support effective decision-making,’ he said. ‘However, it is not yet known if the draft budget, to be announced in December, will cover more than one year.’

Ms McLaughlin said that, through the framework, the Cabinet secretary for health and sport, Jeane Freeman, had offered NHS boards a new deal. ‘In recognition of NHS boards’ efforts to deliver reform, this will see a new three-year financial planning and performance framework,’ Ms McLaughlin said.

‘This will provide greater flexibility for boards in managing their finances and will require boards to deliver a break-even position over a three-year period, rather than annually, as is the case currently.’

In each year, boards will have 1% flexibility on their annual resource budget to allow underspending or overspending in any one year.

As well as greater financial flexibility, boards will also plan over a longer period.

Mr Lindsay said the greater financial freedom would be welcomed. ‘I think that all boards would welcome the greater financial flexibility to balance budgets over a three-year period, which is already in place in the NHS in Wales. This is limited to 1% flexibility. However, it will allow plans to be developed that see initial investment and a medium-term payback.’

The Scottish government clearly wants a reset of the boards’ financial positions as they go into the new three-year planning cycle, deciding to write off loans that they have received over the past five years.

Ms McLaughlin said: ‘The cabinet secretary also decided to give clear ground to move forward on that three-year planning cycle, and therefore the Scottish government will not seek to recover NHS territorial boards’ outstanding brokerage – the expenditure incurred by territorial boards over the past five years which has been above their budget.’

She explained that this year, she expected four boards will require additional funding and that this will amount to around £68m. This makes up around 0.5% of the overall health budget and will take the overall cumulative balance of brokerage that will not be recovered to around £150m.

‘By not seeking to recover this amount, boards will be able to focus their attention on delivering the measures set out in the health and social care delivery plan and the financial framework, and to do so in a safe and appropriate way – making sure they maintain a strong focus on patient care and the delivery of the services that are safe, effective and person-centred,’ she continued.

Although writing off the loans to boards will undoubtedly help them as they plan to return to financial balance, the underlying issues that caused them to need brokerage in the first place could remain.

‘We recognise that the financial challenges facing a number of boards in some cases are an indicator of underlying issues, structural or systemic, that require more than a single year solution,’ Ms McLaughlin said.

‘We are working closely with those boards to identify what financial recovery and sustainability means at an organisational level and to help them pull together a deliverable plan to respond to those challenges.’

She added that boards cannot deliver these plans without collaborating with the wider health and care system.

‘We are clear that these plans will require a system-wide, multi-agency response that is led by clinicians and which puts local communities at their heart,’ she said.

‘We also understand that we may need to provide support and additional resource to make sure this work does not detract from the “day job” of providing high-quality, compassionate healthcare. This is one example of what is meant by the twin approach of investment and reform set out in the financial framework.’

The financial framework does not completely bridge the £1.8bn gap, though the Scottish government is confident it will do so. In the meantime, finance staff have been handed a key role in getting NHS Scotland to the best position possible, providing a solid financial base for improvements in services to patients