News / News analysis: Cold climate

The HFMA annual conference earlier this month was the first public forum to hear an outline of the 2010/11 operating framework.

NHS chief executive David Nicholson and director general of finance, performance and operations David Flory offered the assembled finance managers the highlights of what the latter said were ‘hard and cold messages’.

The headlines included a 0% uplift in tariff that includes a 3.5% efficiency requirement, a 30% marginal rate for emergency admissions above threshold levels, and a 30% cut in primary care trust management costs over four years. PCTs must adjust to flat real (inflation only) uplifts in 2011/12 and 2012/13.

These were the headlines but further details – and a surprise – came less than a week later when the Department of Health published the Operating framework 2010/11. The surprise was the Department’s intention to make national tariffs the maximum price payable by commissioners.

This will take place after 2010/11 and is sure to reopen the debate about whether price negotiation is cost-effective, particularly at a time when PCTs are shaving 30% off their management costs.

The operating framework gave more detail to the 30% cut in management costs – showing that this will not necessarily be applied across the board. It said each SHA area should achieve an aggregate 30% cut by 2013/14. SHAs must decide how this is managed across PCTs, and provider arms should be included in the aggregate. The Department insisted most progress needs to be made in 2010/11 and 2011/12.

There would also be some flexibility in the requirement for PCTs to plan for 2% of recurrent funding to be committed non-recurrently in 2010/11 and the following three years. The framework said SHAs would be able to vary the proportion committed non-recurrently by PCTs (ensuring SHAs meet the 2% target across their patch) but all PCTs have reached the 2% requirement as a minimum by 2013/14.

Changes to the SHA bundle in 2010/11 could have ramifications for PCT spending plans. The budgets for general ophthalmic, pharmacy and primary dental services will be devolved to PCTs from 2010/11 – initially as a separate allocation and then included in PCT baselines from 2011/12. Funding for these services in 2010/11 will be at 2009/10 cash levels and the Department said lower like-for-like tariff prices would create sufficient headroom in PCT budgets to fund the growth required in 2010/11.

And, as part of the Department’s response to its need to contribute an additional £2.3bn to cross-government efficiency savings in 2010/11, central budgets will be reduced by £500m and the activity passed to the NHS.

The Department said this was affordable because of the additional 0.5% efficiency requirement incorporated in the tariff in 2010/11. It is currently discussing the full breakdown of the £500m transfer with SHAs and will make this available, together with PCT allocations for devolved pharmacy, ophthalmics and dentistry in due course.

Following a review of the funding of multi-professional education and training, the equivalent of a tariff for education will be introduced. Funds will not be transferred between SHAs in 2010/11, but there will be further pilots during the year, leading to a phased implementation from April 2011.

Finance directors said the operating framework was challenging. ‘The headlines confirm the tough agenda for which we have been preparing,’ said Royal Devon and Exeter NHS Foundation Trust director of finance and business development Suzanne Tracey. ‘I think the approach to differential pricing for emergencies above the 2008/09 baseline is the right one, but the 30% marginal price may prove difficult given the levels of growth in some specialities.’

North East Lincolnshire Care Trust Plus deputy chief executive and director of finance Cathy Kennedy said the operating plan brought new pressures and high expectations of what could be delivered and the pace at which it will happen.

‘Set against a financial outlook which is extremely challenging, there is undoubtedly a need to maximise the benefit of this last year of growth funding – but the scale of the agenda is daunting, particularly when there is a clear expectation that there will be fewer people to deliver it,’ she said.

There is a lot in the operating framework for SHAs, PCTs and trusts to take in and manage in the next financial year and beyond, but there are also some important areas that have yet to be clarified. These include any policy on pace of change in moving PCTs to their target allocations, what will happen to the 5% of the health budget that has yet to be settled, and the level of inflation in the government’s assumptions and how this compares with actual levels of health service inflation.

Finance managers will be keeping a close eye on these ‘known unknowns’ as the new year dawns.