HFMA 2022: NHS England looks to protect real-terms funding

Speaking to the HFMA annual conference in London, NHS England chief financial officer Julian Kelly (pictured) said that allocations would initially be funded on the assumption of a 2% pay increase. But NHS England would hold a contingency until it was clear about the pay review body’s recommendation and the government’s response on pay. ‘Our commitment will be to you that we will fund you on a basis and if the pay settlement turns out differently, we will fund the difference, just as we have done this year,’ he said.

‘If we can protect the real terms funding that we have put in, then we can focus on how we sustain the extra capacity so we make the funding recurrent,’ he said, adding that this could then shift the focus away from cutting services to driving better productivity.

There will also be no separately badged allocation for Covid activity next year. Instead the funding will be included within general allocations and distributed on a fair share basis.

Mr Kelly added that NHS England was looking to streamline its corporate overheads and systems would also need to explore this. And he said that the service needed to get better at leveraging national buying power in procurement.

He acknowledged that 2023/24 and 2024/25 would be challenging financially, but suggested it was ‘doable’. He pointed to all the achievements in the last two years despite the pressures, including the massive expansion of critical care at the outset of the pandemic, the vaccination programme, and increases in GP appointments and completed elective pathways.

Asked about rumours of the return of payment by results, Mr Kelly said the payment mechanism next year would include an element of activity-based remuneration. ‘I think we need it because we actually do need more activity,’ he said. ‘We definitely have an activity problem. If you look at the size of the waiting list and at what will happen with demand, even just because if you increase the number of GPs you will get more referrals. So I think we do need some form of activity based remuneration.’

However, he pointed out that an aligned payment and incentive contract was in part an activity-based mechanism, although he acknowledged that it depended how high you set the block. ‘I think you’ve got to set a block based on the activity done this year and we are going to be looking for improvement – a reasonably significant level of improvement year-to-year,’ he said. ‘But then, as compared to what happened historically, if people can do better than that, the risk needs to sit with me nationally, rather than historically what could happen was the local system’s finances being destabilised.’

He also suggested the ask would be different across the country. ‘We will need to agree those goals with systems and providers in a bespoke way, because people are starting in different places,’ he said. ‘That will be part of the planning we do over the next few months.

Some people have suggested that having an activity-based mechanism for elective activity does not work in isolation, as elective capacity can be reduced if there is an increase in non-elective demand. But there was no suggestion of a return to an activity link for emergency admissions.