What does the new Health and Care Bill mean for NHS financial management?

James W Frick once said: ‘Don’t tell me what your priorities are. Show me where you spend your money and I’ll tell you what they are.’

So, what does the Health and Care Bill, wending its way through parliament and the most substantial piece of health legislation since the 2012 Lansley reforms, suggest about future financial management in the new NHS?

First, there is a clear focus on ‘system-by-default’ financial planning. A simplistic picture of the old financial-planning world would depict individual commissioner and provider organisations sat on opposite sides of the negotiating table while they knocked lumps out of each other in annual contracting rounds. In the new world envisaged by the Bill, funding will be allocated to integrated care systems (ICSs) with the intention that all players in the system – whether provider or commissioner – sit around the table to jointly decide how to use this money to improve the health of their local populations.

'...national bodies will now place a greater focus on the financial performance of ICSs, rather than solely focusing on the financial health of the ICS’s constituent organisations.'

Changes to NHS payment systems will also arguably make it easier for providers and commissioners to share financial risk more effectively compared to the ‘payment-based-on-activity’ model still used in parts of the NHS. And while it may be additive rather than substitutive – national bodies will now place a greater focus on the financial performance of ICSs, rather than solely focusing on the financial health of the ICS’s constituent organisations.

Second, there is a move towards greater local decision-making and accountability. The old orthodoxy was based around national standardisation – with national standard contracts, a ‘national tariff’ that set prices for NHS care, and a strong role for the national bodies in overseeing the financial performance of local NHS bodies. Now, ICSs will have a greater share of funding allocated directly to them (include some capital investment budgets for NHS buildings and equipment), and greater permission over how that funding is spent.

But local decision-making will not be without its limits, because the third area of focus is the desire for national control of finances. The prime example being the new last-resort ability of NHS England to set hard limits on how much NHS foundation trusts can spend on capital investment each year. This will prevent cases where an ICS financial plan could be blown out of the water by a non-co-operative foundation trust pursuing its own financial plan. But other examples of control may follow, for example, if future NHS guidance earmarks large chunks of funding for specific national priorities, which may leave ICS leaders feeling more like financial water-carriers than decision-makers.

So what to make of all this? I think there are three things to bear in mind.

First, let’s not overstate the impact of the new Bill on NHS financial management. Many of the legislative changes are simply codifying existing practice, with changes to the payment system already made. And unlike the 2012 reforms, many of these legislative powers are broadly specified and NHS England guidance on the future NHS financial framework will have a strong shaping hand on how money is managed once the Bill becomes law.

'...although the Bill repeatedly emphasises the desire to simplify rules, reduce bureaucracy, and minimise transaction costs, some of the changes proposed will lead to greater complexity and local negotiation.'

Second, although the Bill repeatedly emphasises the desire to simplify rules, reduce bureaucracy, and minimise transaction costs, some of the changes proposed will lead to greater complexity and local negotiation. ICSs may find themselves spending increasing amounts of time deciding how (or if) they will allocate funding to their ‘places’ and provider collaboratives. And the NHS will move from an era where the price of a hip operation was nationally set and mandated to an era where these prices are more of a guide or signal to inform local negotiations. All this is not necessarily a bad thing – but while the new Bill may indeed reduce transaction costs and bureaucracy in the NHS, I doubt if ICS finance directors will feel like the prime beneficiaries of this process.

Third, it might not be a good idea to get rid of all the elements of the old world. For all its faults, activity-based payment systems incentivised a better understanding of cost in the NHS and created a more explicit link between clinical behaviours and financial rewards. Heartfelt interventions are rare in NHS finance workshops, but I will always remember a clinician standing up in one to say, ‘The tariff, efficiency and service-line management are what paid for the full blood count machine in the corner of my department.’

So, back to James W Frick then, because money in the NHS is definitely about more than bean counting. It’s about power. And it’s about priorities. Some NHS finance leaders – including those in parts of England that have been pooling budgets across health and social care organisations for years now – might argue that the Bill does not go far enough in reforming how NHS finances work. So, with another White Paper to integrate health and social care potentially in the pipeline, the story of where the priorities might lie may not be over yet.