The capped expenditure process explained

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The financial pressures facing the NHS in 2017/18 are significant. Providers of hospital, ambulance, community and mental health services are expecting to overspend their budgets by nearly £500 million this year, and commissioners are also seeing their budgets come under further pressure as the NHS remains in a period of relatively slow funding growth.

    To respond to this financial pressure NHS England and NHS Improvement introduced a capped expenditure process (CEP) to provide tighter controls on NHS spending. This is the latest addition to a wide range of actions to address financial challenges in the NHS (see Table).

    ProgrammeWho does it apply to?
    Individual control totals
    Annual financial targets that must be achieved to unlock access to national funding and other financial benefits.
    All NHS providers (trusts and foundation trusts) are offered a control total that they can accept or reject. Access to national sustainability and transformation funding is conditional on providers agreeing and delivering their control total. In 2016/17 228 of 238 providers accepted their control total.
    System control totals
    Annual financial targets for a sustainability and transformation partnership (STP) area.
    Providers and commissioners in the STP area. All organisations will be held accountable for delivering both their individual control total and the overall system control total.
    Single oversight framework
    Regulatory framework used to oversee and support providers.
    All NHS providers (trusts and foundation trusts). Domains focus on quality of care; finance and use of resources; operational performance; strategic change and leadership and improvement capability.
    Improvement and assessment framework
    Assurance and performance framework for NHS commissioners.
    All clinical commissioning groups (CCGs). Domains within the framework focus on better health, better care, sustainability (including financial performance) and leadership.
    Success regimes
    Programmes to support and challenge systems with deep-rooted and longstanding performance and financial issues.
    Selected whole health economies of providers and commissioners. Three regimes currently operate in parts of Devon, Essex and Cumbria. Individual organisations in success regime areas can also be placed in special measures.
    Financial special measures
    An intensive process to develop financial recovery plans for challenged organisations.
    Selected individual organisations. Eleven providers were included in financial special measures over the course of 2016/17. Special measures for CCGs was introduced in July 2016. The CCG regime encompasses financial issues alongside other aspects of performance.
    Capped expenditure
    An intensive process to contain expenditure in areas of the country with high financial risk and/or historical overspending of their share of funding.
    Fourteen areas with high financial risk in 2017/18. These areas have either not agreed a balanced financial plan across the whole system, or their current financial plans are unlikely to be delivered.
    Financial improvement programme
    A voluntary scheme that provides external support and advice on financial improvement.
    Individual provider organisations (NHS trusts and foundation trusts). Twenty trusts took part in the first wave of the programme in 2016/17.


    The CEP aims to contain or ‘cap’ spending in specific areas of the country, and differs to existing financial controls in its focus on health care systems (including both commissioners and providers of health care), rather than individual organisations. The process also differs in the scale of some of the cost-saving measures under consideration. Leaders in CEP areas were asked to ‘think the unthinkable’, as remaining within these new spending limits required difficult decisions over the level of care that can be provided to local patients.

    Who does the process apply to?

    The CEP is targeted at commissioners and providers in 14 areas of the country. Central bodies argue these areas have been historically overspending their ‘fair share’ of NHS funding and do not have an affordable set of financial plans for 2017/18. In some cases, this is because the submitted financial plans for local organisations already exceed the available budget for the region. In other cases, the submitted financial plans may balance on paper but are unlikely to be delivered in practice, eg, where plans are dependent on levels of efficiency savings from providers or commissioners that significantly exceed those delivered over the previous few years.

    However, it is unclear what a ‘fair share’ means in this context. Healthwatch groups in two of the CEP areas argue that historical underfunding of clinical commissioning groups in their region has not been adequately accounted for. The CEP also assumes that financial control totals allocated to providers and commissioners are both fair and achievable. Some providers have challenged this assumption in the past – especially where they believed their financial targets are distorted by one-off actions (such as property sales, or large charitable donations) which had a significant impact on their historical financial position.

    The Chief Executive of NHS Improvement, Jim Mackey, has said the areas selected for the CEP had the largest gap between their planned expenditure for 2017/18 and their budget allocation. There is little public information on how significant these gaps needed to be for areas to be selected, though some participants in the CEP have suggested they were chosen because the gap between their area’s current financial plans and desired financial target (or financial ‘control total’) was more than 1.5 per cent of the funding commissioners had allocated for day-to-day spending in 2017/18.

    In June 2017, the Health Service Journal reported the 14 areas involved in the CEP were: Bristol, South Gloucestershire and North Somerset; Cambridgeshire and Peterborough; Cheshire (Eastern, Vale Royal and South); Cornwall; Devon; Morecambe Bay; Northumberland; North Central London; North Lincolnshire; North West London; South East London; Staffordshire; Surrey and Sussex; Vale of York and Scarborough and Ryedale. It is unclear if more areas will be included in the CEP later in 2017/18.

    What does the process involve?

    The CEP was introduced in a letter sent from NHS England and NHS Improvement to local health care leaders in April 2017. The letter suggested that a new financial control process operating across both commissioners and providers was needed due the scale of the gaps between financial plans and financial targets in these areas of the country.

    The CEP was supported by further discussions between April and June 2017 involving NHS England and NHS Improvement regional teams, and clinical, financial and chief executives from local organisations. The CEP has also been supported by management consultancy work to identify areas of potential cost saving. CEP areas were asked to submit affordable 2017/18 financial plans by 5 May 2017, which effectively left local leaders with one month to develop and agree their revised financial and operating plans.

    CEP areas were asked to rigorously review their current financial plans and propose bold actions to bring spending back within budget. There were broadly three types of action that CEP areas were asked to consider before submitting their revised plans. Different areas are likely to have chosen different options based on their local circumstances.

    • Reviewing and stress-testing existing plans
      This includes a reconciliation of financial plans in the area, to ensure that all organisations used similar assumptions to inform planning (eg, on expected levels of growth in planned and emergency care). Central bodies also requested firmer details in areas where provider and commissioner efficiency plans for the latter part of 2017/18 were still undefined.
    • Meeting the recommendations of the Next steps on the NHS five year forward view 10-step efficiency plan
      This includes using information from national efficiency programmes – such as the Lord Carter and Getting It Right First Time reviews of operational efficiency, and the Rightcare programme which focuses on reducing unwarranted variation in the commissioning of health care – to identify further savings opportunities. This work may also include stopping or reducing low-value interventions in the future, eg, minimising prescriptions for products and medicines that offer limited clinical benefit.
    • More difficult decisions to bring spending under control
      This includes a range of potential actions such as:
      • reducing spending on non-urgent work, eg, stripping out any discretionary expenditure
      • reducing the level of planned elective activity (eg, routine surgery) currently outsourced to non-NHS providers and reallocating this to NHS organisations
      • restricting access to services, eg, placing more limits on access to services such as IVF
      • closing or redesigning services, eg, closing operating theatres and hospital wards to reduce staff and operational costs where this will not impact on emergency care services. Some areas may have considered more significant closures (eg, of hospital sites) for their revised plans.
      • property and asset-related transactions, eg, selling surplus land owned by the NHS or buying out PFI contracts.

    Delivering the revised plans, if they are approved by the central bodies, may require reopening the existing contracts for 2017/18 that local providers and commissioners of NHS services have already signed. This may include revising the value of existing contracts, and in some cases greater certainty of financial controls may require a new form of contract.

    Areas involved in the CEP have received indications that any financial gaps that remain between the system’s financial plans and targets will not be supported by additional funding from central bodies. It is therefore unclear if CEP areas can still access support from national funding sources, such as sustainability and transformation funding for individual provider organisations, and system-level transformation funding for mental health, diabetes and cancer services.

    The original letter from the national bodies made clear that no decisions or cost-saving measures should be taken that will compromise patient safety. Subsequent communication from NHS Improvement in late June 2017 clarified that patient safety and quality should be safeguarded; plans to reconfigure services should align with public consultation duties; and CEP plans should be consistent with the rights set out in the NHS Constitution and patient choice. In addition, the National Mental Health Director, Claire Murdoch, has indicated that CEP areas should not target reductions in mental health spending, as they are still expected to deliver the commitments set out in the Five year forward view for mental health.

    Next steps

    The revised financial plans submitted in May 2017 through the CEP were to be reviewed by National Directors of NHS England and NHS Improvement. Details of the revised plans are still not in the public domain, but it is likely that many of the CEP areas have produced revised plans that come far closer to closing the financial gaps they face. It has been reported that the CEP originally aimed to close a financial gap of £470 million, but now it is expected that the CEP will produce savings in the region of £250 million.

    Unlike previous NHS financial processes such as financial special measures or financial control totals, the CEP has not been accompanied by publicly available guidance. As we approach the second quarter of 2017/18, more details on these plans should emerge, including progress against the revised plans, and details of the further actions that will be taken in systems that have failed to agree a new financial plan through the CEP.