NHS Finance

NHSE holding back ‘significantly helpful’ cash from CCG books

NHS England has decided to hold back money that would have otherwise trickled down to CCG finances because it is “simply not an option” for commissioners to dodge contributing to a system risk reserve – especially in a year when this extra resource may prove necessary.

In a letter sent to commissioners, STP leads and finance directors late last month, seen by NHE, NHS England’s chief financial officer Paul Baumann said they fully recognise the challenges CCGs are facing in 2017-18, and assured them that the decision to centrally retain around £120m that would have “made these challenges easier to manage” was not taken lightly.

“However, ignoring the need to secure the required commissioner contribution to the system risk reserve in a year when this may well again prove vital is simply not an option,” he explained.

“An alternative approach considered by the NHS England Board was to take the required funding from planned investment in areas such as transformation and general practice. The immediate and longer-term consequences of that approach would not have been consistent with our commitments to the goals of the Five Year Forward View, so this option was rejected.”

The £120m came as a result of fee adjustments agreed with the Pharmaceutical Services Negotiating Committee, with recent discussions on the last two medicine margin surveys leading to a reduction in generic drug pricing in the NHS Drug Tariff estimated to amount to £15m per month. These changes, which took effect from 1 August, could not have been anticipated in operational plans and “therefore result in a windfall benefit of circa £120m which would normally accrue to CCGs through reduced medicines expenditure”.

But rather than flowing to and benefitting commissioners from this year, the extra money is being held centrally by NHS Business Services Authority as part of a central fund that will form part of a system risk reserve. Baumann said the need for a risk reserve was “clearly demonstrated” by last year’s tight finances, and that “it is already evident that risks in both the commissioner and provider sectors are no less challenging this year”.

“It is therefore vital that we take urgent steps to restore the reserve to the specified level in the most expedient manner,” he wrote.

The risk reserve will, for the first time, be funded by providers from local Commission for Quality and Innovation (CQUIN) earnings (around £270m). But higher than expected CCG drawdown requirements due to operating deficits have prevented the creation of this headroom in the meantime.

In board meeting papers, Calderdale CCG said the decision to retain the money centrally will increase pressure on its prescribing costs, since the extra cash would have “significantly helped” the commissioner’s stretched QIPP targets.

But Baumann guaranteed that NHS England intends to make the money available for CCG investment either in 2017-18 “or in subsequent years”. 

If the system reserve does not have to be deployed to offset the risk of a system-wide deficit at the end of 2017-18, as was the case last financial year, the money will be released to all CCGs that have delivered or improved on their control total and successfully released a mandatory 0.5% non-recurrent reserve.

“The approach we have developed to constructing the reserve should leave CCGs no worse off in the short term and with an opportunity to secure the benefit of the pharmacy price reduction in due course for in-year or future investment,” said the CFO.

“It will also explicitly recognise those CCGs which succeed in delivering their financial goals.”