NHS funding settlement: Recovering lost ground

In producing this analysis, we have made the following assumptions:

That at a sector-level the provider sustainability fund is recurrent. Although no formal commitment ha been made to extend the provider sustainability fund (PSF) beyond 2018/19, our conversations with national system leaders indicate that this money in aggregate will be continue to be allocated to the provider sector, though the precise form of the allocation and the way in which it flows will be changed from 2019/20 onwards. At a national level, converting the PSF into mainstream NHS funding would not make any difference to the overall surplus/deficit position, as providers as a whole are spending more than the money available to them each year. However, when a trust in surplus receives additional PSF money at the end of the year, it comes too late to plan for, and too late to spend on care, and instead simply inflates the surplus position. Therefore, putting the PSF into mainstream commissioner budgets would be the right thing to do as it would ensure more of the money reaches patients.

That where capacity needs to expand, the workforce will be there to recruit. In reality, this will not always be the case, meaning that the recovery may not happen – and the associated costs incurred – until the later years of the funding settlement.

That the additional £1.25bn on top of the extra funding specifically to cover pension revaluations is enough, and that if it is not, an appropriate sum will be found to cover this specific cost from outside the overall NHS settlement.

Individual local systems will have their own unique issues that need resolving. Our list of costs relating to recovery is not exhaustive, but does not need to be in order to stimulate and inform the debate about how the new money for the NHS should be spent.

We have not adjusted for inflation, and not attempted any dynamic modelling, for example to forecast increased pressure in future years as demographic changes play out.

We have avoided double counting as far as possible, but we have not tried to model the impact, for example, of increased elective work on acute inpatient capacity, or how much emergency demand might come down if community nursing numbers were recovered.

Notes on specific sections

Recovering elective care performance

Rob Findlay’s analysis uses an average cost per procedure of £2,000 for the recurring work, and £3,000 for the backlog clearance. Both these costs are based on an expensive casemix which reflects that the more complex patients are those most likely to wait the longest, and are therefore the ones who most need treating in order to reduce the waiting list and keep it down. The higher sum for backlog clearance reflects the extra marginal costs of these operations, which tend to be done in evenings and weekends at higher rates of pay than mainstream work.

Restoring acute inpatient capacity

The two tables below demonstrate how we calculated the number of beds needed to return to 88% occupancy.

Table 15

G&A beds	29-Jan				04-Mar		Average over Feb
	Week 10	Week 11	Week 12	Week 13	Week 14
Core beds	94,036	93,641	93,907	94,013	93,559	Core beds	93,831
Escalation beds	4,496	4,487	4,615	4,678	4,551	Escalation beds	4,565
Total beds	98,510	98,109	98,498	98,668	98,088	Total beds	98,375
Bed occupancy	95.0%	95.0%	95.0%	95.2%	95.2%	Bed occupancy	95%

Table 16

Bed occpancy levels (%)	Occupancy	Beds needed	Gap between current capacity and future capacity
95	93,456	98,375	Current capacity
92	93,456	101,582	3,208
88	93,456	106,200	7,825
85	93,456	109,948	11,573

The 7,825 figure was then multiplied by £313, which is the excess bed day average given in the 2016/17 reference costs.

This method also minimises the risk of double counting the resource needed for elective care, as it only uses the cost of keeping additional beds open, without factoring in the costs of treating more patients.

Restoring mental health capacity

The figure of £146m to restore the mental health nursing workforce was calculated using the first point on the band 6 the 2018 Agenda for Change pay scale, plus the 14% pension costs to give an estimated cost for a community nurse of £31,977. Registered nurses in the community will generally work on bands 5 to 7. We picked band 6 as is the entry point for postgraduate qualified district nurses, health visitors and school nurses.

Restoring capacity in the community sector

As with mental health, the £188m figure was based on the 2018 Agenda for Change band 6 pay scale, giving the average salary plus pension costs for a community nurse as £31,977, multiplied by the number of nurses needed to restore the sector to its 2010 establishment.

Existing provider deficits

Because our analysis is a snapshot and does not contain dynamic modelling, we have not factored in the likely growth in provider deficits based on the historical trend. The trend since 2015/16 has been for the provider side position to deteriorate by £150-£170m per year. This followed three consecutive years of much worse annual deterioration.

Table 17

Year	2010/11	2011/12	2012/13	2013/14	2014/15	2015/16	2016/17	2017/18
Surplus/deficit	513	483	592	-91	-859	-2447	-791	-960
(Plus STF)							-1800	-1800
Total	513	483	592	-91	-859	-2447	-2591	-2760

(The King's Fund, 2017)
(NHS Improvement, 2018)

Non-recurrent CIPs

As with the provider side deficit, we have assumed there is no further deterioration in the position. This is reasonable as long as the overall efficiency requirement does not outstrip what can realistically be delivered: the provider sector has demonstrated in recent years that it can deliver modest annual increases in recurrent CIPs of around £60m per year: in 2015/16 the amount of recurrent CIPs delivered was £2.25bn; in 2016/17 it increased to £2.31bn; in 2017/18 the figure was £2.37bn.