Agenda item

7.1  The Chair stated that he had invited the Chief Financial Officer of the ICS to this meeting to discuss the financial strategy, following up on issues raised at recent meetings.

7.2  He welcomed to the meeting: Henry Black (HB), Chief Finance and Performance Officer, NHS NEL.

7.3  Members gave consideration to a report NEL Financial Strategy Update.

7.4  HB took Members through the report in detail.  It covered the following themes:

Context – How we’ve used our budget in 21/22 and 22/23

Comparison of spend on different types of care, by place (22/23 budget)

The ambitions of our financial framework

We face significant challenges, both now and over the longer term

Moving to a population-based approach

Reflecting the costs of care provision to support partnership working

Creating headroom for investment

He stated how the ICS represents a profound change from that past when health and social care worked separately and the NHS worked within an internal market which incentivized competition rather than collaboration. The Financial Strategy was about devising a way of making the funding work at Place level and it was tied into the Accountability Framework.  The Place Based Partnerships (PBPs) are brand new entities which are non statutory but which sit within the statutory ICB. It will take time to mature and ensure they have the resources they need. There will be some aggregation of back office functions at NEL as would be expected and the 7 Delivery Directors at Place Level will have business partners from analytics and finance to assist them. Subsidiarity is the main principle and the Financial Framework will give PBPs responsibility over the majority of the budgeting. The Acute and Primary Care Collaboratives will manage their budgets but everything else will go to Place. There will be full visibility of the entirety of spend at Place level. There will be opportunities to make decisions about shifts of resources in the various pathways. The Financial Framework will also secure funds for investing in prevention and transformation and they are trying to ring fence 1% for transformation.

7.5  The Chair thanked HB for a very helpful presentation and stated that Members need an understanding of the new financial system from April ‘23 and to what extent will the different ‘Place Based Systems’ within NEL have the staff resource to research and make their own decisions or will all the staff be at ICS level. He also asked how the projected £42m deficit (discussed at the previous meeting) was being brought under control.  HB replied that some reporting in the press was not reflective of where they were at.  At month 8 it’s similar to the rest of the country. Everywhere was financially challenged and the NHSE position was to aim for balance.  A deficit of around £30m should be absorbed by NHSE, he added.  There was a need for a clear stabilisation of run rate in the second part of the year. The financial overhang of Covid funding in the first part of the year was now largely stabilised in the second half. Inflation and winter pressures were creating huge pressures. The Chair stated it would not be in NHS NEL’s interest to be the worst in the country. HB replied it wouldn’t.

7.6  Cllr Masters asked about the Local Accountability Framework. HB replied that he would be happy to bring this document to a future meeting when it’s ready.  The NEL ICB is a statutory body but the PBPs are where the partnership work takes place close to the community and the LAF will outline what will happen at each level. Again the principle is subsidiarity. There is a need within the overall £4bn budget to reduce the need for unwarranted variations and reduce health inequalities and how the PPBs hold the centre to account for that will be outlined in it.

7.7  The Chair asked how many staff will be Place level vis-a-vis the centre. City and Hackney for example had c. 26 FTEs and how many of these would remain at Place level? HB explained that it will be one senior member of staff and a team to support them. It will be important to balance the small local team who work closely with their local authority with their role in the centre. It won’t be massively skewed one way or the other and the detail can be brought back once agreed. ZE added that there will be a core team in each borough but it will vary depending on whether they are NHS or joint appointments and this is entirely appropriate as it builds on what was already in place. In addition there will be Clinical Director and Primary Care Improvement Lead for each Place. 

7.8  Cllr Adams asked what is known about the settlement for 23/24.  HB replied that a population health approach is focused on an analysis of patient need as opposed to in the past when hospitals were funded just on volume of work they do. Under Payment By Results it didn’t matter who the patient was or where they came from, it was all volume driven activity based funding and they were  trying to move away from that, he added. It was also important however to ensure stability and that hospitals are funded for their costs. On the issue of financial constraints, the whole public sector was facing enormous challenges. Barts Health has a big issue with hyperinflation on utilities and PFI costs and we don’t yet know what the NHS NEL financial settlement is for 23/24 and will probably get it, as is often the case, as late as 23 Dec. He added that he didn’t expect the settlement to be inflation busting but it would be very tight.

7.9  Cllr McAlmont asked about NHSE potentially writing off up to £30m NEL deficit and plans to balance the budget. HB explained that that is how NHS funding works. It has a budget for its entirety.  Some parts may over spend and some underspend in-year and as long as that works through nationally there are a set of agreements. From an accounting perspective the organisation has to record a deficit in its balance sheet but it’s not the same as with private businesses that has to go into debt. Cllr McAlmont questioned whether there was no incentive to not incur deficits therefore. HB stated that the incentive would be for the organisation not to go into Financial Special Measures as that is incredibly onerous and challenging.  In NEL’s case £30m is less than 1% of total budget and they will be expected to land a balanced budget for next year. To achieve balance there are short and long term measures in place.  At the halfway point there had been a projected deficit of under £50m which if extrapolated to the year-end would be £100m but they have pulled back and there has been a significant improvement in the run rate in-year. In the medium to long term their Financial Strategy is to focus on prevention and on early intervention to reduce costs further downstream.  Other than that they are always engaged in cost improvement programmes and every year they implement cost efficiency programmes to bring themselves back to balance.

7.10   The Chair asked how a return of some form of Payment By Results (PbR) squares with Place Based working. HB stated that they developed the Financial Strategy on the basis that they wouldn’t return to PbR but there has been a growing sense that it might return to some form of it. The expectation is that it won't be the same and it will involve a greater focus on reducing long waits in elective care, as there is a need to divert more resources to that.  They were assured however that it won’t be a return to everything being volume driven but rather that there is likely to be some element of volume based payments.

7.11  The Chair commented that didn’t Payment by Results work against the idea of all hospitals within an ICS working together. HB replied that what it would do is make it easier to shift resources around where they have mutual aid and high volume low complexity work which helps to reduce the waiting lists.  In some cases being able to shift the money where the patients are will help but it won’t be a return to the old days of a trading system.

7.12  The Chair asked whether the 3.4% increase 21/22 to 22/23 was a real term decrease.  HB stated that on a like for like basis it was a real term cut but that’s the nature of public sector funding during inflation. He added that 21/22 was a high year for additional Covid funding, that got reduced in 22/23, so that 3.4% increase was more like 5%. He added that he expected that the settlement for 23/24 will be a reduction of the Covid spend but an increase for inflation and higher population growth. It will probably work out at 2.5-3% when you take all that into account.

7.13  The Chair asked what budget line items would get devolved down to Place. HB replied essentially everything other than the spend for the Acute and Mental Health collaboratives. The Community Collaborative was not yet as mature as the others and community funding sits better at Place level as it is linked to wraparound care.  So effectively, everything rather than Acute and Mental Health will be within the Place based budgets he added.

7.14  The Chair asked how iterative the financial devolution framework would be. HB replied that this was a very important point. One of the benefits of having a single statutory body for NEL and non-statutory committees at the PBP level is that they can make those changes and the Local Accountability Framework will be a key part in how this works.  It will work both ways and expectations will be placed on PBPs but these can of course be changed by mutual agreement.

7.15  Cllr Masters expressed a concern that putting e.g. Newham Hospital’s budget within the Acute Collaborative militates against Place being the main driver here. HB replied that there would be full visibility of all spend at PBP level but direct accountability of funding will sit with the Acute Collaborative. The Mutually Agreed Framework effectively binds the PBPs and the Acute Collaboratives into a mutual agreement and he added that Homerton was a core part of the PBP and this is a big step change from single borough CCGs where the Homerton was not at the table.  The Chair commented that if a PBP is doing well it is stopping people going into A&E and at the back end helping the flows out of the hospitals but at NEL level you are now taking the hospital out of the structure and imposing a top down approach for them.  HB reiterated that the Homerton was a lead member of the PBP and it will be important that the right mechanisms for mutual accountability between the provider collaboratives and the PBPs is in place. With the Homerton at the table it will work as a direct decision making partner in a way it couldn’t in the past.

7.16  Cllr Masters commented that the Homerton has that advantage as it is standalone but she was more worried about Barts Health hospitals.  To them in Newham their local hospital was very much a body they wanted to be integrated with and the very fact that HB focused on the Homerton illustrated her point. Homerton was stand alone but Newham was part of a bigger trust and in her view there is far more of a challenge involved in that. SD added that Newham Hospital was absolutely a full part of its local PBP. The question here is about why it became part of a bigger group to begin with. It was because on its own with the volume of patients it had it wouldn’t be financially viable. He added that it was in the interests of everyone that there is less activity in hospitals and more in the community and by doing so spend can be better directed to the community whilst keeping the overall Acute element at the Barts Health level. 

7.19  Cllr Virdee asked how councils (led by elected members) can be more involved and the Chair asked about how locked were Adult Social Care Directors to these budget discussions. He added that City and Hackney had been driving joint commissioning locally and was good at it. HB replied that the PBPs are partnerships of health and social care providers as well as commissioners and in the past providers and Local Authorities were more on the sidelines and joint commissioning arrangements weren’t the significant core model they needed to be across east London until the advent of the ICS.

7.20  The Chair asked how did the ICS ensure that Acutes don’t swallow up more and more of the budget. HB replied that this was the perennial balance the NHS has to strike. The central challenge is to balance the extent to which they devolve and give local autonomy with holding onto the necessary financial control.  Devolved Place Based Budgets are an attempt to reach that balance.  And having acute budgets in one place and economies of scale and risk sharing as part of integration was how financial grip can be maintained.  ZE added that this is why ICSs were set up. She stated that NHS funding was not sustainable as demand was going up and sufficient capacity and workforce wouldn’t exist unless changes were made. If they don’t collectively find ways of investing further upstream in community support systems for example the NHS can’t be viable.  She concluded that it was a really complex process and they are learning as they go along.

7.18  The Chair thanked HB and ZE for their report and attendance and asked if both Frameworks could come back to the Committee once there was further clarity on what it all means in terms of staffing at each Place level.

ACTION:

The Local Accountability Framework and the Financial Framework to come back to a future meeting.

RESOLVED:

That the report and discussion be noted.