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1 July 2022

The evolution of the system financial strategy

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Through a series of workshops in early 2021, the system partners came together to build on the NHS Long Term Plan (LTP) financial position to deliver a financial strategy for the system.

The initial work determined the size of the task – a circa £200m recurrent deficit across the system. This has been further validated through a detailed review of the recurrent financial position moving into 2022/23.

Building on the traditional incremental income and expenditure analysis, a number of scenarios were considered. These explored the impact of controlling various scenarios, e.g., what would the impact be if activity growth could be controlled to varying levels through demand management and productivity?

The consensus was that the traditional approach of identifying QIPP and then trying to extract that as savings from contracts, was not working. We needed something that reflected the challenge of taking money out of existing hard-pressed services. We needed an approach that unified partners across the system, was realistic yet challenging and most of all, was something that clinicians could get behind.

Historically, the system’s underlying position hasn’t changed – additional income and efficiency delivery have been sufficient to offset the cost of growth and inflation, but do not make in-roads into closing the system deficit.

To close the deficit, a more ambitious approach is needed. To close the underlying position over the medium term requires activity growth to be managed through demand management and cost-reduction schemes to cover the cost of inflation.

Modelling of the position – what we did and what we concluded

  • As a system we modelled a number of growth and inflation scenarios
  • The chart below shows potential trajectories with the base model predicated on the funding levels notified at the time of the LTP submission. The speed of the improvement would be dependant on allocations and the extent to which we would be able to deliver growth and inflation
  • The model showed that with minimal growth and inflation, we could have achieved break even by 2024/25
  • From this, we concluded that the financial strategy needs to align alongside the clinical strategy of providing integrated care at or as close to the home of the patient as possible
  • The ‘Flat Cash / Flat Activity’ strategy has been adopted by the system as the route to financial recovery.

Therefore, at a headline level, there are three key aspects to the financial strategy:

  • A focus on avoiding growth of activity through addressing unwarranted variation. This is a system approach with providers and social care supporting primary care to identify the alternative pathways that is leading to ‘flat’ referrals to acute
  • Savings will be needed to cover the cost of inflation and cost pressures. The system will support providers to agree solutions that allow this cash to be freed up
  • Continuation of the approach whereby resource is allocated to providers based on their underlying position as opposed to reverting to a price x activity model of remuneration and all providers deliver the same level of efficiency, whilst sharing the system deficit equitably to ensure all have ‘skin in the game’ to deliver financial recovery.