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• Report: Funding healthcare: making allocations to local areas
• Report: Funding healthcare: making allocations to local areas (PDF 780KB)
• Inquiry: Funding healthcare: making allocations to local areas
• Public Accounts Committee

The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:

"One of the Government’s key policy objectives in allocating health funding is equal access for equal need. Yet we found huge variations in funding for CCGs – from £137 per person below their fair share of available funding in Corby to £361 per person above their fair share in West London.

Around two-fifths of CCGs and three-quarters of local authorities are receiving more than 5% above or below their target funding allocation.

This has important implications for the financial sustainability of the health service as underfunded CCGs are more likely to be in financial deficit. Of the 20 CCGs with the tightest financial positions at 31 March 2014, 19 had received less than their fair share of funding.

At the current rate, it would take around 80 years for all local health commissioners to reach their target allocation. It would take around six years before no clinical commissioning group remained below its target allocation by more than 5%. For local authorities and the expenditure on public health, this would take 10 years.

We recognise that in moving only gradually from current funding levels the Department’s and NHS England’s priority has been to maintain the stability of local health economies, but this very slow pace of change puts at risk the financial sustainability of those most under-funded.

Furthermore, target funding allocations may be unreliable in some areas because they are based on estimates of population size taken from GP registration numbers.

GP registration numbers tend to be inflated as people may remain on lists after they have moved out of an area. At the same time, GP lists do not include unregistered patients which may disadvantage areas with high levels of inward migration.

NHS England should confirm its commitment to move clinical commissioning groups to within 5 percentage points of their fair share of available funding and set out a precise timetable for doing so. It should also take immediate action to ensure that all area teams are complying with its guidance on validating GP lists, at the same as taking forward its longer-term plans to gain greater assurance over the data.

It is deeply concerning that the proportion of total funding devoted to primary care has fallen, even though primary care is vital for tackling health inequalities. Over the last decade, the proportion of total spending committed to primary care fell from 29% to 23% as a consequence of the NHS prioritising hospital initiatives such as reducing waiting times.

The Department and NHS England should set out the rationale for decisions about how funding is split between different funding streams, including assessing the implications of any changes in the distribution of funding."

See the position against target per person for your local area here:

National Audit Office report: Funding healthcare: Making allocations to local areas: Allocations to local commissioners 2014-2015

Margaret Hodge was speaking as the Committee published its 25th Report of this Session which, on the basis of evidence from Paul Baumann, Chief Financial Officer, NHS England, Richard Douglas CB, Director General of Finance and NHS, Department of Health and Simon Stevens, Chief Executive, NHS England, examined Funding healthcare: making allocations to local areas.

The Department of Health (the Department) and NHS England have changed the way that they allocate health funding to local commissioners. The Department and NHS England have prioritised maintaining the financial stability of local health economies, but this means they have made only very slow progress towards ensuring that all areas receive their fair share of the available funding. Around two-fifths of clinical commissioning groups and three-quarters of local authorities are receiving allocations more than 5% above or below what would be their defined share.

This has consequences for financial sustainability—of the 20 clinical commissioning groups with the tightest financial positions at 31 March 2014, 19 had received less than their defined share of funding. One of the main objectives of the funding formulae is to support the reduction of health inequalities, yet the Department and NHS England have only limited evidence on how best to make adjustments for this purpose. NHS England also has more work to do on tackling inaccuracies in GP list data, which are a key determinant in calculating an area’s fair share of funding.

Conclusions and recommendations

In 2014-15, the Department and NHS England allocated a total of £79 billion to local commissioners of healthcare, equivalent to £1,400 per person. Following the reforms to the health system in 2013, there are three separate funding allocations. In 2014-15, NHS England allocated £64.3 billion to 211 clinical commissioning groups for hospital, community and mental health services and £12.0 billion to its 25 area teams for primary care; and the Department allocated £2.8 billion to 152 local authorities for public health services. The amount of funding that individual commissioners are allocated is calculated using ‘funding formulae’ that apportion the total funds available. In calculating target funding allocations, the Department and NHS England aim to give those local areas with greater healthcare needs a larger share of the available funding. In deciding actual funding allocations, the Department and NHS England consider that they should only move local commissioners gradually from their current funding levels towards their fair shares, to ensure that local health economies are not destabilised.

The slow progress towards target funding allocations means the Government has not fulfilled its policy objective of equal access for equal need. In 2014-15, nearly two-fifths of clinical commissioning groups and over three-quarters of local authorities remain more than 5 percentage points above or below their target funding allocations. Funding for clinical commissioning groups varies from £137 per person below target to £361 per person above target. This has important implications for the financial sustainability of the health service as underfunded clinical commissioning groups are more likely to be in financial deficit: 19 of the 20 groups with the tightest financial positions at 31 March 2014 had received less than their target funding allocation. The Department and NHS England explained that there are trade-offs between moving commissioners more quickly towards their target funding allocations and safeguarding the stability of local health economies, and that making quicker progress would involve real-terms reductions in funding for some areas. However, the National Audit Office calculated that, if the slow pace of change were to continue, it would take around 80 years for all local commissioners to get close to their target funding allocations. NHS England said that it wanted to make faster progress and that it aimed to move all clinical commissioning groups to within 5 percentage points of their target allocations within around two years. For public health allocations to local authorities, the Department said that decisions, including the pace of change, were a matter for the government of the day.

Recommendations: NHS England should confirm its commitment to move clinical commissioning groups to within 5 percentage points of their target allocations and set out a precise timetable. NHS England should also better understand the correlation between funding allocations and poor performance among clinical commissioning groups.

The Department should develop an evidence base to inform government decisions on how quickly public health allocations to local authorities should move towards their target allocations.

Decisions about funding for the different elements of healthcare and social care have been made without fully considering the combined effect on local areas. NHS England accepts that decisions on the three separate health allocations have, to date, been made in isolation of each other. It wants to move towards ‘place based’ funding formulae, whereby allocations for clinical commissioning groups and primary care, and potentially the Department’s funding to local authorities for public health, are combined. In addition, local authorities receive funding which covers social care from the Department for Communities and Local Government. Many people need both healthcare and social care, and lower spending in one sector may cause additional costs in the other. There is growing understanding of the interdependence of health and social care funding but the causal relationship between the two is not understood, and the Department and NHS England did not take account of local authority spending on social care or the Department for Communities and Local Government’s funding for local authorities in making decisions on health funding.

Recommendation: The Department and NHS England, working with the Department for Communities and Local Government, should carry out work to understand the interaction between the funding of healthcare and social care, and use this information to inform funding decisions.

There is a lack of evidence to underpin the adjustment that is made for health inequalities. NHS England adjusts target allocations by 10-15% to move funding towards areas with lower life expectancies, with the aim of reducing health inequalities. The current indicator is better able than the past methodology to detect small pockets of ill-health in otherwise healthy areas. However, there is no clear health justification for deciding what weighting should be given to the inequality indicator. The Advisory Committee on Resource Allocation, which advises the Department and NHS England, does not consider there is any evidence that the current health inequalities adjustment is appropriate. NHS England stressed the importance of retaining the health inequalities adjustment as a matter of principle, while acknowledging the lack of supporting evidence on what weight to give it.

Recommendation: The Department and NHS England should improve the evidence base for the health inequalities adjustment, including collecting evidence on whether their approach is fair and cost-effective and properly meets the objective of reducing health inequalities.

The proportion of total funding devoted to primary care has fallen, even though primary care is an important way of tackling health inequalities. NHS England told us that primary care is expected to have more impact than clinical commissioning group spending on reducing inequalities. However, between 2003-04 and 2012-13, the proportion of total spending committed to primary care fell from 29% to 23% as a consequence of the NHS prioritising hospital initiatives such as reducing waiting times. NHS England said it planned to reverse this trend and increase the proportion of healthcare funding being spent on primary care. It would also like to bring together the budgets for clinical commissioning groups and primary care to increase local flexibility with the intention of better targeting local priorities.

Recommendation: The Department and NHS England should set out the rationale for decisions about how funding is split between different funding streams, including assessing the implications of any changes in the distribution of funding.

The primary care funding formula was developed with limited input from the advisory body and remains an interim approach. NHS England has improved the funding formula for clinical commissioning groups, which is now based on more detailed data. However, these improvements have not been made for primary care. NHS England did not seek input from the Advisory Committee on Resource Allocation until three months before it had to make decisions about primary care allocations and there was insufficient time to improve the formula. As a result, NHS England’s approach for primary care allocations to area teams for 2014-15 and 2015-16 was heavily based on what the Department had done previously for primary care trusts and is regarded as interim.

Recommendation: NHS England should improve the primary care funding formula in time for the next round of funding allocations for 2016-17, with early input from the Advisory Committee on Resource Allocation.

The target funding allocations may be unreliable in some areas due to shortcomings in the GP list data which are used to estimate population size. Population size is the factor that has the most significant effect on funding allocations. While there have been some improvements to the population data, GP list numbers still tend to be inflated as people may remain on lists after they have moved out of an area. This is a particular issue in areas with more transient populations. At the same time, GP lists do not include unregistered patients which may affect areas with high levels of inward migration. Most of NHS England’s area teams have done some work to validate GP lists, but NHS England accepts that it needs to do more. It told us that its area teams will be required to implement detailed guidance on validating GP lists so that it has more assurance about the data. It also intends, from spring 2015, to procure a new primary care services ‘back office’ that should make GP list validation consistent across the country.

Recommendation: NHS England should take immediate action to ensure that all area teams are complying with its guidance on GP list validation, at the same as taking forward its longer-term plans to gain greater assurance over the data.

Further information

• National Audit Office report: Funding healthcare: making allocations to local areas
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