NHS England publishes CCG funding allocations for next two years following adoption of new formula

NHS England has today published the funding allocations that Clinical Commissioning Groups will receive over the next two years (2014/15 and 2015/16).

It follows yesterday’s decision by the NHS England Board to adopt a new funding formula for local health commissioners that will more accurately reflect population changes and include a specific deprivation measure.

Funding for NHS commissioners will rise from £96bn to £100bn over the next two years, so despite wider public sector budget cuts the NHS is being protected from inflation at a time of austerity.

At yesterday’s Board meeting, it was heard that the changes to the way in which funding levels for local health services are worked out will help ensure that funding matches the needs of local populations.

The changes follow an extensive review into funding allocations. The new funding formula for local health commissioning is based on more accurate, detailed data and including a deprivation measure specifically aimed at tackling health inequalities.

All the Clinical Commissioning Groups (CCGs), that decide on local health services, will receive a funding increase matching inflation in the next two years (2014/15 and 2015/16), the most underfunded areas, and those with fast-growing populations, will receive even more.

The funding allocations will be aligned with new NHS planning guidance that will be published shortly, following discussion at yesterday’s Board. The new guidance will ask commissioners to prepare both two year operational plans and five year strategic plans.

Paul Baumann, Chief Financial Officer for NHS England, said: “We have an absolute duty to tackle health inequalities and to ensure equal access for equal need right across the country. That is why we conducted a year-long review of funding allocations taking on board many views and extensively engaging with local healthcare commissioners and partners.

“We must ensure funding is equitable and fair and we have used the review period to ensure that funding is based on up-to-date and detailed information and it takes into account the three main factors in healthcare needs: population growth, deprivation and the impact of an ageing population.

“What is clear is that doing nothing is not an option. Some areas have not had the funding per head that they need, particularly where population has grown quickly and funding has remained relatively static.  These areas are now at risk of not being able to provide the services needed by their population, so we need to tackle these differences in funding as a matter of urgency.

“That is exactly what these changes are about and this will mean that some local health services need to receive a settlement that is bigger than inflation to start reducing the local underfunding which has arisen, whether this reflects deprivation, ageing or population growth.

“Over the last year we have developed and refined the funding formulae to ensure that they accurately predict the needs of individual communities.  A particular challenge in this respect is the best way to reflect the needs of the most deprived communities, who may not currently be accessing the services they need at the right time. The new formula now includes a measure for ‘unmet need’ which aims to address this.

“This is a very testing period for the NHS and every pound we spend needs to be invested wisely to drive the best outcomes for the patients and communities we serve. We now have a funding formula that we think does this more accurately and more fairly.”

Clinical Commissioning Groups (CCGs) are responsible for the majority of local health services. Within the CCG allocations, 10% of the total available funding will be based on a deprivation indicator to reflect unmet need, enabling CCGs to tackle the impact of health inequalities.

Primary care also has a central role to play in tackling deprivation and the ‘unmet need’ adjustment will be based on 15% of the total budget.

Read the full Board paper from yesterday’s meeting.

Additional information

The Board paper highlighted seven options which outlined different ways of moving towards the new funding allocation over a period of time (‘pace of change’).

Of the 7 options, NHS England agreed to Option 4 meaning all CCGs will receive a funding increase that will match inflation, with those most underfunded according to the new formula or with fast growing populations receiving up to 2.8% extra in their total allocations each year.

Background to the fundamental review

Last year, the independent Advisory Committee on Resource Allocation (ACRA) reviewed the methodology for ‘the target allocation’ (also known as the ‘Fair Shares’ formula) for future funding of Clinical Commissioning Groups (CCGs).

In December 2012, NHS England concluded that while ACRA’s proposal accurately predicted the future spending requirements of CCGs based on the pattern of need as it is currently being met, it did not, on its own, take into account important factors such as ‘unmet’ need. Unmet need is where health services aren’t being accessed in the best or the right way, something which is a particular issue in deprived communities. The board was concerned that failing to reflect this adequately was inconsistent with NHS England’s public purpose to ensure equal access for equal need across the country and to address health inequalities.  There was also concern that moving to a new CCG formula without changing the ways in which other elements of commissioning were allocated was in danger of resulting in unintended consequences.

The board of NHS England therefore decided:

  1. To give a uniform increase in funding to all CCGs for 2013/14 to give these new organisations stability in their first year
  2. To undertake a fundamental review into its approach to allocations from 2014/15 to consider and take into account key factors such as ‘unmet need’.

To inform the debate about what the future allocation of funding should be, and as part of NHS England’s commitment to deliver a transparent allocations process, NHS England published details (in August 2013) of the funding allocations CCGs would have received had the ACRA Fair Shares formula been implemented for 2013/14 with no adjustment for unmet need. This allowed organisations to compare and understand the potential impact and contribute to the engagement process around future allocations.

Current funding for CCGs is based on allocations which are now at least three years out of date and this doesn’t recognise the substantial shifts in population and health needs which have taken place over that period. Failure to change will mean that CCGs or providers are unable to provide the services required by their populations or live within their financial resources – or most likely both.  Already this is becoming apparent in a growing minority of CCGs forecasting financial deficits in 2013/14.

The review has drawn on the expert advice of ACRA and has involved all partners, including representatives from CCGs.

The review was conducted to inform proposals for the next two years that the NHS England Board will consider at the Board meeting on 17th December.

Detailed background information on the review, including the terms of reference, are available.