Advisory board: “The NHS digital funding hokey cokey”

At two meetings, our panel of NHS IT and industry experts discussed health and care funding against a backdrop of political uncertainty. In these circumstances, money for IT programmes is often put into the system only to be clawed back again; and the board considered how this impacts NHS IT departments and health tech companies alike.

Briefing note

Health and social care funding from the Budget 2021 to the autumn statement 2022

The NHS funding envelope for the remaining three years of this Parliament (2022-23 to 2024-25) was set out by then-chancellor Rishi Sunak in his Budget in October last year, at the end of the Treasury’s comprehensive spending review.

Highland Marketing published an analysis of the key-points at the time (The Autumn Budget and the CSR: the morning after the day before), when it was already clear that funding would be extremely tight.

Then-prime minister Boris Johnson had pre-announced a health and social care levy to raise around £36 billion, initially to tackle waiting lists and then to address the crisis in social care. The Budget duly raised the DHSC’s departmental budget from £152.5 billion to £182.9 billion, with NHS England getting around £160 billion of this.

However, the additional money was hardly a bonanza. Averaged over the three years, it represented real-terms growth of 3.8% (or 3.1% over the five years from the end of the previous CSR in 2019-20), which is below the long-term trend and well below it when the ageing population is taken into account.

In addition, NHS England had to earmark some of the money for high-profile initiatives (£8 billion was put into an elective recovery fund) while signing up for £12 billion of “efficiency savings”. And the spending power of the settlement has been eroded by inflation.

In the run-up to this year’s ‘fiscal event’ in September, the Nuffield Trust ran the sums (Higher inflation to erode NHS spending power) and concluded that the £30.5 billion will be worth just £14 billion by 2024-25.

NHS lobby groups urged the Treasury to re-open the CSR to take account of this. The Treasury refused; and then, ahead of the September ‘fiscal event’, then-prime minister Liz Truss said she would scrap the health and social care levy.

Short-serving chancellor Kwasi Kwarteng followed through on this, and it has been one of the few measures to survive his replacement by Jeremy Hunt. Truss’ deputy, Therese Coffey, insisted that “health and social care investment will stay exactly the same”, with the missing cash coming out of general taxation.

However, the logic of Truss and Kwarteng’s tax-cutting ‘mini budget’ was that the money would have to come from additional government borrowing. Once the markets indicated they would not wear this, economists started predicting big public spending and benefit cuts instead.

Ahead of his ‘autumn statement’ on 17 November, Hunt indicated that “nothing is off the table”; but, in the event, he played a canny political game, pushing tax rises out beyond the next general election, increasing health and care funding slightly, and retaining capital programmes that generate positive headlines, like the New Hospital Programme.

Signs of strain

For all the summer’s political excitements, it’s the erosion of the CSR settlement by inflation that is having a significant impact on an NHS weakened by a decade of underinvestment.

NHS England has revised this year’s budget twice; to take account of £1.4 billion of unfunded pay rises for staff, and £1.6 billion of increased fuel costs. Despite this, the Health Service Journal has reported that two out of three ICSs are “off track” against their financial plans and are likely to run up deficits this year.

In the autumn statement, Hunt announced an additional £3.3 billion for the NHS this year and next. That should be enough to stop funding falling in real terms over the next two years, but it won’t be anything like enough to address the NHS’ basic problem, which is a – growing – gap between demand and resources.  

In this kind of financial environment, the NHS tends to “claw back” money from central investment programmes and to demand “back office” savings to try and balance the books.

At this year’s Healthcare Efficiency Through Technology Show, Simon Bolton, interim chief executive of NHS Digital and interim chief information officer of NHS England, was asked if there is “a risk” that technology funding could be pulled.

He said that “of course” there is (as Highland Marketing reported in its HETT 2022 write-up: There may be trouble, ahead and as Bolton himself may have confirmed by announcing that he will be leaving the NHS when NHSE’s merger with NHSD is completed in January).

Central funding for technology

The National Audit Office has complained that it is incredibly hard to work out what the NHS spends on technology, and what it gets for the money, because so much funding is earmarked for programmes that are repeatedly announced, frequently revised, and rarely audited.

In theory, NHS England put all the money earmarked for technology programmes over the course of the last CSR into a ‘unified tech fund’, for which bidding closed last October or November. And the Budget earmarked a new £2.1 billion to “digitise the NHS” over the next three-years.

Unfortunately, the Treasury Red Book didn’t say whether this money will be front-loaded, back-loaded, or released as three tranches of roughly £700 million a time. It’s also unclear who will spend it.

The ‘who pays for what’ document that NHSX put together before it was absorbed into the NHS England transformation directorate, said once the unified tech fund was spent, the centre would “move away from central funding of frontline tech.”

It said the centre would focus on standard setting, national infrastructure and apps, innovation, and developing tools like the Model Health System to support ICSs, but it would be for ICSs to draw up and fund their own digital plans.

However, at HETT, Bolton was still musing on the correct balance between national and local action, and there are other indications that the centre is unwilling to let go.

For example, Bolton’s boss, director of digital transformation Tim Ferris, has indicated that he expects regional offices to oversee ICS plans. He has also indicated that his priority is to “level up” acute trusts. In response to this, the NHS England transformation directorate is running a Frontline Digitisation programme focused on electronic patient records.

Central direction with implications for local plans

The government and NHS England have issued other documents with IT implications. The NHS business plan for 2022-23 set out a range of digital priorities.

It said it wanted to: “invest in the foundations for digital maturity” including EPRs, develop shared care records, help ICSs to “implement a population health and planning data platform”; sort out cyber-security and build digital literacy.

More recently, NHS England’s pre-guidance on preparing for winter included a prescriptive model for virtual wards and its full-guidance called for ICS-level command centres (spun as ‘data driven war rooms’), respiratory hubs, falls teams, and more mental health ambulances.

To work effectively, the command centres, respiratory hubs and falls teams will all need good data, shared care records, and the infrastructure to generate and support them.

So, while these are priorities that make sense in themselves, the danger is that in the current funding environment, they will be implemented on an interim basis, without the digital support required. Or they will trigger one-off IT purchases, further squeezing the bandwidth and money available for strategic thinking and local innovation.

Advisory board discussion  

Financial pain and financial flow

At the first of two meetings to discuss the financial state of the NHS and central IT funding, advisory board chair Jeremy Nettle pointed out that “unless you have your crystal ball thoroughly cleaned” it is “almost impossible to work out what is going to be happening” over the next few months and years.

The most optimistic member of the panel was Neil Perry, the chief information officer of Dartford and Gravesham NHS Foundation Trust. He predicted (correctly as it turned out) that while technology funding had been clawed back and rebadged by the centre, it would come through once the autumn statement had taken place.

“The unified technology fund money was there, and people got quite excited about it,” he said. “The year-one money came out, but then year-two was taken away or rebadged. We were have been told that we will be getting some money to work towards HIMSS 5, so I remain confident that the Budget, once settled, will get things moving again.”

Others were much more pessimistic, noting that “budgets are already being slashed” and integrated care systems are already being told to cut pay bills. Andy Kinnear, a former NHS CIO who now works for Ethical Healthcare Consulting, tended towards this view.

However, he struck a pragmatic note by pointing out that even if things aren’t great this year, they’re not that unusual and, therefore, shouldn’t be unmanageable. “We have had very little money flowing from the centre to the frontline for ages,” he pointed out. “There have been lots of promises of big programmes, but not much has come of them.

“That has left NHS CIOs managing huge budget challenges. Yet most have found a way to ensure consistent service delivery by sticking to their strategies and being ready to bid for any national funding opportunities that come through and align with them.”

Even if central funding for technology starts to flow now the autumn statement has been delivered, it is going to arrive late in the NHS financial year. Nicola Haywood-Alexander, a former ICS CIO who now works for the police service, argued that while NHS CIOs can manage this, it poses a number of challenges.

“It adds overhead” because managers have to spend time scanning policy and financial developments to work out what will arrive, when. It leaves departments “scrambling” to spend the money in weeks. Plus, there’s a danger that finance directors will decline to draw down allocations for projects that can’t be run in time, or that come without the venue required for implementation and use.

Impact on SMEs and innovators

Even Neil Perry recognised that the digital funding hokey cokey – in which money is announced and then clawed back, and then rebadged, and then issued late – distorts the health tech market. “Delay is ok for the big companies, the big EPR-vendors, because they can just wait it out,” he said.

“The small companies – the innovators – they are living on credit, so any delay can push them under, or make them vulnerable to being bought-out and shelved.” Radiology expert Rizwan Malik said he was very concerned about the impact of the current situation on SMEs.

“I really worry that what we did during Covid to change mindsets is being undone,” he said. “During the pandemic, we had all these small companies come in wanting to help the NHS, and we told them that if they could prove their ideas we’d work with them. They set up pilot after pilot, and now we’re bringing down the shutters.” Entrepreneur Ravi Kumar agreed.

“I think this state of limbo will continue, certainly over the winter, and probably for the next 18 months,” he said, “and that is causing a lot of disappointment among these start-up companies. They go to CIOs, and they see more cuts coming, when they’re already having to take money out of operational areas, never mind from their innovation budgets, and they just don’t buy.”

Impact on the EPR market

At the second meeting, the board argued that even the bigger EPR vendors may not be all that happy. Soon after Tim Ferris came to the UK to head up the NHS England transformation directorate, there were reports that he’d suggested buying Epic for all trusts.

While this was never going to happen (as Highland Marketing pointed out) Ferris and Bolton indicated that they still wanted Frontline Digitisation to do two things. One was to get all trusts to level 5 on the HIMSS EMRAM maturity model, or an English version called minimum digital foundations. And the other was to “converge” the systems in use across hospital groups and, possibly, integrated care systems.

The market consensus was that convergence would suit the ‘megasuite’ or ‘single-supplier’ EPR vendors better than suppliers with modular offers or new entrants pushing a modernised best of breed approach. But now the rumour is that NHS England is rowing back, because of the costs involved.

Neil Perry mused: “I wonder what is in it for the big, US vendors. The implication was that there would be a good level of money going into levelling up, and now it’s clear that there won’t be as much as these companies were hoping, and trusts are being told there’s more than one way to HIMSS 5.”

Another potential issue is that because the CSR only covered the remaining three years of the current Parliament, any money for Frontline Digitisation will only cover what’s left of the current financial year and the next two financial years.

EPR contracts with single suppliers tend to run for at least a decade, and finance directors might think that’s a big gap to cover. This might also favour a more modular approach; in which case, the question will be whether the single suppliers have an incentive to respond, or SMEs will be able to step up.

Impact on NHS IT departments

Uncertainty over strategy and funding also affects IT departments. Ravi Kumar pointed out that people who work in health and social care are unlikely to be in it for the money; but they do want to make a difference.

“If you are unable to find projects for these people, they are going to look at the private sector,” he said. “And if they do, all the good work that was done during the pandemic to build capacity will vanish. Even if you get the money to run projects, the ability to execute them will vanish.”

This could be a particular problem if the NHS does embark on a new round of EPR deployments. Vendors will need project managers, configuration and implementation experts – and be in a position to offer them better wages, work locations and hours than buyers.

On one level, Rizwan Malik argued this might not matter. “It’s time to over the ‘us’ and ‘them’,” he argued. “We just need to get people into the right places, doing the right things, to get the job done.” On another level, it could further impact the market. “The temptation becomes to buy something off the shelf that seems to do the job, even if it doesn’t do it all that well, instead of working with people to get something really good.”  

What would a better financial regime look like?

Almost every observer of the NHS and social care argues that they need a more stable policy environment in which to operate, with cross-party agreement on what they should be looking to achieve for communities and patients across the UK.  

This would make it easier for government to work with central and local organisations on long-term investment plans and for suppliers, including health tech companies, to draw up roadmaps that align with them. However, with the Department of Health and Social Care on its fourth secretary of state this year, and the Treasury about to deliver its second Budget in three months, this looks less likely than ever.

Instead, the financial hokey-cokey looks set to continue; or get more frenetic. In the first meeting, Neil Perry suggested companies might be able to help organisations to step out by finding additional sources of funding: such as research, or making use of the data in IT systems, or generating efficiency savings.

However, he said companies needed to be realistic. “We get a lot of small companies coming to us saying they can solve a problem,” he said. “They might say they have an AI that can read chest x-rays. But a chest x-ray will be just one piece in the puzzle that is a patient pathway.

“Small companies need partners, so they can talk about the whole puzzle, and put together a business case that looks at the whole system cost.” Meanwhile, Andy Kinnear argued that if there is any upside to the current situation, it could be that “things are finally bad enough” to drive change.

For example, he argued there are savings to be made in organisations sharing support services, infrastructure and major IT systems; and in implementing the kind-of self-serve technology that is common in retail and banking for tasks like obtaining advice or making bookings.

“Perhaps services have to feel the pinch to make them work together and to do things in a different way – one that patients might quite enjoy,” he said. “But the downside is that the service the NHS provides is so critical that if the financial pinch hits harder it will start impacting on things that are mission critical.

“So, I’m torn between seeing positives for the long-term and negatives for this winter; and the question is how we can get from one to the other without putting lives at risk.”