Written evidence submitted by The HFMA (DHS0023)

About the HFMA

The Healthcare Financial Management Association (HFMA) is the professional body for finance staff in healthcare. For over 70 years, it has provided independent and objective advice to its members and the wider healthcare community. It is a charitable organisation that promotes best practice and innovation in financial management and governance across the UK health economy through its local and national networks.

The association also analyses and responds to national policy and aims to exert influence in shaping the wider healthcare agenda. It has particular interest in promoting the highest professional standards in financial management and governance and is keen to work with other organisations to promote approaches that really are ‘fit for purpose’ and effective.

The HFMA offers a range of qualifications in healthcare business and finance at undergraduate and postgraduate level and can provide a route to an MBA in healthcare finance. The qualifications are delivered through HFMA’s Academy which was launched in 2017 and has already established strong learner and alumni networks.

Our response

Our response focuses mainly on the funding and resourcing of these commitments. Our members’ concerns are summarised below.

The complexity of the health service in England

While we talk of the NHS, the reality is that it is not one single organisation but a group of over 400 separate organisations established by different legislation. Each organisation will have its own structure, governance arrangements and strategic aims. Sitting outside of the group are other healthcare providers such as general practitioners who are independent contractors. Until this year, there was not statutory requirement for these organisations to work together, indeed competition was a requirement.

This complex group structure means that any nationwide commitment made by the government must be implemented by multiple organisations. It will take time for national commitments to work through the organisational structure, particularly where they do not align with NHS bodies’ own strategies.

From a financial perspective, any associated funding is given firstly to the Department of Health and Social Care and then allocated through NHS England and integrated care boards before it gets to patient facing provider bodies. Before the funding can be spent, organisations usually have to submit a bid and/ or a business case setting out how the funds will be used and the patient benefit that will be achieved. Those bids/ business cases then have to be assessed, which increases the time it takes for funds to reach the front-line organisations that will implement these commitments.

It is important that this context is understood when considering whether government commitments have been achieved.

Timing of funding

Public sector budgeting rules mean that there is very little scope for funds to be carried between financial years. It is therefore important that NHS bodies know the funding available to them before the start of the financial year so they can plan to use those resources in the best possible way. However, funding for specific government commitments is often made available part way through the financial year with the requirement that it is spent by the year-end. As indicated above, the process of approving and allocating funding in the NHS takes time to work through the organisational structure.

Once funds reach NHS bodies, there are still internal governance and procurement rules to follow. This all adds time before contracts are signed and goods/ services are delivered, and new arrangements are implemented. For digital projects, the current shortages of electronic parts means that lead time between ordering and supply exacerbates this problem. For capital projects, HFMA members and NHS auditors are reporting an increase in the use of arrangements such as vesting certificates, which means that goods that are still held by the supplier or an intermediary are paid for before delivery to secure them in the appropriate financial year. Using these certificates to ensure delivery of scarce goods is appropriate but they should not be used simply as a mechanism to make a capital payment in the appropriate financial year.

Current inflationary pressures mean that the cost of projects at delivery stage is higher than the original plan/ bid which is a cost pressure that NHS bodies have to manage from their existing resources. The length of time between announcement, bid/ plan and receipt only makes this situation worse.

Without flexibility to defer using the funds, there is a real risk that scarce resources will not be used in the best possible way because limited options are available within the timescale.

Members are also reporting that sometimes the timing of funding does not align with their own plans. One director of finance recently reported that the funding they were allocated in 2022/23 to be spent that year was for a whole programme, but their spending profile was for the programme to be delivered over two years. They now have to either move forward their plans or allocate the funding to other schemes that are planned for delivery this year. The second option may not be available where the funds come with conditions.

Purpose of funding

It is difficult to track funding from government announcements to the NHS bodies that incur the expenditure. This is particularly the case for complex capital projects. Partly this is due to the amount of time between announcement and the allocation of funds, for example, NHS bodies are still waiting to receive sustainability and transformation partnership (STP) capital allocations announced in 2018[1].

Sometimes funds are added to general allocations and the requirement to meet the government commitment is set out in operational guidance such as the planning guidance. This means that there is a disconnect between the funding and the commitment because it is not always clear that the two are linked and the funding is not ringfenced. Sometimes, NHS bodies are asked to bid for additional resources in line with government announcements. Often this means that bids must be prepared quickly to meet a tight deadline. It also means that the organisation’s own priorities are put at risk unless the announcement aligns to their existing plans.

On a practical note, our members who work in finance report that it is not always clear what funding is available for them to bid for and what the funds are to be used for - this is because often communications around digital initiatives go to chief information officers.

Communication around government commitments and associated funding needs to reach all members of the executive team so it can be cascaded appropriately through organisations.

Type of funding

Often funding for digital initiatives specifies that it is only to be used to fund capital expenditure. Particularly where the funding is in the form of public dividend capital, NHS directors of finance are required to certify that it will be used only to finance capital expenditure in order for the funds to be released. However, unless the funding is for the direct purchase of a specific asset, all initiatives are likely to include revenue costs as well as capital[2]. For example, there will be training costs, dual running costs or configuration costs that are revenue in nature.

For digital projects, suppliers are moving to a software as service delivery model which does not usually meet the definition of capital expenditure. In order to prepare true and fair accounts, NHS finance teams need to assess whether expenditure is capital or revenue by applying principles-based accounting standards[3]. They will use their professional judgment to assess the substance of the transaction based on the terms and conditions of the arrangement entered. Our members have turned down capital funding simply because the projects it is intended to fund are not capital. Our evidence to the select committee[4] sets this issue out in more detail.