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Monitor's letter is a reminder of how high the stakes are

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The NHS is facing a stark choice between limiting the deficit and maintaining performance levels. The outcome could profoundly affect the service’s future funding

Yesterday marked the closing date for those wanting to apply for the chief executive position at NHS Improvement – the successor body for Monitor and the NHS Trust Development Authority.

Those applicants would be forgiven for looking at the joint Monitor/TDA communication issued to trusts on the same day and wondering what they were, potentially, getting themselves into.

The contents of the Monitor/TDA letter would surprise few leaders of struggling NHS trusts, who already understand the centre requires them to do all it can to minimise deficits. But the timing and nature of the letter does highlight the starkness of the choices facing the service.

The letter has emerged from a period of to-and-fro over the last six months between the Department of Health, NHS England and the two provider regulators.

These negotiations became intense in July, with last week described as “a shitstorm” by one participant.

The £1bn deficit ceiling

The context for the negotiations is the determination by the DH and NHS England to keep the provider sector deficit at around £1bn – the same level as last year – as part of the “bargain” they have struck with the Treasury over the funding of the NHS Five Year Forward View. Pressure has been put on Monitor and the TDA to effectively demand this from providers, with the leadership of both regulators questioning the practicality of this approach while the government refuses to relax performance targets in any significant way.

‘The resulting letter is a classic Whitehall compromise’

The resulting letter is a classic Whitehall compromise; reminding deficit trusts of their duties; making it crystal clear to clinical commissioning groups that “we’re all in it together”; and asking – more in hope than expectation – for the few trusts in surplus to further improve their position.

Staffing caution

There is a belief at the centre that trusts are being over cautious on staffing levels – and therefore spending more money, especially on agency staff, than they need to. However, without the publication of clear guidance the regulators can only make vague noises about staffing their departments in a “proportionate and appropriate way”.

Ministers have privately accepted the NHS will continue to struggle on A&E for the remainder of this year, but are understandably nervous about acknowledging and therefore implicitly accepting any underperformance – so allowing savings to be made. The shortage of doctors and, especially, nurses means that trying to increase revenue through taking on more elective work is either impossible or hugely expensive.   

What happens next may well define NHS fortunes until well into 2017.

One possible, even likely scenario would see the DH and NHS England finally accept that a £2bn deficit in 2015-16 is unavoidable some time in September.

In-year bailout

The negotiations would then switch to a debate between the Treasury on one side and the DH/NHS England on the other. The Treasury may well argue that at the start of five year fixed term Parliament some relaxation in performance is acceptable to recover finances, on the basis that there is plenty of time for waiting times and other clinical indicators to improve.

If Jeremy Hunt and Simon Stevens stick to their guns on performance then they may find themselves in the awkward position of having to ask for an in-year bailout of around £500m - or more if the restrictions on use of temporary staffing do not deliver promised savings.

Remembering that this conversation would take place alongside negotiations over the £8bn pledged for the NHS in this year’s autumn statement is areminder of how high the stakes are for the service, the government and the country.

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