The Catch-22 of performance and penalties

It’s been over a month since the sobering news that the NHS provider deficit had reached £2.45bn at the end of the 2015/16 with 65% of all providers in the red.

Having recently joined the Health Foundation from providerland I know how hard it feels out there at the moment. So I was particularly struck to see that the second biggest source of the deficit amongst providers was attributed to financial penalties - £498m removed from providers due to not meeting national targets for care.

This comes at the end of a financial year that’s been described as the ‘hokey cokey' of financial sanctions policy. At the start of 2015/16 commissioners’ ability to waive fines was removed. They were, however, encouraged to invest the monies back into providers to help rectify the issues that gave rise to the sanctions.

But in January 2016, with the financial positioning worsening, the direction changed again. Commissioners were now instructed to either retain the fines to put against their own bottom line or put them against the provider’s deficit.

That fines accounted for about a fifth of the overall provider deficit reveals where the financial pain of this approach was most keenly felt. Not investing the fines made the provider deficit larger while improving the commissioner position. What will this have done to already tricky relationships between some providers and commissioners?

This year-end deficit position comes in tandem with performance results which, although still pretty good by international standards, are below what the NHS is expected to achieve. Emergency department performance was the worst since 2003/4. Whilst the waiting list for elective treatment rose by 17% to 3.7 million patients– the highest level since 2007. Is retaining financial sanctions a constructive way to deal with organisations that already appear to be struggling? 

A possible consequence of using financial sanctions as a crude mechanism to try to achieve financial balance is trapping providers in a Catch-22 of poor performance and penalties. Fined for poor performance but unable to invest in actions to support improvement, organisations could then be fined again and thus it continues. This is unlikely to improve the quality of care for patients – the original purpose of the target and a larger provider deficit does nothing for the overall financial position of the NHS.

The situation therefore requires a more considered policy response that deals with the underlying causes of these issues.

In our work On Targets we suggested that ‘intelligent performance management’ has potential to provide challenge and focus providers on key areas of quality. By this, we mean that performance measures such as financial sanctions need to come hand in hand with proactive support to remove the barriers to, or provide enablers for, improved delivery. It also requires constant consideration of whether the target is still fit for purpose and how to mitigate any unintended adverse consequences the target has caused in practice.

Source: The Health Foundation On Targets: How targets can be most effective in the English NHS. October 2015.

So what for the future?

The instruction to commissioners to not reinvest fines only applied until 31 March 2016, and the end of 2015/16. So the revised contract for 2016/17 offers an important opportunity to de-escalate any provider/commissioner tensions over the use of financial sanctions.

The new contract gives commissioners the option to agree performance trajectories in collaboration with providers as part of sustainability and transformation fund plans. This means commissioners can apply sanctions against a recovery trajectory rather than a fixed operational target. This could support a more open and constructive dialogue between different organisations.

Looking forward, the desired move to a more integrated approach to health care increases the complexity of performance management arrangements. Well-intentioned measures to balance the books in the short-term could act as a substantial barrier to provider organisations meaningfully engaging with partners across the system.

Policymakers should take heed of the Policy Innovation Research Unit’s evaluation of the integrated care pioneers programme, which offers an early warning on this. Participants described a focus on short term financially driven goals as all-consuming and a barrier to engaging in wider transformation efforts.

Provider finances are not looking bright for 2016-17. As the sector is squeezed further there may be a temptation to revert to stricter financial penalties later in the year. The inherent risk is that the NHS hits the financial target for commissioners, but misses the point.

My plea is that policymakers must consider the potential impact this will have in the longer-term. Following the EU referendum vote the NHS faces further uncertainty. Although the impact of leaving the EU is unknown if economic growth does diverge from government’s forecasts  it is likely to have implications for total government spending which may in turn have implications for the NHS budget. In the midst of this uncertainty it is increasingly important for the whole of the NHS to meet challenges together not argue over penalties.

Trapping providers’ in the Catch-22 of performance breaches and financial penalties is not the answer to creating a sustainable system.

Anna Starling is a Policy Fellow at the Health Foundation