What more can be done to address the “unavoidable smallness due to remoteness” of delivering health care in rural areas?

That it costs more to deliver health and care in rural areas is well-rehearsed among RSN members. But how much more does it actually cost to deliver in rural areas and are these costs recognised in current funding formulae?
Jessica Sellick investigates.

How much funding is available for the NHS and where does it come from?

The vast majority of funding for the NHS comes from taxation, with a small amount from National Insurance contributions. Some funding is also generated from charges from prescriptions, dental treatment and spectacles – although these user charges amount to less than 1.1% of the budget. The NHS also generates some income itself (e.g. through parking charges).

The Government publishes a Mandate for NHS England before the start of each financial year. This document  sets out what the Government wants NHS England to deliver over a given year with the money it receives. In 2018-2019 NHS England is receiving some £114 billion mandate funding. Of this total, £75.6 billion is being allocated to Clinical Commissioning Groups (CCG), £17.7 billion to specialised services, £8.1 billion to General Practice, £6.7 billion to other direct commissioning, £2.5 billion to the Provider Sustainability Fund, £1.1 billion to transformation, £0.7 billion to NHS England programmes, £0.5 billion to NHS England running costs, £0.4 billion to a Commissioner Sustainability Fund, £0.4 billion for drawdown and £0.3 billion for other services/activities.

The running costs for NHS England for 2018-2019 have been set at £508 million. From this figure, £215 million is being allocated to operations and information, £73 million to transformation and corporate operations, £64 million to primary care support, £43 million to depreciation, £30 million to finance, £18 million to NHSE Core Contracts, £17 million to specialised commissioning, £11 million to strategy and innovation, £8 million to nursing, £6 million to medical, £1 million to board and chief executive and £22 million to other activities. 

In March 2018, NHS England and NHS Improvement announced some key steps to bring the two organisations closer together. While the statutory framework prevents these organisations from formally merging, functional integration (i.e., of regional teams led by a single Regional Director) and increased alignment of national programmes and activities will be undertaken to improve integrated working. These charts illustrate the new national and regional management structure. In May 2018, NHS England and NHS Improvement held their first joint board meeting. The financial changes presented and discussed included both bodies introducing a single financial and operational planning process for the health system and the appointment of a new Chief Financial Officer to ensure ‘effective use of national resources at areas of need.’

In  Budget 2018, the Government set out its commitment to increase NHS England’s budget by £20.5 billion by 2023-2024. This equates to a 3.4% increase per year, on average. This figure includes an additional recurrent £1.25 billion on top of a core revenue increase to cover NHS employer pension contributions. All of this means, in practice, that NHS England’s 2018-2019 budget of £114 billion will rise to £149 billion by 2023-2024.  

On 7 January 2019 Simon Stevens, Chief Executive of NHS England launched The NHS long-term plan. Over the next 10 years, the plan aims to save half a million more lives through taking practical action on major physical health conditions (e.g. heart attacks, strokes, respiratory conditions, cardiac care, and cancer) alongside investment in mental health services. The plan includes a renewed focus on using the latest technology and ‘prevention’ to help people live healthier lives so that they do not develop life threatening or limiting conditions.

While the NHS is expected to be in balance in 2018-2019 [by this Government means health providers and commissioners will have eliminated deficits]; the long-term plan contains a commitment for NHS providers to be in balance by 2020-2021 and for all NHS organisations to be in balance by 2023-2024. To achieve this, the plan sets out proposals for NHS Improvement to ‘deploy an accelerated turnaround process in the 30 worst financially performing trusts’, the creation of a new financial recovery fund, and initially £1.05 billion provided to trusts in deficit that sign up to control totals with NHS Improvement. The joint board meeting between NHS England and NHS Improvement in September 2018 included a work stream on ‘finance and efficiency’ to ensure a shared 20% efficiency commitment and establishing a finance operating system for both organisations.  

From looking at all of these figures what is emerging here is a shift in financial support for the NHS – with a focus on annual efficiency gains, improvements in productivity, of meeting (population) demand more appropriately through prevention and providing care closer to home (freeing up hospital beds) and integrated working (across and within organisations at local, regional and national levels).

(How) is ‘rural’ taken into account in funding formulae?

The Advisory Committee on Resource Allocation (ACRA) is an independent committee that ‘makes recommendations on the preferred, relative, geographical distribution of resources for health services.’ Set up in September 1997, ACRA is a successor body to the Resources Allocations Working Group (RAWP) which dates back to 1976. ACRA makes recommendations to both the Secretary of State and the Chief Executive of NHS England. This includes making recommendations on the ‘weighted capitation formulae’ which sets target shares of the national budgets for local areas – focusing on reflecting the best estimates of (i) the relative need for health services and (ii) the relative unavoidable differences in the costs of providing these services. ACRA also seeks to review evidence and develop statistical models of need for health care. ACRA does not advise on the size of health budgets, which is determined by Government.

In 2015, ACRA analysed the potentially higher costs faced by hospitals which are ‘unavoidably too small to achieve full economies of scale.’  The technical term ‘unavoidable smallness due to remoteness’ applies to hospitals which serve a population of under 200,000 people [the minimum population required to achieve economies of scale]; and for these hospitals, the proportion of the population they serve for whom the next nearest hospital is more than 60 minutes driving time away [the maximum travel time for clinical safety reasons for emergency care].  The analysis identified 12 hospitals which fitted the unavoidable smallness criteria: St Mary’s Hospital (Isle of Wight), North Devon District Hospital (Barnstaple), Furness General Hospital (Barrow), West Cumberland Hospital (Whitehaven), Pilgrim Hospital (Boston), Hereford County Hospital (Hereford), Cumberland Infirmary (Carlisle), Scarborough General Hospital (Scarborough), Hexham General Hospital (Hexham), Dorset County Hospital (Dorchester), Royal Shrewsbury Hospital (Shrewsbury) and Friarage Hospital (Northallerton). Cornwall and North Norfolk did not feature in this list and ACRA undertook further analysis of these two areas. North Norfolk has providers located in Norwich and Kings Lynn (served by Norfolk and Norwich University Hospital and the Queen Elizabeth Hospital in Kings Lynn); and in Cornwall the majority of the 420,000 population are able to access Treliske Hospital in Truro or Derriford Hospital in Plymouth in less than one hour. However, if the ‘unavoidable smallness due to remoteness’ reduced this journey time from 60 minutes to 45 minutes, while it has relatively little effect on which providers serve a remote population it does have a significant impact on the proportion of the population that is remote. ACRA cite Furness Hospital where the proportion of the population considered remote would increase from 60% at 60 minutes to 90% at 45 minutes and 100% at 30 minutes. 

In 2016-2017 seven CCGs covering eight remote hospital areas received an additional £31.2 million to take into account their unavoidable smallness. This figure will increase by 6% to £33.1 million in 2018-2019. The allocation of this funding amongst the eight remote areas ranges from £2.8 million in Scarborough and Ryedale CCG to £8.9 million in North Cumbria CCG. The largest single adjustment is a 2.8% increase for the Isle of Wight.

In October 2018 NHS England and NHS Improvement set out proposals to change the payment system in 2019-2020. This included proposals to update the Market Forces Factor (MFF). The MFF estimates the ‘unavoidable cost differences between healthcare providers based on their geographical location’ and has not been updated in 10 years. The main changes in the MFF relate to: using travel to work areas (TTWA) rather than primary care trust (PCT) areas to estimate the non-medical-and-dental staff component; introducing business rates as a new component; and using a more consistent method to combine components into a single index. However, MFF is not seen as the most appropriate mechanism for costs relating to ‘rurality/remoteness’. Instead the recommendation is that “these costs should be compensated via local arrangements to reflect the existing national rurality adjustment to CCG allocations” (page 30).

In autumn 2018 the Nuffield Trust was commissioned by the National Centre for Rural Health and Care (NCRHC) to explore the impact of rurality and sparsity on the costs of delivering rural health care. This review looked at the key factors for calculating health allocations to local areas: with adjustments in funding made for population need, unmet need/inequalities, costs and financial stability. The key determinant here is population and demographic needs within a given area. A further adjustment is made for the higher costs of running hospitals with 24-hour A&E departments in remote areas. Funding from CCGs to rural areas makes adjustments for (i) the extra cost of ambulance provision and (ii) an allowance for remoteness. However, these two factors are outweighed by a further two factors (iii) market forces and (iv) health inequalities. The impact of iii and iv sees the total budget for core services move around £600 million of funding from predominantly rural areas to urban and less rural areas. Nuffield’s analysis further reveals how six rural hospital trusts carry a quarter of England’s health service’s funding deficit.

Data provided to the Nuffield Trust by NHS Improvement suggests that, to November 2018, 17 trusts had applied for local modifications. Of these applications, the majority (11 applications) are for rurality (or sparsity/economies of scale); with the remainder consisting of rationale relating to case-mix complications (2), Private Finance Initiatives or estates (2), A&E services (2), and clinical negligence scheme costs (1). To date, only one trust, Morecambe Bay, has been successful in its request for formal compensation for higher costs due to rurality.

Indeed, when CCGs make any adjustments for the actual amount of funding an area receives they follow a ‘pace of change policy’ in their allocation formulae. This is a determinant of how far CCG areas are moved closer to their target allocation each year through differential growth – and it intended to provide stability in funding for all organisations with those moving furthest under target closer towards their target. This policy is set by NHS England for NHS allocations. While the policy is intended to support a place based approach to commissioning, in practice it can also lead funding to be moved from rural to urban areas.  

The NHS Long-Term Plan contains one reference to  ‘rural’ on page 23. Section 1.32 states: “we will develop a standard model of delivery in smaller acute hospitals who serve rural populations. Smaller hospitals have significant challenges around a number of areas including workforce and many of the national standards and policies were not appropriately tailored to meet their needs. We will work with trusts to develop a new operating model for these sorts of organisations, and how they work more effectively with other parts of the local healthcare system.”

The implications of the long-term plan for rural communities highlights trade-offs between the centralisation and/or localisation of services; having a health and care workforce and meeting required safe staffing levels; specialist versus generalist staff; and face to face provision and the use of technology. 

The authors of the Nuffield Trust review conclude that “the way the NHS distributes funding between local health services is unclear, unfair and fails to fully compensate remote and rural areas for the extra costs they face”.

Moving from (acute) hospital settings to (preventive) community care?

For me, in trying to unpack and understand the funding formulae’s for NHS services what remains missing is: (1) a joined-up dialogue about funding for social care in rural areas, and (ii) a joined-up dialogue about prevention in rural areas.

In March 2017 the Government stated its intention to publish a Green Paper on social care in order to allow a public consultation to be held. Since then, the publication of the Green Paper has been delayed several times – most recently following the announcement of the NHS long-term plan.

The purpose of the Green Paper is to look at the sustainability of the care support system in its broadest sense (taking into account workforce, technology, health and other services). In December 2018 the Rural Services All-Party Parliamentary Group (APPG) published the findings of its inquiry into the future funding of adult social care in rural areas. This reveals how there are 4,615 requests per 100,000 residents for new support from clients aged 18 years and over: 16.5% greater than in urban areas (3,960 requests per 100,000 population). The gross current expenditure on support in predominantly rural areas is £210,982 per 100,000 adult population: 20% greater than urban areas (£175,877 per 100,000 adult population). The hourly rate for home care in predominantly rural areas is £16.43 per hour, 11% greater than the hourly cost in urban areas of £14.81. For many rural Local Authorities the current care support system is not sustainable.

These figures, provided by RSN members, suggests ‘unavoidable smallness due to remoteness’ is also an issue that affects the provision of audit social care.

However, these figures – and the Government’s Green Paper – do not include requests, expenditure or the costs of providing children’s services. According to the Local Government Association (LGA), in 2017-2018 there was a £816 million overspend in Council’s children’s social care budgets – with the largest overspends in the areas of looked after children and child protection. While overall spending by Local Authorities was down by £447 million on the previous year (2017-2018), spending on children’s social care increased by £368 million; meaning authorities have to divert money from other services to meet the costs of providing vital services to children and young people. The LGA estimates that children’s services are facing a funding gap of approximately £3 billion by 2025 just to maintain services at their current level.

For me this work underlines the need to have a dialogue about how much it costs to meet social care needs in rural areas (for children, young people and adults), where integration happens in delivering health and care in rural areas, and how to pay for it (before provision collapses).

The NHS long-term plan contains a substantive section on strengthening the NHS’s contribution to prevention – including programmes to cut smoking, reduce obesity, limit alcohol-related A&E admissions and to lower air pollution. In 2019, the Government will also be publishing a Green Paper on prevention. This will seek to shift health services from acute settings to community and primary care settings. Currently, £97 billion of public money is spent on treating disease and £8 billion on preventing it. The Green Paper will set out how this shift from treating single acute illnesses to promoting the health of the whole individual will be undertaken – with a mission to improve health life expectancy so that by 2035, people enjoy at least five extra years of healthy, independent life. Of particular interest to RSN members, the plans are thought to include reducing loneliness and social isolation as well as the provision of specialist mental health services. At the same time, many RSN members will be familiar with reductions in the public health grant given to Local Authorities (averaging 3.9% a year to 2020-2021) which may lead to a reduction in the quantity and quality of services available and place increased demand on treatment services.  For me, this underlines the need for a dialogue about what kinds of public health intervention are needed in rural areas, how they integrate with health and care, and where any future investment will come from.

Where next?

In April 2019 NHS England will be reviewing how allocations are made to local areas in line with its next mandate from Government. This may include seeing if the needs of rural areas are better captured through estimating the need for community services and using population data which better reflects seasonal workers. Will this result in additional allocations for rural areas?

At some point in 2019, HM Treasury will be carrying out Spending Reviews for public services. This will, ultimately, set the level of NHS funding provided by Government. This will set health funding for the 2020-2021 financial year and may possibly extend over the two following financial years as well. 

We also eagerly await the Green Papers on social care and prevention.

While there is a clear thread emerging here for providing more integrated, place-based and holistic/whole person health and care – and to getting all NHS organisations into balance - what will the resultant financial allocations mean for rural residents? Will future funding formulae offer equal access to everyone or will the financial costs of doing so in rural areas mean the same economies of scale for which we are judged against cannot be achieved? Watch this space…

The term ‘unavoidable smallness due to remoteness’ derives from NHS England’s Advisory Committee on Resource Allocation (ACRA) and provides estimates on the unavoidable costs associated with providing health care services in remote areas

The Nuffield Trust research report - Palmer B, Appleby J and Spencer J (2019) Rural health care: A rapid review of the impact of rurality on the costs of delivering health care – can be downloaded from the NCRHC website here.


Jessica is a senior research fellow at the National Centre for Rural Health and Care (which commissioned the research from the Nuffield Trust

The NCRHC has joined with the Rural Services Network (RSN) to launch the affiliated Rural Health & Care Alliance - a membership organisation dedicated to providing news, information, innovation and best practice to those delivering and interested in rural health and care across England. More information about the RHCA – and how to join – can be found here: 

Jessica is also a researcher/project manager at Rose Regeneration. Her current work includes evaluating two veteran support projects (in Cornwall and North Yorkshire); supporting public sector bodies to measure social value; evaluating a hospital avoidance service; and undertaking a piece of work on migration. In her spare time Jessica sits on the board of a housing association.  She can be contacted by email jessica.sellick@roseregeneration.co.uk, Telephone 01522 521211, Website -  http://roseregeneration.co.uk , Blog - http://ruralwords.co.uk, Twitter - @RoseRegen


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