Funding allocation for smaller hospitals and health services in rural areas 

NHS England is responsible for determining allocations of financial resources to Clinical Commissioning Groups (CCGs). This constitutes the majority of NHS spending. This funding is distributed using a formula that seeks to “make geographic distribution fair and effective so it more clearly reflects local healthcare need and helps to reduce health inequalities”.

The Allocation formula for 2019-20 to 2023-24 included elements to take account of the  higher costs of providing costs for emergency ambulance services in sparsely populated areas, and an adjustment for the higher costs for unavoidably small hospitals in remote areas providing 24 hour accident and emergency services (NHS England, Equality and Health inequalities analysis for 2019-20 to 2023-24 revenue allocations to CCGs, January 2019, p4). 

The Advisory Committee on Resource Allocation, responsible for developing the definition of “unavoidably small” notes the following on “costs of unavoidable smallness” in its Technical guide to allocation formulae and pace of change For 2019/20 to 2023/24 revenue allocations:

 2.3.10 Costs of unavoidable smallness

In the formula for CCG core allocations there is an adjustment for the higher costs of running unavoidably small hospitals with 24-hour A&E departments in remote areas. These hospitals are typically unable to achieve the same economies of scale as other hospitals. The adjustment is based on modelling the costs at site level for all hospitals to give a ‘cost-curve’, showing the estimated relationship between the size of hospitals and costs. Criteria were developed to identify the hospitals that were unavoidably small due to remoteness. These were based on the size of the population served being relatively small, and travel times to other hospitals being relatively long. The ‘costcurve’ gave the estimated higher costs for the remote hospital sites. The EACA [emergency ambulance cost adjustment] and the adjustment for the costs of unavoidable smallness due to remoteness capture higher costs over and above those covered by the MFF [market forces factor]. (p.13)

These definitions on remote hospitals were developed in the Advisory Committee’s 2015 document 24B: Unavoidable smallness due to remoteness: Identifying remote hospitals

These criteria were used to identified 7 CCGs and 8 hospital sites (ACRA(2015)24BA, 21 October 2015).

These included hospitals in Morecambe Bay, North Cumbria, Isle of Wight, North, East and West Devon, Herefordshire, Lincolnshire East and Scarborough and Ryedale CCGs. The extent of their funding adjustments were published in May 2019 (NHS England, Technical guide for the allocation formulae and pace of change, May 2019, 5.4.4). The next smallest providers, receiving no funding adjustments, were in West Norfolk and Kernow CCGs (ACRA(2015)24BA, 21 October 2015).

On reviewing the formula further, the Advisory Committee concluded in January 2019 that it was “unable to find evidence of [additional] unavoidable costs faced in remote areas that are quantifiable and nationally consistent such that they could be factored into allocations” (NHS England, Note on CCG allocations 2019/20-2023/24, January 2019, p13).

A new Community Services Formula was introduced for the 2019/20 allocation round. This formula seeks to recognise the “needs in some rural, coastal and remote areas that on average tend to have much older populations, and higher needs for certain community services” (PQ 323, 20 December 2019). The Community Services formula is a component of the CCG core service target formula, covering district nursing, intermediate care, podiatry and children’s services (NHS England, Community services allocations formula for 2019/20 to 2023/24 revenue allocations, November 2019). The Advisory Committee has stated it plans to explore changes to the model to better take account of increase travel times and costs by community nurses (NHS England, Note on CCG allocations 2019/20-2023/24, January 2019, p13).

NHS England’s statutory guidance, Patient and public participation in commissioning health and care (2017) states that considering how a population in a rural area may be affected by a change to NHS services should be taken into account when making decisions on patient involvement:

Location, access and demographic issues need to be taken into account, for example, considering how a population in a rural area or how children and young people may be particularly affected by a change to services. These issues also need to be considered when planning participation itself. For example, in a small market town it may be best to carry out surveys on a market day when there are more people around than on other days (p.26).

The NHS guidance note for GP Practices serving atypical populations (2016) also notes that rural areas place additional pressures on GP services:

Public transport makes it difficult for patients to attend outpatient departments and other health facilities. As a result, some patients tend to rely on practices to provide a wider range of services than is normally regarded as ‘core’ general practice and staff require regular training to maintain their skills for providing first response in the absence of A&E. It may be hard to measure this effect but it can be summarised as a greater independence by patients from hospital care and a higher level of intervention and support from the practice (p.9)

The NHS Long Term plan and service delivery in smaller acute hospitals

The NHS Long Term Plan (January 2019) set out a 10-year strategy for the NHS in England. On smaller acute hospitals, the Plan stated that NHS would develop a standard model of delivery in smaller acute hospitals serving rural communities:

1.32. 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.

Nuffield Trust comment on smaller hospitals

The Nuffield Trust has produced several reports and articles on the importance of smaller hospitals, and highlighting the specific challenges they face. In February 2020 Louella Vaughan, a senior clinical research fellow at The Nuffield Trust and consultant physician in acute medicine at The Royal London Hospital, published an editorial in Future Healthcare Journal  (Vaughan L (2020) “Why bigger isn’t always better: Caring for patients in smaller, rural and remote hospitals”, Future Healthcare Journal editorial / “Smaller hospitals: deserving of support at every level”, Nuffield Trust comment). In the latter, she noted that:

Smaller hospitals provide care to nearly half the population of England and are often the linchpin of rural communities. Yet their position is precarious despite recent pledges to tailor operating models to meet their needs more equitably.

In October 2018, the Nuffield Trust published a report on Rethinking acute medical care in smaller hospitals. This report was preceded by a summary of findings from a survey of smaller acute hospitals, see the Nuffield Trust website for further information. 

UK Parliament Proceedings


Parliamentary Questions

Health Services: Rural Areas

6 March 2020 | 26139

Asked by: Jeremy Hunt

To ask the Secretary of State for Health and Social Care, with reference to the recommendations contained in the report of the Morecambe Bay Investigation, published in March 2015, what assessment his Department has made of the implications for his policies of the recommendation that NHS England should consider extending the review of requirements to sustain safe provision to other services to develop and promote a positive way of working in remote and rural environments.

Answering Member: Helen Whately

The National Maternity Review report, ‘Better Births – Improving outcomes of maternity services in England, A Five Year Forward View for maternity care’ reviewed maternity services across the country including in rural and isolated areas.

In the 2016/17 clinical commissioning group allocations, NHS England made a change to the allocation funding formulae for remoteness. In part, this funding recognises that services in remote areas, including maternity services, have unavoidably higher costs because the level of activity is too low for services to operate. Further, we know that the challenges faced by services in remote areas are broader than funding which is why we committed in the NHS Long Term Plan to develop new operating models for rural hospitals, as well as to reduce geographical and specialty imbalances in medical posts. As part of this, NHS England and NHS Improvement is working with 35 smaller acute hospitals and local systems leaders to identify and accelerate the spread of new delivery models through peer learning and in partnership with national stakeholders, including the Care Quality Commission and Royal Colleges.

NHS Finance

20 December 2019 | 323

Asked by: Rachael Maskell

To ask the Secretary of State for Health and Social Care, when the basis for the NHS funding formula was last reviewed.

Answering Member: Edward Argar | Department of Health and Social Care

NHS England is responsible for funding allocations to clinical commissioning groups. This process is independent of government and NHS England takes advice Advisory Committee on Resource Allocation (ACRA). The underlying formula and data are kept under review and changes made in line with CCG allocations.

In 2019/20 these changes included the introduction of a new community services formula, that has the effect of better recognising needs in some rural, coastal and remote areas that on average tend to have much older populations, and higher needs for certain community services.

Further information on ACRA’s priorities for methodological improvements in the next round of allocations was set out in the Chair of the committee’s letter to the Chief Executive of NHS England. Further information can be found in NHS England’s supporting ‘Note on Clinical Commissioning Group (CCG) Allocations 2019/20-2023/24’ at Annex A, at the following link:

Topical Questions [Department of Health and Social Care]

23 July 2019 | HC Deb vol 663, c 1209

Asked by: Kevin Hollinrake

Has the Secretary of State given further consideration to providing extra funds to meet the challenges of running unavoidably small hospitals, such as Scarborough and the Friarage in Northallerton?

Answering Member: Stephen Hammond | Department of Health and Social Care

My hon. Friend has campaigned on this matter for a while, and I was pleased to meet him to discuss it earlier in the year. We absolutely recognise the challenge that small acute providers face, and over the past two years the Advisory Committee on Resource Allocation has been considering how we might meet that challenge. The committee has endorsed a new community services formula to reflect the pressure in remote areas, which may help the two hospitals mentioned by my hon. Friend.

NHS Long-Term Plan: Implementation

1 July 2019 | HC Deb vol 662, c 943

Asked by: Mr Bob Seely

I thank the Secretary of State for his announcement. I have two questions. First, do he and his Department accept that there are additional costs in providing healthcare on an Island that is of an equal standard to that provided elsewhere? Secondly, will he and his officials agree to meet Island officials to discuss plans for a pilot scheme to help integrate healthcare, adult social care and other local government services to ensure maximum efficiency ​in the delivery of services, as my hon. Friend the Member for Kettering (Mr Hollobone) just talked about, and to ensure that as much money as possible goes to frontline services?

Answering Member: Matt Hancock | Department of Health and Social Care 

Yes, I shall be happy to ensure that that meeting happens. As for Island healthcare costs, my hon. Friend is right to say that the Isle of Wight is unique in its health geography, and that there are places in this country—almost certainly including the Isle of Wight—where healthcare costs are higher because of the geography. There is a programme for smaller hospitals that are necessarily smaller because of the local geography, as they need special attention.

As I have said, I shall be happy to ensure that the meeting goes ahead, and I shall continue to talk to my hon. Friend, who makes the case for the Isle of Wight better than any other.

Health Services: Rural Areas

21 January 2019 | PQ 210627

Asked by: Anne Marie Morris

To ask the Secretary of State for Health and Social Care, what discussions (a) his Department and (b) the NHS have had with their counterparts in (a) Scotland, (b) Wales and (c) Northern Ireland in relation those administration’s policies on tackling rural health inequalities.

Answering Member: Jackie Doyle-Price | Department of Health and Social Care

Although overall health outcomes are better in rural than urban areas, the Government recognises the specific challenges that rural areas face and the potential for certain health inequalities to develop. The Department continues to take a systematic approach to tackling health inequalities, and is committed to engaging with a range of stakeholders including the devolved administrations; encouraging spread of best practice and considering the wider drivers of ill-health in remote settings.

Within England, the NHS Long Term Plan sets out how the National Health Service will develop over the coming years and take stronger action surrounding health inequalities, including eliminating variation in quality of care across the country, building a workforce for the future, and embracing the opportunities of technology for rural communities.

NHS England has committed to continuing to ensure a higher share of funding goes towards geographies with high health inequalities than would have been allocated using solely the core needs formulae. This funding is estimated to be worth over £1 billion by 2023/24. All local health systems will be expected to set out during 2019 how they will specifically reduce health inequalities by 2023/24 and 2028/29. These plans will also, for the first time, clearly set out how those clinical commissioning groups benefiting from the health inequalities adjustment are targeting that funding to improve the equity of access and outcomes.


PQ 53723 | 18 November 2016

Asked by: Mr Nigel Evans

To ask the Secretary of State for Health, what steps his Department is taking to encourage more effective acute stroke services through their reorganisation.

Answering Member: Mr Philip Dunne | Department of Health and Social Care

NHS England’s National Clinical Director for stroke continues to work with Clinical Networks, Urgent and Emergency Care Networks, Clinical Commissioning Groups (CCGs) and Sustainable Transformation Plan (STP) areas on how stroke care is best delivered to their local communities.

Plans are at various stages of development for reorganisation of acute stroke services around the country but nearly all areas have work ongoing to address the major issues which are to continue to provide high quality specialist stroke care 24 hours a day, seven days a week. These plans have involved CCGs, STP areas, urgent and emergency care networks, clinical networks and providers.

Different parts of the country will need different models of care because of geographical differences and the current structure of services. Major reconfiguration of services will always require careful planning and consultation with the local community and the providers and these processes are taking place.

In some places, this is ‘the London type model’ of focussing care in a small number of centres and equipping these to be able to deliver specialist care 24/7. In other parts of the country, centralisation of care into specialist centres is not feasible for geographical reasons and in these cases alternative solutions, such as the use of telemedicine, will need to be considered. Whatever the case, NHS England is fully committed to ensuring that all patients receive the best quality of care and the most up to date treatments.

NHS Finance

PQ 32944 | 8 April 2016

Asked by: Nigel Adams

To ask the Secretary of State for Health, what (a) demographic factors, (b) deprivation level factors and (c) factors of difference in distance from target market forces he took into account when determining the funding allocated for (i) Vale of York CCG, (ii) NHS West Cheshire, (iii) NHS North East Essex, (iv) NHS South Warwickshire, (v) NHS Canterbury and Coastal, (vi) NHS Lincolnshire West and (vii) NHE East Riding of Yorkshire.

Answering Member: Alistair Burt | Department of Health and Social Care

Responsibility for clinical commissioning group (CCG) allocations rests with NHS England and the funding allocated to all CCGs is based on the CCG allocations formula. This is based on advice provided by the Advisory Committee on Resource Allocation (ACRA). ACRA is an independent committee and reports jointly to the Secretary of State for Health (in regard to public health allocations) and NHS England in regard to CCG and primary care allocations. The formula was initially approved by NHS England in 2013 and they have now reviewed and updated the formula for 2016-17 onwards.

The formula is based on the size of the population of each CCG and adjustments, or weights, per head for relative need for health care services and unavoidable costs between CCGs. The weights per head are based on the following:

― need due to age (typically, the more elderly the population, the higher the need per head, all else being equal);

― additional need over and above that due to age (this includes measures of health status and a number of proxies for health status such as deprivation);

― an adjustment for unmet need and health inequalities;

― unavoidable higher costs of delivering health care due to location alone, known as the Market Forces Factor (this reflects that staff, land and building costs are higher in for example London than other parts of the country); and

― an adjustment for the higher costs of providing emergency ambulance services in sparsely populated areas, and an adjustment for the higher costs of unavoidably small hospitals with 24 hour accident and emergency services in remote areas.

The final step of the allocations process is to determine how quickly to move CCGs from their current allocation to the target allocation determined by the formula. The objective is to reduce the ‘distance from target’ so that areas furthest below their target allocation receive the biggest increases. This needs to balance against the need to ensure service stability for those areas above target, and that increases are not so large that resources are not used efficiently. The approach also takes account of the distance from target in each area for primary care and specialised services so that the overall funding position for the area is taken into account.

NHS England recently published a technical guide to allocations which sets out all the individual factors used in determining the allocation levels. The guide is available here:


Further Reading

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