NHS finances - under the knife

NHS finances seemed to be heading out of intensive care. After emergency
surgery, or turnaround work as finance professionals would call it, in recent
years budgetary deficits have been healed.

The Audit Commission’s latest figures show the NHS reported a surplus of
£174bn last year, which is about 2% of its spending.

Just a handful of primary care and NHS trusts failed to meet the financial
grade. But is the NHS set to relapse?

Uncertainty looms ­ whichever government comes into power it’s expected that
the department could have to make as much as £20bn in savings over the next
spending review period. And experts believe trusts have already got back into
financial difficulty.

David Morgan, MD at recruiters Morgan Law, says his business was kept busy
when appointing interim turnaround specialists into trusts to help them get
finances on an even keel ­ and now the market is back. “We placed a lot of
interims two to three years ago. Demand for these dropped but has again picked
up.”

The reason? He thinks primary care trusts are struggling again, with some in
“serious deficit”.

“These organisations need to have a close look at themselves.”

The combination of deficits, looming efficiency savings and a push to improve
clinical care has left trusts “almost paralysed”.

The alignment of care and finance is seen as fundamental going forward. If
there are cuts or efficiencies, how can finance influence the decisions made if
they don’t understand the decisions clinicians make in the wards or at A&E ­
and vice versa.

In February, an “unprecedented” joint statement was released from the
Department of Health, clinicians bodies and health finance group the Healthcare
Financial Management Association. ‘Clinicians and Finance: Improving Patient
Care’ attempts to set out a mission statement for how finance and clinicians
must work together.

Ironically, while private sector expertise helped stabilise trusts’ finances
in the recent past, Morgan believes that it requires finance experts from within
the NHS to drive closer links with clinical delivery. “[They understand the]
jargon, and are able to deal with consultants and surgeons in a frontline
situation.”

This joined up thinking is vital, says Colin Gentile, the new director of
finance for South London Healthcare NHS Trust.

The amalgamation of several south London hospitals, for which he now oversees
the numbers, saw a combined deficit reach a whopping £140m. Along with other
acute trusts, the amount they are “paid” by primary care trusts for the services
they provide is falling ­ another pressure alongside potential budget cuts.

He draws an analogy to that of a supermarket whose cost base has remained the
same in recent years but is forced to lower its prices. “We coped with that by
increasing the volume of work, but there won’t be growth in the future. The old
approach of relying on activity to grow won’t happen, so we’ll have to start
tackling the cost base.”

In the short term, the trust must stabilise its finances, but Gentile’s
long-term goal is to help transform the organisation so it can meet with what
are inevitable budget and spending constraints.

The trust has appointed a transformation director, who will work alongside
the whole board to take it forward, a strategy Gentile expects to be replicated
across the NHS. “Let’s ‘right-size’ the organisation once,” he says.

“We must work with out clinical colleagues to help shape the efficiency plans
­ plus provide top-flight financial advice. We need a plan that allows us to
design and shape the organisation so it’s robust going into the future.

“But it shouldn’t just fall on the FD’s shoulder. You need a good medical
director, nursing director, strong operating officer and FD.”

Despite the trials and tribulations, Gentile says the NHS is still a great
place to work and, in these circumstance, the finance function “comes to the
fore”.

“If you’re a good accountant and problem solver then there are always
opportunities in the NHS.”

DOOM AND GLOOM?

Despite the economic conditions and the threat of billions of pounds in
efficiency savings looming, primary care trust FDs predict a modest increase in
budgets in the short term anyway. ‘The Current and Future State of NHS
Finances’, a survey by KPMG and Dr Foster Intelligence, found 58% expect budgets
to be bigger in real terms in 2012/2103 compared to the current year, but 82%
felt their PCT was only partially prepared and needing improvement to deal with
the efficiency challenge.

KPMG partner Andrew Hine believes PCT finance directors should focus on
freezing budgets and planning ahead.

“We don’t want doctors thinking about how much it costs to treat us but, as a
whole, they need to make the money go further. Finance teams need to get the
whole system working, not just their trust.”

“FDs also need to be creative, and brief clinical leaders on the scale of the
challenge.”

South London NHS Trust FD Colin Gentile says it is key for hospitals to
understand what activities PCTs will want to ‘buy’ from them in the future. “The
task then is to design an organization within that [framework].”

NHS EXPLAINED

Strategic Health Authority

Ten strategic health authorities oversee all NHS activities in England.

Each SHA is responsible for the supervision of trusts in its area.

Primary Care Trust

Primary Care Trusts (PCTs) are in charge of primary care and have a major
role in commissioning secondary care, providing community care services. They
are now at the centre of the NHS and control 80% of the NHS budget. PCTs oversee
29,000 GPs and 18,000 NHS dentists.

NHS Trust

There are 175 acute NHS trusts and 60 mental health NHS trusts, which oversee
1,600 NHS hospitals and specialist care centres. These trusts employ a large
part of the NHS workforce, including nurses, doctors, pharmacists, midwives and
health visitors, as well as people doing jobs related to medicine.

Foundation Trust

A new system came into effect in April 2004: a foundation trust is a hospital
given more financial and operational freedom than other trusts, which the
government believes represents a commitment to de-centralising the control of
public services. The trusts are still within the NHS’ remit and face performance
inspections. There are 115 of these trusts in England.

GENTILE GIANT

With a cumulative £140m deficit hanging over the proverbial head of the South
London NHS Trust, you might think that that director of finance Colin Gentile
would be all doom and gloom.

But that is certainly not the case here.

He explains that the hospital trust must come within £30m over its budget for
year end 2009/2010.

Meeting this “target”, then hitting balance for 2010/2011 will see the
original £140m removed from the books, through the “challenge trust board”
process.

This process is what Gentile describes as the “nearest thing to liquidation
and reformation for the NHS.”

All trusts pay into what is effectively an insurance policy fund, used for
those in dire financial straits that show improvement in their financial
processes.