NHS – Winters of discontent

NHS - Winters of discontent

Unlike in the rest of the economy, extra demand in the NHS spells trouble. Tim Weekes looks at how health sector FDs are improving their accounting practices to deal with perennial cash shortfalls.

The National Health Service is a strange place in which to practiserouble. Tim Weekes looks at how health sector FDs are improving their accounting practices to deal with perennial cash shortfalls. the art of financial management. Broken up into autonomous units, hospital trusts and health authorities (HAs), the NHS has at its disposal a budget for the financial year to March of around #35bn.

Yet in both the last two years the system has plunged into financial crisis by January, with trusts heading for large losses and authorities unable to fund the treatment of patients due for surgery.

To the outsider, it might look like a simple case of financial mismanagement – except that the NHS does not play to the normal rules of the accountant’s game. And now its financial managers are starting to adopt a wider range of management techniques, beyond the normal budgetary controls familiar in the rest of the economy, in order to fulfil their responsibility to ensure trusts and HAs break even.

The problem accountants face is that a budget in the NHS is not like one anywhere else. In most of the public sector, a budget, whether for a department or for a whole organisation, means taking an income funded by taxes and then authorising only so much activity as can be funded by that income. The NHS too has a set income from taxes but has no power to limit activity.

If people arrive by ambulance at an accident and emergency (A&E) unit, the hospital has to treat them. So accountants can set budgets but cannot enforce them. Hence the winter overspends when wards overflow with the victims of weather-related illness and injury. And, unlike a business, the NHS gets no extra income for satisfying extra customer demand.

As Bob Dredge, finance director of the Royal Wolverhampton Hospitals Trust, says: ‘In a manufacturing process, if I am the FD and I have customers ordering 10% more widgets, I can sell 10% more and allow a 10% rise in costs and still keep smiling. But in the NHS I have GPs asking me for 15% more treatments when the government is only giving me 1.3% more cash.’

Dredge is also chairman of the HFMA (the health service accountants’ body). So he speaks on behalf of thousands of hard-pressed finance managers when he says that the NHS presents unique challenges. ‘In most other services, demand is much more predictable and carries much less emotional weight.’

Unfortunately, the budgets least susceptible to control – those for emergency admissions into casualty wards – have also been the fastest-growing. Diana Sanderson is senior research fellow at York University’s health economics consortium. She says accountants’ forecasts have been swept aside in recent winters by demographic, epidemiological and meteorological forces way beyond their control. There are many different reasons behind the explosion in emergency admissions.

‘Some people turn up at A&E rather than go to their GP – often they do not want to bother their GP out of hours. Also, people’s expectations have risen. Patients know they can get a battery of tests done on them in hospital and they want those tests.

‘And there are broader social factors at work, including the rise in numbers of elderly and isolated people. People living alone cannot rely on others to look after them in a crisis,’ Sanderson explains.

Research by the NHS Confederation, which represents trusts and health authorities, shows that emergency admissions across the country rose 13% between 1991 and 1995. They are still growing at a rate of 2% a year.

Some of these people should not necessarily be in casualty – or even in hospital at all – on medical grounds but once they are on a hospital’s doorstep, it has to look after them. And the problem tends to be all the worse in winter: epidemics of flu can rip through local populations and conditions such as asthma can be seriously worsened by certain weather conditions.

Unfortunately for accountants, neither epidemics nor the weather can be predicted accurately enough to allow them to be taken into consideration when drawing up budgets. As Sanderson says: ‘However much your contingency funds and reserves are, things rarely go as planned.’

Bad as the past two winters have been, Dredge says this winter was promising to be ‘really dreadful’, until the government stepped in at the end of October with #300m of extra money. HAs are now bidding for shares of the windfall with special schemes aimed at reducing the growth in emergency admissions and waiting lists.

The impending crisis, and the government’s emergency response, is evidence that in the NHS traditional budgeting techniques fail in the face of social and medical crises. The obvious financial response to a budget overspend – to halt the activity that has overspent – is not available.

But a common alternative is often the only short-term measure possible: cancelling scheduled operations, known as elective treatments, such as hip replacements or other minor surgery.

So why do financial managers not plan elective activity around a forecast of increased emergency work in the winter? Bob Dredge says: ‘The theorist would say you should plan and model your hospital’s activities so that you do all your elective work in the summer and phase out elective work and free beds for emergencies in the winter.

‘But you need different staff for the different kinds of work and you cannot get staff for just six months of the year – there’s just not that spare capacity in the system.’

Dredge says it is clear that while cancellations work financially in the short term, they are deeply unpopular politically and do not reduce the risk of similar crises in following years. Hilary Daniels, director of finance and information at North West Anglia HA, says that accountants need to develop other, less costly, outlets for the rising numbers of people attracted to casualty wards.

She says her HA was hit last year when one of the acute hospital trusts it funds experienced a rise in A&E cases ‘way above our expectations’.

Now she is experimenting with a ‘rapid response team’, run by community trusts, which provide non-acute medical services. ‘These will provide care when a doctor identifies someone who should not be left alone overnight but is not ill enough to be admitted to A&E.’

This could mean, for instance, finding a nurse at short notice to spend the night at the patient’s home, or giving them an overnight bed at the community trust itself. It is a good example of the way that accountants can manage finances better not by adjusting the numbers but by devising different ways to spend the money that is available. She says: ‘Accountants have skills with figures and profiling, for instance.

But bringing about the necessary changes is a general management issue.’

Finance is a much less precise discipline in the NHS than elsewhere.

Daniels used to work in local government where, she says, ‘we knew how much it cost to empty a public litter bin’. Tasks in the NHS are much more complicated and the costings of them tougher to interpret. As a result, Daniels says, ‘good accountants learn to move away from just looking at the figures into acting as a full part of the executive team’.

They ‘have got to avoid being beancounters and must take a greater part in the process of change’, agrees independent management consultant Gordon Greenshields.

As finance director of the NHS as a whole from 1991 to 1994, he began an initiative called ‘framework for the future’ to give accountants training to help them develop as managers and to prepare them for senior executive roles. They were to be encouraged to focus less on reporting the NHS’s performance in the past and more on assisting it in the future.

But he also says accountants can find other, finance-based, ways to help the NHS cope: ‘The key role of finance managers is to try to create ways to do things. Accountants must not become the “no-men”.’

‘They have unique skills that allow them to use existing resources better.

Finance managers can use internal audits to take out waste and be more efficient. Accountants should also take responsibility for setting up controls to tip managers off to risks – not just the risk of clinical litigation but risk in its widest sense.’

In the end, however, the crisis in the service is beyond the control of its financial managers. Bob Dredge is convinced the NHS needs 2.5% extra funding every year, on top of inflation, just to keep pace with the rising demands on it. Without the cash boost, the back office can get up to all the budgetary tricks it likes – the system is still going to fall into annual crisis.

The accountants may be able to patch up the NHS’s finances but only politicians can deliver a cure.

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