A London hospital getting to grips with its books doesn’t seem a particularly
remarkable story, and is unlikely to make a storyline for Casualty. Indeed the
government has said on many occasions that the £1bn debt the NHS is labouring
under, first flagged up at the end of 2005, would soon be turned into rude
But there has to be a beginning. The starting place for revelations of dire
financial straits, and the roots of recovery, lay at the feet of FD Colin
Gentile, and his Tooting-based
St George’s NHS
Gentile joined the trust in June 2004, and was well aware of many of the
problems it faced, namely its poor image within the NHS and among the media
following the debacle surrounding former FD Ian Perkin.
During the recruitment process Gentile was warned about financial
difficulties, but not the extent of them. ‘I knew it would be a big challenge.
It was clear the financial problem was not understood, and the trust wasn’t on
top of it. During my recruitment the trust’s deficit slipped from £4m to £11m,’
The issues surrounding the trust’s previous management were raw, and Gentile
was joined by a new chief executive, chairman and clinical director. Despite
their newness, all four senior executives were working towards the same goal of
determining the trust’s problems and looking to solve them.
Gentile went through a month-long process to assess the depth of the black
hole the trust was in. Just weeks earlier it had reported a £650,000 deficit for
2003/04. The situation was much worse than had previously been indicated.
While the figures for the current year (2004/05) had already deteriorated,
Gentile found the trust had a whopping £30m cumulative deficit. He trusted his
calculations, but realised he had a lot of explaining to do to staff, and the
Strategic Health Authority. ‘I prepared to present the findings to the SHA and
primary care trusts – five slides in a pictorial presentation. I ran it past my
seven year old son as I’d need to make sure the message would get across to a
lot of different stakeholders.’
So how did the trust get into such dire straits? St George’s lived off
one-off sums for ‘some time’ including assistance from the SHA. Gentile denies
the books were ‘cooked’ by previous regimes, but suggests the NHS can no longer
undertake ‘voodoo accounting’.
‘The NHS regime was not as transparent as it is now. One of the reasons why
organisations now have explicit deficits is the move to more commercial
accounting and accounting standards – it makes the problems more specific.
Treasury controls now outlaw the conversion of capital into day to day
expenditure, that’s been clamped down on.’
For the trust’s in-house finance team they saw the change in management as a
chance to tackle financial difficulties, using clear methodology and audit
trails. Their support and efforts were vital, as Gentile’s findings were greeted
with incredulity and shock within the hospital, and by the bosses in the health
‘When you’ve got an organisation that in 2003/04 showed a £650,000 deficit,
then four months later the problem’s £30m, well it wasn’t a massively popular
It’s worth bearing in mind that his findings were revealed in June 2004, 18
months before the extent of the NHS financial crisis was presented by health
secretary Patricia Hewitt.
Gentile called on the SHA to send in someone to check the calculations. So
the authority’s deputy FD came in. Privately, Gentile hoped his figures were
wrong, and the financial mess was not so severe. She ‘robustly challenged’ the
figures, but agreed with them.
He then got the board’s support, and pushed the message out across the trust,
which included explaining to clinicians and specialists – as well as more
traditional departments such as IT and HR – that they would all be responsible
for sorting out the mess.
Next was the introduction of strict resource allocation management. For
example, an orthopaedic surgeon requires a secretary, consumes theatre time,
prosthesis, electricity, and pathology’s time. Each department must agree to
take on the costs associated with an operation. ‘You need to get the financial
impact on the rest of the organisation signed off then mapped against income
through payment by results. If it doesn’t pay we don’t do it.’
By the end of the financial year the trust had cut the gap to nearer £20m.
But the controversial resource accounting regime in the NHS, plus the efficiency
savings required from the Gershon review of the public sector, saw the deficit
turn back into a £30m gap overnight.
But a chance meeting with Kevin Ellis, corporate recovery partner at
PricewaterhouseCoopers, set off a chain of events that led to a sea change in
how the NHS manages funds.
With financial support split between the trust, SHA and Department of Health,
a financial recovery plan using turnaround techniques began in February 2005 –
with PwC staff entering St George’s en masse. ‘On the first day they said
“where’s your in-house team?” PwC would challenge, provide a fresh perspective
using private sector techniques, but management would have to implement the
plan. The essence of turnaround was engagement of the whole organisation and
looking at every area to come up with outline benefits.’
Changes at St George’s came thick and fast. PwC, working at a ‘heavily
discounted rate’, provided benchmarking services based on their private sector
Other skills were used. Gentile is reminded of one partner who watched how
the wards worked: ‘They drew parallels with retail that are obvious – you don’t
have Saturday staff levels on a Tuesday. That sort of simple message.’
By the time Hewitt revealed the crisis enveloping the NHS, St George’s had
made substantial changes to its organisations.
But plans to cut costs by £10m did not wash with the health authority, which
had been urged to cut £20m from the trust. A Gentile mantra, ‘spend to save’,
came into good use at this time. St George’s promised to make the saving, but
would need to borrow £8m to spend on equipment investment and to expand the
turnaround teams. The authority agreed.
And it’s not just about the finances. Gentile believes St George’s must be
viewed as a success, not just in meeting its financial targets. He can boast of
improved and award-winning clinical services during the same period.
Still it’s worth questioning why the hospital has a £40m cumulative deficit.
Breaks don’t heal over night, and with a £390m budget, its deficit has been a
substantial burden to keep in check. Yet April should see the hospital report a
£4.4m deficit for the year, with Gentile expecting recurrent balances to follow.
If, and only if, they can balance the books can St George’s then look to post
surpluses and reduce that £40m figure. ‘Maybe five years’ could see the deficit
disappear, but that will involve some negotiating with the Department of
Health,’ he admits.
Savings will have to be made alongside a need to clear the debt. ‘We spent
too much in the past. If you were a commercial organisation, you can’t say “I
don’t want to pay it back”. The job will be done when we’re in a position that
the culture of generating benefits, constantly changing and improving
performance is ingrained in the organisation.’
Before Colin Gentile joined St George’s as FD, Ian Perkin was controversially
suspended and then sacked on grounds of inappropriate management style after
warning of irregularities with waiting lists.
A still angry Perkin has watched the goings-on at St George’s and has been
unimpressed by what he has seen. He asks why books have failed to be balanced in
recent years despite him doing so over a 12-year period, but understands the
pressure within the public sector.
‘The real underlying financial problem at St George’s, and this affects most
of the public sector, is that there is no effective means for determining
whether the correct level of funding goes into the institution when you look at
the service demand it’s asked to meet,’ Perkin says.
‘Government decides how much money it is going to spend on the NHS and then
sets about how it is going to ration access to those resources, the problems
increasing in proportion to increases in people wanting services. The more
people that turn up for treatment the bigger financial deficit will be.’
Perkin calls for a funding structure not based on an ‘arbitrary financial
resource target’ unrelated to clinical activity.
Read about changes to NHS accounting rules
here , read the
Department of Health’s 28 March statement at
analysis of the deficit crisis
NHS finance professionals are represented by the Healthcare financial management