AS the UK’s National Health Service celebrates its 66th anniversary this year, the Audit Commission published its second – and final – report into the wizened and battle-hardened organisation, which is now a plucky pensioner in its own right.
Launched by Clement Attlee’s post-war Labour government in 1948, the NHS has survived and weathered its own health scares and body blows. This included its difficult birth – opposed by the then Conservative opposition and much of the contemporary medical establishment.
The Commission’s Auditing the Accounts 2013/14 report highlights a litany of concerns the NHS now faces as it struggles to cope with its own troubled reality in the post-mid-Staffs world and the ensuing Francis Report which recommended ways to prevent a repetition of the inhumane and dangerously substandard care that led to an estimated 400 to 1,200 deaths.
Its finance professionals now have to find new ways to deal with the somewhat Sisyphean task of balancing the books at a time of rising demand and shrinking budgets, fused with making £20bn of efficiency savings by 2015. And as if this was mere tinkering, they have to balance the re-jigging of hospital services so even more patients can be treated in or near their own homes.
The report pointed to an increasing level of concern raised by auditors about the financial resilience of NHS trusts, with the number of non-standard conclusions on value-for-money arrangements and statutory reports both seeing a significant increase.
The findings prompted Marcine Waterman, the Audit Commission’s controller of audit, to conclude that “this year auditors are reporting concerns about the financial resilience of a third of NHS trusts compared with a quarter last year.
“This level of reporting is worrying and reflects the increasing risks to the financial sustainability of individual NHS trusts, as they continue to face sizeable financial pressures due to a rising demand for services and the necessary focus on quality of care, while balancing the need for continued cost savings.”
Too much pressure
Many of these additional pressures have been driven by The Health and Social Care Act 2012, which forced major changes to the way the NHS in England is structured and operates. This included the demise and closure in 2013 of 151 Primary Care Trusts (PCTs) and ten Strategic Health Authorities in England, then the core commissioners of healthcare services from NHS trusts. This commissioning role was subsequently taken on by NHS England and 211 new clinical commissioning groups (CCGs).
The report highlights how the auditors’ concerns were primarily fuelled by “the number of non-standard conclusions on value for money (VFM) arrangements and statutory reports seeing a significant increase”. Auditors also reported unease over the VFM arrangements at a number of CCGs that had experienced “some issues with quality” despite submitting their first sets of accounts on time.
Other concerns were the “significantly increased number of NHS trusts that received a qualified limited assurance report on their quality account”. Out of the 74 NHS acute and mental health trusts reviewed by auditors, 24 (32%) received a qualified limited assurance report for 2013/14, up almost threefold from 10 NHS trusts (13%) in 2012/13.
Similarly, some 37 NHS trusts (38%) received a qualified VFM arrangements conclusion, and of these 34 related to their arrangements for securing financial resilience, compared to 27 NHS trusts that received the same conclusion the previous year.
Some 19 trusts, among them Barking, Havering and Redbridge University Hospitals NHS Trust, North Bristol NHS Trust and The Princess Alexandra Hospitals NHS Trust, were pulled up by the report for failing to meet their statutory break-even duties.
Additionally, ten NHS trusts received an adverse conclusion – double the number (five) that did so 2012/13 – while auditors reported matters arising in respect of the arrangements for VFM at 38 CCGs (18%). There were no public interest reports issued for 2013/14, nor were any issued the year before.
So what are those in the thick of it – the NHS finance directors – doing to solve the riddle of balancing the books while delivering safer and higher-quality patient and healthcare standards with ever-reducing budgets?
Colin Gentile, interim finance director of Bedford NHS Trust, shared his experience.
“There are a number of pressures. The first is the need to have a real focus to maintain and improve quality with the right levels of staffing and skills that obviously come in at the right price to balance with a year-on-year reduction in tariff – a gross reduction of 4% and a net reduction of 1.5%. In the past, the system allowed you to do more work and get paid more, but those days are gone,” he explains.
“It’s not impossible, but it’s certainly challenging, trying to balance the short- and longer-term strategic efficiencies with investment in IT systems and clinical care. It takes time.”
Gentile points to certain actions that finance departments need to take in order to improve reporting and protect their under-pressure finances. Key among them is having “slick, accurate financial reporting that allows for corrective action to be put in place”.
“At Bedford, I get an early warning about pay spend a few days after the month-close, which is critical as it accounts for 65% of running costs. This can then be flagged up. FDs should make reporting clear and identify where the problem is. They must get involved in being part of the solution. There is also a need to link with clinicians and, most importantly, the operational people who run the hospital, as they make the resource decisions,” he says.
Analysing why income is down and understanding the use of an excess of agency staff and other “hot spots” in expenditure, for example, must be rigourous, with a view to developing strategies to address them, he continues.
“We are looking at developing a sole supplier relationship with an agency to reduce costs and strengthen our internal staffing bank by talking to a commercial organisation that can run it more efficiently,” he adds.
Brave new world
He also points to the real politik of this brave new world where “FDs have to be really clear with the board and be in the middle of the debate about cost and quality without impacting negatively on quality – that’s fundamental”.
“FDs must also play a key role in cross-organisational boundary flow working. They will need to be very clear with the board if short-term actions jeopardise the strategic path to sustainability. The FD must say it as it is to the board and not be reticent to do it,” he explains.
Ultimately, “the modern FD has to understand the impact of business decisions on the balance sheet and be far more commercially savvy”.
Looking to the future, Gentile believes “it will remain tough for the next few years” with the NHS FDs’ dilemma rooted in their need “to do more while constantly trying to improve quality and maintain patient safety in a world where resources are tightening year on year”.
And the prognosis? “It will be challenging, but we can be successful if we work together and provide cost-efficient services. If we remain in silos, then we will continue to struggle, but if we work across organisational boundaries, I think we can weather the storm,” says Gentile.
Many of the bigger accountancy firms have been deeply involved in delivering consultancy and financial personnel to the NHS for a number of years and can offer a unique insight into unravelling its funding Gordian Knots.
Deloitte’s director of public sector, Nicky Cooke, says: “FDs have a dual role: they need to continue to protect and monitor the finances, but they also need to encourage the change to transformational and innovative thinking.
“Finance directors also need to increasingly accept their role, along with other board members, for the delivery of quality and this means working collaboratively with clinical, nursing and operational teams at all times. They also need to have good commercial relationships with the commissioners and providers in their area.”
She says such an approach was critical as many of the “easy” savings had already been found and taken advantage of.
“The pressures that come now are more significant because the savings that have to be made will involve substantial change to current practice and innovation, which often means cultural change,” she explains.
But these are not things that are achieved easily and quickly and for those organisations that have only just or not yet started to think in this way, the pressures are going to be significantly worse, she fears.
“Some of the more high-performing trusts would argue that improving quality can go hand in hand with saving money and improving efficiency as waste is taken out of the system, but this all comes with being willing to think more innovatively about the way things are done. Of course there is a limit at how far cutting cost can go before there is an impact on quality as the trust no longer has the capacity or capability to deliver the strategic plan,” says Cooke.
Cooke believes that some of the organisations have failed to anticipate the level of change needed and instead continued to implement cost cutting or improvement plans on a case-by-case basis.
“In some organisations, there was – and for some, there still is – a lack of longer-term and more innovative thinking. This means that they simply could not deliver the level of savings needed in the timeframe set,” she says.
She suggests that there might be wider problems for other organisations within the health economy – for example, if the financial deficit is being driven by increasing demands for A&E.
Allied to this are increasing demands for different sectors and agencies to work together to resolve the issues which require whole health economy solutions. For example, increasing the availability of out of hospital beds (such as care homes), or making sure there is more provision in the community for urgent GP appointments.
“If the other organisation or agency has different priorities, then it is less able to support the demand for hospital services,” she says, and adds that CCGs have “a major part to play in resolving this as they need to ensure that the priorities of each health provider, which can be influenced through the commissioning, are aligned to achieve the desired outcome for the health economy as a whole”.
Another example could be the failure to fully involve clinical staff and others in developing the cost improvement plans, although they are the ones who will be tasked with delivering them, leading to the implementation failing.
Other alternative ways of working have been used with limited success. Commissioning support units (CSUs) will provide a layer of back-office help to the CCGs. Where CSUs have been more involved in the commissioning process, it has led to some efficiencies, but that has come at the expense of clarity over the responsibilities of the two groups, Cooke adds.
Other areas for concern centred on some issues in joining up systems across the health sector that have arised due to the number of new organisations. For example, the pension information was not available for all GPs which resulted in a number of qualifications.
Cooke expects that financial reporting and transparency will continue to improve throughout the NHS. But darker clouds in the guise of “increasing demand, acuity, and focus on quality as well as rising expectations from patients, in an economy where there isn’t funding available to pay for these increases” could dampen the broadly temperate outlook.
The key to overcoming such a challenge, she believes, is for trusts and commissioners to embrace new ways of working and “find innovative solutions to existing problems across whole health economies and ensure that best practice is shared nationally and that NHS boards are open to learning”.
Financial temperature check
Many of the report’s concerns were echoed by the Healthcare Financial Management Association (HFMA), the professional body with a 60-year pedigree, which seeks to “promote the highest standards in financial management and governance in healthcare”.
Its recent NHS Financial Temperature Check survey – conducted at the same time as the AC report – captured the views of FDs and CFOs from 129 trusts, 63 CCGs and five area teams from NHS England. It found that the number of organisations overspending or reporting a deficit has increased since 2012/13 and more had reported a deficit than planned to do so at the start of the 2013/14 financial year.
Almost five out of every six surveyed trust finance directors identified the lack of system management as their main concern about the financial position of their local health economy. Perhaps surprisingly, and despite the pessimism, some 92% of FDs reported that they remained optimistic that quality of services will not be affected.
Paul Briddock, HFMA’s director of policy and a former FD of Sheffield Children’s Hospital and the Chesterfield Royal Hospital where he rose to become its deputy chief executive, confesses the AC report offered “no surprises”.
“It recognises the financial position the NHS is in,” he says.
He describes the current situation as something of a “triple whammy”: “Year on year, there’s been a 4% reduction in funds available for a number of years now, and all the low-hanging fruit of cost improvement programmes has been picked off.
“Allied to this, there has been a rising demand from non-elective patients and, since the publication of the Francis Report, quality improvements. They are having to deal with more patients and improve quality despite a shrinkage in real terms of available resource. Our view is that it’s going to get more and more difficult in 2014/15 and 2015/16.”
HFMA data reveals that the reductions will be 4.8% in 2014/15 and 4.7% in 2015/16 for health service providers, and 2.8% in both years for commissioners.
Through the survey, finance directors told the HFMA that just over a third (36%) were confident of meeting their future financial targets for 2014/15 and beyond.
Briddock believes FDs need to forge closer working relationships with clinicians, who, in turn, have to be at the forefront of the debate about what is deliverable.
“I think FDs are being honest and brave enough to say quality is protected and, even though the put-in has shrunk, quality of care will not suffer. Essentially, we need an honest and open debate about what the NHS can afford to provide. Our FDs are saying we need to be transparent about that, as do the politicians and public,” Briddock explains.
As the Audit Commission is set to be scrapped in March 2015, the 2013/14 report for NHS bodies is its last.
Millions of NHS users will be hoping that those tasked with finding the fiscal nous to ensure that anything like the mid-Staffs crisis never happens again will view the report as their own last chance to get it right, and to find the creative solutions to successfully nurse the NHS back to financial health so they can check it out of audit A&E. ?
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