Feature / Action plan

It is said that the best way to lose weight is by making small changes to your lifestyle. Lord Carter has a similar prescription for acute trusts in England to make them leaner, more efficient and more productive. But while a dieter may make a handful of changes, the final Carter report on acute trust efficiency and productivity recommends a huge number, covering clinical and non-clinical services. It’s a big improvement agenda and one that the NHS will have to get to grips with quickly.

While Carter’s report, Operational productivity and performance in English NHS acute hospitals: unwarranted variations, makes only 15 headline recommendations, there are more than 80 sub-recommendations, detailing how they will be delivered. As in his interim report published last summer, Lord Carter believes acutes have the opportunity to save £5bn in areas such as better use of staff and procurement. The report, based on work with 32 acute trusts, acknowledges the Commonwealth Fund’s assessment of the NHS as the best value healthcare system in the world. But Carter has identified inexplicable or unwarranted variations in acute trust use of resources. Reducing these variations will deliver savings of £5bn from the £55.6bn spent by non-specialist acute hospitals.

NHS Improvement, with support from NHS England, the Department of Health and the Care Quality Commission, will play a central role in delivering the Carter recommendations – indeed, Lord Carter has accepted a non-executive post on its board to help drive through the changes. Chief among NHS Improvement’s responsibilities will be the development of the model hospital. Through a series of metrics and benchmarks proposed throughout the report (see page 20), Carter says a single picture of ‘what good looks like’ can be used to help trusts become more efficient. The metrics include the adjusted treatment cost, a new metric based on reference cost data; the weighted activity unit (WAU) and cost per WAU; and specific measures such as revenue per whole-time equivalent and, for procurement, the purchasing price index.

The interim report broke down the £5bn savings as £2bn from optimising the use of the clinical workforce, with £1bn each from procurement, pharmacy and estates and facilities. However, with six months’ data from the metrics outlined above, Carter has been able to give more details and added further categories. While he still believes £2bn can be saved through optimising the workforce and £1bn in estates, he now says £800m can be saved in hospital pharmacy and medicines optimisation; £200m in pathology and radiology; at least £700m in procurement; and £300m in back-office costs. The report claims that much of the potential savings are close at hand. The Carter review team spoke to all 136 non-specialist acute trusts last autumn and confirmed that £3bn of the £5bn has already been recognised by trusts.

While there is much of interest to finance managers throughout the report, most of their focus will fall on the model hospital and the section on optimising resources. In this section, Carter looks at clinical and non-clinical resources. The former concentrates on better workforce management and with acute trusts spending almost £34bn on staff each year this represents the biggest area for potential savings.

A £2bn saving would represent an efficiency increase of 7% and, based on its engagement with trusts, the Carter review believes this is achievable within three years. Greater efficiencies would then be within reach by April 2021. Nursing and care staff take up more than half of acute trust workforce spending and Carter believes addressing variations could reduce current cost pressures. Guidance will be issued on getting a tighter grip on unproductive working time, headroom, managing bank and agency demand and a review of new nursing roles. All will show best practice as part of the model hospital and will focus on the recording and reporting of nursing and care staff deployment (including metrics such as care hours per patient day), making fuller use of e-rostering systems and specialling (enhanced) care. It says e-rosters should be published six weeks in advance and be reviewed against key performance indicators such as proportion of staff on leave, training and appropriate use of contracted hours. There should be a formal process to improve rosters and cultural change to tackle underlying issues.

The report says there are wide variations in staff absenteeism, turnover and alleged bullying, and in general the NHS does not score well when compared with other sectors. Good staff wellbeing is linked to improved productivity in other sectors and the NHS needs to improve in this area, it says. For example, sickness absence rates are around 6% (13 days per working year of 225 days), taking into account under-reporting. This is higher than the average for the public sector (2.9%) and other health systems – in Australia it is nine days.

Sickness absence varies between trusts and this is only partly explained by staff mix, Carter says. A 1% improvement would save £280m in staff costs, not counting savings through lower use of agency staff and reduced cancellations.

The report also calls for changes in hospital pharmacy and pathology and imaging services. Trusts spend £6.7bn on medicines in hospitals, of which £600m is for pharmacy services. Taking a high-level view, the NHS could save at least £800m if all trusts achieved the average pharmacy and medicines cost, it says.

Generally, the buying, making and supply of medicines is most efficiently delivered through collaborative or shared services models, and do not always need to be delivered by NHS-employed staff. This would free up hospital pharmacists’ time to spend on patient-facing services – currently only 45% of their time is spent on these. The report says a hospital pharmacy transformation programme – with plans developed locally, regionally and nationally – is needed to give pharmacists more time on medicines optimisation and to ensure the NHS gets the best prices when buying medicines.

The report estimates the total cost of pathology (across all sectors) is between £2.5bn and £3bn a year, while trust costs ranged from less than 1.5% of income to more than 3%. It says trusts could save £200m in pathology provision and recommends they should achieve the pathology model hospital benchmarks by April next year or have plans to consolidate or outsource pathology services by January.

Similarly, diagnostic costs varied from less than 3% of income to almost 5%. The Carter indicators are not as well developed as in pathology but these benchmarks will be developed and trusts should achieve them by April 2018.

The report’s section on optimising non-clinical resources focuses on procurement, estates and facilities management and corporate and back office costs. The latter is new to the final report. It says there are inexplicable variations in corporate and administration costs, which total £4.3bn in acute trusts. Variations range from 6% to 11% of trust income (mean 8%), irrespective of the type and size of organisations. It estimates savings of £300m if all trusts operated at 7% of income. Evidence from other sectors showed shared services could produce savings of 20% to 25% – the equivalent of £375m a year in the NHS. System integration could save even more and the Carter team found some evidence of local NHS bodies collaborating to capture the benefits of scale.

It believes savings of 8%-10% for trusts that have not closely examined their corporate and administration costs – even those that had done so could benefit from more rigorous use of shared services. Trusts should routinely check their existing services against proposed national solutions – it is unclear what these are as yet – and where they could save 5% or more, they should commit to that solution. In the shorter term, trusts should use the model hospital corporate and administration costs benchmarks for human resources, finance, procurement and information management and technology. These are to be issued by NHS Improvement in July. Trusts spending more than 7% should submit a cost-cutting plan to NHS Improvement by October and these should include plans to join national shared services models. Costs should fall to 6% by 2020.

The acute sector spends around £6bn a year on procurement of goods and services and, as in the interim report, the review team believes £1bn of this could be saved. However, it is now seen as a stretch target, with around £700m being achievable by exercising controls such as purchase order compliance, bulk buying, collaborating with at least five other trusts and sharing price information through a new national purchasing price index. The Department told Healthcare Finance that the £700m-£1bn saving opportunity identified by Carter is the same as the savings being pursued by its procurement transformation programme – which is looking to save £750m.

The report proposes procurement benchmarks to aid reform, including % transaction volume with a contract and % transaction volume with a purchase order. These benchmarks would be incorporated into the model hospital, with targets – 90% of transactions covered by an electronic purchase order by September 2017, say.

The cost of running NHS facilities is more than £8bn a year and, again, the Carter team found significant variation between acute trusts. Comparison of estates costs is tricky because hospital locations and age varies widely. However, working with the 32 trusts, it has developed a dashboard showing estates and facilities management costs and where savings could be made. The report says up to £1bn could be saved if all trusts moved to the median benchmark of their peers. Unoccupied non-clinical space, for example, ranges from 12% to 69% and it says at most this should be 35%. As a whole, a trust’s unoccupied or underused space should be no more than 2.5%. Better use of energy could save £36m of the £500m trusts spend each year on fuel bills, while green measures such as LED lighting and combined heat and power could increase the annual savings to £125m.

Eradicating variation in soft facilities management costs could save £93m a year (from a total cost of £725m), while there was an opportunity to save £52m a year in the £407m spent on patient food.

Carter recommends all trusts put a strategic estates and facilities plan in place to secure cost reductions in 2016/17 based on the model hospital and benchmarks. By April 2017 they should have an investment and reconfiguration plan covering their whole estate, where appropriate.

Carter also looked at quality and efficiency, picking out delayed transfers of care as a particular problem for trusts. Delayed transfers could cost providers up to £900m a year and blocked beds can lead to elective operation cancellations. This work often went to the private sector.

The incentives and processes around transfers are often unclear, adding to costs. Some trusts had set up their own step-down facilities, sometimes in partnership with local authorities or the independent sector and Carter says trusts should be encouraged to do more of this.

Mixed reaction

Finance professionals’ reaction to the report is mixed. While they welcome the focus on efficiency and the potential power of the model hospital to drive improvements, there is also a worry about the scale of the agenda. One senior director believes trust boards will have to prioritise, choosing the Carter actions that will have most impact, particularly as outsourcing – whether pathology or back-office functions – could take 18 months and would take up a lot of board time. Another says: ‘Boards will certainly need to prioritise how the recommendations are tackled. Every trust will have additional schemes and this agenda needs to be manageable. The key is clinical and service engagement and where possible leveraging progress through system-wide working.’

One of the common responses from the finance managers contacted by Healthcare Finance is that Carter has not highlighted new areas – failings in procurement and the inability to learn from success elsewhere in the NHS are well known. But Carter gave some impetus to addressing these areas and should become part of providers’ everyday business.

There is scepticism over the new ceilings for corporate and administration costs. Finance directors say clear definitions are needed. A ward clerk in one trust could have a clinical title in another, and one finance director doubts NHS Improvement will have the capacity to police it. Others say it seems counterintuitive to be setting out a huge managerial agenda (that will require greater clinical engagement), while at the same time demanding cuts in corporate and administrative spending.

Finance directors say it will be easier to act in some areas than others, with less opposition to outsourcing procurement, say, than to doing the same with pathology. One believes the new WAU metric is useful, but worries that driving down costs could also drive down quality. He says: ‘The focus is getting to average cost, but I’m sure we don’t also want to get to average performance. A provider can take costs out, but that could impact on performance and quality. The question is, how far do we go? It brings us back to the concept of what good looks like.’

There is a fear that, under pressure to deliver, NHS Improvement will use benchmarks and metrics as blunt instruments that take no notice of local needs. Attention will now turn to NHS Improvement, which will be the driving force behind implementation – from developing key metrics for the model hospital to assessing trusts’ strategic plans. But ultimately the pressure is on trusts to turn Carter’s recommendations into real efficiency and productivity savings.

At a glance

Quality

• By April, NHS Improvement and NHS England should establish a joint clinical governance system to set best practice for all specialties.

• Key digital information systems should be in use by October 2018, enforced by NHS Improvement using ‘meaningful use’ standards and incentives.

• National NHS bodies should work with local government to ensure smooth transfers of care.

• NHS England, NHS Improvement and trust boards should identify quality and efficiency opportunities from greater collaboration across health economies.

Model hospital

• NHS Improvement should develop the model hospital and underpinning metrics. This will show ‘what good looks like’, with one source of data, benchmarks and best practice.

• To ensure there is one set of metrics and a single approach to reporting, NHS Improvement, together with NHS England and the Care Quality Commission, should develop an integrated performance framework. 

Implementation

• All acute trusts should take steps to implement the recommendations to expedite productivity and efficiency improvement plans for each year until 2020/21.
• The national bodies should work with trusts to produce a timetable of efficiency and productivity improvements up to 2020/21. They should also track the delivery of savings.

Resources

• NHS Improvement should develop a people management strategy by October.
• NHS Improvement should develop and implement metrics to analyse worker deployment, such as care hours per patient day, to optimise clinical teams.

• Trusts should develop plans to transform their hospital pharmacies by April 2017. These plans should ensure the pharmacies achieve benchmarks on, say, accurate cost coding.

• Trusts should achieve pathology and imaging benchmarks on cost and quality, agreed with NHS Improvement, by April 2017. If pathology benchmarks are unlikely to be achieved, trusts should agree plans to outsource to or consolidate with other providers by January 2017.

• From April, trusts should report procurement information to create an NHS purchasing price index. Greater collaboration on procurement and the Department’s Procurement Transformation Programme should result in greater transparency and a 10% reduction in non-pay costs by April 2018.

• By April 2017, where appropriate, trusts should have plans to have no more than 35% of floor space for non-clinical use and 2.5% of unoccupied or under-used space, delivered by April 2020.

• The cost of corporate and administration functions should not exceed 7% of income by April 2018, reducing to 6% by 2020. Alternatively, plans must be in place for sharing services or outsourcing to other providers by January 2017.