Comment / Corporate cap could be false economy

There is a major tension at the heart of the Carter report on productivity in NHS acute hospitals. It rightly evangelises about the need for data across all activities. But it also seeks to impose an arbitrary cap on the costs of managers that will surely be needed to deliver this step change in performance measurement and benchmarking.

Of course finance and other back-office functions need to be focused on delivering services that support the frontline. And they can’t and shouldn’t be overlooked in the search for efficiency. But the approach on corporate and administration costs seems at odds with the rest of the report – which is about understanding variation rather than simply applying central controls – and against the principles of value-based delivery.

Carter found corporate and administration costs ranged from 6% to 11% (with a mean of 8%) of trust income and said £300m could be saved by getting all trusts to 7%. His recommendation is for all to trusts ‘to ensure their costs do not exceed 7% of income by April 2018’ with a further drop to 6% by 2020.

Shared back-office services are seen as playing a big part in this cost reduction, with trusts facing a requirement to at least test their services against shared service solutions. Back office is about much more than financial services, but it is clear that many providers have to date preferred an in-house option for their own finance team.

Being asked to test this in-house provision against alternatives, including shared approaches, is not the problem. But setting a simple input-based cap on the costs of some of these activities could be.

The report is full of metrics and data collection requirements, some involving existing measures and some new to the NHS. All of these will support the new model hospital approach promoted by Carter.

The creation of this huge and potentially useful database will clearly place a burden on providers. Carter adds his voice in support of Monitor’s costing transformation programme, which itself is likely to require trusts to invest in their costing teams.

But even with the data in place, analysis or supporting others, including clinicians, to analyse the data will place even greater burden on support staff. This should be fine if overall it delivers better value. In some cases, more back-office support could deliver far greater value in terms of addressing clinical variation or improving productivity. Yet a crude cap on corporate costs could keep this added value off limits.

Instead, as with other metrics and service areas, providing boards with comparative data about costs, average costs and perhaps even specifying typical ranges would enable them to challenge their own corporate and administrative set-ups.

It is also hard to see how the control can be effectively policed. The NHS has long done away with management cost controls, but they were backed up by complex definitions. It is not clear that the electronic staff record can reliably pick out completely comparable costs. And how would the cap take account of trusts that provide back-office support to other NHS bodies – where support costs will undoubtedly be higher?

The bottom line should be that corporate costs are set at the optimum level to deliver maximum value. And if higher than average corporate costs lead to overall better productivity and effectiveness, that should be seen as a good result.