Technical / Corporate cost cap aims for back office savings

It certainly took many by surprise, although an early management costs metric was shared with Carter’s engagement trusts about a year ago.

However, while many other recommendations promote the compilation of data to inform decision-making, the report goes a step further for corporate and administration costs by setting a firm target as a proportion of provider income.

According to the Carter report, acute trusts spend about £4.3bn on staff in their corporate back office (£2bn) and administration (£2.3bn) functions. This equates to an average of 8% of trust income but with a range from 6% to 11% – a range that is clearly bothering Lord Carter.
       
The report estimated that savings across providers could be at least £300m if all trusts operated at 7% of their income. In fact, it is understood this is a conservative figure. Rather than setting this as a simple benchmark, the report recommends all trusts get their costs below this level by April 2018 – with a further tightening of the screw to 6% by 2020.
       

The alternative, in Lord Carter’s eyes, is to have plans in place for ‘shared service consolidation with, or outsourcing to, other providers by January 2017’.

Finance leaders have raised concerns with the proposals, believing overall value should be the goal rather than simply reduced costs. If higher corporate costs lead to better overall value (in outcomes and costs) at the front line, that should be okay, HFMA policy and technical director Paul Briddock has argued (see ‘When the cap doesn’t fit’ www.hfma.org.uk/news/blogs). Finance understandably feels in the firing line of these proposals.

The Carter report identified 137,100 staff working in corporate (53,500) and administration functions (83,600). The HFMA’s biennial census reveals that there are 16,000 NHS finance staff in England. If these were all counted within corporate totals (as per old management cost definitions), any cuts to corporate staff numbers may have major implications for finance staff. (Healthcare Finance now understands that finance staff are more likely to be split between both corporate and administrative staff in the Carter definitions.)
       

But pressure to reduce finance staff numbers needs to be seen alongside other proposals in the Carter report that could imply increased finance and support staff – greater use of patient cost data and collecting and analysing new cost metrics such as the adjusted treatment cost.

It is fair to say that the corporate cost proposals are a work in progress – despite the definite-sounding ceilings and deadlines announced.  Healthcare Finance understands the data used for the analysis exposed an inconsistency in how staff are recorded in the electronic staff record – both using occupation codes and ‘staff group’ and ‘area of work’ fields – even if the overarching totals are likely to be right. The hope is also that greater scrutiny will lead to better data.

But a lot of grey areas remain. For a start, it appears clear the measures of cost used (being just workforce) do not include the costs of services bought in. So a trust that had outsourced its financial services could appear cheaper than a provider with in-house delivery. This could make the difference of a trust being under or over the cap and would appear to make an assumption that outsourced services are inevitably better value than in-house – regardless of the actual costs or value of services delivered.

Similarly, the metrics as currently compiled would not take into account staff employed to deliver services to other trusts – payroll services, say – which again would tend to make a trust look expensive. This might in theory lead to the counterintuitive unpicking of current shared service arrangements to comply with the cap.

The Carter report suggests NHS Improvement is developing a national set of benchmarks for human resources, finance, IT and procurement. It says these will be ready by July. It also says trusts with costs above the 7% ceiling should submit a plan for reducing them – again to NHS Improvement – by October.

With rapidly approaching deadlines, Healthcare Finance understands a note will be published over the coming weeks to provide further clarification about how this metric will be used in practice.