Feature / Mission critical

The NHS faces its toughest ever challenge, with an expectation to deliver unprecedented efficiency savings while maintaining and improving quality. And, as NHS deputy chief executive David Flory tells Steve Brown, finance leaders have a crucial role to play in this

NHS finance directors know they face a major challenge – possibly the biggest of their careers – in delivering the current agenda. But they can at least take some comfort from the fact that the Department of Health is under no illusions about what it is asking of its financial workforce.

‘The current times are as challenging as they have ever been for our financial leaders,’ says David Flory, NHS deputy chief executive.

This recognition of the scale of the challenge – we understand what you have to deliver – is one of three key messages Mr Flory is keen to convey to the NHS finance function – a message he will reinforce when he speaks at the HFMA annual conference in December.

In addition, he is calling on finance leaders to ensure financial benefits set out in business plans for service development are fully delivered – not always a feature of change programmes in the past. And third, he believes the function needs to ramp up efforts to engage with clinical colleagues – particularly around ensuring their buy-in to cost and quality improvement programmes.

The challenge

Mr Flory, who has responsibility for NHS finance, performance and operations, believes the current unprecedented pressures for finance leaders stem from a number of sources. First they must deliver on their statutory duties and financial planning priorities. But they must do this while operating with lower levels of growth than the service has had in recent years. At the same time, there is the quality, innovation, productivity and prevention (QIPP) programme – the up to £20bn of efficiencies that need to be found to enable the service to meet the costs of treating an ageing population, while making use of new drugs and technologies. This pushes finance leaders to think beyond this year’s financial must-dos.

‘That delivery of up to £20bn by the end of the spending review period requires us to action the plan for service changes now that are going to deliver those quality improvements and savings beyond next year in 2013/14 and 2014/15,’ says Mr Flory. ‘So we need to get the decisions made and get the plans in place. Just delivering this year isn’t enough. We’ve also got to work out all the changes we need to deliver in the medium term.’

Overlaid on all this is the move to the new NHS structure. Mr Flory recognises that the transition to new commissioners provides an additional layer of delivery. ‘We are asking our leaders to lead others through this transition while there is still uncertainty about their own futures. In combination, this adds up to a more challenging agenda than we have ever faced.’

Planning and delivery

While the health bill’s passage through Parliament and the proposed new structures continue to dominate media interest in the health service, Mr Flory says the service has to stay focused on the quality and finance requirements. He acknowledges that in many parts of the country, QIPP will lead to reorganisation of services – for example, moving services out of an acute setting and closer to patients. This will carry with it an element of reconfiguration and organisational change.

But he says the service needs to ensure it actually delivers the planned outcomes from these service changes. ‘In the past there have been too many times when the service has planned this sort of change and set out the intended financial benefits. While we often see the service change, there is not a great history of delivering the financial aspects. In future we can’t afford to do this. We need to ensure planned benefits are realistic and not just aspirational. The financial planning must be right, with accountability for what is actually delivered.’

Turning planned savings into real ‘investable elsewhere’ cash is really the key to QIPP. Demand management schemes that reduce activity but don’t lead to an actual reduction in capacity won’t help deliver the savings needed.

But Mr Flory is clear that reducing acute activity remains the starting point. And he claims to be ‘very encouraged’ by trends this year. The quarter one figures showed that non-elective admissions were down 1.7% compared with the same period last year. GP referrals were also down (3.6%), although elective admissions were up - this is believed to reflect a push by organisations to clear a backlog of long waits. With the Q2 report due to be published in December, Mr Flory says he continues to be reassured. ‘The most encouraging indicator out of all the activity trend lines is that year-on-year non-elective admissions are down,’ he says. 

He adds that, while in previous years some health economies have done much good work on demand management, this year there is more consistency across the country.

But he acknowledges that the reductions need to be ‘followed through’ with capacity reductions. ‘We have to take the costs out of acute and release money for investment in new services in the community,’ he says, adding that introducing new services without this release of cash will inevitably lead to financial difficulties.

On the finance side, Mr Flory says he expects Q2 to show a similar strong financial position to Q1 in aggregate terms and particularly across strategic health authorities and PCTs. The Q1 report forecast an overall surplus for SHAs and PCTs of nearly £1.2bn, with trusts (not FTs) adding a further £61m.

Mr Flory says the aggregate financial position of NHS trusts remains a concern. Some of the deficit trusts haven’t yet started to turn around their positions and a few of the surplus trusts are also behind their targeted positions, providing less cover for trusts’ aggregate position.  But while Mr Flory says these organisations will have to catch up in the second half of the year, he remains confident of the overall financial position.

‘There is a lead time between activity going down and the costs coming out,’ he says. ‘Trusts have understandably been sceptical in the past about commissioners’ ability to manage demand – we’ve seen examples of people taking out capacity in line with plans and having to put it all back by winter. So I can understand why people may have waited to see the evidence of change in activity patterns before responding.’ But the implication from Mr Flory is that he now expects to see the activity trends backed up with real cost reductions.

He adds that QIPP has to be achieved as whole health economies. One organisation just passing on its QIPP target or financial problem to another won’t help the system overall. ‘We’ve seen lots of really good examples of people dealing with QIPP together,’ he says.

The Department’s response to the Co-operation and Competition Panel report on patient choice outlines plans to put an end next year to locally imposed activity caps and require any variations from national tariff to be published.

Mr Flory underlines that payment by results is a national system and a national set of rules. But it is there to facilitate better services for patients, not hinder them. ‘In very exceptional circumstances where a strict application of rules doesn’t completely work in the interests of patients then local variation is permitted,’ he says. ‘However, variations to enable the continuation of poor-quality care are not acceptable. We need local leaders to work on getting the demand/supply balance right in their health communities so it is sustainable and affordable. We need to focus on the cause of the problem not on the financial handling.’

Balance is also needed in the way that the centre challenges the service on efficiency. This year’s 4% efficiency in tariff will carry into next year. ‘We need to challenge the system because that operational efficiency gain is a crucial part of QIPP delivery. If we push too hard and make it too difficult for providers we’ll have the unintended consequence of making them fall over and we’ll threaten services that we need to improve not lose. It is those judgements and that balance we seek to get right.’

Clinical engagement

Mr Flory has one final challenge for the finance profession. ‘We need you to work hand in hand with clinical leaders on your boards and in your organisations to a greater extent and more effectively than you’ve done before,’ he says. He acknowledges that clinical-financial engagement is already a reality, but says it needs to go further. ‘As trusts develop their cost improvement plans and PCTs and clinical commissioning groups look at the service changes they want to make, we need to ensure that the financial plans are quality assured and owned by the clinicians. So when a CIP says an organisation will take posts out or reduce expenditure, we want evidence that the medical director and nursing director understand it, buy into it and own it.’

Alongside proposals to require medical directors to sign off reference costs returns (see page 32), Mr Flory believes this would mark a stepping up in terms of clinical engagement. ‘You don’t deliver a CIP on a spread sheet,’ he says, ‘you deliver it on the wards.’

While QIPP perhaps dominates most managers minds at present, the transition to CCGs  cannot be ignored. Finance staff currently working in commissioning could in future find themselves working in a clinical commissioning group, a commissioning support service or in part of the NHS Commissioning Board.

‘All these parts of the new system will require high quality financial leadership, advice and support,’ says Mr Flory. ‘Getting the right people in post will be key to their short- and medium-term success.’

Chief finance officers with the right experience are a priority for Mr Flory in ensuring CCGs have the right capabilities to manage their money – demonstrating that will be a key part of the authorisation process.

More than 200 chief finance officer positions will need to be filled, although some appointments could be across two or three groups. Mr Flory hopes a lot of these people will be found from within the existing commissioning finance community. ‘They will be very challenging jobs, but very exciting for people at the right stage of their careers.’

The challenge facing the NHS has been described as unprecedented. It is clearly a challenge for the whole service, but finance has a massive role to play. Mr Flory goes further. Finance leaders are ‘absolutely mission critical’ to the success of the current agenda, he says.

David Flory will address the HFMA annual conference on Thursday 1 December in London.

Flory’s key messages

• Finance leaders face their biggest challenge ever in delivering the current agenda
  
• Planned financial benefits from future service change have to be realised
  
• Finance needs to work alongside clinicians more than ever before