Comment / New economy, new mindset

The NHS needs a change of mindset – tightening its grip on cost control and looking across organisational boundaries – to meet its current service and financial challenges, argues Paul Briddock

Saving £20bn over the coming four years is undoubtedly one of the biggest financial challenges the NHS has ever faced. For foundation trusts, that’s an average efficiency target of 5.7% for 2011/12 alone, according to one recent survey.

But before we spend too much time feeling sorry for ourselves, we should apply a little perspective. We have seen unprecedented investment in the NHS over the past 15 years. In 1997, government receipts were £288bn and public expenditure £318bn. Fast forward to 2010/11 and receipts increased to £548bn, while expenditure – up 120% - was £697bn. Over the same period cumulative GDP growth was just 25%.

Within this, the NHS was perhaps the single biggest beneficiary, its £35bn budget tripling to £104bn. Even now the NHS is ‘enjoying’ real-terms funding growth as other public services suffer.

Of course none of this makes finding the required £20bn to absorb NHS cost pressures any easier.  But it provides an important context for how members of the public view the NHS financial challenge.

To deliver the ‘Nicholson challenge’, we need a mindset change in how we manage NHS budgets. This is already beginning to happen, but it needs to be far more widespread. Part of this change is the need to really manage costs tightly, rather than managing cost through income growth. It still amazes me how much we allowed the cost base to grow during the past 10 years. I’m not thinking of activity-based cost growth, but cost growth that wasn’t connected to capacity.

National pay initiatives such as the consultant and GP contracts and the broader Agenda for Change carried an astronomical cost. I’m not saying staff pay rises weren’t needed, but did it have to cost so much?

But putting aside the cost pressures of national pay deals, I think we may have also lost a tight grip on the growth in the cost base at organisation level. Where is the incentive to take difficult decisions about controlling costs that make you unpopular, when you can simply cover them through income growth?

To absorb your costs by making efficiency gains, the starting point has to be re-establishing firm control of the cost base, however unpopular that may be.  This must be done locally as well as nationally.

Second, while care pathways may be the latest buzz phrase, there’s no getting away from it – we have to look across organisational boundaries in optimising the way we treat patients.

North Derbyshire’s stroke care pathway was splintered for years, the acute phase provided at the local general hospital and rehabilitation out in the community. The result was an adequate, but not best practice, quality outcome.

Over the past 18 months that model has been redesigned and integrated to deliver best practice and improved efficiency. Organisational boundaries have been swept aside and the results speak for themselves. We are delivering best practice as shown by quality measures such as the Royal College of Physicians’ Sentinel stroke audit. Results such as this are vital in selling service change to the public. But we have also seen a 15% reduction in costs. 

The NHS needs to replicate this approach – looking for combined quality and efficiency improvements across all activities. We need to throw all our energy into employing different methods, skills and ways of thinking to overcome significant challenges. Given the investment of the past decade, if we fail, we can expect no sympathy from the public.

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Paul Briddock is chairman of the HFMA FT Finance Technical

Issues Group and finance director of Chesterfield Royal Hospital NHS Foundation Trust