News / New finance risk metrics will focus on resilience and efficiency
NHS Improvement has outlined proposals for a unified oversight framework to replace risk assessment and accountability frameworks.
Finance and use of resources is one of five areas in the framework – the others are quality of care, operational performance, strategic change and leadership and improvement capability.
Based on assessments in all the areas, trusts will be grouped into four categories: no concerns; emerging concerns/minor issues; serious issues; and critical issues. Support from NHS Improvement will be based on these categories – organisations with serious and critical issues will be given mandated support.
The finance and use of resources assessment (developed with the Care Quality Commission) will be used, as now, to identify early signs of financial problems. But it will usher in a greater focus on efficiency using the recommendations of the Carter report. At first, there will be seven metrics, with four implemented immediately:
- Capital service capacity – headroom over interest or other capital charges, such as private finance initiative payments
- Liquidity – days of operating costs held in cash or cash equivalents
- Distance from control total or financial plan – year to date actual position against trajectory in providers with control totals; in those without, year to date actual I&E surplus against year to date planned I&E surplus
- EBITDA margin – EBITDA divided by total revenue
A further three will be introduced in shadow form in 2016/17 – tracked, but not included in the financial rating:
- Cost/weighted activity unit – the change in the Carter efficiency metric, cost per weighted activity unit (WAU)
- Capital controls – distance from capital control total
- Agency spend – distance from agency cap.
Providers will continue to be scored 1 to 4 on each metric, but reversing the current risk assessment framework – 1 the best score, 4 the poorest. Providers scoring a 3 or 4 in the overall financial assessment will trigger a potential concern, as will a 4 on any of the individual metrics. Scoring a 4 against the three shadow metrics will not trigger action in 2016/17.
NHS Improvement chief executive Jim Mackey said: ‘The framework
will shift the emphasis away from regulation and performance management and towards identifying how we can best help providers make the improvements they want to make for patients.’
Miriam Deakin (right), head of policy at NHS Providers, said the single framework had potential to align regulation with the Care Quality Commission, and to ignite sector-led improvement.
She said: ‘We welcome the greater emphasis on improvement and tailored and voluntary support. However, it is important that all trusts are judged objectively against clear criteria and we are keen to follow how the statutory duties of Monitor and the Trust Development Authority translate into practice in this fresh approach.’
The consultation closes on 4 August.
Financial rating metrics
| Metric | Score | ||||
| 1 | 2 | 3 | 4 | ||
| Financial sustainability | Capital service capacity | >2.5x | 1.75-2.5x | 1.25-1.75x | <1.25x |
| Liquidity (days) | >0 | (7)-0 | (14)-(7) | <(14) | |
| Financial efficiency | EBITDA margin | ≥5% | 3%-5% | 0%-3% | ≤0% |
| Change in cost per weighted activity unit (WAU)* | ≤1.1% | 1.1%-2.1% | 2.1%-3.1% | >3.1% | |
| Financial controls | Capital controls* | <5% | 0%-5% | 5%-15% | ≥15% |
| Distance from control total or financial plan | ≥0% | (1)%-0% | (2)%-(1)% | ≤(2)% | |
| Agency spend* | ≤0% | 0%-25% | 25%-50% | >50% | |
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