Comment / The new reality

High-quality costing data and a systems approach to achieving efficiency need to be priorities for NHS finance managers

Last month I stood with 15,000 others in Birmingham to witness what will probably be one of AC/DC’s last UK performances. As well as cursing a youth that wasn’t more misspent, I mused on what it takes to stay at the top of your game for 30 years plus.

In NHS finance, we have enjoyed probably our most successful period in the past three years, moving from deficit to surplus. But this has been against a backdrop of high growth, something we are unlikely to see again given the projected state of the public finances. So how do we build and sustain a world class finance system when we face such challenges? One way is to get the basics right. An example is the annual reference cost collection.

We know how crucial it is to get the data right given that the national tariff is based on reference costs. Yet when we had difficulty with the roll-out of the HRG4 tariff this year, one of the issues consistently cited was the accuracy of the 2006/07 reference costs. As a finance community, how can we be content to criticise a collection process for which we are ultimately responsible?

Benchmarking data is becoming ever more important, for example through the application of normative tariffs in several specialities. It is also critical we improve the quality of costing, the accuracy of data and the seriousness with which we take the process through, for example, reporting to organisations’ boards. If none of these are evident in organisations, how confident can we be in delivery of the productivity gains we know are required?

We clearly face challenges from 2011/12 onwards. The consensus from experts such as the Institute for Fiscal Studies suggests inflation of around 1.5% going forward. And with real terms growth of 0.7% on average across the public sector, we face cash uplifts far lower than those of the past 10 years, and lower than 4% – the lowest in two decades.

In meeting this challenge, it is unlikely that individual organisations, whether commissioner or provider, will alone be able to deliver the productivity gains required. Early work undertaken by Sir Michael Bichard in Cumbria, for example, shows that major efficiencies can be made by considering systems rather than individual organisations.

This will require a change in some organisational mindsets – the prospect of demonstrating productivity from additional income in a declining market is fatuous. And the notions that we can deliver savings from the traditional salami slice approach to efficiency savings or without taking any difficult decisions are equally flawed.

What does all of this mean for us as a finance function? First, we will get nowhere with efficiency

or productivity gains if we don’t have confidence in the data collection we are responsible for. Second, as a finance community we need to get involved in, if not lead, the drive for improved efficiency and productivity. This will require us to engage with

non-financial colleagues in a way we have not been terribly successful at in the past. Instead of saying ‘no’ to every proposal, we need to be in the forefront of the generation of options and solutions.

Third, we will fail if we try to deliver solutions as individual organisations. A system-based approach is necessary to lever out maximum saving. And finally, we have limited time to deliver the change and no one will thank us for wasting the next 22 months by pretending we are living in a different reality.