Feature / New Year’s resolution

While the media whips itself into a frenzy over reform and price competition, Department of Health deputy chief executive David Flory calls for NHS finance managers to stand up and be counted as they strive to maintain financial control, raise productivity and contribute to the transition process. Steve Brown reports.

The English payment by results guidance doesn’t usually generate much media attention. Last year’s introduction of a marginal rate for emergency admissions passed relatively unnoticed and there has been only sporadic interest in the level of top-ups paid to children’s and other specialist hospitals. But in general, the media ignores the guidance on the grounds that it is too detailed, too technical or too difficult to be of general interest.

That changed this year with a brief paragraph, in both the PBR guidance and the new operating framework, on a proposed ability to set prices below published tariff price.

With the media already circling the health reform programme, it interpreted the ‘maximum price’ changes as a major change in policy direction. The Guardian blogged on how the ‘introduction of unfettered price competition’ would ‘blow apart the unified NHS as a service and turn it into a purchasing agency’ with a ‘devastating’ impact on ‘financially fragile hospitals’.  The Financial Times reported experts predicting  a ‘race to the bottom on price that would almost certainly threaten quality’. The Nuffield Trust felt moved to call on the government to ‘reverse intended freedoms to allow negotiation on price’.

Speaking to Healthcare Finance, NHS deputy chief executive and director general of NHS finance, performance and operations David Flory said the coverage was ‘out of proportion’. He highlighted the fact that this was first trailed in the 2010/11 operating framework under the last administration. And he underlined the exact wording in the PBR guidance that makes clear this will only happen in ‘exceptional circumstances’, must not affect quality and was specifically ‘not intended to herald the development of price competition’.

He puts it bluntly. ‘There is no policy to move into price competition in 2011/12. The operating framework spells out that where commissioners and providers together, consensually, see that adjusting the price to below the maximum enables them to do things that couldn’t otherwise be done for patients, we won’t stand in the way.’ He rejects that it is a mechanism for managing market entry and exit, with providers undercutting prices to gain a foothold. ‘Absolutely not,’ he says.

In some ways, the ‘new’ clause is a recognition of existing practice in parts of the country where adjustments have already effectively been made to prices or marginal rates been applied between providers and commissioners to enable local priorities to be achieved in an affordable way.

But Mr Flory is also clear that flexibilities such as setting the tariff as a maximum must be balanced against the need for a consistent and rules based system. ‘We have the business rules, a tariff and the contracting framework that are for the NHS in England,’ he says. ‘It would be too easy to drift into too much variation that looks like lots of systems operating. We want to define a consistent framework with transparency of information and consistency of application, but to be clear where organisations can sort out the right solution for them and their patients locally.’

The flexibility of tariff price is a minor part of the PBR package for 2011/12 that will see an expansion in the use of best practice tariffs, a continuation of marginal rates for emergencies and changes to payment for readmissions and long stays in hospital (see box overleaf).

Director of NHS finance Bob Alexander says there should be few surprises. ‘It is a further movement down a previously projected path,’ he says. ‘We have a coalition government that sees the payment mechanisms as a fundamental way of improving quality and outcomes and driving productivity. The 2011/12 guidance simply takes us further down that road and 2012/13 is likely to take us still further.’

He refers to the changes around best practice tariffs and rewarding quality and innovation through increased CQUIN payments. And he suggests that this direction – basing prices on ‘recognised clinical best practice and building in efficiency’ – will continue beyond the Commissioning Board and Monitor taking over responsibility for the tariff.

The operating framework, published alongside PCT allocations, set out the broader finance rules for the coming year. In addition to the tariff arrangements, it provided details of financial support for social care, the removal of the requirement on trusts to report management costs (while PCTs will be asked to report broader running costs)  and how access to PCTs’ surplus will continue in the coming year. At the HFMA conference in December, ahead of the operating framework’s publication, Mr Flory dismissed concerns that the surplus had been lost.

‘We’ve not said to PCTs at any stage in the past few years that you can’t have your own money. But it is sensible to manage over a number of years. That’s what we’ll continue to do,’ he says. The expected drawdown in 2011/12 will be £150m.

Mr Flory highlights three key messages around this year’s operating framework. ‘First and foremost, we need to keep our eye on the ball of delivery and not be distracted by designing the future,’ he says. ‘And we need to get to grips with solving some of the problems that still exist in some parts of the country – the small number of PCTs with legacy debt issues – before consortia come on stream.’ 

He adds: ‘And we need to ensure we manage the risk in the system in a better way than we have done in years gone by.’

PCTs will again be required to invest 2% of their recurrent funding non-recurrently. But this year strategic health authorities will hold these funds and require business cases to demonstrate the non-recurrent nature of any planned spending before they can access the funds – guaranteeing a non-recurrent financial safety net.

Key role for finance

While delivery and control are the immediate priorities, Mr Flory is keen to underline the important role finance will have over the coming years. A transition to the changes laid out in the government’s white paper (while maintaining financial control), cash increases well beneath levels in recent years, and the need to find £20bn of savings while delivering higher quality will place demands on all NHS staff. But finance managers will feel the brunt of it – and many will be in uncharted territory.

‘I’m pretty sure there’s never been this complex and challenging agenda for our finance colleagues,’ says Mr Flory. ‘We need finance directors and their senior staff to fully discharge their responsibility, to do their chief finance officer jobs. But we also need them to contribute to managing the bigger transition that goes beyond their organisational boundaries.’

He does not see any conflict between this organisational focus on the one hand and taking a health economy view. ‘You can do the right thing by your organisation, achieving its objectives and meeting its duties at the same time as taking this broader role as part of the transitional change.’

He is clear the NHS has not made as much progress as it could to prepare for the financial challenges, despite the early identification of the (at the time) £15bn-£20bn savings requirement in spring 2009. On reflection, Mr Flory says the service and the Department ‘did quite well’ in communicating the message about the scale of the challenge, but ‘didn’t create the urgency for immediate action’.

‘We are behind on some of that,’ he says. ‘I look at the workforce numbers all the time and I look at the capacity in the system. And now as we head towards 2011/12 and the significantly reduced rates of increase, we have to play catch-up.’

He says financial planning and financial management in PCTs has improved significantly – as evidenced by use of resources scores – and acknowledges that PCTs have tried to be tough on demand management, not only to reduce costs but to develop better models of care closer to home.

‘But while they had 5.5% cash going in, they’ve been able to afford for those plans to fail. It has not taken them over the edge financially in ways it would have without those sorts of margins in the system,’ he says.

Commissioners will no longer have this luxury and will need to start delivering on meaningful demand management, he adds.

He acknowledges this will not be easy. ‘With the very cold weather and the increased prevalence of flu in the community, we’ve seen some really intense winter pressures requiring acute beds and the ability to step up critical care capacity. I recognise that in a sense I want it both ways: money coming out and capacity going down but there when I need it to be there. It is a dilemma.’

He believes the return of integrated acute and community providers can begin to make some of the service changes needed to deliver better care, at the right time and in the right place, at lower cost.

The £20bn savings can’t all come from secondary care, he says – QIPP plans suggest about half the total requirement will come from this sector. But he wants providers to give commissioners more help to deliver their demand management targets, emphasising the need to take a view across the whole health economy. ‘We’ve got some really experienced people in the provider world who can really help us manage through some of this transition with more continuity.’

Mr Alexander underlines this message. ‘We need provider clinicians dialoguing with GPs as a forerunner to the new world of GP commissioning to get the clinical redesign that can make this happen,’ he says.

Finance managers will have a significant role in meeting the financial challenges facing the service and need to have a positive influence on the transition. Mr Flory recognises that the Department and the finance function as a whole have a role in helping them.

‘We need to support people,’ he says. ‘We need to stay close and communicate the challenges and  share thoughts on how we will work through this period. We need to help people develop the necessary skills and capabilities.’

Job security

For some – particularly in PCTs and SHAs – concerns over personal job security could provide a distraction. But Mr Flory believes the announcements around clustering and the assignment of staff to work with emerging consortia demonstrate both that things are resolving fast and the Department is determined to retain key skills.

Its support for the HFMA’s ‘Take control’ initiative – a hands-on approach to supporting finance managers through the reform process – provides practical help but also shows that the Department’s finance leaders are aware of the personal challenges facing the finance family and the risks for the NHS.

Mr Flory cannot offer specific guarantees to finance staff facing uncertainty as part of the transition. But he is confident that the finance function will have a key part to play in a successful transition period.

‘I hope to come out with a vibrant, positive, refreshing finance profession that is enthusiastic and equipped for managing in the new world,’ he says. ‘One that is proud of the role it has played  through the transition period in supporting colleagues through to new ways of working in very different systems that drive better value for taxpayers and benefits for patients.’