News / News analysis: From the B of the bang

‘A decent start’. That’ s how NHS deputy chief executive David Flory described the new spending review period, which got under way in April.

Addressing finance managers at the HFMA FT Finance conference in Brighton last month, he said finances are relatively healthy and there are even early indicators that activity is moving in the right direction. But the productivity challenge remains as big as ever and ‘getting ahead on QIPP’ (quality, innovation, productivity and prevention) will be vital both for this spending review period and the next.

‘The balance sheet across the system looked quite a bit stronger than we might have anticipated this time last year,’ he said. Current plans were to draw down some £200m of the previously amassed surplus this year – slightly ahead of the £150m indicated in the operating framework.

Mr Flory said a glance at Monitor’s Q4 report also revealed ‘a very healthy position’ (see news, page 4).  ‘Last year was not without its challenges,’ he said. ‘But on the whole, in aggregate, we did what we said we would do and got a good platform to go into this year.’ However, he acknowledged that, with this year’s more modest settlement by recent standards, ‘this year already feels very different’.

He warned that access could not be used as a safety valve as the financial pressure increased. There had been concerns that 18-week measures in February and March had drifted, but he said April figures on admitted care were better and suggested the dip was a result of winter pressures. He stressed that there was complete clarity that the ‘top of government is absolutely determined to keep a tight performance on access to services and absolutely determined that the constitution pledge for 18 weeks is made a reality across the country’.

‘ If you think that the easing off of performance management on the target means that access to service doesn’t matter to this government, that is the wrong conclusion to draw,’ he said.

The lesson from the dip in access figures was the importance of getting ahead of the game this year in advance of any winter demand peaks.

Lower admissions

More good news: emergency and elective admissions were lower in April 2011 than the same month last year. While this was only one month’s figures, it was movement in the right direction.

‘It’s a start that suggests we might be seeing in more parts of the country the sorts of downward pressure on activity we do need in terms of delivering the QIPP challenge,’ said Mr Flory.

He insisted that maintaining this ‘decent start’ and delivering on the QIPP agenda were the key challenges. Design of the new system would clearly have its own demands, but he insisted it was not the biggest risk. ‘The biggest challenge is the ongoing delivery to get everybody into a strong enough position to go into the new world,’ he said. However, he said the response to the ‘pause’ – in particular the pragmatic changes to timescales – would help.

He called on managers to be aware of the broader economic context. The country had aggressive targets to eliminate the structural deficit and future public sector and NHS settlements were clearly linked to the achievement of this goal.

If successful, some forecasts suggest the economy could grow by 2% a year. If this led to 2% growth for the public sector and the NHS received a further 2% (in line with traditional spending patterns), even this would only match the 4% cost pressures ‘as far as the eye can see’ – coming from the increase in the 85-plus population (1%), NHS pay (1%) and costs of technology and growing expectations (1.5%-2%).

There are clearly major risks around these forecasts. Mr Flory declared himself ‘optimistic’ about the NHS’s ability to ‘continue to meet demands’ if it delivered all the things it could during this current period. But he said the prudent approach was to plan for productivity improvement well beyond the current spending review period.

‘We absolutely have to get ahead of the game on QIPP,’ he said,’ on reducing input costs, on driving up productivity, on shifting activity, and reductions in acute activity.

Mr Flory gave an example of the challenge, and the potential for savings. ‘If you look back over 30 to 40 years, the increase in finished consultant episodes [FCEs] is consistently 4% – a frighteningly predictable line,’ he said. If the shape of that line could be shifted to 1%, a year it would deliver major savings.

He said some areas had delivered real demand management last year – but overall progress was patchy. And some areas had seen steep increases in activity. He said these issues could ‘trip us up’.

‘We simply can’t wait until the end of the spending review period before worrying about dealing with the next one,’ he said. ‘Activity shifts are key in getting us through this period.’

Mr Flory acknowledged that many organisations would be facing difficult decisions on how to reduce expenditure and take cost out of the system as activity shifts. But he said that the finance community needed to keep in mind some of the lessons from Mid Staffordshire – the further review of which, led by Robert Francis QC, will report this autumn.

‘There are times when we are going to have to pause more and consider the consequences and implications of the decisions we make,’ he said. He warned against too much reliance on headline numbers and not enough on consequences. He said that without overly regulating or fettering foundation trust boards, ‘we need to make sure we get that deeper understanding about the consequences of the decisions we make’.

Asked if there was something the finance function should do to develop young finance practitioners

and help them understand better the clinical drivers, Mr Flory said it was an important point. ‘In some places we are fantastically good at getting people to participate in crucial corporate business management decisions,’ he said. ‘We have got to find ways of learning from the people who do this really well.’

He added that the lead times for doing this as part of on-the-job training were a lot shorter than doing it through professional training, although both would be needed.

Tariff issues

Finally, Mr Flory turned his attention to the national tariff. Nodding towards the Department’s response to the NHS Future Forum – which outlined plans for more pathway and integrated care tariffs and a role for the tariff in protecting against cherry picking of services – he said it was clear that ministers were committed to developing payment by results.

He acknowledged concerns in the service about the new penalties on readmissions. He confirmed that the Department was committed to reviewing this policy at the first quarter with a view to understanding ‘how we can better write the rules and define those readmissions that don’t get paid for as we go forward’.

But he warned about getting overly fixated on the tariff system at the expense of good working relationships.

‘It is easy to get to a position where the payment system is the source of everybody’s problem,’ he said. ‘It is not perfect and we continue to learn. But a good payment system cannot substitute for commissioners doing their job properly and providers responding properly.

“When you’ve got capable, confident, ‘up and at it’ commissioners who are very clear about  the service specification and what they want to secure in terms of standards, and responsive providers coming back on that, then the payment system can fly,’ he concluded. “If you haven’t got [the system] working in this way, then the payment system won’t make up for it.’