News / News Analysis: Ultimate sanction?

Our last issue reported a HFMA survey had found 60% of finance managers not at director level had no desire to become finance directors (Top attractions, June 2008, page 8). Many said the rewards did not justify the additional stress. Their views may well have been reinforced when ministers announced in June the first details of a new performance regime for the NHS in England. The papers and news bulletins were quick to interpret the government's message to managers:  shape up or an army of private sector managers are waiting to put you out of a job.

The truth, outlined in the Department of Health's report Developing the NHS performance regime, is more complex. A failing organisation could get several chances before the spectre of franchising - to the private sector, an NHS trust or foundation trust - is raised. Before that, there will be metrics, dashboards and interventions that are set to become as important in the day-to-day life of primary care and NHS trusts as Monitor's assessments have in foundation trusts.

Many of the ideas underpinning the new performance regime will be familiar to finance staff. Building on the Department's initiative for financially challenged trusts in 2007/08, organisations will be labelled 'challenged' if they underperform persistently in one of three areas - finance, quality and safety.  These organisations will be given support to turn around their position, which the Department says will be built on the lessons learned from the financial turnaround initiatives that were so successful in changing the service's financial prospects.

David Flory, director general NHS finance, performance and operations, and his team will develop the proposals with a view to implementation in April 2009. Much of the work will focus on developing the measures of success and failure in the areas of finance, quality and safety.

The new regime will be governed by five principles. It will be transparent, consistent, proactive, proportionate and focused on recovery. PCTs will play a key role by monitoring providers' performance against contracts. Where a provider seriously or persistently underperforms, they will have several options (see box), including requiring remedial action, financial sanctions and, as a last resort, suspension or termination of the contract.

But the Department warned that commissioners should not simply terminate a contract with one provider and award the work to another. They had a system management role, which was consistent with the aims of World Class Commissioning (WCC), and included a need to understand provider economics and market dynamics.

This was true particularly if failure was a result of strategic problems, such as financial shortfalls caused by over capacity. In these cases, commissioners could step in with some additional non-tariff income to prop up the service over the short to medium term. This could be coupled with consultation on service change to address the problem. 'This illustrates how the local NHS functions as an integrated “system” rather than a true “market” - it is not necessarily as simple for the commissioner as terminating a contract with one provider and taking its business elsewhere,' the report said.

It added that commissioners must not take lightly the revenue consequences for providers of terminating contracts. This would put pressure on providers' working capital and could trigger regulatory action by Monitor or, in the case of non-foundations, the local strategic health authority.

SHAs' performance management of PCTs and trusts will take place across three areas: finance, service performance and board capability. The Department insisted these would be consistent with the WCC assurance framework, Monitor's compliance framework, the new Care Quality Commission's assessment and the Audit Commission's revised use of resources assessment, which is due to be introduced as part of the public sector-wide Comprehensive Area Assessment next April.

The SHA performance framework for PCTs and trusts will be drawn largely from Monitor's compliance framework, including its finance and governance metrics. For trusts, the finance metrics would be based on Monitor's financial risk assessment, adjusted to reflect statutory duties and the operating framework requirements. The Department will use Monitor's 'style' of risk assessment for PCTs, with metrics to assess their commissioning role, as well as their statutory duties and the operating framework requirements.

The 'balanced scorecard' approach to financial management and performance developed by some SHAs will be worked up into a national model.

SHAs will have a role ensuring commissioners are holding providers to account over their performance, and will intervene to address underperformance by trusts. SHAs will have three levels of escalation and intervention: starting with 'underperforming', then 'seriously underperforming' and finally 'challenged'. Organisations will be given a defined time period to improve performance before escalation to the next level - though in serious cases, the SHA could immediately label a failing organisation 'challenged'.

Once it decides an organisation is challenged, the SHA will be able to remove management or make temporary appointments. Turnaround plans should address weaknesses, such as in financial management systems or governance, exposed by an external review to which all challenged bodies will be subjected. The plans will also address structural problems, such as those caused by excess capacity.

After a maximum 12 months of the turnaround plan, the SHA will submit a report to the NHS chief executive, recommending removal of the 'challenged' designation, review after a further period or that the organisation be placed 'under directions'. The latter power, which may also be granted to Monitor in relation to foundation trusts, will mean board level changes, and, in PCTs, could lead to replacement of its board, outsourcing of some or all of its functions or takeover by another PCT. In providers, being placed under directions could lead to closure of services, disposal of assets, management franchising (to another NHS provider or private operator) or acquisition by a foundation trust.

HFMA chairman Chris Calkin said the regime needed to focus on providing support and aiding improvement, rather than punishment. 'We of course need a performance or failure regime that is robust, rigorous and challenging. But it needs to be supportive.' He acknowledged that the regime set out a range of interventions and actions up to removal of individual managers, but said it would be important in most cases to avoid knee-jerk 'scapegoating' of chief executives or other executives. 'It is usually too simplistic to blame one person if there are performance issues - there are usually whole system issues and any actions or support need to take a whole system approach.'

NHS Confederation policy director Nigel Edwards said NHS and private sector managers had a role to play in turning around failing organisations, but he added that solutions might not be easy to find. 'The fact that a trust has reached this point means that the challenges will be considerable for anyone. Foundation trusts and independent sector providers will be cautious about taking them on and in some cases may not feel able to without adequate incentives to run the service,' he added.

Jon Restell, chief executive of senior managers' union Managers in Partnership, said failing trusts would need more than a few months to turn themselves around. 'The best specialists in the field say you need about four to five years to turn around a hospital, and that's with the best people and conditions.'  He also called for greater honesty about the reasons for failure, including the fact that some providers were no longer viable.

The Department has recognised this and will bring forward a failure regime. This will have three options - closure and asset disposal, franchising by an NHS or foundation trust or an independent sector operator, and acquisition by another NHS body.

SHAs will also be managed under the new performance regime and they will be assessed on their success in performance management, commissioner assurance, system management and the commissioning of training and education.

Underperforming senior managers will be targeted. Severance pay will be an exception. Notice periods in employment contracts will be no longer than six months to limit the compensation. An NHS interim management and support service will also be established to provide expertise and support for all parts of the NHS. Individuals or whole teams from within the NHS and across a range of disciplines, including finance, will be available under the scheme.

This summer the Department's efforts will be directed into fleshing out the proposals. Now we know what the Department intends to do with them, the key question Mr Flory and his team will answer is what constitutes a failing organisation.

First moves
PCTs will be expected to monitor service performance and have a number of contractual interventions they can use to address underperformance:
Contractual notices (for instance a 'performance notice') requiring a response by the provider to address underperformance

Contractual remedies (for instance remedial action) requiring the parties to agree, implement and monitor a remedial action plan to address persistent underperformance

Financial sanctions (if applicable) providing rights for the commissioner in consideration of breaches of contract by the provider

Suspension and termination provisions giving rights for the commissioner to suspend or terminate all or part of a contract in response to a material breach by the provider.

Suspension and termination provisions giving rights for the commissioner to suspend or terminate all or part of a contract in response to a material breach by the provider.