News / News analysis: What’s the story?

The media likes a scoop and if it can’t have a story completely to itself, it likes to find a unique angle. But managers at the Foundation Trust Network, which last month published a report on NHS back-office efficiency, could be forgiven for being slightly non-plussed by the front page headlines in the Daily Mail. ‘Receptionists face axe in plans to automate GP appointments’, it screamed, claiming not only that surgeries would be ‘urged to sack receptionists’ but that the centralised booking system would save the NHS up to £600m.

Wow – good story. Except, the £600m is in fact the saving that could be made on streamlining back-office functions in all NHS bodies except GP surgeries. To be fair, there was a suggestion that after delivering efficiencies from back offices in foundation trusts, trusts and primary care trusts, the Department of Health should ‘evaluate options’ for rationalising back-office GP services. There was even a mention that call centres could be a ‘possibility’ for appointment-based bookings. But the focus of the 72-page report was outside primary care surgeries. And rather than delivering P45s to GP receptionists, it merely called for an option evaluation, which should involve primary care clinicians, to be produced by September next year.

Back-office efficiency and management optimisation represents the first in a series of reports looking at the different workstreams within the national quality, innovation, productivity and prevention (QIPP) programme. In total 12 work streams cover three broad areas: commissioning and pathways; provider efficiency; and system enablers.  The back-office work was led by Tony Spotswood, chief executive of Royal Bournemouth and Christchurch Hospitals, under the auspices of the Foundation Trust Network.

Seven different back-office functions were included in the scope of the report including: finance; human resources; information management and technology; procurement; estates management; payroll; and governance and risk.

Having undertaken benchmarking with nearly 80% of NHS organisations, the report concludes that there are potential savings in England of £616m from a total spend (aggregated to 100%) of £2.8bn across the seven functions.

These savings would be achieved if all organisations with back-office costs above the national average (expressed as a % of turnover) were moved to the national average. However, the document says that further savings are possible. First, organisations with back-office services that are below average cost should also be able to realise savings and, as back-office functions are ‘re-engineered’, the average spend should be driven down. ‘It is reasonable to assume that the savings to be realised are closer to £1bn,’ the report says.

In general terms, the report is a rallying cry for shared services. It categorically recommends that ‘all organisations should move towards adopting a shared service model’. However, it acknowledges there is no ‘one-size fits all’ solution and that different models of shared services will suit different organisations. It identifies in-house models (for very large organisations), cooperatives, shared service companies, joint ventures and outsourcing as legitimate options with different advantages and constraints.

It is also clear that not all activities are suitable for shared services. For instance, within finance it labels management accounting and strategic financial planning as ‘strategic services’ that organisations would want to keep control over. It also suggests areas suitable for outsourcing/sharing (such as cash disbursements and general ledger accounting) and those where some control is likely to be needed (for instance, fixed assets and treasury management).

‘When we looked at lessons from the commercial sector and from within the public sector, one of the characteristics of successful organisations with regard to back-office functions is that they have focused their activities on a much more extensive scale than the NHS,’ Mr Spotswood told Healthcare Finance. ‘The NHS is characterised by many organisations providing their own functions, often without detailed scrutiny of the value for money of those functions. So it is important that organisations grasp the potential to work together.’

He added that simplification and standardisation of processes and functions are what offer the greatest potential to ‘drive efficiency to free up resources for the frontline’, in particular harnessing the benefits of new technology.

PCTs as a group use more of their total spend (9%) on back office than the provider sector (3%). And among providers, mental health trusts spend 4.6% of turnover on back office compared with 3% for acutes.

In terms of the £616m savings, more than half (£312m) could be realised by PCTs, compared with £229m in the acute sector (£63m for mental health trusts). By function, IT (£142m), estates management (£124m) and procurement  (£112m) offer the greatest potential scope for savings, although there was some uncertainty over the activities included by PCTs in the procurement category.

In highlighting the potential for savings in PCTs, the report also puts itself full square behind a shared service approach for new GP consortia. ‘Developing services on a national or regional/multi-regional basis will ensure the full benefits of business process engineering can be derived, including the simplification and greater standardisation of processes, combining these with the evident efficiencies which a shared service approach allows,’ the report states.

‘We support the mandating of this work to drive out the realisable cost savings.’

Drilling down into finance reveals potential savings of just over £70m if everyone reduced costs to the average for their type of organisation (in fact the average of the inter-quartile range) – just over 10% of the savings total. (An additional £19m could be available in payroll.) With overall expenditure

on finance and payroll of about £685m, £90m savings represents about 13% of expenditure on the finance and payroll back office, compared with 22% across all back-office functions (£616m/£2.8bn).

NHS finance departments also seem to compare well against best-in-class finance functions in the commercial sector. According to Hacketts benchmarking data for industry, best-in-class costs for finance departments come out at 0.609% of turnover. While definitions may vary slightly, NHS finance teams come in at an average of 0.6%, with costs varying from 0.32% for PCTs, 0.73%/0.74% for acutes/acute FTs up to 1.07% for mental health foundation trusts. (Higher back-office costs in mental health trusts reflect their smaller size and turnover compared with acute trusts.)

‘Finance is one of the areas that benchmarks well in terms of efficiency,’ admits Mr Spotswood.  But that doesn’t mean finance directors should simply ignore any further potential for improvement through simplification, standardisation and sharing. The report says that ‘while the finance function may be somewhat leaner than other back-office functions’, a more detailed analysis of processes may reveal, for instance, that only accounts payable is truly efficient, masking inefficiencies in other areas.

Away from the kerfuffle around GP receptionists, the real stories are somewhat different. First of all, £616m savings are clearly worth investigating, though they will only scratch the surface of the overall £20bn savings requirement. Even cutting all back-office costs would only save £2.8bn.

And in the detail, we see evidence of a finance function that, at least in cost terms, already appears to offer value for money, even if further savings can be realised.

New competition

NHS Shared Business Services, along with other NHS shared services organisations and commercial outsourcers, should benefit from such a ringing endorsement of the shared service model. Current spending on shared services is estimated by the report at £370m – some 13% of the total back-office spend.

However, the organisation – a joint venture between the Department of Health and outsourcing specialist Steria – can look forward to more competition. The report says: ‘Work is in hand to examine the potential for the Department to combine with another commercial provider to create a competitor to SBS via a similar joint venture initiative. Competition is viewed as a key lever in driving both efficiency and the delivery of high-quality services to customers.’

It adds that the Department is reviewing a ‘number of options’ to create greater market competition on the expiry of the SBS contract in March 2012.

Back office efficiency and management optimisation makes a number of recommendations (see www.nhsconfed.org for further details):