News / NHS must deliver efficiency ‘like never before’

The NHS will need to ‘deliver efficiency and productivity like never ever before’ as it prepares for a period of ‘very, very tight growth’. This was the stark message from David Flory, director general of finance, performance and operations at the Department of Health, when he addressed the HFMA’s annual conference earlier this month.

Mr Flory praised recent financial performance including ‘fantastic progress’ in forecasting. But he warned that there was no room for complacency and that remaining pockets of poor performance had to be tackled.

He said the list of 12 organisations that had failed to meet minimum standards in financial management for three years, highlighted by the Audit Commission in its Auditors’ Local Evaluation report in October, hurt the whole profession. He said that basic problems – such as missing accounts deadlines and failing to get boards to approve budgets – had to be eliminated ‘once and for all’.

Mr Flory said in many respects the NHS had never been in a stronger position collectively and separately having exceeded performance in key areas such as the 18 week target and reducing infection rates while demonstrating strong financial performance.

But he added that at the same time the challenges ahead had never been greater or sharper. He highlighted the pre-Budget report that had called for the public services to find £5bn more in efficiencies in the third year of the current settlement. ‘It is inevitable that a decent part of that £5bn will come from health,’ he said. And he underlined the expectation for growth in public sector expenditure to drop dramatically from 2011 compared with recent settlements.

He set four challenges for finance managers. ‘We need to keep the grip on the financial position really tight,’ he said. However, he warned managers not to ‘freeze in the headlights’ by stopping investment during the two years of remaining growth. ‘We need next year’s investment and growth and the year after to embed the things we are putting in place, to make sure everyone is getting to the right standards on access and to give a really good kick start to quality.’

Mr Flory also called on finance managers to ‘play as system players’. He said there was a collective responsibility to deliver quality across organisational boundaries. ‘We need to play as part of the system as well as individual organisations.’

His third challenge was to ‘deliver efficiency and productivity like never ever before’ to become as ‘match fit as possible’ for the tougher years ahead.

Speaking ahead of the publication of the operating framework, which he promised would focus on efficiency, he said the cross government operating efficiency review made it clear there were efficiencies to be found in back offices, the use of estate and better procurement. He acknowledged the list contained no surprises and that many finance managers would claim to have already investigated these areas. But he said there was ‘no compelling evidence’ that all parts of the system were as efficient as they could be. ‘We really need to go back to first principles on efficiency and look again at some of the things we’ve had a dabble at but haven’t quite cracked,’ he said.

His final challenge was for finance managers to be ‘part of a solution not a critic on the sidelines’. In particular he highlighted the move to a tariff based on new healthcare resource groups, HRG4, in 2009. He said this ‘huge change’, involving hundreds more prices, was needed because the previous version of HRGs, version 3.5, was imperfect containing ‘contradictions and flaws’. HRG4 was a more clinically appropriate currency, he added, but he acknowledged there could be unanticipated financial impacts on some organisations. ‘We can’t predict what will happen, we can only show what would have happened two years ago on the activity data for that time,’ he said.

Some organisations will see income increase while for others it will fall. But he warned against knee jerk assumptions that such changes equated to a flawed currency. He pointed out that a loss of income could indicate an organisation had been overpaid under the old system or be the result of poor quality coding. He said the Department recognised there would be ‘ups and downs’ and that there might be a need to mitigate any unintended impact in the early stages – with a cap on the market forces factor payments being the chosen capping mechanism.

‘Be part of the solution not stood out at the side as a snipe,’ he told the conference. ‘If we get some bits of it wrong, we want to work with you to get it right. We don’t want to have arguments about why income has moved up or down without that full and deep understanding about it.’