Feature / Real ALE improvement?

As the Healthcare Commission unveiled its annual health check results for 2006/07, it became clear that hygiene was the new financial management. The previous year’s health check covering 2005/06 had been dominated by the use of resources assessment and the media-fuelled outcry around 40% of trusts and primary care trusts (PCTs) failing to meet minimum requirements. But for 2006/07 the media criticism and focus had moved on. It was far more interested in performance against cleanliness standards than in the detail of organisations’ financial reporting, financial standing and financial management.

Some of this is down to the importance the public rightly attributes to cleanliness and the battle against superbugs such as MRSA and some is down to the fickle nature of the media beast. But it also reflects the significant improvements in financial performance in the use of resources assessment.

The use of resources assessment is provided by regulator Monitor’s financial risk rating for foundation trusts and by the Audit Commission’s auditors’ local evaluation (ALE) for PCTs and NHS trusts. And while use of resources continues to be good for foundation trusts (see box), it is in the ALE results that the real improvement in financial performance can be seen.

No one should get carried away. There is still clear room for improvement (with more than 100 organisations assessed as being below minimum requirements on use of resources) and a core of organisations with particularly severe financial challenges. But the detailed ALE results published by the Audit Commission at the end of October show a distinct improvement both at the overall level and in each of the five themes in which NHS trusts and PCTs are assessed.

The ALE assessment brings together auditors’ scored judgements in five themes (financial reporting, financial management, financial standing, internal control, value for money) into an overall score from 1 to 4, ranging from inadequate performance up to performing strongly. A series of rules determine how the individual theme scores translate into the overall assessment

Overall some 335 organisations were assessed in 2006/07, 183 trusts and 152 PCTs. Of these 231 (69%) achieved a score of 2 or above, indicating that performance is adequate or more than adequate. This is up in percentage terms from the 61% of the 538 bodies assessed in 2005/06.

Five PCTs and one NHS trust (2%) achieved top marks, with a 4 score signifying that they were performing strongly. A further 25% of bodies (25 PCTs and 60 trusts) were assessed as performing well (a score of 3). Some 42% (78 PCTs and 62 trusts) scored a 2 (adequate performance) and 31% demonstrated inadequate performance (score of 1).

PCTs did not score as well as trusts, with only 20% of PCTs scoring at levels 3 and 4, compared to 33% of NHS trusts. Much of this difference in performance is attributed to the PCT reorganisation that took place during the year, reducing PCT numbers from 303 to 152.

The Audit Commission’s Andy McKeon insists that reorganised PCTs’ results need to be seen in context. It should be regarded as a ‘creditable achievement for a new body to reach an adequate standard of performance after only recently being established’, he says.

These comments reflect the fact that to score well under ALE, organisations need to have processes in place and embedded throughout an organisation – and be able to prove this. This simply would not have been achievable in organisations often created from three or more PCTs half way through the year. For a number of organisations, senior staff were not appointed until nearer to Christmas, giving little more than four months before the assessments were made.

Some of the new PCTs will also have suffered under the financial standing assessment. This assessment requires two years of financial balance to score a 3. As new organisations do not have their own track record, the assessment looks at the financial performance of the predecessor PCTs. If any of the pre-merger PCTs was in deficit in the prior year, the new PCT would be restricted to a two on financial standing and therefore a 2 overall under the ALE rules.

So the improvement in ALE comes despite a suppressed performance in some of the new PCTs. The implication is that there should be an almost guaranteed boost to the overall scores next year as the new PCTs embed processes and find their way into the higher scoring brackets.

Overall, 95 bodies improved their scores between the two years, with four actually moving up two levels. The performance of 14 bodies, however, deteriorated and 27 bodies failed (that is, inadequate performance) in each of the themes of financial standing, financial management and value for money. Most bodies assessed as level 1 in 2006/07 also failed to meet minimum requirements in 2005/06. And the commission, while pleased with the overall trend of improvement, stresses that it is not all good news.

Commission chief executive Steve Bundred points to ‘a worrying gap between the top performers and those still failing to meet their duty to balance their books’.  And he adds that for a number of bodies that are failing to manage their finances adequately, ‘there appears little hope that they can get out of trouble by themselves’. He adds: ‘The NHS needs to focus urgently on the management of this small group of NHS bodies that are failing across the board.’

The biggest reason for overall inadequate assessment is scoring a 1 in financial standing. Half of all the scores of 1 were solely because of the financial standing assessment. Of the organisations scoring 1 overall for use of resources, 91% demonstrated inadequate performance in financial standing.

The HFMA has pointed out that the dominance of the financial standing assessment, combined with the way it is assessed, provides too crude an assessment and fails to acknowledge good progress in organisations recovering from deficit. For instance, an organisation could have an agreed recovery plan in place that involves an achievable  return to financial balance over two or three years. Even though it may be hitting all its key milestones and targets on this recovery plan, it will receive a potentially demotivating assessment of inadequate under ALE, purely because of the financial standing assessment.

The Audit Commission is starting to acknowledge this. It identifies two trusts – Oxford Radcliffe Hospitals NHS Trust and the North West London Hospitals NHS Trust – that scored 3s in all of the key themes other than financial standing, in which legacy financial problems resulted in a 1 for financial standing.

The HFMA has called for the cap to be raised on financial standing for these organisations or for a direction of travel assessment to be made in addition to the criteria scores. And at the beginning of November, the commission announced changes to next year’s key lines of enquiry that will go someway to meeting these calls (see news page 3). This move will provide the public with a fairer assessment of year-on-year performance and is likely to prove popular with NHS finance managers.

The trend of improvement in the overall scores is mirrored in the performance at theme level, with the commission claiming the results show an improvement in each individual theme. (In percentage terms, bodies reporting level 1 for internal control and value for money slightly increased, but the commission says this is outweighed by the increase in the percentage of bodies moving up from level 2 to level 3.)

In financial reporting, the number of bodies scoring level 3 increased from 35% to 43% with a compensating reduction at level 2. And this is despite earlier deadlines for accounts submission in 2006/07. The commission, however, warns that with further advancement of the timetable likely and 16% of organisations failing to meet minimum standards in this theme, there remain challenges in ensuring the quality of accounts does not suffer as the timetable comes forward.

The commission points to an ‘encouraging improvement by both PCTs and NHS trusts in the financial management theme, with 91% of trusts and 79% of PCTs achieving at least minimum standards. The most common areas for improvement identified by auditors were the links between the medium-term financial strategy and strategic objectives and the robustness of medium-term financial plans and projections.

The financial standing theme shows the greatest spread in scores across all the levels. In 2006/07, 100 bodies failed to achieve minimum standards against financial standing criteria (42 PCTs and 58 trusts). In 10 PCTs, however, the overspend behind the score was less than the resource topsliced by their strategic health authority as part of the local contingency fund. The commission used its discretion to raise five of these PCTs to an overall assessment of 2, as they met minimum standards in financial management and value for money.

Some 96% of organisations met at least minimum standards in the internal control assessment, with 38% of organisations scoring a 3 indicating good internal control arrangements. As with 2005/06, none was assessed as excellent. The effectiveness of the audit committee and risk management arrangements, particularly relating to partnerships, were the most common areas for improvement identified by auditors.

In the value for money theme, 39% of bodies scored a 3, with one organisation – Bromley Primary Care Trust – scoring a 4. The most common area identified for improvement was the need for NHS bodies to demonstrate that efficiency savings were being delivered in practice and that there was a clear and realistic longer-term plan in place to improve economy and efficiency.

In general, finance managers appear to support the ALE assessment, although there remains concern that the dominance of the financial standing assessment can present a misleading picture to the public about progress.

And most will be relieved that this year’s results did not provoke the media criticism that accompanied the 2005/06 scores. While the annual publication provides a major media event, however, perhaps the real value is not in the actual results themselves but the ability of finance managers to identify best practice and improve their own practices and processes.

Score : level / Description       

1 /  Below minimum requirements – inadequate  performance     
2 / Only at minimum requirements – adequate performance     
3 /  Consistently above minimum requirements – performing well  
4 / Well above minimum requirements – performing strongly

Foundations’ use of resources

Nineteen trusts were rated ‘excellent’ for both use of resources and quality of services in the Healthcare Commission’s annual health check and all were foundation trusts. A year before only two trusts – again, both foundations – achieved the double excellent score.

In 2006/07, the Healthcare Commission found that the 59 foundation trusts authorised at 31 March 2007 delivered better results than their non-foundation counterparts. In use of resources, 96% of foundations were rated ‘excellent’ or ‘good’, compared to 27% of non-foundations. Some 74% of foundations were in the top two categories for quality of services, compared to 57% of non-foundation trusts.

Of the 20 trusts authorised since April, one was rated ‘weak’ for use of resources (York Hospitals NHS Foundation Trust), while two were ‘fair’ (Heatherwood and Wexham Park and Gloucestershire Partnership foundation trusts). All three ranked ‘excellent’ for quality of service.

Monitor chair Bill Moyes (above) says: ‘These results endorse our view that with strong leadership and the right freedom, NHS foundation trusts will deliver improvements for their patients. That is why we want more trusts to be in a position to apply for NHS foundation trust status as soon as possible. We acknowledge that some trusts are in a stronger position than others, but we do not believe foundation trust status should be impossible for any NHS trust to achieve.'

Table toppers

Five PCTs and one NHS trust achieved an overall score of 4. These organisations included:

- Ashton, Leigh and Wigan Primary Care Trust

-  Barking and Dagenham Primary Care Trust

-  Bromley Primary Care Trust

-  Salford Primary Care Trust

-  Stockport Primary Care Trust

-  Norfolk and Norwich University Hospital NHS Trust


Some 23 trusts and PCTs remain just a step away from joining these organisations, with an overall score of 3, including a financial standing assessment of 4 and 3s in the other themes.