Over the last two weeks, the NHS Confederation conducted an in-depth survey of the chief executives of 35 of the 62 NHS trusts assessed by Department of Health-funded 'turnaround teams'. We surveyed 16 PCTs and 19 acute trusts. Our results provide a good overview of why deficits have occurred and some of the immediate actions being taken to deal with them. However, the size of many of the deficits means that PCTs and trusts will have to take more radical action and develop long-term plans to turn their organisations around. We were interested in the strategies being adopted by trusts and PCTs, and in what the obstacles to achieving these might be. Whilst in some cases respondents suggested that the underlying problem was a lack of adequate financial control, the issues facing most organisations are complex and therefore require difficult and multilayered solutions. This is unsurprising - if the problems were amenable to a simple intervention, it would already have taken place. A clear majority of those we surveyed regarded the turnaround team assessment as having been helpful - even if only as a double-check that they were already doing everything in their power - but only one third felt that the turnaround teams had or were likely to identify actions or ideas that were not already in train.
One-quarter of all trusts surveyed identified longstanding, historic debt as the single largest cause of their deficit, and historic debt was in the 'top three' causes cited by 40% of trusts. Other trusts pointed to more recent cost pressures as having tipped them out of financial balance. 56% of PCTs surveyed stated that the transition to Payment by Results, and 44% that recent increases in activity were in the 'top three' drivers of debt; 58% of acute trusts pointed to the extra costs of workforce reform (e.g. Agenda for Change) as a 'top three' cause of deficits. Whilst a number of national policies were mentioned as contributing to problems, the solutions suggested that these were typically the last straw for overstretched organisations or health communities rather than the underlying cause of the deficits.
74% of PCTs and acute trusts were planning to implement very considerable change programmes to restructure the shape of their organisations or the whole health community. Service and site rationalisation, reducing fixed costs and considering the future of community hospitals and intermediate care were frequently mentioned. These solutions often require capital (both financial and political) and, in the case of community hospitals and intermediate care, may cut across other policies. The lead time for these changes is significant and the risk that the solution will be unacceptable to the public, local or national politicians is considerable. This means that organisations need to combine these approaches with other strategies, in particular the redesign of clinical and operational processes. This must also be a key part of any strategy to reconfigure sites, as the high costs of new capital and the scale of the deficits means that there is no option but to force activity through a smaller asset base. For acute trusts, reducing lengths of stay based on benchmarking information appears to be a popular strategy; better availability of this sort of information and a better understanding of those clinical pathways which allow some trusts to achieve high levels of performance would clearly be useful.
PCTs were also undertaking some pathway redesign, although the focus of this appeared to be more connected to the development of demand management strategies. A common feature of the Audit Commission's recent public interest reports on PCTs has been the impact of increases in activity in the acute sector. In those areas with longstanding deficits there does seem to be a pattern of the health community providing more care than is affordable; because many costs are fixed in the short term (for example, because they are locked up in the estate) reducing demand is a key part of any strategy for financial recovery. Many PCTs were planning to use a range of techniques including practice based commissioning, controls on admissions, admission avoidance schemes, the use of GPSIs, and targeting patients with long term conditions to reduce hospital activity. In a few cases this included reducing eligibility criteria. Some PCTs were also taking steps to reduce stays in hospital to avoid charges for excess bed days.
The absence of any explicit volume controls in the payment by results regime mean that demand management strategies will be difficult to implement and sustain, as will the existence of legally binding contracts (for example with ISTCs). In common with plans to redesign care in the acute sector, effective demand management requires a very significant effort to engage clinicians in rethinking care, and will take time to develop. Whilst it is certainly the case that the application of improvement methodologies and pathways will identify significant opportunities for improved productivity and efficiency, it may be difficult to persuade clinicians to become involved if financial balance, rather than improved clinical quality and patient experience, is seen to be the main driver.
Demand management may have a positive effect on the position of the PCT, but unless it is accompanied by a parallel effort to reduce costs in the acute sector it will simply move the problem from the PCT to the hospital. A few acute trusts expressed optimism that the operation of payment by results would resolve or improve their positions. However, the planning guidance and the forthcoming White Paper both indicate government's determination to shift resources away from the acute sector. The relatively low tariff uplift, the aggressive efficiency target and the potential for the tariff to be revised all mean that it may be risky to rely on low reference costs and increasing acute activity as a way out of financial problems. In most health communities, there is a recognition that the traditional pattern of 'pass the parcel', in which deficits have been transferred between organisations, is no longer tenable. Indeed, in reducing the incentive to get to grips with difficult strategic issues, past 'fudging' has been a key cause of the accumulation of large-scale deficits in a number of health communities.
A range of other strategies were being investigated to improve productivity. Since workforce costs are the largest single expenditure in most organisations, and because some of the most immediate pressure appears to have come from new contracts, this was a key area for attention in PCTs and acute trusts. Reductions in agency staff (90%), vacancy freezes / scrutiny (83%), and planned staff reductions (78%) predominated; overtime controls, staff utilisation review, and reviews of support services, medical secretaries, medical records, and consultant job plans were also common strategies. A standard range of other cost control and cost reduction measures were also being widely used in both acute trusts and PCTs. Introducing a freeze on maintenance and spending on training was being used by only a small number of organisations, as it is acknowledged as unsustainable. Some of these measures (for example, cancelling catering at meetings) may be symbolic and unlikely to have a major impact in themselves, but they may be important to send a message to the organisation about the need to take financial issues seriously. In certain organisations there was a view that some parts of the organisation needed to change their approach to budgetary management, and so improved reporting and control systems featured in their responses.
A number of the organisations that participated were making substantial progress, but overall one is left with an impression of the scale of the task faced by many of these organisations, and of the relatively small number of strategies that are available. In some cases the answer has been understood for a considerable time, but there have been obstacles to achieving it. In addition to the well rehearsed argument about the limited appetite for major strategic change amongst local stakeholders, there are also problems about the availability of sufficient managerial capacity to develop very large-scale strategic change programmes - and there is an even bigger question about the ability to implement them.
A successful financial turnaround of healthcare organisations cannot be achieved by simple slash and burn techniques in which large swathes of the organisation are closed and staff are let go. Many of the organisations in our survey clearly needed to reduce capacity. They also recognised the necessity of clinical service redesign, reducing the cost of providing care, and ensuring that care is delivered in the most appropriate and cost effective setting. Developing a coherent approach across the organisation, or in some cases, throughout the entire health economy, requires a number of elements to be in place. These include:
- Engagement of all staff - especially clinicians - to recognise that the problem faced by the organisation is real, and that the means to fix the problem lie in their hands
- Protected time to allow staff to engage in redesign and to identify and implement efficiency improvements.
- High-quality clinical leadership
- Benchmarking, clinical pathways, redesign and other tools
- Access to capital and 'invest to save' funding
- A combination of support, adequate time to change, and sufficient pressure so that there is an understanding by everyone in the organisation that the whole future of the organisation is at stake - and that there is no bail-out around the corner
The Department's announcement of intensive support for eighteen selected organisations is a positive step. Our results suggest that it needs to be accompanied by further supporting measures. Organisations with large historic debts need to be able to reschedule repayment of their debt over a number of years (perhaps by conversion into a longer term loans), on condition of complying with a rigorous and realistic financial recovery plan. Unless they are given the facility to restructure long-standing deficits, a small number of PCTs and trusts will almost certainly not be able to achieve financial recovery under the current funding and financial regime. As Richard Douglas recognised in his report 'financial turnaround in the NHS', considerable care needs to be taken to avoid inadvertently driving further cost increases via national policies - both through pay settlements and policy commitments. A positive statement on the appropriate future role of the acute hospital (to sit alongside the forthcoming White Paper on care outside hospital) will be important to help guide local reconfiguration plans. Above all, Ministers need to be willing to lend their active political support to the local NHS when the achievement of financial balance will require difficult or unpopular decisions to be made.
Health Services Journal - 2nd February, 2006
