30 September 2005
The NHS needs finance skills more than ever if it is to transform itself into a modern, forward-planning organisation while struggling with major structural upheavals, growing deficits and the need to cut costs
The sixth annual CIPFA Health Finance Conference takes place next week in the midst of the most significant changes to affect the NHS for years. The post-election landscape is becoming clear and NHS trusts and primary care trusts will be expecting the finance function to steer the way through.
The Department of Health's consultation document, Commissioning a patient-led NHS, set off a review of the number of strategic health authorities, PCTs and ambulance trusts, and opened up the possibility that PCTs would move away from providing services.
The Labour Party's manifesto commitment to cut £250m off the cost of administration and management in the NHS is likely to lead to a huge reduction in the number of organisations. SHAs and PCTs are currently drawing up proposals for reconfiguration, which the department will review in October.
Finance teams will need to manage the likely additional financial risk arising from these, as there is narrow scope to absorb more in this financial year, when there is already significant pressure to cut costs.
Reconfiguration must not distract from the strategic financial agenda. This year, the finance function needs to move its focus even further from managing the 'bottom line' to managing for investment and from annual budgets to much longer-term financial planning.
This should put the finance director at the heart of organisational strategy development, where shifts in investment will be needed if performance is to improve enough to meet the 2008 NHS targets.
Clinical involvement is vital here, and successful implementation of practice-based commissioning will help to enhance local involvement. There is a real opportunity to recapture some of the clinical energy and enthusiasm generated through the total purchasing pilots of some years ago.
Focus on the 'bottom line' remains important though. Most NHS organisations ended the past financial year in balance or in surplus but a small number ran up a total national gross deficit of £750m. In a few cases, the deficit was not forecast, the extent of the financial gap becoming clear only through the audit of accounts.
This must be of concern, and it is not surprising therefore that over recent weeks the NHS finance function has faced an unprecedented level of criticism, both implicit and explicit, from the regulatory bodies.
The Audit Commission, National Audit Office, Monitor and the Healthcare Commission have commented variously on the need to improve financial forecasting, budget setting, budgetary control and governance arrangements. Further hard messages are expected in a joint Audit Commission/National Audit Office review of NHS finances due for publication in December.
The criticism has prompted some defensiveness in the NHS finance community. This is understandable but it is important that the concerns are addressed. The forthcoming PCT and SHA mergers provide an opportunity to ensure that new boards are appropriately focused on the financial agenda and that non-executive directors have the necessary skills to ensure that the best governance arrangements are in place.
There is a renewed interest in financial turn-around strategies, and efficiency will be improved through modernisation of information systems and service processes and realising the benefits of workforce reform and pay strategies. The fundamental objective is to maximise service improvement by linking these strategies — and this will require finance teams that are highly strategically focused.
Training and development need to focus on the main initiatives. The extension of payment by results to non-elective care from April 2006 and its application to mental health services requires the involvement of a wide range of finance staff, particularly for services provided outside hospitals to patients with long-term conditions.
We will soon see the next wave of NHS foundation trusts. This has significant training and development implications, as it will change fundamentally the commissioner-provider dynamics.
Also due this year is an extension of the 'contestability' of secondary care services through the next wave of independent sector treatment centres. The forthcoming white paper on out of hospital care might also herald the introduction of contestability into primary care and community services.
It is important, therefore, that the current reconfiguration changes do not result in a loss of the finance skills and capability the NHS needs to carry out these strategies — and that we increase our focus on staff development.
Kevin Orford is chair of the CIPFA Health Panel. The CIPFA Health Finance Conference takes place in Bournemouth on October 6—7. Further information from Alex Aarons on firstname.lastname@example.org