Time for intensive care? By Seamus Ward

5 Jan 06
With the NHS running an unhealthily large deficit, the government is sending in hit squads to sort out the problems. But do they have the right prescription? Seamus Ward investigates

06 January 2006

With the NHS running an unhealthily large deficit, the government is sending in hit squads to sort out the problems. But do they have the right prescription? Seamus Ward investigates

As the New Year begins, many NHS managers in England will be reflecting on a troubled year just ended and a difficult one ahead. Those in strategic health authorities and ambulance and primary care trusts will be gearing up for a reorganisation that will leave some out of a job. Many of them, together with colleagues in acute and mental health trusts, will be grappling with deficits. Those in the most indebted organisations will be awaiting the arrival of Department of Health hit squads – turnaround teams that promise to bring their finances back into balance. NHS managers have not felt so beleaguered in many years.

Health Secretary Patricia Hewitt turned the spotlight on to NHS financial management last month by publishing the forecast financial position of NHS organisations from their six-month returns. A £250m aggregate deficit at the end of 2004/05 has snowballed into a predicted combined deficit of £623m, even though NHS spending has increased by £6.6bn this year.

Press reports highlighted huge problems at flagship NHS hospitals. The Queen Elizabeth Hospital NHS Trust, which was opened under the Private Finance Initiative only four years ago, admitted that it was 'insolvent' and was heading for a deficit of £19.7m in 2005/06. University College London Hospitals, a first-wave foundation trust, also came under fire when it posted a £17.4m loss over the first six months of the financial year.

The NHS has been here before and has clawed itself back into balance over the latter half of the year, but ministers are mindful that they need to be seen to be doing something. They ordered savings to be made and insisted that the total deficit should be no more than £200m by the end of March and eradicated by March 2007. Turnaround teams made up of experts from the commercial and health sectors will be drafted into around 50 of the most indebted organisations early this month following a KPMG analysis of their financial problems before Christmas.

The department does not expect solutions to be easy or found quickly but it will demand some improvement in the financial position of the most indebted PCTs, trusts and SHAs before the end of this financial year.

But what will the turnaround teams find? Most, if not all, of the organisations they visit will already have recovery plans. Public Finance has spoken to some of the most indebted trusts and, unsurprisingly, they are defensive about these plans. Some say the plans are realistic and have the backing of local NHS organisations and their SHA. They are worried the turnaround teams will tear them up and give little regard to local circumstances.

Others are more sanguine and believe the teams' work will be to check that the recovery plans stand up to scrutiny and that local NHS bodies understand and accept them.

The turnaround teams might find that trusts with big deficits have already looked beyond simple efficiency savings. East and North Hertfordshire Trust (forecasting an £18.8m deficit), for example, is considering reconfiguring services on its two hospital sites to save cash. This would mean moving all surgery to one hospital and most medical services to the other.

In the Norfolk, Suffolk and Cambridgeshire SHA, they will find that trusts in deficit will have to save more than their overspend to recover financial balance. The SHA has decided that trusts in deficit by the end of March must repay this overspend in 2006/07 plus a 10% penalty. These fines will be given as a reward to those that balance their books. In 2004/05 the total overspend in the SHA area was £68m, so the sum could be significant.

Across the NHS, there is scepticism that the turnaround teams will make a difference in anything other than the short term. One trust manager says: 'The discipline [of turnaround teams] will be helpful, but I suspect that many people will be doing these things already.'

Institute of Healthcare Management president Gerry McSorley says he would be surprised if the turnaround teams were able to find a 'magical solution' that could be applied quickly and reduce costs without affecting quality. 'It's unlikely they will be able to do anything more than reiterate what can be seen as good practice in increasing productivity and efficiency,' he says.

They will not be successful if they insist on measures that have been tried and failed or have not been tried because it was felt they were unsuitable in the public sector, he adds. 'If turnaround teams are heavy-handed and insensitive to local circumstances it can look like an exercise in beating up local management.'

However, McSorley believes their presence could have one positive effect. 'Some people will be hoping for a white knight to arrive with a shed load of money. The history of the NHS shows it's happened before but it's not going to happen this time. Turnaround teams might reinforce the message to local staff that there will be no white knight – and some managers will see that as helpful.'

King's Fund health policy fellow Tony Harrison believes the turnaround teams might have little to add. 'I don't think the private sector accountants or consultants can produce any ideas that the NHS doesn't know about, but it's a question of putting them into practice. There will be things like sacking staff, putting a freeze on recruitment. The NHS has been doing these things for 50 years and finance directors will know the moves to make.'

NHS Confederation policy director Nigel Edwards says long-term financial balance will only be achieved when a more flexible financial regime is introduced. 'Giving NHS trusts the flexibility to restructure their debt over the long-term, for example, is a common- sense approach that would be more likely to ensure that local services become financially sustainable,' he says. Harrison agrees: 'If turnaround teams don't produce results, the next step is to consider restructuring the debts.'

Some of the scepticism about the teams is rooted in the widely held belief that the government is trying to pass on the blame for overspending to managers. Managers say a lot of the extra spending is due to new, centrally negotiated contracts for GPs, consultants and the majority of other NHS staff under Agenda for Change. They argue that the Department of Health severely under-funded the costs of implementation. The department was recently forced to admit that the GP contract had cost £300m more than expected and the consultant contract £90m. It says the additional cost of Agenda for Change is 'nowhere near' the reported figure of £900m, but this goes a long way to explaining the deficit.

Ministers do not accept that the department got its figures wrong. At last month's Healthcare Financial Management Association conference, health minister Lord Warner left the usually easygoing delegates fuming when he insisted the unexpected additional cost was local managers' fault.

It is only fair to point out that the department has put forward money-saving ideas for trusts. In 2004, the NHS Modernisation Agency published ten high-impact changes (see box) that it believed would make trusts more efficient. These cover areas such as reducing hospital stays, preventing unnecessary admissions and increasing the use of day surgery. At the HFMA conference, Warner said the deficit would be eradicated if all trusts had implemented these changes – and it is expected this will be a major area of work for the turnaround teams. Other areas will probably include reducing the cost of supplies and encouraging NHS organisations to outsource their corporate functions – human resources, finance and IT – to NHS Shared Business Services, the joint venture company the department set up with Xansa in April 2005.

One senior trust manager laughs off the suggestion that the high-impact changes could make such an impact. 'They are no magic wand,' he says.

Indeed, in October 2005 Shropshire and Staffordshire SHA's independent inquiry into the financial problems at Shrewsbury and Telford Hospital Trust (now predicting a £10m overspend in 2005/06) said the trust's staff were unimpressed. 'We received widespread cynicism that the historic and the 2005/06 financial pressures facing the trust would be solved by reliance on service redesign and other initiatives based on the ten high-impact changes,' it said.

The inquiry seemed to share this indifference and did not mention the changes in the measures it recommended the trust should take to balance its books.

Harrison is also doubtful that the changes could make a big dent in NHS debts. 'One is to do with case management of chronic disease in the community. The King's Fund has just published research that shows it can't be proven to have a cost impact or reduce admissions to hospital. Other high impact changes, such as more day surgery or reducing the length of stays in hospital, will be useful but modest. They are sensible but I don't think they are the beginning and the end of it.'

He believes the biggest gains are to be made in tackling emergency admissions. But, he adds: 'Doing anything about emergency demand is a long, slow process and turnaround teams cannot do anything about it. There is no quick fix.'

Of course, the department has a savings plan already in place for SHAs and PCTs. Reorganisations should save £250m in management costs. But this money will not necessarily be used to reduce overspends. Though some SHAs are still undecided about how the money will be spent, others such as Cumbria & Lancashire have earmarked the money already. Chief executive Pearse Butler says: 'We are committed to saving £10m of management costs that can be directly transferred to developing cancer services that make a very real difference to early detection and treatment.'

In the short term, though, all the stops will be pulled out to ensure that the NHS is no more than £200m in deficit by the end of March. Trusts around the country are saving cash by doing just enough to meet the six months waiting time target, while a leaked memo from the department suggests a freeze has been placed on new public health spending – any surplus could be offset against overspending in SHAs or trusts.

Ministers and senior officials are clearly determined that their surprise over this year's overspending is not repeated – but NHS managers will be wondering at what cost.

The ten high-impact changes 1 Treat day surgery as the norm for elective surgery. This could save almost half a million inpatient bed days a year.

2 Improve patient flow across the whole NHS system by improving access to key diagnostic tests, saving patients up to 25 million weeks of waiting.

3 Manage variation in patient discharge thereby reducing length of stay, releasing up to 10% of bed days.

4 Manage variation in the patient admission process to cut the 70,000 operations cancelled each year for non-clinical reasons by 40%.

5 Avoid unnecessary follow-ups for patients and provide necessary follow-ups in the right care setting. This could save half a million appointments in ophthalmology, ENT, dermatology and orthopaedics alone.

6 Increase the reliability of performing therapeutic interventions through a 'care bundle' approach, which could release 14,000 bed days a year.

7 Apply a systematic approach to care for people with long-term conditions. This could prevent 250,000 emergency admissions to hospital each year.

8 Improve patient access by reducing the number of queues which could cut waiting lists by 165,000 a year.

9 Optimise patient flow through service bottlenecks. This could free up 15% to 20% of capacity to address waiting times.

10 Redesign and extend roles in line with efficient patient pathways to attract and retain an effective workforce. This would have the same effect as adding 1,500 GPs or consultants to the workforce.

PFjan2006

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