10 February 2006
As struggling NHS trusts face a year of even more cost pressures, targets, efficiency savings and payment by results, they will have to use every wile they can to attract patients. Seamus Ward reports
In commerce, one way of turning round a loss is a clever advertising campaign; an avenue that NHS organisations have hitherto shied away from. While the service was a virtual monopoly, there was no point. But those days are over. NHS hospitals in England are now not only competing with each other, but with GP surgeries and the independent sector. Mindful of the fact that the first adverts can only be around the corner, the Department of Health has issued guidance to trusts planning a campaign.
In truth, the guidance is a footnote in the NHS operating framework 2006/07, which was launched by Health Secretary Patricia Hewitt at the end of January. It takes up just half a page in the 38-page document, which is crammed with information on how the health service will conduct its business in the coming financial year. But it might betray just how desperate some NHS organisations have – or will – become to increase their income. The framework says NHS bodies, many of which are predicting deficits this year, must plan not only to wipe out their debts in 2006/07 but also achieve a surplus.
The year ahead, particularly for acute trusts, looks daunting. The framework says non-emergency surgery should grow by no more than 3% in aggregate across the country. This will slow the growth of spending (and reduce providers' income) but hitting the brakes now could also make it difficult to achieve the 18-week maximum wait from GP referral to hospital treatment by 2008.
Nigel Edwards, NHS Confederation policy director, says the Department of Health has acted in this way because it is concerned spending will get out of control. 'They are putting in limits to dampen down activity and presumably they have modelled the impact on the 18-week target.
'But there is a danger, as with all global targets, in that it might seem sensible nationally but if you are not average, it might not work. If a trust needs to work a lot faster to get to 18 weeks, 3% might be too low – but if it is closer to the 18-week target it might be too high.'
One senior trust manager is worried that a local independent sector treatment centre could swallow up the 3% activity growth and even take away some of the work currently provided by her trust. 'Everywhere we look, our activity base is being eroded so our income is being eroded. So we are asking if we can keep some services viable,' she says.
David Poynton, finance director at Harrogate and District NHS Foundation Trust, says the relatively few mentions of the 18-week target in the document is notable. 'In a way, it's the dog that didn't bark; it's important for what it doesn't say rather than for what it does. I believe there must be some science rather than hope behind the elective limit. Have they done some modelling that suggests 3% is appropriate? Perhaps that is still to be published, but it is important to understand the basis on which this was calculated.'
The framework adds that payment by results, the system where hospitals are paid for patient services on a national tariff scale, will be extended in April to include emergency admissions, outpatients and Accident & Emergency departments.
The system was due to be introduced in these areas in April 2005 but was postponed following concern that it could destabilise the finances of some trusts. From April, PBR will cover £22bn of services compared with £9bn in the current year.
Bob Dredge, a senior fellow in financial management at Keele University, who worked in the DoH on the development of PBR, is pleased the initiative is to be extended from April. 'It is sensible to move forward with tariffs for areas where there is credible and detailed information and not yet including critical care and community services,' he says.
But while PBR is to be extended, the department has put in a number of checks and balances to ensure it can keep a lid on the financial volatility the initiative could cause. With emergency patients, once trusts have treated a defined number (set at 2004/05 levels plus 3%), they will receive only 50% of the tariff for all subsequent cases.
The introduction of this differential tariff for emergencies is not surprising, says Poynton.
'Last year [PBR for emergencies] was held back because the department was worried it would destabilise the whole system. Foundation trusts have applied it this year and there is evidence of how it works so the changes are by and large quite sensible.'
Edwards says the acute sector feels 'fairly glum' at the minute and the differential tariff will add to this by further reducing the income of trusts with higher than average emergency admissions.
One trust finance director told Public Finance that this reduction in income will probably be a bigger problem for district general hospitals, adding: 'We could have a double whammy because of this and with GPs being given incentives to reduce emergency demand. Our income will be more volatile.'
Trusts are also concerned about how the tariff prices for 2006/07 will affect their income. These have nominally risen by 6.5% to take account of higher pay and prices, and to fund reforms. However, the DoH has reduced this by 2.5% to take account of efficiency savings and by another 2.5% to account for adjustments, leaving an overall price increase of just 1.5%.
The message from the department is clear – primary care trust allocations will increase by 9.2% in 2006/07, while the cost of services covered by PBR will rise by 1.5% overall. That should leave more than enough to expand services and, crucially, eradicate deficits and plan for a surplus.
In monetary terms, PCTs will get another £5.4bn. Without any efficiency saving, underlying pay, price and other cost pressures will account for up to £3.8bn.
However, the department says that in 2006/07 the NHS should concentrate on improving the efficiency of existing capacity rather than adding more. Efficiency savings should deliver 2.5% or £1.6bn. In total, therefore, the NHS should have £3bn to deal with deficits and improve services.
Raising the cost of much of what PCTs commission by only 1.5%, limiting growth in elective admissions to 3% and moving to dampen down emergency admissions will ease the financial pressure on PCTs and shift most of it on to the acute sector.
In general terms, PCTs will be paying not much more for a limited amount of extra work. Conversely, trusts will be paid a little extra and will be forced to chase any work that is available.
Poynton says the 1.5% tariff rise is challenging for acute trusts. 'Trusts will have to find 2.5% in efficiency savings – that's up from 1.7% this year so it is significant. In effect, PCTs could be commissioning some activity at a lower price than this year.'
One acute trust finance director complains: '1.5% is not enough to even touch the sides of our cost pressures.' However, Dredge says: 'The department will have a far more rigorous analysis than has been published and I think 2.5% efficiency savings should be doable.'
One reason for passing much of the financial pressure on to the acute sector is the imminent PCT reorganisation. With the new PCTs concentrating on establishing their structure rather than financial management, the department believes there is a risk that spending could spin out of control.
Acute trusts fear this will make it difficult to balance their books but the framework will increase the pressure further by calling on all NHS organisations to plan to make a surplus in 2006/07. Nine acute trusts are currently being helped to recover their financial balance by private sector turnaround teams but some finance directors fear more could be in need of help by the end of the year.
However, Poynton believes planning for a surplus will be a good discipline for the NHS. 'Every successful commercial business plans for a surplus and trusts should be no different. In the past they have always had to break even but inevitably deficits occur.
'However, there are some issues about planning for a surplus – will trusts be allowed to draw on a surplus in future years if they have a deficit? If a trust has a surplus but the local PCT has a deficit and is cutting back, the public will ask why there is no investment in patient care.'
Of course the need to make a surplus could lead trusts to consider advertising to boost their income. Perhaps some chief executives are planning billboards outside their hospitals saying: 'If you had booked into this hospital, you would have had your operation by now.' Or as one independent sector executive recently joked: 'Now MRSA free.' Finance directors and their colleagues will hope it does not come to that.
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