CFOs should be less tolerant of overspending in the NHS

29 Jul 15

Increased investment is not the only route to improved performance, a fact that sometimes seems lost within the NHS

It’s ironic that with the exception of the Labour Party the main political parties are secretly striving to be Blairite. A narrative of social justice, rights, responsibilities and choice, linked to individual and business wealth creation and economic growth, is a potent political mix.

My SNP friends, for example, will kill me for saying this, but their agenda is essentially Blairite – a strong narrative on social justice linked to the Barnett Formula to provide free universal services to the middle classes.

But for all its strengths in the boom years, Blairism and therefore much of our politics, has a weakness, particularly at the present time.

It promotes spending more resources in return for stretched performance. So £8bn for the NHS will be used for 24/7 services, avoiding a much needed and uncomfortable debate about the state of our public finances for the next 50 years.

Areas that are politically sensitive to swing voters are exempt from savings and taxation is pegged at 38% of GDP, which builds electoral success but is not affordable in the medium term.

Such protection lessens the focus on value for money in areas such as education, international development and health. It fosters the comfortable notion that we have to invest to improve productivity and ignores the idea that simply getting a grip, holding budget holders to account to spend less money, is equally necessary.

 

Reducing cost helps improve quality

Different parts of the public sector have different governance arrangements. Because it is illegal for a council to run a deficit, service deterioration will always occur before financial failure. No councils are in deficit even though 30% of government grant has been lost.

For the NHS, however, financial failure by moving into deficit will always precede service failure. To ensure quality standards are met as demand increases, the public rightly will have it no other way.

Culturally, this can create a lazy argument that it’s all about quality versus resources, when actually reducing cost is often an effective means of improving quality too.

But that is a tough message for chief financial officers in our healthcare system to deliver. The NHS really matters to people’s lives and the relationship between business management, clinical leadership and the healthcare system of providers, commissioners and regulators is more complex than the autonomy enjoyed in areas such as local government.

First, a lot of costs lie outside local control and so are givens in an organisation’s budget. Where councils control £200bn pension funds generating £7bn per annum, and cover compensation claims direct with insurers through the market, health bodies are not equally incentivised to change behaviours to reduce costs, because such items are centrally controlled.

And secondly, in the wake of the Francis Report, the balance of debate at boards is understandably less focused on financial grip than a decade ago, when over-spending was more frowned upon.

 

Overspending can be a sign of failure

The role of chief financial officer is vital to medium-term financial planning. It should never be narrowed to producing monthly monitoring tabs and closing the accounts. In most sectors, the CFO is a major corporate player and the natural second in command to the CEO, planning medium-term delivery and utilising balance sheet assets to the full whilst managing down risk and liabilities. Organisations feeling the pinch are often sitting on considerable balance sheets without restructuring their finances.

Non-executive directors play a vital role within boards too. Healthcare organisations often recruit outstanding non-executive directors from other sectors who perhaps find it hard to translate their experience of financial expertise into an NHS setting.

Arguably, both CFOs and non-executive directors ought to treat the uniqueness of NHS financial management with less tolerance and understanding and, in a professional and constructive way, become more demanding. Overspending can sometimes be a sign of failure and not just of budgetary pressure.

I would argue that boards should encourage this tougher financial scrutiny. World-class organisations have the culture and systems to be their own most effective critic. Great organisations welcome uncomfortable messages from within. And there is little doubt that if organisations do not rigorously self-challenge, then ultimately someone else will do it for them.

The finance profession in the NHS is strong with many highly capable CFOs. But at the present time, everyone should have an interest in further broadening and supporting these roles, so that accountants are not only stewards, but also business partners striving to achieve change, innovate and overcome risks.

  • Rob Whiteman
    Rob Whiteman

    Chief executive of CIPFA since 2013, after leading the UK Border Agency and the Improvement & Development Agency. Previously, he was CEO at Barking and Dagenham council.

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