In the second of two articles on savings, Andy McKeon and Nigel Edwards look at powering organisational strategies to achieve real cost-savings and avoid disappointing results.

In last week’s article we looked at how ideas for clinical savings can get distorted and stripped of important qualifications, and produce disappointing results. Similar hazards exist in thinking about organisational savings. 

Mergers and takeovers are favourite targets for savings. The belief that the next merger will be the one that bucks the trend and produces radical cost savings and efficiency gains is widely held, but is close to being delusional. 

There have been successful NHS mergers but even these have taken longer to produce benefits than originally envisaged. Benefits are almost always much less than those initially claimed. The same cannot often be said of the financial costs, or the non-financial costs of loss of direction and progress. 

Taking over unrelated tasks requiring new skills is particularly hazardous. Mergers - and major projects - distract from the day job and have resulted in significant quality and financial failures. Other organisational restructuring can also be high risk.

Anecdotal evidence suggests merger of mental health and ambulance trusts can be less fraught. The reasons for this are not clear. It might be because they are smaller, single focus organisations, less tied to particular sites.

There is also widespread belief that trusts have exploited the tariff, which is responsible for rapid income growth and should therefore be abandoned and replaced by local negotiation. Conversely, others believe that if only the tariff could be made right it would act as a powerful incentive for better quality and greater efficiency. Neither is true.

Favourite ideas

Income growth in acute trusts has been primarily driven by local negotiation on non-tariff items (see chart). And the tariff has so far had a disappointing impact on efficiency, mostly strengthening a move to day cases. The jury is still out on whether specific quality incentives have had the desired result.

In the past, a favoured way to deal with financial pressures has been to allow waiting lists to grow. This was never a great idea because it saves little money and can add to costs through the need to employ people to speed up treatment for individual patients or juggle lists. 

It only reduces demand if GPs change their referral threshold because of longer waits, but these effects will be unevenly and inequitably distributed and there can of course be adverse effects for patients.

In a world of choice, a constitutional right to a maximum 18 week wait from referral to treatment and a right backed by the European Court of Justice to travel within the EU to avoid undue delays, this option seems even less attractive.

And then there is the brutal fact that if efficiency gains are to release cash for investment elsewhere, capacity has to be taken out of the system. A 10 per cent cut in non-elective admissions over the next four years would be a major achievement given past trends. Commissioners would save some £1.1bn in tariff payments but would have extra costs in the community.

Providers would be very unlikely to save £1.1bn. A 10 per cent cut would mean three million fewer bed days - equivalent to perhaps two wards per trust. Trusts would save only marginal costs - perhaps £0.5bn at the very most. It will usually be better financially for the trust to fill the beds rather than cut them. The net result would be better care, a lower cost per patient but an overall increase in spending, something that cannot be afforded. 

Trading your way out of trouble can seem attractive but is a sure way to bankrupt the local health economy when money is tight.

Ruthless pursuits

Last year Monitor warned several foundation trusts about the assumptions they were making about income growth. In many health systems, mutual dependence means that a ruthless pursuit of individual objectives is likely to produce a globally bad outcome. Creating approaches that are collaborative and coordinated without being collusive will be a challenge.

Using the research and a questioning approach to “well known facts” is a reasonable defence against some of the commonest errors.

A sophisticated understanding of costs and how they work for commissioners, providers and the system as a whole is another. This is badly needed.

The Audit Commission and the Association of Chartered Certified Accountants will soon publish work showing primary care trusts were often unable to cost either the existing or the future care pathway they planned to move to. So they could not be certain whether it would cost more or less, or what the impact on the overall system might be. The work on provider economics published by the Department of Health will be a useful contribution to this. 

Evaluation, setting quantifiable targets and systems to capture learning might mean that in future we could be more definite about what works and less reliant on hunches.

There are many opportunities for improving efficiency and quality but they require careful planning and skilled execution. And while there will be many small schemes, cash release requires large scale impact.

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