Without a proper diagnosis we will be unable to tackle the NHS’s deep-rooted financial problems: we don’t accept treatment without proper diagnosis as acceptable practice in medicine and we shouldn’t in management

In March 2011, my article ‘What will the private sector do with failed hospitals?’ considered what the options for a trust subject to a trust special administrator intervention were going to be. It was predicated on an assumption that merging or acquiring a hospital or trust with deep-rooted and significant problems would be unattractive to other NHS providers because of the risk that those problems would drag down the acquiring/merging organisation. Since then we have had the opportunity to see the TSA in action at South London Health Trust.

‘Unlike in many other industries, healthcare productivity remains overwhelmingly related to human actions’

This proves the danger of predictions. Next to none of the events that the article warned would take place post TSA intervention actually occurred. The recommended way forward for South London consisted not of a private takeover but of a series of NHS acquisitions, plus service changes to a neighbouring trust (Lewisham). Seemingly, hospitals with a long history of financial issues can still be attractive to their neighbours.

Many trusts are struggling to make financial trust status and, at the time of writing, 19 trusts have been deemed by Monitor to be in significant breach of their terms of authorisation. This takes place against an operating background for providers of tariff deflation, marginal payment for additional emergency activity, commissioners transferring monies to the community, and a policy of holding back part of the NHS allocation. The generates one of the paradoxes of the NHS: a large underspend at a macro level while a a number of providers (and some commissioners) are in financial distress.

What staff do matters

That number looks set to grow as trusts implement clinical standards that will increase costs (requiring more staff, or a richer skill mix, or both) while national terms and conditions for staff predominate. The inability – real or imagined – by trusts to significantly alter the pay and working patterns of NHS staff acts as a fundamental constraint. The majority of any trust’s costs (about 65 per cent) relate to staff.

Unlike in many other industries, healthcare productivity remains overwhelmingly related to human – not machine – actions. A lot of what is now taking place in the NHS reflects a view that it is easier to tackle the NHS’s financial issues through organisational and service reconfigurations than it is to reduce the cost base by tackling what staff actually do and what they get paid.

There are trusts that have long-term financial models that state that they can be viable if they undertake a significant reconfiguration of their services to concentrate acute activity onto one site combined with improvement in length of stay, productivity, etc, that significantly reduce beds and headcount. Such long-term models produce a balanced budget but the question is whether the underpinning assumptions are realistic.

Repackaging failure

To what degree will either franchising or mergers and acquisitions tackle this? As I noted previously if the terms of the franchise leave the bulk of staff on NHS contracts then the potential for change are considerably reduced. Historically mergers have been the preferred way forward for the NHS. The literature on the success of mergers and acquisitions is that is they fail in their declared objectives more often than they succeed.

‘Whatever the shape of future TSA interventions, we are left with the same questions that were posed back in 2011’

An attraction of is that suggest service rationalisations will be easier, because previously they were stymied, at least in part, by the existence of separate organisations. Leaving aside that this “gain” rarely forms part of the public rationalisation for such mergers (and that in future some may fall foul of competition rules), there remains the fact that service reconfigurations have a pronounced tendency to take much longer than originally planned and often have higher costs and lower benefits than were initially envisaged.

A feature of the South London review was that it extended out to cover the viability of another acute provider (Lewisham). Would this option have been available if all the local trusts had been FTs, or indeed if the financial modelling had shown all the surrounding trusts to be in surplus in future years?

Whatever the shape of future TSA interventions, we are left with the same questions that were posed back in 2011. What do you do with trusts where there is an adequate population base but deep-rooted problems with their finances – and typically a plethora of other performance issues? Will mergers or franchising really solve that problem or are we merely repackaging failure?

The causes of failure in the NHS are often considerably more complex than are typically presented. Unless we have correctly diagnosed what those causes are, the proposed solutions will have a high probability of failing. We don’t accept treatment without proper diagnosis as acceptable practice in medicine and we shouldn’t in management.

Dr Robert Royce is an independent healthcare consultant