Decision over jobs and pay are going to be tough - but that’s all the more reason to take them now, and start preparing for the future, writes David Flory.

As you may have noticed, the NHS is deeply immersed in preparing its annual plans for the coming year. While in previous years the contract negotiations have gone largely without attracting the interest of the commentariat, reported only in organisations’ board papers, this year the service finds itself increasingly under the spotlight as commissioners and providers agree how they will contribute to making historic levels of efficiency savings.

The NHS Confederation survey of senior healthcare managers found that 63 per cent of respondents reported that balancing their finances and making cost savings is one of their top three issues. I worry about what the other 37 per cent are up to. While I welcome the news that NHS finances are near the top of organisations’ agendas, recognising the concern is only the first step towards taking action, or in many cases, the difficult decisions that need to be made before plans are finalised.

The indications for this year end are that the aggregate financial position will be at least as strong as this time last year with the outturn recognisable against the original plan and subsequent quarterly forecasts. This is a significant success for the NHS and represents progress each year since the 2006 net deficit. We have been through a sequence of, first, in 2007 delivering a surplus, then in 2008 and 2009 planning it and delivering it, and now, by 2011 most organisations are planning, managing to profile in-year, and delivering a “no surprises” year end result. And all this alongside big improvements in access to care and service delivery more widely.

This puts us in a stable position to deliver real quality and efficiency improvements as we manage the transition.

The prospects for 2011-12 are more challenging and demonstrable delivery of the quality, innovation, productivity and prevention programme is essential. In the years of significant growth, we learnt how to grow our way out of trouble but in some places became complacent in the drive for continuous efficiency improvements. The headcount and hospital activity numbers suggest we are not running ahead of profile on QIPP as we might have wanted. This isn’t hurting right now, but soon will if 2012 plans don’t get to grips with the pay bill and shifting work from higher cost to lower cost/higher quality settings. A deal on no pay increments would have been a big help.

The operating framework and payment by results guidance are designed to challenge the system hard to drive quality up and inefficiencies out. The key judgements on tariff uplift, efficiency deflators and standard contract terms are made with the aim of supporting viable and healthy commissioners and providers to secure and deliver better services.

My expectation is that the plans for next year will demonstrate financial balance, better value for money, and improvements in service quality and efficiency when aggregated regionally and nationally, but that underneath the aggregate, the plans for some organisations will be harder to agree. Making difficult decisions will be a feature of the coming months. It is not sustainable to postpone the difficult decisions for a year or more when the new order takes over - they must be taken now.

In some places the efficiencies demanded are greater than at any time in recent history and the handling will be difficult. We are beginning to see more trusts announce potential job losses. In 2006 we faced protests and backlash over projected redundancies that didn’t materialise in the financial recovery process and much energy was consumed and attention drawn to a phony argument about what might have been. We cannot afford to repeat that cycle again, but on the other hand we have to be realistic that continuing to grow the pay bill will bust the system.

Some organisations are starting to recognise that existing business models based on growing income are not sustainable in an environment where they must reduce expenditure and work more flexibly. For many, successful transition will mean transforming business models to remain healthy.

Many leaders in the system today have experience of “recovery” to draw on and understanding of how system managers have intervened to support organisational viability. But, this is not the world we are moving into. As a service we have not managed processes of administration and closure of non-viable operations in the way other sectors have and we may need to in the future. The way in which the new-look Monitor goes about this will set the tone for the way the NHS will be in the eyes of those who experience the service.

2011-12 is the crucial year for transition from existing ways of working and structures to the new (subject to legislation). It would be easy to be distracted by these changes, designing and implementing the new world at the expense of keeping our eyes on the business of today. This cannot happen. We need to challenge each other to ensure we maintain our focus on improving the quality of care for our patients.

No doubt, the NHS faces a set of unique challenges, but there are also significant opportunities. We must take these opportunities now, make the difficult decisions and reach the agreements to sustain us in the future.