What will the private sector do with failed hospitals?

The reduction in tariff will move some organisations that were just scraping by into the non-viable category. Deflating the tariff is a neat way of shaking out accumulated surpluses without having to say that this is what you aim to do, but it will also generate an accelerating casualty list.

Some of the trusts that are not going to be in a fit state to be granted foundation status are also going to be extremely difficult to successfully merge with or be taken over by a foundation, or indeed anyone else. Such organisations are going to go into the “failure regime”. But what does that term entail?

Many assume “failure regime” to be synonymous with “bringing in the private sector”. Some despair that this harbingers the end of the NHS, while others see it as an opportunity to undertake long desired change.

What is often missing is much discussion of what the private sector would do with the kind of trust that cannot meet the foundation deadline and for which a merger seems an unlikely salvation.

You know the kind of place I mean: systemic financial and service delivery problems, but also, unfortunately for those wanting easy solutions, a big workforce operating out of big buildings (typically private finance initiative funded) and serving a large population.

Such trusts make deeply unattractive merger and acquisition targets as they would most likely drag down any organisation acquiring them.

Heaven and hell

What exactly is the private sector, or anyone else, expected to do in such circumstances? A lot of the bar-room talk suggests they should:

• Sack a good percentage of the workforce (with usually several consultants at the top of the list)
• Scrap Agenda for Change and the consultant contract
• Shut unprofitable services
• Close the doors when demand exceeds supply by shutting down waiting lists
• Stop activities that do not directly add value to operational delivery of services (the bureaucracy of regulation and reporting).

This may be some people’s idea of heaven and others’ idea of hell, but the questions that need to be asked are first: “Is this something that needs to happen?” and, second: “Is it any more likely to happen because of private sector involvement or destined to remain some kind of managerial fantasy?”

If the answer to both questions turns out to be no, or yes then no, we must ask what will be achieved by engaging the private sector, or anyone else, in the failure regime?

First, are the above the required actions? The workforce accounts for about 65 per cent of costs, so if the private sector is not going to tackle the way we pay staff, how much we pay them and what productivity we get, then it’s not really going to be tackling the biggest issue for most, probably all, trusts - the size of the wage bill versus activity.

Despite much rhetoric about how the NHS has modernised over the past decade, the uncomfortable truth is that the NHS has done precious little in the way of modernisation when it comes to the workforce of hospitals or anywhere else.

Falling hospital productivity and rising costs have been the fruits of the two big pay “reforms” of the last decade - Agenda for Change and the consultant contract. Most managers see them as expensive disasters but does this mean the private sector will be able to ignore them and in effect tear them up? Even if they could, can any trust pursue a radically different approach to pay when so many of the staff they actually want to keep could get a job elsewhere? Most of the non-foundations will be in cities; staff’s ability to go to alternative employers is accentuated in those areas.

What I would expect the private sector to do is quickly install robust performance management into any organisation they take over. Too many NHS managers believe that performance management is not possible (those readers who do not believe that this attitude is prevalent should ask their HR department how many staff got sacked last year on performance grounds and how many were subject to disciplinary action for performance).

They cite prevailing culture, unhelpful HR advice and anodyne trust policies to justify paralysing inactivity and a self-fulfilling failure to address this problem. This will change - and with it those managers who find actually managing staff and holding people to account too burdensome.

That said, the performance management process rarely provides quick solutions and the private sector will need a war chest if it wants to move people out of the organisation quickly. The same will apply to redundancy. One way or another, this will end up being factored into the costs of the contract.

Extremely uncomfortable

I would also expect the private sector to make it an immediate priority to establish which services lose money and which make money and could grow. On the former they will look to cut costs and wherever possible put those they can’t make pay on notice.

This will make life extremely uncomfortable for commissioners, because although these things happen at the moment, it would be on a much greater scale. A natural starting point would be to test the commissioners’ willingness to pay more for those services they say are valuable to them. Expect those activities not covered by payment by results to be a particular battle ground.

The private sector will work to whatever is in the contract, with a focus on meeting any aspects linked to awards and penalties.

Commissioners have got used to trusts delivering certain services that cost them more to deliver than they get paid for and meeting whatever demand is sent their way.

For example, the Foundation Trust Network benchmark report on A&E revealed that income did not cover costs for 14 of the 17 foundations surveyed. The private sector is much less inclined to accept either proposition, and ultimately, if required to do so, will factor that into the contract price. That is going to make for some very expensive “managerial” contracts to deliver, if one is not careful.

One would not want to count too much on the ability of the private sector to cut down on the perceived burden of “bureaucracy”. Much of this is centrally mandated and shows no sign of diminishing. Trusts in the failure regime will most probably be subject to constant inspections and a reporting process that will be an industry in itself - and that is before you get to the monitoring of the management contract.

As for public engagement, perhaps being assigned to the failure regime is going to herald the suspension of public consultation on service change. This would undoubtedly aid those wishing to make unpopular changes, but while managerially attractive it would undoubtedly be extremely risky politically. Yet without such a mechanism, organisations in the failure regime will be no more likely than they are at present to achieve the rapid action required.

Who will be delivering these private sector contracts? Probably some of the readers of this article, currently employed in acute trusts. The experience of the private sector in the UK is essentially limited to operating small, elective hospitals. Managing a large, complex acute trust is a very different matter. For that you need to recruit hard-nosed, experienced, hospital managers who exhibit commercial acumen. While there are many NHS managers who do not fit this bill, even fewer management consultants and private hospital managers in the UK do.

The private sector will need to recruit the very best leaders and they will be an expensive resource, because these positions have a reputation for being “career killers”, for chief executives in particular. Despite this, there is no sign that the system is going to break away from the “leadership” model to problem solving, which argues that if they find the right management the problems will be solved. This is certainly a more convenient analysis than one that concludes that the failure of trusts is essentially driven by their particular circumstances.

Radical decision

Management consultant Peter Drucker once wrote: “Any job that has defeated two or three men in succession, even though each had performed well in his previous assignments, must be assumed unfit for human beings. It must be redesigned.”

Perhaps redesign amounts to the likely private sector actions outlined earlier? If that is the case, bringing the private sector in would be a radical and worthwhile policy decision.

However, history might ask what it is about the NHS that would require organisations to be put into a failure regime to introduce changes that many believe are the foundations of effective management in any organisation. Some 30 years after the Griffiths reforms we may finally be getting to grips with the managerial task - through sub contracting the task to another organisation.