DH raises cost-cuts target by a third

The revised operating framework for the current year – published on Monday – reset the management cost reduction target so that the baseline is 2008-09, rather than 2009-10.

Until confirmation this week, PCTs and SHAs had assumed they needed to cut 30 per cent of their 2009-10 costs. By moving the baseline to 2008-09, DH now requires them to remove any increase in management costs between the two years as well.

DH data given to HSJ shows the department believes PCTs and SHAs increased their management costs by 23 per cent, or £346m, between 2008-09 and 2009-10.

Speaking to HSJ in advance of the operating framework’s publication, health secretary Andrew Lansley described the increase as “outrageous” and said it had to be “reversed”.

He said: “What I am doing is insisting that [the NHS] bears down this year on [PCT and SHA] management costs, and that for PCTs and SHAs we will reverse the increase in management costs.”

He estimated that would mean £220m of management costs being cut this year. The final published operating framework has set £222m as a minimum this year, with a further £350 required by the end of 2011-12, a total of £572m.

The DH data on PCT and SHA management costs shows that in total these organisations increased their expenditure on “management” from £1.38bn in 2008-09 to £1.72bn in 2009-10.

That moves the 30 per cent reduction target from £612m when based on 2009-10 costs to £844m when starting from 2008-09. This increases the overall size of the cuts by 38 per cent and taking it to the equivalent of a 45 per cent cut in 2009-10 management costs.

The new minimum in-year cost cut target raises doubts over organisations’ ability to downsize their organisations without compulsory redundancies.

NHS Information Centre statistics show PCTs increased their number of full time equivalent “managers” by 16 per cent between September 2008 and September 2009 – from 12,607 to 14,627 staff.

A cut back to 2008-09 levels and a cut of a further third would imply 6,181 posts were removed – a 42 per cent reduction.

Asked if that meant compulsory redundancies were now inevitable, NHS Confederation acting chief executive Nigel Edwards said: “When you are managing this sort of transition there is a risk doing it quickly will increase your transition costs to higher than they should be.”

The DH data on management costs shows some PCTs more than doubled their expenditure on “management” between 2008-09 and 2009-10. One of the biggest increase recorded by the DH was NHS Hammersmith and Fulham, where costs increased from £6.9m to £13.3m – a 93 per cent increase (see box).

However some PCTs have disputed the department’s figures. Bexley, Hammersmith and Fulham and Bedfordshire - which were among the biggest increasers - said the figures understated their 2008-09 costs by approximately 50 per cent.

NHS Sheffield chief executive Jan Sobieraj said he was concerned the DH had changed the definition of “management costs” between 2008-09 and 2009-10 – for example the current definition includes clinical managers previously excluded.

His management costs increased by 16 per cent, according to the DH’s figures. But he said when compared on a “like for like” basis the growth was just 4 per cent, nearly all of which related to an increase in the proportion of care provided in the community – which was managed by the PCT.

He said: “We need to make sure we are comparing apples with apples [with these figures]. In my view it’s not, it’s apples and pears. We need to be clear which numbers we are using and how they have been calculated.”

Mr Sobieraj said Sheffield remained committed to avoiding redundancies if possible, but said “obviously, there are no guarantees”.

A spokeswoman for the DH said: “The 2009-10 management cost definitions for SHAs and PCTs were updated to remove or replace out-of-date terminology and paragraphs. The underlying definition for 2009-10 remains the same as in 2008-09.”