HSJ’s new weekly email briefing on NHS finances, savings, and efforts to get the health service back in the black

HSJ’s first leader of 2016 concluded with the words that a “year of opportunity” awaited the leadership of the NHS, “filled with a thousand potential pitfalls”. With huge pressure coming down the chain to improve the health service’s bottom line, that message goes double for finance leaders. Two of this week’s biggest stories offered salutary reminders of some of the nastiest hazards finance directors will need to avoid.

Pitfall 1: Pressure to fiddle the figures

On Tuesday, HSJ reported that four senior managers are facing disciplinary action for their part in the serial misreporting of accounts at an acute trust that has now plunged deep into the red. 

At the start of 2015-16, Doncaster and Bassetlaw Foundation trust was planning for a £2.2m surplus. In October, it revealed that it was £12m in the red, and it is now forecasting a £38.4m deficit for the full financial year.

An investigation by KPMG has now found that the trust’s board and its external auditor PwC had been misled over many months.

It said the trust’s position was “deliberately misreported” in 2014-15 to show a surplus of £1.6m by inappropriately reducing its expenditure and liabilities.

It uncovered evidence of 118 manual adjustments, totalling £20m, to the initial year-end balance pulled from the trust’s ledger last April. Some were appropriate but analysis suggested readjustments of £15.2m were needed.

The report said misreporting continued into 2015-16. Financial controls did not operate effectively and there was an inadequate budget setting process, leading to significant overspending.

HSJ understands that the four senior finance team members now facing disciplinary action include former finance director Matthew Lowry, who resigned when accounting irregularities were first confirmed in October.

While the circumstances of the Doncaster story are extreme, with echoes of the 2011 financial mismanagement scandal at Croydon Primary Care Trust, it will give both trust FDs and their auditors pause for thought in the context of extraordinary pressure to get the reported provider deficit down to a manageable number in 2015-16.

The news comes just a month after the Commons public accounts committee published a letter from an anonymous finance director warning that hospitals were coming under pressure to “cook the books”. The whistleblowing exeutive highlighted the instructions that went out from NHS Improvement in January calling on FDs to pursue a range of strategies for improving their bottom lines, ranging from further capital to revenue transfers to the removal of “prudence” from balance sheet estimates.

NHS Improvement has been clear that the strategies it is calling for are legitimate accounting treatments, and no doubt they are. The fact remains that we are clearly in a climate where weak or unsupported finance executives may feel under pressure to cross the line. As HSJ senior correspondent Ben Clover noted this week, the coming months are going to be an interesting time for the auditors. 

Pitfall 2: The solution that’s too good to be true

Three months after the extremely swift collapse of Cambridgeshire and Peterborough’s £725m lead provider contract for older people’s care, details of what actually went wrong are finally starting to see the light.

On Thursday, Cambridgeshire and Peterborough CCG published the report of the audit it commissioned on the deal. This revealed that UnitingCare Partnership – the limited liability partnership set up by two local trusts to provide the service – asked the CCG for an extra £34.3m for the year, just one month after the contract went live.

This would have amounted to an increase of 23 per cent on the £152m contract value for the first year of the service.

West Midlands Ambulance Service Foundation Trust, which carried out the audit on behalf of the CCG, noted with understatement: “It is clear that the provider believed there was opportunity to negotiate on other aspects of the contract value, post award.”

It concluded: “The fundamental reason for the termination of the contract in December 2015 was an inability to reconcile the CCG and provider position in relation to contract value despite attempts to bridge the gap between the two positions.”

The full investigation is well worth a read, as it highlights a number of shortcomings in the protracted and expensive tender process that will no doubt be damaging to various parties involved in the deal.

NHS England yesterday indicated that its response to the failure was likely to include a tougher “proactive assurance mechanism around major transactions”.

Reviews by both the national commissioner and Monitor are still under way, so the UnitingCare story isn’t over yet. That said, we now know enough to draw some lessons for the wider NHS.

One is that competitive tendering has some very serious limitations as a means of bringing about large scale integration or service change in the NHS. The argument in favour of tendering has always been that the expense and time involved is justified, because it enables the commissioner to extract greater value from the provider than would otherwise be the case.

But in the Cambridgeshire deal, we have yet another example where what it actually produced is an unworkable contract. And it’s not like it was easy to spot in advance that the process was going wrong. The Department of Health’s own “gateway report” on the procurement, which took place in November 2014, said: “The procurement process, so far, has clearly been undertaken professionally. It is a mark of success for such a high profile, high value procurement that it has reached this stage, maintaining competitive tension, whilst also receiving no challenges to the process.”

But there are other, less controversial, lessons to take from the UnitingCare collapse. As NHS Improvement chief executive Jim Mackey told a recent King’s Fund event, the Cambridgeshire deal looked “nice and trendy at the time” but “I was one of the people who read about it and thought, I don’t understand how that works”.

As finance directors mull the creation of new accountable care organisations or accountable care systems, the use of capitated payment systems and alliance contracts, they should perhaps bear in mind the most obvious lesson from Cambridgeshire: if something looks too good to be true, that’s because it is.

Welcome to Following the Money

This is the third edition of HSJ’s new weekly email briefing on NHS finances.

Following the Money will feature analysis of the most pressing and novel issues in healthcare finance; track the story of the unprecedented squeeze on NHS finances and the efforts to pull providers back into the black; and cover anything else that matters to those concerned with the funding and finances of the health service.

Please get in touch to let me know how I can improve it, and to tip me off about stories you think I should cover: crispin.dowler@emap.com.

Following the Money replaces our previous finance newsletter, but still includes links to the top stories. 

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