Commercialism in the health service means that trusts must look for profitable growth. Stuart Shepherd explains how developing service-line reporting can achieve this

Concern about marketing in the NHS has tended to focus on advertising. Steering clear of the A-word in the title of the draft NHS marketing code of practice and plumping for "the promotion of services" instead was perhaps a response to this and an effort to address the unease in some groups towards more commercially minded activity in the public sector.

But advertising, or even the development of a brand on which to build it, is not the whole story.

"Being part of the finance directorate brings you back to one of the things at the core of marketing, which is looking for profitable growth," says Amit Khutti, director of strategy and service planning at Chelsea and Westminster Hospital foundation trust.

With an imperative to deliver a surplus when contestability, payment by results and choice are all making themselves felt, Chelsea and Westminster, like many healthcare organisations, needs to be making plans - which in turn must be based on an understanding of the profitability of its services.

To achieve this, the trust is in the early stages of developing its own approach to service-line reporting.

"Simply put, service-line reporting is a way of allocating all of your income and costs to all of your service lines," says Mr Khutti. "These can be specialties such as trauma, ophthalmology or cardiology. Alternatively, specialties can be combined into bigger business units. For the first time you come out with a view of a service's overall profitability."

The system has grown in part from its foundation status application and also from the trust's work with Monitor and McKinsey on a service-line reporting pilot scheme in 2006. Finance managers are now trained to use it and directorates have been asked to analyse their own services.

Drill through the detail

The earlier implementation of patient-level costing and the amount of information it brings to hand has greatly added to the versatility of service-line reporting.

Mr Khutti explains: "When clinicians ask questions about why a procedure within their specialty is not making a profit you can drill down through several levels of detail. It lets you consider things like amount of time in theatre, overall length of stay and other factors that have a bearing on surplus. This brings the reporting to life and is a very important step in clinical engagement with business practices."

One report that can be generated for service-line reporting is the portfolio analysis matrix (see diagram below). At Chelsea and Westminster it helps form a picture of the mix of services it provides and where marketing decisions for the future might be made.

The benchmark setter in the upper right quadrant, service line A, is a high performing and relatively large specialty making a positive contribution. Given its size, however, there may be questions about potential for future growth.

Meanwhile service line B, still one of the larger units when compared with the national average, is not delivering a profit. Improvements may be reached following scrutiny of the cost drivers.

From a marketing perspective and as a relatively small specialty with low costs delivering a high surplus, service line C is of great interest. It prompts questions about its capacity growth and how it is creating such a profit - does it reflect efficient management or just a quirk in the tariff?

Service line D is small and not making a contribution.

"It is important to note here that we have not got to the stage where we are talking about closing down or shutting units," says Mr Khutti. "The tool is new and as a healthcare provider we realise that it cannot be looked at in a vacuum as you would in a business, just dumping some of your weakest performers."

"Even where there are alternative providers for small services that don't deliver a surplus we will proceed with caution," he continues. "But it makes you think about areas for investment and growth."

Another consideration is the unpredictable nature of certain income streams. Investment plans for a service showing profit or capability to move to it quickly must always be accompanied by a fallback position in case the tariff is reset.

Senior executive drive and clinical engagement are essential to the success of service-line reporting across a trust. Clearly it increases the need for information. The next phase at Chelsea and Westminster should see it introduce an analytical tool that clinicians can use to better understand their costs without reliance on the finance team.

It is interesting to note that with lead clinicians now being asked to use service-line reporting to analyse their services and report back, they are now presenting their findings as part of a team alongside their general and finance managers.

"The primary motivation isn't profit," says Mr Khutti. "It is about the efficient use of services, looking at how parts of the trust that cannot run at a profit can be supported because of their place in the organisation and the community."

At your service: the blobogram

The portfolio analysis tool allows for priority setting and strategy development (familiarly known as the "blobogram") gives a comparative picture of a service line's performance. The Y-axis shows the relative size of a specialty compared with the national average. It is particularly useful for assessing issues of economy of scale and competitive position.

On the X-axis, earnings before interest, taxes, depreciation and amortisation measures operating profits and strips out factors such as capital expenditure and the interest on loan payments.

In Chelsea and Westminster's case, profitability margins for earnings have been set at 11 per cent - a figure driven partly by the need for sustainability and partly by the desire to achieve the best possible financial risk rating with Monitor.

Bubble size corresponds to total specialty cost - the bigger it is, the more significant the specialty in the overall scheme.

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Draft code of practice for the promotion of NHS funded services