As a raft of swiftly implemented cost-cutting measures hits home, panic over NHS finances has largely subsided. Alison Moore looks at the implications of breaking even

Starting the year with a multi-million pound deficit was never going to be easy. But as figures for 2006-07 are finalised, some of the most troubled trusts in England are now confident they are on the road to recovery.

While many are still in debt - and likely to retain a historic deficit on their balance sheets for some time - many are moving towards income-expenditure balance, which is likely to be a key determinant of future viability.

If the government releases the money some of them were docked earlier in the year under the controversial resource accounting and budgeting system, their position is likely to improve further.

But chief executives are quick to point out the improvement in their financial position needs to be real - it can’t be just about pulling financial rabbits out of the hat at the end of the year. Sustainability is the watchword.

So have some of these most challenged trusts managed to bring about real change in their organisations - and what has and has not worked?

Trimming labour costs

One consistent theme is that tight control of temporary labour costs can make a massive difference. West Hertfordshire Hospitals trust, for example, had been spending up to£1.4m a month on temporary staff until it introduced tight restrictions. In 2006-07 it virtually halved spending on locum and agency staff compared with 2005-06.

Brighton and Sussex University Hospitals trust is spending£60,000 a week - about£3m a year - less on agency staff than before. Chief executive Peter Coles says the benefit is not just financial - it also improves the continuity of patient care.

As part of the West Herts turnaround, much tighter controls were introduced on this with, at one point, all applications for temporary staff requiring sign-off by the chief executive - a tactic also used at Shrewsbury and Telford Hospital trust.

In West Herts not only did the cost plummet, says medical director Graham Ramsay, but it also uncovered some management issues which needed to be dealt with, such as a large number of staff from one department being allowed to take leave at the same time.

The trust has hit its control total for 2006-07 - still more than£11m in the red but a very substantial improvement from the position at the start of the year.

In many cases, the workforce has been trimmed, although cuts have not been massive given the size of some of the organisations. In Shrewsbury and Telford, for example, 138 whole-time equivalent jobs have gone. Surrey and Sussex Healthcare trust tried to substitute permanent staff for temporary ones where possible, reducing the use of temporary staff by 50-75 whole-time equivalents.

Beds, too, have been trimmed - Brighton and Sussex University Hospitals trust has lost 190 over the last two years (and about 250 staff) and no longer provides acute services at Brighton General. Crawley Hospital is now run by the local primary care trust rather than the acute trust.

Working with PCTs

Another challenge has been getting PCTs to cough up for work done. Many contracts for 2005-06 contained reductions in the number of outpatient visits or patient contacts that did not materialise. For example, in West Herts the trust calculates£12.5m of unfunded work was carried out:£9m extra was paid in respect of this.

Often the difference reflects slow development of community-based services or the difficulty in changing patient behaviour. In West Herts, development of an urgent care centre by the PCT was delayed, for example, and the predicted lower volumes of patients for the acute sector did not materialise. Consequently, the PCT is in substantial deficit.

In Sussex the PCTs hoped to reduce referrals through demand management measures, but the benefits have taken longer to show up than expected.

In addition, many trusts have improved coding, ensuring they get paid for the work they do. This can lead to larger bills for PCTs. But pushing for every last penny may not help - effectively pushing deficits from one NHS body to another and not addressing underlying problems will not necessarily resolve situations.

Spending to save

Sometimes trusts have to be brave enough to ‘spend to save’ - for example, investing in an intravenous line care specialist team in Brighton - who have then trained other staff members - has resulted in fewer infections and shorter length of stay. ‘But we have been very rigorous that if investment does go into an area, the savings have to come out,’ says chief executive Peter Coles. ‘Historically perhaps there has been a tendency for the spend-more part to happen, but the savings part not so rigorously monitored.’

St George’s Healthcare trust in London centralised pathology at a cost of£1.5m - but expects the change to pay for itself in three years.

But for some of the trusts which have been in financial problems for some time - or never been without them - there’s a bigger issue at hand. Persuading staff that management means business and that this time something is going to happen can be crucial, especially if they have been used to false starts on cost-cutting in the past.

A continuing theme for the trusts has been improving their financial situation while hitting the myriad of other targets. The danger that ‘cuts’ are seen as damaging the quality of patient care has been at the forefront of many chief executives’ minds and they have been determined to avoid it.

In Shrewsbury and Telford, chief executive Tom Taylor has been able to point to improvements on key access and cancer care targets, despite reducing an in-year deficit from£12.1m in 2005-06 to£2.8m in 2006-07.

‘We have not compromised patient care - we have improved patient care,’ he says, adding that the trust’s rating for key parts of the clinical negligence scheme had also improved.

‘This is about sustainable financial recovery. It’s about giving people a strategy. Once you set the strategy you can say ‘this is the vision’. Then you get people involved in the vision and you get better clinical engagement.’

West Herts was able to take out about 25 theatre sessions a week without affecting productivity. Sessions now start on time, meaning more patients can be operated on.

Tight control of the turnaround process also seems to have been extremely important: in many trusts this has involved weekly or fortnightly reporting by each department or workstream. At St George’s, steering group meetings were also used to check that changes would not have a detrimental effect on patient care.

Lessons learned

So are there things that have not worked? As part of its turnaround, West Herts decided to shut its outpatients department for one day a week - although some clinics continued on that day in different locations, and patients did not have to wait any longer.

This allowed the trust to make savings on cleaning, heating and light costs but was also very controversial.

‘There was tremendous pressure on us to reverse the decision and we did not,’ says Dr Ramsay. ‘As a signal that things had to change it was probably effective, but as a cost-saving measure it was not. It has only saved about£150,000, which is peanuts in the big scheme of things and it caused a lot of grief.’

Mr Coles says improving consultant efficiency and productivity has taken longer than expected - probably because the consultants have been working extremely hard to meet access targets and on the workstreams looking to save money - but work is still ongoing.

And St George’s executive director of finance and turnaround Colin Gentile says the need for consultation and communication with staff should not be underestimated - although he adds that many money-saving ideas have come from them.

But there are some dangers in pushing for so many savings in one year. Although chief executives are adamant that patient services have to be maintained, improvements which would involve spending additional money are likely to have been put on hold unless they were explicitly funded by PCTs.

And many PCTs, beset with problems of their own, have imposed a minimum waiting time for procedures. This is likely to be deferred spending, which is pushed from one financial year to the next, rather than ‘savings’.

Nor is it necessarily a good thing to do when the NHS is aiming for 18-week referral to treatment time by the end of 2008 - it will increase the size of the backlog of patients who will need to be treated to achieve that. Although deferring treatment into 2007-08 will have helped PCTs (who would have been charged at tariff), the savings for acute trusts will be much smaller. Most of their costs are fixed and can’t be reduced for the last couple of months of the year.

Many trusts have had to hold their nerve as savings have taken a long time to deliver. Some - such as limits on using temporary staff - can be delivered immediately but many changes, such as improving theatre use or changing services, will take longer.

In West Herts the majority of the savings materialised in the last quarter of the year and in the last two months of the financial year the trust was actually in surplus, putting it in a good position for 2007-08.

Making gains

However, some trusts have achieved very rapid turnaround. For example, Ipswich Hospital trust went from overspending£1,500 an hour in September last year to income-expenditure break-even for November. Eventually, it made a small surplus in 2006-07 compared with a£16m-plus deficit the previous year.

Brighton had a deficit of£5.3m in the last financial year but£21m the year before that.

Surrey and Sussex Healthcare reduced its in-year deficit from£28m in 2005-06 to£14m in 2006-07 and hopes to start breaking even in-month early next year.

Many of these trusts now stand some chance of breaking even, thanks partly to the abolition of RAB and its ‘double whammy’ effect on finances. Getting rid of RAB has also had a positive effect on staff - in some cases, the deficits they faced were so massive it was hard to see how they could ever overcome them - or that savings from individual departments or workstreams could ever begin to impact on them. Suddenly, staff could see their actions might make a difference.

Many trusts have been left with a historic deficit on their books, but may now have plans to pay this back within two or three years. In some cases the historic debt is larger and will take longer to get rid of - Brighton, for example, still owes£30m, St George’s£37m and Surrey and Sussex£56m. They are big sums, but they don’t say much about the current financial state of the trusts.

If they succeed in escaping from this historic debt - and many believe they have made lasting changes which should ensure ongoing financial viability - then they may finally lose the ‘debt-ridden’ tag for good.