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Published: 12/12/2001, Volume II2, No. 5835 Page 12 13

Financial balance is the only show in town, according to this year's Healthcare Financial Management Association annual conference.And woe betide those who cannot keep in the black. Paul Stephenson reports

Achieving financial balance is so important this year that activity may have to be slowed down - and wards mothballed - to ensure that the health service stays in the black.

That was the blunt - and bleak - message debated in corners by delegates at the Healthcare Financial Management Association's annual conference in London last week.

HSJ sources warned that organisations that do not attain balance will be harshly judged in next year's star-ratings. They say the centre is determined to avoid 'fudging' the issue.

And while nobody would publicly state that it may mean closed wards, delegates privately confirmed a vivid picture painted by one HSJ source of mothballed wards being closed down to cut costs. And finance directors expressed fears that even if they cope this year, next year it will be almost impossible to meet financial balance and achieve targets unless services can be redesigned in the meantime. And There is the rub. They say there simply is not the time to do both.

NHS finance director Richard Douglas told the conference the service had achieved remarkable things recently: 'If I look back over the last year, the first six months of this year... the context in which we are working has changed fundamentally. I have never seen the scale of organisational change being completed last year in the same space of time.'

However, he cautioned that there must be no overspending: 'If we can't deliver the basics on finance, we can't be trusted to deliver anything else.

'When we make the three-year allocations, what we will do is tie our hands for the next three years.

We will limit our ability to interfere.We will not be saying here is a specific sum of money for a specific purpose.

'We are also saying to you: 'That is it'.We are not going to go back to the Treasury. There will be no central fix if people find themselves in problems.'

Department of Health strategy unit director Chris Ham told the conference: 'We have got to deliver enough in the short term to give space in the medium term.

'It is quite hard for ministers to understand and explain how it is you put in 10 per cent more cash in the NHS and the messages from chief executives and finance directors are how hard it is to balance the books.

'We have been debating that with colleagues in the top team. If our secretary of state does not have a good story to tell when he goes to the Treasury, the patience of the people who control the purse strings will fail.We have got to show we can make it work.'

Leeds Teaching Hospitals trust finance director Neil Chapman told Mr Ham there were real worries about where the allocations would go and how to achieve everything within the time frame:

'Agenda for Change, National Institute for Clinical Excellence drugs, national insurance, extra employers pension costs. These are going to gobble up most of the resources. I am worried about the time lag.How do you - and we - stop the frustration, stop the prime minister declaring this a failure?'

Mr Ham replied: 'We have got to be better within the department in explaining where the money is going and what it is buying. Have we collectively put some effort into monitoring it?

'So, when the prime minister says what are we getting, between us we have got done as much as we should have done.We have to be a lot better in accounting for resources. If we can do that, there will be greater acceptance.'

Mr Chapman later told HSJ: 'All I am saying is it is a concern about the time lag. Picking up all the learning experience and delivering the modernisation agenda is going to take some time and some control.

'Our challenge is we have got to change the service. If it doesn't happen quickly enough, how frustrated will the GPs become - and the prime minister?'

HFMA past chair John Flook told HSJ hard action might need to be taken to ensure financial balance this year. He said: 'I do not think there should be any doubt that achieving financial balance is the priority. If that means managing the pace of development in order to achieve that, perhaps not getting on with some work as soon as expected, then That is the action that has to be taken.

Financial balance is not an option.

'In individual areas, there will be the possibility that a physical development or activity that was planned may be deferred.

However, I am not aware of any specific mothballing of wards. It is about the pace of change.'

Though health minister John Hutton told HSJ he would not be drawn on whether wards might be closed down, he also made clear there would be no fudging, and financial balance was absolutely essential He said: 'It is clear that the NHS has to operate within its overall resources. I am not aware of any slowing of activity and we have to manage operational activity over the winter.'

A tough few months and years ahead, indeed. Perhaps it is worth bearing in mind comments made by Gloucestershire Hospitals trust chief executive Paul Lilley, however, who told the conference: 'It is a chief executive's job to be positive. It is a bit different if you are a finance director; you can be a bit miserable.' l Financial flows: a bigger change than the internal market One of the clear messages to the conference was that financial flows and three-year allocations are fundamental changes to the system - more far reaching than even the internal market.

Delegates were told that if the changes were not right, the patient choice agenda would not work.

NHS finance director Richard Douglas said: 'However much money we put in, it will still feel tight.

'We will meet the targets, but we will do that inelegantly and in a way that will not lead to any fundamental change in public perception.

'I believe these two changes [three-year allocations and financial flows] are the most farreaching and significant changes we have seen in the department.

'The system is not fit for purpose because it doesn't incentivise. It doesn't reward performance. It will not work with a diversity of providers. I believe the potential impact of these changes is greater than any other changes. If we get this wrong, then devolution will not work.

However, NHS Modernisation Agency director David Fillingham was cautious about how far financial flows could go: 'We need to put the financial flows work into perspective. It is very suitable around planned elective work. If you take networks around disease management, that is not going to lend itself to a payment-by-results model.'

Department of Health strategy unit director Chris Ham said: 'We are not going to move overnight from one system to another.This will have to be implemented slowly.One of the reasons the internal market didn't work effectively was we neglected the importance of the commissioning role.We mustn't do that second time around.'

Current thinking: 'the restless search for new ideas' Department of Health strategy unit director Chris Ham told the conference there was a 'restless search for new ideas'within the Department of Health and government, and spoke about ongoing work, including examination of US organisations such as Kaiser Permanente.

'With Kaiser Permanente, the big striking difference is... Kaiser makes use of a half to a third less bed days than the NHS, 'he said.'We have been doing some work on the back of that.What we have done is take the top dozen cases of bed day use in the NHS.We are looking at this particularly for the over 65 population.For these top cases, the most striking difference is length of stay.

'The reason for this difference is that Kaiser aggressively manages the patients at all stages. [There is] much greater use of sub-acute stepdown facilities.They invest a lot more in patient education.

'The lesson we are beginning to take from Kaiser is that we do need capacity, but the capacity is less about acute beds, but having staff available. It is having... ambulatory and day care.'

Other speakers provided some insight into how foundation trusts might work.

NHS foundation trust project manager Julia Hickling told the conference: 'It is our intention that the regulator will not need to come into foundation trusts unless there are problems.The onus will be on him to put things right.'

In terms of contracts, she said: 'From the centre, we will undertake to provide template contracts that will draw on the diagnostic and treatment centres and overseas providers.'

Gloucestershire Hospitals trust chief executive Paul Lilly talked of using foundation status to make inroads into waiting lists: 'Six months is not really very good is it? Our hospitals are full of people waiting. It is not just having to wait to go in. It is waiting to get out which is a problem with nursing homes etc.'

He said that although some chief executives might seek to vary pay and conditions, he did not wish to start poaching staff: 'I know some three-star trusts think it would be good to vary terms and conditions.

We wouldn't want to get into arguments about pinching staff from down the road.'

However, one delegate told him: 'If those freedoms are there and staff are tight, there will be chief executives who encourage managers to take staff.This will end up with a two-tier system.'

Asked how he thought relationships between primary care trusts and acute trusts might work, Mr Lilly said: 'I think locally we will not make any pretence of having long-term legally binding contracts.'

He laid out his vision for his own stakeholder council: 'In our case we might have three to four members of the public, patients and staff, probably also local authority councillors, universities, local businessmen and primary care trust observers or full members.'