Published: 01/04/2004, Volume II4, No. 5899 Page 35
Despite improved funding for the NHS, why are many trusts still in financial deficit? If current approaches are not working, what can trusts do to make a real difference?
Many have tried to deal with financial deficits with nonrecurring quick fixes and unsustained expenditure cuts.
Trusts cannot continue to respond in this way in the future, as the director of finance's 'treasure chest' is bare. Trusts need to look for approaches that lead to longterm solutions.
The approach we recommend is to focus on the cause of financial deficits and not the symptoms. This requires a good deal more commitment and courage right across the organisation.
Although a more complex approach, it does work. Its success is seen repeatedly in the most effective and financially stable organisations and is built on three principles:
Financial balance is a corporate responsibility built on a genuine commitment by the board, senior management team, clinicians, nursing and support staff and other key stakeholders.
There is clarity about the core business, with resources and systems aligned and streamlined to deliver the level of care expected.
There is clear accountability for delivery at all levels, based on well-considered short, medium and long-term plans.
So how can these principles be applied for financial stability?
do not underplay
Too many organisations have a culture of underplaying the size of the problem.
A crucial first step to securing corporate support to tackle the problem is for the board and management team to understand and own the full extent of the financial deficit. Then the financial context within which a health system operates will be transparent.
A critical examination of the main financial, operating and strategic assumptions is also essential. The 'gross' financial gap will be identified and include all recurring financial pressures and commitments. It is important to take a prudent view of funding streams, particularly assumptions of increases in income.
Only when this is explicit can the organisation make sensible decisions on financial investments and make better use of existing resources.
Revisit and challenge
Low-priority areas consume scarce resources.Well-managed organisations are ruthless in getting rid of them. Areas described as commitments are often nothing more than potential developments or wish lists.
There may not even be a clear understanding of the added value they bring or the true cost of implementing and running the service.
An analysis of the benefits and costs to the organisation of these recent and planned developments is essential, as is the wider impact of each to ensure that no department is robbing Peter to pay Paul.
Similarly, the successful trust will ensure that in resolving a perceived bottleneck in one area the problem does not simply pop up further down the track. It may be necessary to turn off the funding to existing commitments as well as future developments.
Too many boards focus on short-term conformity rather than longer-term performance. Difficult though it may be, targets should be seen as part of the route rather than the end itself.
As a result, some trusts tend to centralise responsibilities to regain financial control and manage budget lines without reference to the impact on service delivery.
In successful trusts, accountability for financial performance will be devolved to those responsible for service delivery.
Budget responsibility will follow, along with the autonomy to make decisions about how best to deploy these resources.
When underpinned by clear performance indicators and an effective accountability framework, individuals are held to account ultimately for the trust's financial stability.
This approach shifts the focus from targets to systems which, once correct, will deliver the targets.
In the long term
It is not viable year after year to ask managers to make efficiency savings by cutting budgets. There needs to be a move in dialogue from efficiency to cost effectiveness and sustainability.
This creates the need to think more widely and strategically and will lead us to ask some fundamental questions.How and where should services be delivered?
What do we stop doing?
Which areas need to be prioritised? How do we ensure scarce resources are most effectively targeted at patient needs? How can demand for services be better managed?
Any sustainable programme of change needs to consider the whole system and develop a culture that supports innovation.Managers, clinicians, commissioners and patients are co-owners of the agenda, process and solution.
They need a coherent and formal framework for delivering change. A wellfacilitated process will ensure that all options are considered.
Future outcomes and the way forward, therefore, become corporate decisions based on corporate goals, values and strategic direction.
Achievement over time
Last year's quick fixes may have managed to get you to the end of this financial year, but a genuine solution to financial balance can only be achieved over time.
It will be accompanied by changes in the way trusts manage their business so that boards genuinely understand their true financial gap and have a clear understanding of existing resources.
Trusts need clear accountability structures to allow staff to deliver.Delivery of short-term targets should be within a longer-term delivery strategy. This is clearly a challenge for the whole board.
Cameron Revie is a partner and Karen Bryson a manager in PricewaterhouseCoopers'health team.