Evidence submitted by KPMG (Def 56)
1. NATIONAL REVIEW
ON BEHALF
OF THE
DEPARTMENT OF
HEALTH (PROJECT
SANDS)
On 1 December 2005, the Secretary of State made
a public statement revealing that atthe half way stage (ie six
months to September 2005) the NHS had a deficit of £620 million.
She also announced that turnaround teams would be sent into those
SHAs, NHS Hospital Trusts and Primary Care Trusts with the biggest
deficits to assess their ability to achieve financial balance.
Following a tender process, KPMG undertook a
review of 62 entities and two SHAs and reported back to the DH
on 23 December 2005. We carried out a review of a further 36 entities
during January and February 2006 and reported on 16 February 2006.
Our findings can be summarised as follows:
— Following a review of our findings
with each SHA, 25 entities were categorised as requiring significant
external assistance to achieve financial balance.
— Financial planning by the NHS commenced
too late during 2005-06 and should be advanced for 2006-07.
— Management capacity generally in
the NHS needed to be improved. In particular:
— SHAs lacked executive experience
in change management.
— Hospital trusts needed support,
especially in developing improvement plans and with financial
management.
— PCTs had too many layers of management
and needed support in developing turnaround plans.
— The quality of financial information
was generally poor. In particular:
— The Income and Expenditure and
cash impacts of operational changes were not well analysed.
— Trusts generally lacked benefits
tracking processes to help monitor their improvement plans.
— The level of brokerage confused
the underlying trading position of the entities.
— There was a lack of transparency
in how entities forecast their financial outturns.
— The NHS needed improved leadership
and control. In particular:
— SHAs needed to play a greater
role in capacity planning and service reconfiguration in their
local health economy, and help resolve local conflicts between
providers and commissioners.
— Entities should be required to
provide timely and deliverable turnaround plans which could be
extensively monitored by the SHAs.
— Entities should not be limited
to take an in-year view of turnaround plans and some savings would
take more than one year to effect.
2. BACKGROUND
ON TRUSTS
PROVIDING EVIDENCE
TO THE
HEALTH COMMITTEE
FROM THE
NATIONAL REVIEW
With regard to the four trusts the Health Committee
is hearing evidence from later in this process (West Hertfordshire
Hospitals Health Trust, University Hospital of North Staffordshire
NHS Trust, South Tees Hospitals NHS Trust and Kensington &
Chelsea PCT), all of these trusts were part of the National Review
carried out by KPMG referred to above.
Each of these trusts had large deficits forecast
for 2005-06 ranging from £18 million to £30 million.
With the exception of North Staffordshire, a large proportion
of these deficits (approximately 50%) related to brought forward
deficits accounted under the RAB adjustment.
Our review focused on a number of key areas
for a turnaround:
— Current and forecast Income and Expenditure.
— Robustness and deliverability of
any cost reduction or financial recovery plan.
— Current and forecast liquidity position.
— Achievability of recurrent financial
balance.
— Clinical and operational performance.
From our review and in consultation with the
local Strategic Health Authority, we prioritised the trusts in
terms of urgency on the part of the Department of Health to intervene
as well as the ability of the management team to achieve financial
balance. University Hospital of North Staffordshire NHS Trust
was categorised as needing urgent action, two of the trusts were
assessed to need support to aid the turnaround (West Hertfordshire
Hospitals Health Trust and Kensington & Chelsea PCT) and one
needed careful monitoring (South Tees Hospitals NHS Trust).
3. KPMG INVOLVEMENT
IN NHS TURNAROUND
SINCE PROJECT
SANDS
We set out below the NHS entities we have assisted
with their turnaround plans since completing Project Sands:
| Hospital Trusts |
KPMG Status |
| UCLH Foundation Trust | Ongoing
|
| Surrey and Sussex Healthcare Trust | Completed
|
| Queen Mary's Hospital Trust, Sidcup | Completed
|
| Royal West Sussex Healthcare Trust | Completed
|
| Whipps Cross University Hospital Trust |
Ongoing |
| Lewisham Hospital Trust | Ongoing
|
| Queen Elizabeth Kings Lynn Hospital Trust |
Completed |
| Blackpool Fylde and Wyre Trust | Completed
|
| Wolverhampton Trust | Ongoing
|
| Primary Care Trusts | KPMG status
|
| Selby and York PCT | Completed
|
| Cheshire West PCT | Ongoing
|
| Cambridge City and South Cambridgeshire PCT
| Ongoing |
| Kennet and North Wiltshire PCT | Completed
|
| West Wiltshire PCT | Completed
|
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4. OVERVIEW OF
KPMG APPROACH TO
NHS TURNAROUND
Our approach to NHS turnaround has a number of features:
— All the KPMG teams are blended teams of restructuring
professionals, who have extensive experience of turnaround in
the private sector, and health specialists, who are clinically
experienced in complex Trust areas such as theatres, nursing establishments,
procurement, clinical support services and service redesign.
— We see our role as supporting management, helping
them to make the right decisions based on all available information.
— We provide hands-on support, working jointly with
the Trust's own project team. This joint team, led typically by
someone from the Trust, develops opportunities for cost improvement.
By working in a joint team, we are able to encourage skills transfer
so that our processes for financial recovery plans become embedded
in the Trust's day to day management.
— Our style is to understand the Trust's current
performance and plans for improvement so that we jointly agree
a set of robust and deliverable plans.
— We provide objective benchmarking of the Trust's
operational performance. We compare length of stay, reference
costs, day case rates and theatre utilisations against a carefully
chosen peer group of UK NHS Trusts. This benchmarking is essential
in identifying the key areas of operational inefficiency and obtaining
clinical buy-in.
— Our scope of work usually requires us to identify
only those opportunities which are within management's control
to improve. Service reconfiguration or capacity reduction across
the local health economy is usually an area reserved for the SHA
to address.
— An essential part of our approach is to ensure
ownership and accountability of each project by an identified
individual within the Trust. We facilitate clinical engagement
and buy-in by working alongside the Directorates. At every major
stage, our findings are shared with, discussed and agreed by appropriate
clinical leaders.
— We also help the Trust to put in place an appropriate
governance structure which ensures that the joint team is structured
and controlled by clinical, operational and finance managers and
board directors, who are ultimately accountable to the Trust for
the turnaround plan.
5. THE NEED
FOR TURNAROUND
SPECIALISTS
— Organisations that are incurring financial deficits
require a different style of management compared with stable,
growing and profitable organisations. This is readily accepted
in the private sector where individuals and teams are often drafted
into troubled companies to help effect stabilisation and turnaround.
— Stopping losses requires a management team to
have clear short and medium goals; to be clear in their expectations
of others; to be pragmatic, decisive and consistent; to communicate
clearly and continuously with key stakeholders and to develop
and implement a plan rapidly. Leadership of a turnaround demands
a more directive style than the cooperative approach that typically
works in healthy situations.
— A turnaround plan must be clear, well articulated
and fully accepted by those responsible for its implementation.
The ideas underpinning a plan are generally most successful if
they are generated internally. The role of the turnaround specialist
is to set stretch targets, challenge preconceived ways of working,
offer new approaches and thereby draw out from an organisation
the best, most practical initiatives.
— Evaluating options requires robust and reliable
financial and other information. In environments where reporting
systems have been designed for purposes other than financial stability,
the turnaround specialist must rapidly determine what must be
improved and what can be relied on. Thereafter they will help
put in place essential improvements to reduce risk.
— Implementing a plan demands widespread support,
alignment of objectives within the organisation, detailed and
responsive monitoring and obvious acceptance of leadership and
responsibility.
— The elapsed time for the development and implementation
of all of the above is typically 4 to 16 weeks for the planning
and 6 to 24 months for the implementation. Throughout this period
it is essential that management maintain their rigorous pursuit
of the operational objectives of the organisation.
— Hospitals and PCTs are complex organisations dealing
with a large number of individuals, regulatory bodies and other
organisations. It is rare that they will have either the skills
in-house or the spare capacity to be able to effect a turnaround
and maintain operational focus.
Philip Davidson
Partner, KPMG
June 2006
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