4 How are organisations in deficit
returning to financial balance?
31. The NHS is going through a transitional period
in terms of the way in which healthcare is delivered and the systems
used. A number of key policy initiatives are currently being implemented
across the NHS. These include Payment by Results, Practice-based
Commissioning, NHS Foundation Trusts, and the rationalisation
of the Primary Care Trusts and Strategic Health Authorities. These
policies have been introduced to improve efficiency and financial
performance, but they carry significant financial risk. This risk
is reflected by the appointed auditors of local NHS bodies, who
reported concerns about financial standing at 348 NHS bodies (excluding
Foundation Trusts), or 59%.[30]
32. Although organisations in financial difficulty
are expected to return to financial balance within a realistic
timetable, the Department aims to be supportive and flexible in
working with them. For those organisations with major problems
the Department would not insist that the books balanced in 2006-07,
giving them more time to recover. As mentioned in paragraph 6,
Strategic Health Authorities have also been allowed to build strategic
reserves for 2006-07. In 2006-07, most of the funds will be used
to assist those with deficits but in future such funds could be
put to different uses. The original size of the planned reserves
was £350 million, but the Department confirmed that it was
looking to create an additional £100 million of reserves
to cover the forecast 2006-07 deficit of £94 million.[31]
33. This top-slicing of budgets, which includes all
bodies whether in deficit or not, is designed to create a national
buffer whereby bodies in deficit can be supported. It is difficult
to envisage a situation where all NHS bodies are able to deliver
balance or a surplus, and the aim of the reserve is to fund overspending
in one location with underspending in another. It does however
have the impact of effectively penalising those well-managed bodies
that are able to deliver financial balance or a surplus. The Department
has given a commitment that Trusts will regain their top sliced
funds, but Trusts who are net contributors to the reserves will
need to delay spending programmes.[32]
34. For 2004-05, while most bodies with large deficits
had a recovery plan, a significant number had not been delivering
all elements in practice. Some bodies' financial recovery plans
had been successfully designed and delivered, but others had been
based on unrealistic assumptions or short-term measures. The Department
stated that it had taken action to improve the situation ensuring
that it has better oversight of the plans.[33]
35. A key feature of the drive to return to financial
balance across the NHS has been the introduction of the turnaround
programme. Following a competitive process, the Department contracted
external consultants to perform a preliminary assessment of 98
NHS bodies identified as facing particular financial difficulties.
In December 2005, these turnaround teams produced preliminary
reports on what action could be taken to assist recovery. Since
then the organisations have been required to produce recovery
plans, assisted by turnaround expertise. The Department's National
Programme Office was set up in February 2006 to oversee the turnaround
process. The National Programme Office is responsible for ensuring
robust plans are developed that are deliverable and for then monitoring
their implementation in the organisations concerned. Support is
provided from a Turnaround Director appointed for each Strategic
Health Authority, who also acts as the interface with the National
Programme Office. To date much of the work has been aided by external
turnaround expertise. The 98 original turnaround organisations
were due to submit their recovery plans to the National Programme
Office by mid-June 2006; as at mid-October 2006, 60 such plans
had been submitted and approved.[34]
36. The introduction of turnaround support had been
particularly effective in improving the standard of financial
recovery plans. For example, for the first part of 2006-07, NHS
organisations in turnaround were delivering 95% of their cash-releasing
cost improvement programmes, compared to a delivery rate of 50-60%
eighteen months ago.[35]
37. If turnaround is to be a success, the Department
needs to make sure that the lessons identified from turnaround
teams are shared with the rest of the NHS in an effective manner.
The NPO issue a quarterly newsletter, Strategic Health Authorities
facilitate the sharing of information between Finance Directors,
and there are arrangements for local organisations to get together
to share good practice.[36]
38. The Department agreed that in order to meet the
current challenges it was necessary for everyone in an organisation
to understand the importance of financial management. Delivering
financial balance must not be seen as a task for the finance department
alone. There was a need to improve the quality and financial leadership
provided by the Board and senior management. The Department are
working with the NHS Appointments Commission to improve the financial
training given to board members.
39. Clinical engagement in financial matters is key
to delivery of financial balance and there is a need to bring
more clinicians into senior management positions. Decisions need
to take into account both the clinical need and the financial
implication, if high quality healthcare is to be delivered most
effectively and efficiently. To take such informed decisions,
senior management needs to be an effective mix of financial and
clinical experience. The introduction of Payment by Results is
expected to help increase the financial awareness of clinical
and other staff.[37]
30 C&AG's Report, Summary, paras 32-34;
paras 5.2, 5.8-5.17, 5.24-5.29; Qq 163-173 Back
31
Qq 22, 56, 63, 180, 182-184; Department of Health, NHS financial
performance Quarter 2, 2006-07 Back
32
Qq 22, 33, 56, 58 Back
33
C&AG's Report, paras 3.34-3.35; Q 26 Back
34
C&AG's Report, Summary, paras 35-37; paras 3.52-3.54;
Qq 5, 124-126, 194 Back
35
Q 193 Back
36
C&AG's Report, Summary, para 38; para 3.55; Qq 23,
52 Back
37
C&AG's Report, para 3.40-3.51; Qq 54-55, 176, 190, 192, 196 Back
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