Feature / Plus ca change

While most NHS finance managers will be looking askance at the next four years, fearful of what the public sector spending squeeze

will mean for them, a handful will be thinking: ‘Oh, more of the same’. That is the case at Mid Yorkshire Hospitals NHS Trust, where there are no illusions that the hard work is at an end.

Mid Yorkshire was one of the 17 organisations classed as financially challenged trusts (FCTs) in 2007, since when it has been immersed in cost improvement programmes and efficiency reviews. It is also one of the 10 trusts able to regain sufficient control and financial balance to drop off the list of FCTs.

The trust’s financial problems were long-standing and deep. It was formed as a result of two mergers – between Pinderfields and Pontefract trusts in 1997 and then with the acute parts of Dewsbury Health Care in 2002. This gives it three district hospitals serving a population of about half a million people.

Finance director Tony Waite recalls his first days with the trust. ‘I joined in summer 2003 and, knowing the trust had some financial issues, the first task was to be clear as to the extent of those issues.’ The scale of the problem soon became clear, with the trust looking at a £35m deficit in 2003/04.

Pinderfields had faced financial issues since at least the early 1990s and Mr Waite admits that the hospital services in Dewsbury, which formed part of a whole district trust, had been cross-subsidised by community and mental health services. Without this support, the hospital services overspend was exposed.

The financial problems were a reflection of service and organisational problems. Mid Yorkshire was put on special measures in 2004, following a Healthcare Commission review of gastrointestinal services, and in 2005 the £300m turnover trust was the subject of a public interest report over break-even concerns. It was designated an FCT in March 2007, when the Department of Health withdrew resource accounting and budgeting and the previous trust brokerage system.

The trust had made significant in-year deficits in each of its first five years, and had a £77m working capital borrowing requirement together with an accumulated I&E deficit of £63m. With the brokerage system coming to an end, it had no way of repaying that sum, which led to its FCT status.

Turning points

A number of events were to have an impact on the trust’s future. A report from PricewaterhouseCoopers (PWC) in September 2007 found the organisation had the capability to get into financial balance, but to do so and generate surpluses was unrealistic.

Around the same time, the turnaround programme initiated in 2006/07 began to work. The trust broke even for the first time in 2007/08 – a feat it managed to repeat in 2008/09, producing an operating surplus of £2.9m. Also in June 2007, the trust closed the deal for the building of two hospitals in Pontefract and Wakefield under the private finance initiative. The new hospitals, expected to open next year, open the way for better and more cost-effective care and also demonstrated a desire to invest in local services.

A further PWC report last year prompted a solution to the accumulated financial problems across the health economy, involving local primary care trusts and the Yorkshire and Humber strategic health authority. This led to the trust’s FCT status being removed.

The trust’s historic cash requirement was refinanced by converting £46m of temporary public dividend capital (PDC) to permanent PDC. The trust has also received a £31m working capital loan, which will be repaid over three years. Its two local PCTs (Wakefield District and Kirklees) have agreed to provide resources over the three-year period equivalent to the principal repayments and interest charges. For break-even duty purposes, the trust’s annual accounts show a cumulative deficit of £26m at the end of March 2009, with this deficit to be ‘managed in the medium to longer term through delivery of surpluses’.

‘That agreement, together with the contract for the new hospitals, symbolises the drawing of a line under the past,’ Mr Waite says.

The trust is building on these foundations and took steps last year to reorganise its structure. Four clinical service groups have replaced its 12 clinical directorates.

‘This puts clinicians at the forefront of management and gives them control and responsibility for their business. It’s a hugely important step,’ Mr Waite says.

‘To make the new hospitals work requires that we move to the top quartile levels of performance – that includes length of stay, day case rates and so on – across all services across all our hospitals. That’s quite a stretch.’

The trust is working through proposals for a reconfiguration of services, including some consolidation, which is expected to go to public consultation this summer.

The proposals have been put together in partnership with the two local PCTs and the SHA. ‘It has been built on a strong clinical case and the mantra of localising where possible and developing single, specialist centres only where necessary,’ says Mr Waite.

However, given the current financial context and outlook, he raises concerns about the timing of further change. ‘Quality, innovation and productivity will deliver a great deal but we must work through potential changes that go beyond that. The agenda is being driven by the need to have high-quality, safe services but there is no doubt there will be a financial dimension to that.’

The trust has routinely taken a five-year outlook. ‘We have a significant financial challenge going forward and the most recent assessment is that we need to save 25% over the next four to five years,’ says Mr Waite. ‘This amounts to £80m recurrently by 2013.’

‘Two-thirds of that will be driven by the national efficiency requirement of at least 4% year on year. The balance of it represents local issues. I wonder how many people have taken that extended look forward and asked what the new efficiency targets might mean for them?’

The trust is confident its figures are sound and is working on a solution. ‘Two reviews by PWC confirmed that our assessment was robust, and there were opportunities for income and productivity improvements. PWC said these opportunities amounted to about a third of the overall savings needed.’ 

This year’s cost improvement programme targets much of that £30m by focusing on the transformation of core operating processes. It aims to step change efficiency in length of stay, theatres, outpatients and diagnostics, adopt e-rostering and reaping the full benefits of the electronic staff record.

Traditional non-pay areas remain in the spotlight too. Mr Waite says the plan is to cover the fundamentals that will move them towards top-quartile performance. Some £50m of savings remains to be found and the trust is focusing on this. ‘We have to start looking at the business and system fundamentals. There’s nothing that cannot go untouched. I am of the opinion the scale of the financial challenge is unlikely to be resolved within the boundaries of one organisation,’ Mr Waite says.

Each organisation will ‘do their bit’, he says, but they will also have to work across organisational boundaries and perhaps look at vertical integration. ‘Thought is being given nationally as to whether the infrastructure, particularly choice and payment by results, really fits in this new world,’ he adds.

Savings drive

The Department of Health and the Treasury have recently been encouraging NHS organisations to move to NHS Shared Business Services (SBS) in order to generate savings in back office functions. Mid Yorkshire was in the first wave of trusts to join SBS in 2004, but it has since pulled out. Mr Waite says for Mid Yorkshire it proved more cost-effective to provide the functions in house. The real value now is in looking at processes that cross corporate functions – such as streamlining the process of booking patients to billing PCTs.

Although it is not in the foundation trust pipeline, Mid Yorkshire is aiming to get there in 2010. ’We are concentrating on being a very good business delivering great care, and through that to be a good foundation trust. That means safe, high-quality and cost-effective care with a workforce motivated to be the best,’ says Mr Waite.

There are other challenges – the European Working Time Directive, which comes into force in August, for example. The trust has tried to get ahead of the game by recruiting additional staff. It also plans to make best use of hospitals that are open 24 hours, seven days a week, as a way of getting maximum benefits from its PFI infrastructure.

The impact of international financial reporting standards and the switch to modern equivalent asset (MEA) valuation, which the trust is carrying out in the current financial year, could have adverse effects on its accounts.

‘There is likely to be a headline I&E hit as a consequence of the move to MEA and the impact of IFRS could be £6m to £7m,’ says Mr Waite. ‘There is also the potential for significant asset value impairments when bringing our PFI assets into use.  These are accounting issues and our imperative is to make sure they are resolved without any detriment to patient care.’

Getting to grips with workforce planning as the healthcare landscape changes is another item on the agenda. The workforce will change if there is a significant shift of care out of hospital and Mr Waite wants to ensure that workforce change is factored into the trust’s forward financial planning.

Service line management will play an important part in assessing its fitness for the future, allowing the trust to weigh up each business unit’s financial contribution and inform decisions on its future role.

The last six years have been difficult but it has not diminished Mr Waite’s spirit. He describes the finance team he inherited as ‘having bags of potential but disconnected from the business’. He continues: ‘The talent was there but it was not being used. We are doing that far more effectively now.

‘The scrutiny has been intense and it’s been incredibly challenging. Intellectually and professionally it’s been fantastic – you couldn’t ask for a bigger challenge – but emotionally and physically it’s been really tough. The strength of character and courage of conviction required of people in senior finance jobs cannot be underestimated and we are going to need more of that in the next few years. But I am up for it. I am a Wakefield lad so I have a particular motivation to do something for the local community.’

He adds: ‘The ending of FCT status closed the book on the first chapter. It was a difficult time that was about getting stability and control. Looking forward, it’s no less of a challenge but I can’t wait to be there when the doors of the new hospitals open.’

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