Corporate costs: when the cap doesn’t fit

by Paul Briddock

12 April 2016

The Carter report on NHS productivity should in general be welcomed by those charged with improving efficiency in providers and transforming the delivery of services. It puts a focus on data and evidence to identify opportunities to improve value and support change.

The potential creation of a comprehensive benchmarking database – through the proposed model hospital – should lead to more informed decisions and opportunities to spread good practice.

However its recommendations to cap corporate back office and operational administration costs at 7% by 2018, further reducing to 6% by 2020, are at odds with the rest of the report. With the service slowly coming round to the need to look at all decisions in the light of value – taking account of outcomes and quality as well as costs – this is a backward step. It looks simply at the costs of these services and takes no account of the value they are or could be adding.

It is short sighted and demotivating for the hard working and committed staff involved. Finance staff are front and centre in this debate. According to the Carter report, there are 137,000 budgeted full time equivalent employees working in corporate and administration roles, contributing to about £4.3bn of workforce spend. Some 53,000 of these are corporate staff, which presumably includes all finance staff based on old management cost definitions.

The HFMA and Finance Skills Development’s census, published recently, reveals that finance accounts for about 16,000 of these staff (albeit measured in headcount rather than full time equivalent) – almost a third of Carter's corporate total.

The Carter report effectively sees corporate costs as an overhead to be minimised rather than asking what value they add or what is the right level of corporate staff/costs to support the delivery of best value on the front line?

Elsewhere in the report, there is backing for NHS Improvement’s Costing Transformation Programme, which will deliver more granular and robust cost data to provide a foundation for more informed decision making. The programme is likely to need more costing accountants to get the new systems in place. But the point of creating this valuable data is to support clinicians in identifying and eliminating waste and optimising patient pathways to deliver the best quality and cost. They won’t do this without support.

And costing is just one example. Finance and other corporate and administrative staff will be vital to deliver much of the data revolution envisaged by the Carter report.

Finance staff add value across numerous activities, but the capping approach simply treats the function as a cost to be reduced. Of course, finance departments should be subject to as much challenge and scrutiny as other departments. But their costs need to be looked at alongside the quality and value of what they deliver.

If higher corporate costs equate to better value patient care, why would you want to reduce them? We at least need to understand the links between corporate costs and overall value before implementing an arbitrary cap.

The danger is that by not considering the value added by corporate and administration services, we effectively undervalue their contribution. Our staff attitudes survey, published alongside the census, showed that while nine out of 10 finance staff feel their department provides value, very few feel valued by the Department of Health, the public or patients.

This capping approach will do little to change this view.