Feature / Creating value

02 April 2013

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As the biggest shake-up in the history of the NHS in England is implemented, NHS England CFO Paul Baumann talks to Seamus Ward about finance’s role in driving up outcomes and quality

Paul Baumann is both optimistic and realistic about the future of the NHS across England. The chief financial officer of the body formerly known as the NHS Commissioning Board – and now rebranded NHS?England – mixes the confidence of someone who believes in the organisation’s mission to get best value out of the £96bn budget with the pragmatism of a senior manager who has an ear for reports from the frontline.

Speaking to Healthcare Finance before the formal launch of NHS England, Mr Baumann says he has a 'deep recognition' of what finance staff have been coping with in recent years.

‘Last year, alongside all the uncertainty about their own futures, finance colleagues had to cope with all the challenges of setting up the new organisations and systems,’ he says. ‘Yet they somehow also managed to deliver an even better financial result than expected in 2012/13.

‘That's a massive achievement and a credit to the professionalism of finance staff across the NHS. It gives us enormous potential to do good. I don't mean that in a trite way. It's going to be a bumpy road, and we are seeing 2013/14 as a baseline year where we get to know how to make things work and where the pressures really are. But having done the preparatory work, and with a better legacy than we could have dreamed of achieving, we have a genuinely exciting opportunity to create the best health system in the world – with the power to transform the lives of patients and the public.'

The surplus – forecast to be comfortably above the £1.2bn originally planned for primary care trusts and strategic health authorities – puts the new commissioning organisations on a firm footing, not having to 'scrabble around' for funds, he says.

Only one primary care trust – North Yorkshire and York – is expected to end its life with a deficit, and indeed many organisations enter the new structure already holding the 1% surplus they are required to generate in 2013/14. He says this is a tribute to the work of finance teams across the country, but also to the leadership of former NHS deputy chief executive David Flory – now NHS Trust Development Authority chief executive.

While this gives the new organisations a solid start, he acknowledges that some may struggle to remain in recurrent balance. ‘Greater transparency means any overspends will become apparent more quickly, but the great financial legacy we have inherited means we can focus on creating sustainable balance in each health economy across the country rather than on paying off the debts of the past.’

The opportunities to ‘do good’ rest with building a stronger partnership with clinicians, he insists. Finance must work closely with GPs and others – clinicians and finance have a lot in common, including a faith in evidence-based decision-making.



Collaborative approach

CFOs must facilitate priority setting and strategic investment choices by bringing clinical and financial insights together to ensure those decisions are based on sound evidence, says Mr Baumann. They should also lead on showing the economic impact of proposed changes.

He stresses that this doesn’t need to mean slower or less ambitious decision-making than in the past – quite the opposite. ‘The boldest innovators in other sectors are those who are slick in evaluating with the evidence they have available at each point in time, setting clear and immediate indicators of success, quickly assessing whether things are on track or not and then either promoting or killing the projects based on the emerging evidence. That’s also how we will maximise the impact of the significant but ultimately finite capacity for investment we have been entrusted with.’

This commitment to the highest quality of decision-making is why NHS England has invested in its analytical capacity at the centre and in commissioning support units (CSUs), says Mr Baumann.

He adds: ‘We also have many of the key levers for change in finance, and CFOs – whether in CCGs, CSUs or the area teams leading on direct commissioning – must work out how to use them. Whether they be new business models or the mechanisms by which money flows through the system, CFOs must use them to enable the new commissioning leaders to implement their strategies successfully.’

This also applies to NHS?England’s role in pricing. NHS England and Monitor, which share responsibility for the development of tariff prices, set their first tariff in 2014/15 and are currently developing their longer term thinking around tariffs. Mr Baumann says the approach is to directly link pricing strategy to clinical priorities.

As well as the growing partnership with Monitor, it is working closely with CCGs and other stakeholders, such as third-sector organisations, to develop its longer term thinking in this area. In the shorter term, commissioners and providers can expect a degree of stability.

‘In 2014/15 it is highly likely there will be a year of maximum stability to help us into the new system. That’s not to say there will be no change – some of the policies started in 2013/14 will be completed, for example.’

He believes empowering clinical leadership – locally and nationally – will give a major boost to the QIPP programme, which in its initial phase aims to deliver up to £20bn of efficiencies by 2015. Progress on QIPP will be a key test for the reformed system, especially its ability to drive through big structural change to create

 a more sustainable NHS, says Mr Baumann. ‘The reforms, of themselves, don't make the enormous challenge of creating a sustainable NHS go away, but they do give us a new way of addressing it. As every right-thinking leader in the NHS has recognised for a while, what started out as a sprint has become a marathon. The first few years of QIPP are just a staging post to much bigger transformation, as it is abundantly clear we’ll have to live within tight resources for many years to come,’ he says.



Delivering on QIPP

The good news is that the NHS has delivered on QIPP in the first two years, he adds, though this has relied strongly on national measures – pay restraint being the obvious one – and non-recurrent savings. ‘There is nothing wrong with non-recurrent measures, but they do not ensure long-term sustainability,’ he continues. ‘There is a growing consensus that transformational change is what it’s all about, but that’s easily said and much more difficult to deliver, particularly at pace. I firmly believe we can deliver it as long as we take this opportunity to build strong and focused partnerships between clinical, financial and operational leadership.

‘The clinical bit is critical. When you look at where cost improvement programmes haven’t worked, the recurring theme is that there has been too much reliance on narrowly defined cost management, often led by the hapless finance director, rather than a joined-up push for quality and efficiency improvement with clinicians leading from the front.’

This is where CCGs can make a difference, and Mr Baumann believes the authorisation process has thrown up good examples of this. NHS?England’s own leadership of specialised and primary care commissioning provides a further opportunity for innovation, and the new improvement body, NHS Improving Quality – to be hosted by NHS?England – will be a key source of ideas and solutions focused on priority areas for transformation.

During the transition phase a lot has been said about ‘grip’ – ensuring NHS finances remain strong as the new system is established. And the need for grip remains, he says. Key to this are robust operating plans for the first year of the new commissioning landscape. In 2013/14, all commissioners are expected to set aside 2% of resources for non-recurrent spending, have a 0.5% contingency fund and exit the year with a 1% overall surplus. These rules are sensible and not a great departure from recent practice, he says.

‘This year of all years it is even more important to have this to fall back on. The eyes of everyone from the Treasury to the public are understandably on the NHS and we must show we have adequate risk cover in place for what is likely to be a challenging year. This approach also puts a focus on recurrent balance and gives us a ready source of investment funding.’

So there is much to be done, and finance teams will play a central role, not just in ensuring their organisations live within their means, but also in bringing structure and insight to the most important decisions.

‘Above all, every member of the finance community has the chance to contribute to the core goal of using our resources to drive up outcomes and quality of experience for patients,’ Mr Baumann says. ‘That’s what creating value is all about, and it means much more than affordability and living within your budget. Value creation has the aspiration that every £1 of our £96bn budget is spent on things that add most value for patients.

‘And that feels like a pretty worthwhile, if challenging, goal at this crucial stage in the history of the NHS.’



System challenges

Mr Baumann points to five key immediate challenges for the commissioning sector:

Keeping grip through transition The reforms are the biggest transition the NHS has ever undertaken and finance professionals are at its heart, bringing deep professionalism to the simultaneous challenges of closedown and start-up. Mr Baumann gives two examples of this: specialised commissioning, where just about every aspect of an already inherently complex and volatile area is being changed – from scope and commissioning structures to specifications and policies; and the ambitious programme to implement a common financial ‘spine’ across the entire commissioning sector for the first time. ‘I am full of admiration for the dedication and skill of finance teams working to make a success of these challenges,’ he says.

Avoiding the risk of fragmentation Finance teams can also use the unique professional network in finance to ensure the clearer focus brought by the new structures on local priorities and on the roles of commissioners and providers doesn’t result in parochial or short-sighted decision-making, adds Mr Baumann.

Making quick progress up the learning curve The authorisation process has helped to pinpoint the organisations and areas of activity needing most support. Mr Baumann points out that a lot of individuals across the country are stepping up to their first top-tier leadership role. He is working with his new finance leadership team to ensure these highly talented individuals are supported to be as successful as possible.

Managing a complex landscape with less resource The reduction of more than a third in management resources in recent years poses an additional challenge, but Mr Baumann insists this can be overcome by collaboration. ‘There will be things we don't need to do 211 times over, and CSUs are one of the biggest single innovations that will help with that, providing scale economies and bringing deep expertise to address local needs.’

Opening up the way in which financial performance is viewed and decisions made NHS?England is committed to involving patients and the public in key decisions, which will require finance teams to find ways of making the financial aspects of challenging and complex decisions accessible to a wider audience. ‘Transparency is key to everything we do at NHS?England and it speaks to a core value of finance we have always had under the leadership of David Flory. We speak the truth as we see it and make tough choices as they come up, but we need to take this to a new level – to be even more transparent about the performance of individual organisations and about the decisions we need to take.’ 



Baumann on... 

... the decision not to use the Advisory Committee on Resource Allocation’s fair share formula for the 2013/14 CCG allocations

‘It was a really difficult decision – and indeed the first major decision the commissioning board [now NHS?England] had to take. We were convinced the formula developed by ACRA was a significant improvement in predicting the resources required to fund future healthcare expenditure based on need. The issue was that, used on its own, it would generally have given higher growth to areas that have the best health outcomes, and that felt counterintuitive to us.’

NHS England is about to launch a programme of work, involving CCG leaders, ACRA and other key stakeholders, to look at allocations more broadly with a view to creating an approach consistent with its goals of driving up outcomes for patients and reducing health inequalities.

... specialised commissioning

‘This is one of the most complex parts of the health service, and just about every aspect of it is changing, so it’s no surprise it is taking time to get the baselines right and align resources around the contracts. The challenge is just as great for the providers. But we are 90% of the way there. We are getting there later than I would have liked, but it’s important to get it right rather than fudging it. I am confident that we will be able to strike sensible contracts with providers in the next few weeks.’

... finance staff development

‘This is an area of enormous importance for me, and the finance leadership of NHS?England is well placed to take a central role in shaping both the talent for the future and the direction of capability development across the NHS, working with national partners and professional bodies such as the HFMA. We have a particular task in supporting those who are new to the financial leadership role and developing genuinely leading edge approaches to evidence-based decision-making.’



Paul Baumann: CV

Paul Baumann is NHS England’s first chief financial officer. He joined from NHS London, where he had been director of finance and investment since May 2007.
This was his first NHS appointment – he had previously spent 22 years in international financial management and strategic leadership at Unilever.
During his time at NHS London, he oversaw a significant financial recovery programme for London’s PCTs and trusts, and focused on the development of strategies to deliver long-term viability and sustainability across the London health economy. He is a fellow of the Chartered Institute of Management Accountants.