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NHS seeks private sector remedy

With the National Health Service facing a deficit of nearly £1bn this year, turnaround experts have been called in to help FDs resuscitate the sector's ailing finances.

The future for hundreds of finance directors working in the NHS has changed
inexorably following the announcement by secretary of state for health Patricia
Hewitt that the health service was heading towards financial meltdown.

Hewitt revealed the parlous financial condition of the various NHS
organisations: despite more than £75bn of funding, the 2005-06 financial year
would see nearly £1bn of deficits among various NHS and primary care trusts.
Those in the black are expected to contribute towards reducing that gross loss
to a net deficit of £620m for the period.

Predictably, NHS finance directors, and their executive boards, have been
accused of gross financial mismanagement from across the political and industry

Stephen O’Brien, shadow minister for health, says that “where ineptitude in
NHS finance managers has allowed this state of affairs to arise they must be
held accountable, just as those managers who have kept their trusts on an even
keel must be congratulated”.

Political storm

NHS chief executive Sir Nigel Crisp has described the situation as
“unacceptable”, while even CIMA claimed that some of the deficits had been
caused by “poor local financial mismanagement”.

And the government has not escaped criticism for paying trusts by the volume
of activity they deliver, which NHS chief executives claimed was one of the
biggest causes of their financial problems.

According to NHS Confederation chief executive Dr Gill Morgan, the trusts
“need politicians to have the courage to allow them to make some painful
decisions and review the policies that are making life harder on the ground.

“We should start with restructuring the debt. It is simply not viable for
long-term historic debt to be paid off in 18 months without cutting services.
Then we need to review local hospitals and services and take difficult decisions
that will benefit patients in the long term,” she says.

O’Brien also attacks the government, claiming that its “systemic
mismanagement” has been the cause of “much of the deficit”.

But the most damning indictment of the condition of NHS financial processes
has been two-fold. First, following Hewitt’s announcement, a super-fast
tendering process was initiated to send in accounting turnaround experts to help
FDs in 80 of the worst-performing trusts and health authorities.

KPMG won the contract, which involved the firm providing NHS specialists and
private sector business recovery experts to make “baseline assessments” of the

After a two-week period, the specialists presented their findings to
Department of Health FD Richard Douglas, who incorporated them into his report
on the strategy required to reverse the NHS’s financial situation.

Second, KPMG slammed the FDs as “inadequate” to solve the financial problems,
and NHS managers would require “support” to deliver turnaround, while the
“quality of information” available “impeded the turnaround process”.

“The capability of the management was inadequate to deal with challenges of
their current financial position,” says KPMG. It points to a lack of detailed
implementation plans and unrealistic strategy to handle cost improvement

Outside help

Despite facing severe pressure for their roles within struggling
organisations, the FDs remain philosophical about the help they have received.
Turnaround experts have not been considered as interfering, but instead valuable
allies with knowledge to be tapped into.

Colin Gentile, FD of St George’s NHS Trust in south London, says that earlier
financial problems at the trust led to the involvement of PricewaterhouseCoopers
to turn round its £21m deficit, posted for the 2004-05 financial year. “They
bought in expertise to help us produce a financial recovery plan – implemented
in September – to establish an internal turnaround team, with myself as
director,” says Gentile. “We are redefining processes, reducing unit costs
without affecting operations.”

Cambridge City and South Cambridgeshire primary care trusts interim FD John
Offord welcomed KPMG for bringing in a “fresh pair of eyes”, as he battles
against a combined budget overspend of £10m for 2004-05. “I treated it as a
positive experience,” says Offord.

Gentile sees the turnaround strategy at St Georges as a “semi-official
pilot”, which is likely to be copied among the other struggling health

Douglas is expected to follow KPMG’s recommendations for longer-term
assistance from the private sector to bring about better financial results. “We
will need to drive this process for a minimum of 18 months,” says Douglas. “At
the same time we will need to build turnaround expertise within the NHS to
reduce reliance upon external help. Our aim is to develop a panel of NHS
turnaround experts that can be drawn upon quickly when required.” The work of
these experts, who have already looked into 10% of NHS organisations, has been
expanded to include a further 23 trusts.

“Finance managers need to enhance skills to deal with the challenges of
payment by results and patient choice, but the majority of the NHS finance
function are hard working professionals dedicated to the NHS,” says Mark Knight,
chief executive of the Healthcare Financial Management Association. “They can
turn around the financial position, as long as the government recognises the
cost pressures they face.”

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