PCTs run up in-year deficits

Civitas, 3 March 2010

Civitas, in conjunction with The Guardian, has today released figures obtained from PCT board papers that show, while the NHS is forecasting a surplus of over £1bn for the year, a number of PCTs – that buy care on behalf of patients – are currently in deficit in the year to-date.  While not threatening the NHS’s overall financial position at present, the lack of financial control in PCTs is of serious concern ahead of tighter financial times.

With zero real growth over next six yrs (likely given state of public finances and Pre-Budget Report announcements), the best estimates are that the NHS will face a shortfall of £20 billion in 2013/14, rising to £38 billion in 2016/17.  Productivity improvements in the order of 7% per annum are thus needed – of the like never before achieved in the NHS.

Crucial to this is decent financial control.  It is only through the constant feedback which decent cost and quality control systems provide, is a process of continuous improvement possible.  More specifically, the only way the NHS is going to improve is if PCTs become more effective purchasers of care, driving performance in providers and commissioning new, innovative, services.  Prerequisites for PCTs are thus:

-having a hold of their own finances;

-having conducted a proper assessesment of population need;

-having integrated need and finances in a proper strategic plan;

-having understood the costs and quality of what they are buying in relation to this and what is achieved elsewhere (i.e. benchmarked);

-negotiating/going elsewhere to get a better deal, where necessary.

The fact is, modern managerial practices for obtaining better productivity, which have revolutionised other sectors of the economy, are not yet embedded in PCTs (or NHS trusts, including foundation trusts, for that matter).  This is key reason why a comprehensive literature review released by Civitas earlier in the week found the benefits of market forces in the NHS to be marginal.

Indicative of this is that in the Audit Commission’s use of resources assessment of PCTs in 2008/09, for example, just 53 per cent scored above minimum standards for ‘managing finances’; 28 per cent for ‘governing the business’; and 16 per cent for ‘managing resources’.  No PCT scored a level 4 rating (‘significantly exceeds minimum requirements’) for any category.  Yet, compared with routine practice in other industries, this assessment represents fairly low baselines, broadly requiring organisations to have systems in place to understand and control their costs; to set strategic priorities; properly manage risk; and to monitor the value for money of any contracts they hold.

As Alan Maynard, pithily put it in a recent article for the Health Service Journal, ‘PCTs, instead of being price and quality makers, [generally] have been price and quality takers, paying providers meekly with little regard to cost effectiveness.  Thus they are bank clerks.’  One consequence of this is the level of in-year deficits.  Finances must be gotten hold of fast.