Regaining control of discretionary spend in NHS trusts
01 May 2019
Making every pound count is a real challenge for all healthcare providers. Every day thousands of different services and products are purchased with a wide range of people, both operational and clinical, involved in the decisions to make those purchases. It is easy to see how this sort of spend, however well intentioned, can spiral and contribute a financial pressure for organisations across the sector.
However, our experience has taught us that there are some key steps providers can take to manage discretionary spend better and in doing so, support themselves to sustainably improve financial performance.
Where to start? Understanding routes to expenditure
The first task is to identify all types of discretionary spend by asking questions of the many and various budget holders across the organisation. This will cover a wide range of things, from agency workers and uncontrolled expenditure on clinical consumables to journal subscriptions, furniture, travel expenses for agency workers, or internal entertainment, and staff outings. Asking this question will not only prompt consideration but also encourage greater ownership for managing spend.
In the instance where control over a specific discretionary spend has been lost then it is vital to review who can request and approve spend. With the budget amount available to the individual often being a relatively modest monetary value, we find that there is often a steady expansion of both requesters and approvers over time. This leads to uncontrolled spend and therefore only by narrowing the total routes to accessing that budget can control be regained.
Carrying out this key first step will give greater understanding of the overall cost of discretionary spend and allow for the application of fair and consistent organisation-wide policies to curtail this.
How to improve grip on expenditure. To drive any new approach home there are some key areas of focus:
- Control: Review current approval regimes and set up a tight, centrally managed grip and control process in cases where approvals are found to be insufficient in either point of request (the immediate approver) or oversight at a business unit/care group/Divisional level. The improved controls should focus both on limiting unnecessary or unchecked requests whilst simultaneously providing oversight and governance, with representation from Clinicians, HR and the finance team to expertly justify decisions and advise on clinical exemptions.
- Communication: Set out clearly what staff below Executive level need to do. This should be in a specific task-focused manner, rooted in the operational reality of the requesters. Explain what has to happen at a ward level, what checks will be conducted at a divisional level, why these are important and the mechanism for raising concerns and risks.
- Organisational: Restate the organisation’s Standing Financial Instructions (SFIs), defining and, if needed, narrowing the limits around discretionary spend and communicating this across the organisation. Once complete, a series of deep dives into spend ‘hot spots’ will support operational teams to identify and tackle the root causes of over-spend using the improved SFIs.
- Tracking: Put reporting mechanisms in place that allow the robust tracking of key areas of discretionary spend with a focus on the monthly actual reduction in cash spend but also the KPIs associated with each type of restricted discretionary spend. Tracking is particularly important noting the longer timeframes; weeks and months that it takes to really embed change.
Behaviour change is critical to the success of this approach. Reducing discretionary spend is a difficult message for staff so we recommend a discussion on reinvesting some of the benefits of delivering improved spending at a Divisional/Directorate level. When a staff member chooses not to buy something non-essential, they should be recognised as actively contributing to the financial recovery of the organisation.
Additionally, clinical engagement is vital to success. Developing a clinical exclusion list jointly with the clinical lead to protect certain spend will help reassure medical colleagues that patient safety and quality assurance are at the heart of efforts to control spending.
Finally staff need to see leadership from the front including very public displays of what the executive team and senior managers are doing to increase control over their own spend. Senior teams need to communicate clearly, with a unified voice and set the tone at every level. This approach is most successful where everyone in the organisation works together to meet clearly understood and agreed objectives to reduce unnecessary spend and redirect it to patient care.
To find out more about achieving financial sustainability in healthcare providers there is further advice available in our Road to Recovery publication series, or please get in touch.