System planning in health and care - getting the numbers right

by Josh Walker Director

Email +44 (0)7808 035514

System-level financial planning that combines several organisations’ forecasts from a geographical footprint is not a new concept, but its importance continues to rise. Following the publishing of the NHS Long Term Plan (LTP), the Long Term Plan Implementation Framework and the new oversight framework alongside national use of system control totals, system financial performance is becoming the first priority, rather than just the financial performance of a single organisation.

There is a great deal of diversity among health and care systems up and down the country, both in terms of the level of maturity of their integration plans and in their visions for what integrated care will mean in practice for their populations. But irrespective of the stage of development or the anticipated “end state” for a system, getting a single view of the system’s prospective financial performance should be taking on increased importance for Integrated Care System (ICS) and Integrated Care Partnership (ICP) leaders, as well as for boards and governing bodies. With system plans being refreshed and control totals due to be confirmed by the end of March, they are grappling with the challenge of aligning system and organisational forecasts.

As ICSs refine their plans over the coming months, one of the issues they should be concerned with is ensuring they have made the best estimate they can of their financial prospects. There are many ways of doing this, but we believe there are two broad approaches. Each has its advantages and disadvantages and might be appropriately deployed in different circumstances.

Approach 1: The consolidated approach

This approach treats the system as a homogenous whole, by taking all current levels of funding and spend and then applying a single set of assumptions about future changes in income and spend. It should factor demand, capacity, growth trends and local intelligence to arrive at a ‘single version of the truth’. This approach ensures that the system is operating from a unified vision which is modelled at the outset and is used to appraise and scrutinise performance throughout the year. The downside is that it requires investment in time and effort at the outset both technically and to reconcile to organisational plans.

Approach 2: The aggregated approach

This approach involves combining the forecasts of each of the organisations within the system to arrive at a system position. Each individual organisation will be responsible for its own financial baseline and respective financial improvement plan (where necessary), and each will be combined to present a system position. The virtue of this approach is its simplicity and clarity of link to each Board’s approved organisational plan. But having individual approaches means that some assumptions and methodologies applied by one organisation may differ from others in the patch. This approach may also lead to duplication between the plans of providers and commissioners (e.g. plans to move, open, close, or change a service may be accounted for (or not) in both commissioner and provider recovery plans and double counted as a result.).

Regardless of which approach is taken, there are certain steps that can be taken to give leaders greater confidence in the reliability of forecasts:

  1. Harmonise your starting point - a situation where everyone in the system uses a different starting point for their forecast (e.g. MX actuals, MX forecast, previous annual plan) will almost certainly lead to confusion and become problematic at some point.
  2. Check that inter-organisational balances offset - there are inevitably accruals and provisions for inter-organisational balances whichever starting point is used. Ensuring these correspond is important to avoid “baking in” assumptions that might artificially inflate or deflate the overall system position.
  3. Check the big assumptions align - funding growth, demand growth, workforce numbers, activity growth and inflation assumptions should be consistent. This will at least avoid confusion but could also ensure that potentially counterproductive decisions don’t get made in different parts of the system because of inconsistent views about potential impacts.
  4. Control for one-off events and part year changes - every year includes a wide range of costs, savings and windfall payments that will not be repeated. It is important to identify these and strip out anything significant so that your forecast is not artificially inflated or deflated. Likewise, changes to run rate within a financial year need to be taken into account (e.g. if there was a significant change to staffing in the second half of the financial year, its effect will be doubled in the next year).
  5. Be clear on what is and isn’t included - there are few systems that have completely coterminous boundaries and none whose patients don’t use services outside its boundaries or patients that come in from elsewhere. Having a clear definition of how costs and funding have been calculated as belonging to “the system” will help avoid poor future decisions based on incorrect knowledge of how the baseline was put together.
  6. Don’t “bake in” savings into the first instance - it is important to have a clear “do nothing” view of how the financial position will develop to ensure that there is a good yardstick against which success can be measured and to make sure impacts of initiatives aren’t inadvertently double counted.

Although this is not a new concept the process of agreeing the system baseline, drivers of deficit and proposing a commissioning plan which factors in what is achievable from a shared CIP/QIPP programme presents some key challenges for emergent systems. Regardless of the preferred approach, collaboration is central to ensuring this achieves the intended outcome, and system partners must work towards agreeing the key strategic challenges for the patch are, and what mechanisms need to be in place between those partners to ensure delivery.

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.

by Josh Walker Director

Email +44 (0)7808 035514