How healthcare systems can take greater control of financial performance

06 March 2020

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by John Seymour Senior Manager

Email +44 (0)7715 484947

An increased emphasis on system-wide financial management has created a greater need for system leaders to demonstrate their financial plans will deliver net savings.

To do this they will need a clear understanding of the underlying drivers of financial performance, in order to identify and implement effective ways of managing and improving the system’s financial position.

However, the methods currently used to identify financial drivers for NHS organisations tend to be narrowly focused on analysing performance against external metrics, peers or other benchmarks. Benchmarking is a useful tool but its limitations include:

  • setting inappropriate targets due to a lack of regard for local circumstances;
  • confusing natural variability with true underlying drivers of financial performance;
  • difficulty in translating many commonly used benchmarks into system-wide benchmarks for Integrated Care Systems (ICSs).

A better approach would be to undertake a systematic analysis of observed longer-term trends in income and expenditure. This would highlight the real drivers of change in financial performance over time, including:

  • identifying and quantifying the drivers that have specifically impacted that local system;
  • removing the ‘noise’ that can affect reported year-on-year financial performance;
  • providing evidence to support systems in developing and agreeing achievable savings plans tailored to their own specific drivers and based on their own data. This will promote buy-in from clinicians, a key reason why this approach is successful in driving change;
  • informing strategic planning, by focusing on longer-term effects and deriving local evidence to support the setting of future growth rate assumptions.

This approach can be applied to individual organisations, but its benefits are enhanced when viewed across the entire local healthcare system. A system working collaboratively is able to directly influence a wider range of drivers of financial performance than any one individual organisation can.

The key is to categorise where control over each financial driver sits:

  • organisational drivers that can be managed directly by the individual organisation, such as workforce decisions or theatre scheduling;
  • system drivers that can be influenced by the wider system in which the organisation sits, such as pathway design, local funding flows or the provision of sub-scale services.
  • national / structural drivers that should be monitored and allowed for in financial planning, such as system allocations, agenda for change pay rates or structural financing issues.

Adopting a trend-based approach can be successfully deployed across an ICS, with the flexibility to drill down and pinpoint the trends and drivers within and between individual organisations as well as for the system as a whole.

This evidence-led approach will help ICS stakeholders reach agreement on the actions and support required for collaborative working to address the adverse drivers of system financial performance and, therefore, deliver improved organisational buy-in.

Prioritising system-wide financial trend analysis will be a valuable investment of time for system leaders looking to improve local financial control.

by John Seymour Senior Manager

Email +44 (0)7715 484947