Telling the truth about NHS finances

There was much in Andy Cowper’s article of 8 April (The price of financial lying) that resonated with us at The Chartered Institute of Public Finance and Accountancy. He is quite correct to note the unsustainability of the finance system and the pressure NHS finance professionals are working under.

However, the suggestion that CIPFA could be somehow culpable for these systemic problems is misdirected. We have no direct role in finance and accounting standard setting in the health service. These flow down from the Department of Health and Social Care, NHS England and NHS Improvement.

This isn’t to say we wash our hands of the problems in the sector, or see ourselves as entirely disinterested observers with no contribution to make. CIPFA has consistently pointed out the problems, most recently in response to the public accounts committee’s progress review on NHS financial sustainability highlighted by Mr Cowper.

Through the Performance Tracker we produce with the Institute for Government we can see that, while spending on hospitals has risen since 2009-10, the amount of work hospitals are doing has risen even faster.

Efficiencies to maintain care standards have not been sufficient to keep up with growing costs and demands, leading to financial deficits.

Pointing out these problems can feel like Groundhog Day at times. Another report comes out, we issue another statement voicing our disappointment, bemoaning the financial position of the jewel in the public sector’s crown and pointing out the inherent flaws in the system.

Could it be that no one is listening?

Vicious cycle of short-term measures

Over the last few years, CIPFA has witnessed a continuing cycle of short-term measures aimed at merely balancing the books.

These include: using surpluses in one part of the system to offset deficits elsewhere; capital transfers and asset sales; relying on non-recurrent savings, tariff adjustments and pay restraints to meet control totals and increase productivity; using sustainability and transformation funds to achieve balance rather than transform services – the list goes on.

Some elements of the system create perversities that may actually incentivise such short-termism. For example, access to sustainability and transformation funding is dependent on achieving control totals, thus encouraging non-recurrent measures to improve short-term financial performance but potentially increasing future risks.

CIPFA has been consistent and clear. Reliance on these short-term measures may help in a given year but comes at the cost of long-term financial sustainability and value for money. While the immediate problem is solved, these approaches store up bigger problems for the future.

CIPFA has been consistent and clear. Reliance on these short-term measures may help in a given year but comes at the cost of long-term financial sustainability and value for money

This all paints a picture of a finance system that is unsustainable. The fact that it is no longer compatible with the policy agenda just adds confusion and complexity.

Health and social care integration is rightly now an area of focus, but this is complicated by the financial architecture.

For example, the tariff system’s “payment by activity” undermines important objectives such as reducing demands for acute services, ensuring resources are allocated appropriately and integrating care pathways.

The very fact that the system sees such vast variation in terms of surplus/deficit position of individual organisations is a clear indicator that resources are not getting to the right places.

Tough choices need to be made if we are to improve the current financial state of the NHS and, more importantly, ensure it is sustainable in the longer term. It is time our calls for action and the recommendations put forward by other stakeholders were heeded.

Identify desirable behaviour

Money talks. The distribution of funding and the associated objectives drive the behaviour of individuals and organisations within the system.

The National Audit Office appears to agree, having previously called on national bodies to “identify the behaviours they want to encourage in local bodies and ensure the payment system and other incentives encourage these behaviours”.

Behaviour is of course important for the individuals working within the system as well as the system itself, and Mr Cowper is right to warn of some worrying trends in the NHS.

Last year, our ethics survey revealed that pressure to compromise professional standards and ethical values was particularly acute for those working in the health service compared to other parts of the public sector.

The distribution of funding and the associated objectives drive the behaviour of individuals and organisations within the system

As champions of excellence in public financial management this is of great concern to us as a professional institute.

CIPFA’s revised Standard of Professional Practice on Ethics, based on the refreshed international code, will help professionals orient themselves in the right direction.

We have also developed a wider suite of guidance and support to help members on the front line and bring such issues out into the open.

It is only by talking openly and honestly about the problems of the system, and the consequent pressures within it, that progress can be made.