Better late than never… “the quarter” for Q4 of 2009-10 is out, and it’s the first edition to escalate any NHS trust to “Challenged” status in the tough new(ish) performance management regime. All in all there are six challenged trusts, including two who are there purely for financial reasons.

A lot has happened since Q4, of course, including the White Paper announcement that by April 2013 all NHS trusts should be foundation trusts. Yes, even the challenged ones, which is quite a stretch. As the White Paper said:

In the event that a few NHS trusts and SHAs fail to agree credible plans, and where the NHS trust is unsustainable, the Secretary of State may as a matter of last resort apply the trust administration regime set out in the Health Act 2009.

This is the rather scary procedure where a trust special administrator is appointed to “exercise the functions of the chairman and directors”. Not something you’d want to happen in your hospital, really. So let’s put ourselves in a challenged trust’s shoes. What could we do to avoid this fate?

Let’s assume we’ve already had a major cost improvement programme across multiple workstreams, got management consultants in to analyse this and that, delayed paying suppliers, made the most of our (ahem) coding opportunities, cut back on agency staff, all that kind of thing… and the numbers are still turning red. So we take a deep breath, and sit back. What isn’t working?

Everything we have tried has been directed from the top of the organisation. We did it for all the right reasons. Leaving things to line managers hasn’t solved the problem for the last few years, so why would it suddenly start working now? We needed to act fast, and be seen to act fast. How could we convince the SHA that we were solving the problem if all we could say was “line managers have been set tough targets”? So we took charge. But we haven’t fixed it.

Sitting back, we think how our management model is inherited from the block contracts of decades ago. Back in those days we used to receive an allocation of X millions to run the hospital, topped up with non-recurring money for service developments and waiting list initiatives. The number of patients we treated was separate from that, and we thought about activity more as a performance measure; if activity did have anything to do with money, it was a cost.

Nowadays patients come with tariffs attached, so in theory every part of the hospital is now an income generator and patients are business. The problem is that we still handle costs in the old way: this much for nurses’ pay, that much for pharmacy. When we cut costs, we look for big numbers in the expenditure tables (like pay) and then squeeze them, without really knowing whether those numbers contribute to profit or loss. So we might end up balancing the books this year by, say, cutting back on physiotherapy pay costs… only to push up bed costs because we can’t discharge orthopaedic patients on time, and wind up deeper in the red than before.

So we can set about making our numbers more useful. If we extended the work we have already done on costing, we could come up with something better. Not only would we get a picture of whether each HRG and specialty was profitable or loss-making, we could get back some really interesting numbers like theatre time = £25/min, or each bed day = £172 at site A but £98 at site B. These item-based prices are much easier to understand, and we can start getting a feel for whether things are good value or expensive around the organisation.

Armed with this kind of information, we are much better-equipped. We can steer clear of mutilating our profitable services, concentrate our efforts on the biggest loss-makers instead, and see exactly which parts of the organisation could lose a little weight. That might just be enough to dig us out of the hole we’re in.

It might also be enough to lead to something much bigger. Something that could turn our whole management model upside down, and step up to a new level of performance. But we’ll have to leave that for another post…