VFM conclusion guidance for auditors 2012/13 v3 issued 13 May 2013
This section sets out key sector issues for auditors to consider when undertaking work relating to economy, efficiency and effectiveness at NHS trusts.
2012/13 will be the critical year in building the new NHS envisaged in the White Paper Equity and excellence: Liberating the NHS with the implementation of structural changes and increasing pressure on resources. While the coalition government has committed to real terms increases in resources, it requires the NHS to achieve £20 billion of efficiency savings by 2014/15, as well as significant cuts in management costs. The DH expects NHS organisations to improve efficiency and the quality of services delivered. This will test the management capacity and financial management arrangements of local NHS bodies.
NHS bodies have made good progress in achieving the first tranche of savings. However, most trusts have made savings without fundamental changes to the way they deliver care. NHS trusts reported a surplus of £43 million in 2011/12, compared to £122 million in 2010/11. While most achieved a surplus, an increasing number failed to break even. The Secretary of State used the ‘unstable provider regime’ for NHS trusts (introduced in the NHS Act 2006) for the first time in 2012 and put South London Healthcare NHS Trust into administration. The administrator confirmed that the Trust was not viable in its current form, and consultations are now ongoing to reorganise healthcare provision in South London. Other trusts with significant underlying financial problems may follow.
The Health and Social Care Act 2012, which received Royal Assent in March 2012, sets out changes to help meet the commitment to cut NHS administration costs and to increase GPs’ powers to commission services on their patients’ behalf. These changes include abolishing all SHAs and PCTs. The aim of the 2012 Health Act is to create a framework that will put the NHS on a financially sustainable footing and drive improvements in quality and outcomes.
NHS England (known until 1 April 2013 as the NHS CB) and CCGs will contract with trusts from 1 April 2013. This may bring about significant changes in contract arrangements. During 2012/13, trusts will need to consider the impact of these changes and challenge their medium-term planning assumptions. New contracts could affect non-tariff services the most, for example decisions about non-recurring additional funding for over-activity, for higher quality services or on financial penalties such as avoidable readmissions.
The government is clear that completing the move to FT status for the remaining NHS trusts remains a priority. This is because the DH believes the process of applying for FT status will equip providers more effectively to meet future challenges by testing both clinical quality and financial viability. The DH is clear that all providers having FT status is crucial to the overall reforms of the health service and has set a deadline of April 2014 for most remaining NHS trusts to achieve FT status. All NHS trusts have given their plans to the DH on transition to FT status. PCTs and SHAs are part of these tripartite agreements. Some plans involve merger or restructuring that will have an impact on trusts and local health economies.
A few NHS trusts will not meet the 2014 deadline. The DH will therefore arrange for these trusts to continue beyond 2014 with an agreed later date for transition to FT status.
Accountability for delivering the target for all providers to have FT status will remain with SHA clusters until 31 March 2013, with national leadership and governance from a central team. The NHS TDA, set up in June 2012, will provide governance and oversight of NHS trusts until they become FTs. The NHS TDA will have a formal role in supporting the remaining NHS trusts from 1 April 2013, following the abolition of SHAs.
On 20 October 2010, the government published the Spending Review 2010, setting out government department budgets for the period 2011/12 to 2014/15. NHS funding will increase by 0.4 per cent in real terms over the period (including an increase of 1.3 per cent in revenue budgets and a 17 per cent decrease in capital spending). However, the NHS needs to save £20 billion by 2015, which is about 5 per cent of annual spend over the Spending Review period. These savings will allow the NHS to meet the increasing demands it faces, to fund demographic and demand pressures, and to invest in new priorities. NHS trusts reported savings of 4.9 per cent in their 2011/12 accounts and contributed to an overall NHS surplus of £1.6 billion. Trusts should plan for a surplus consistent with their plans for progression to FT status. A small but rising number of NHS trusts failed to achieve financial balance.
Savings must be made while also improving quality outcomes and meeting rising demand from a growing and ageing population. QIPP is an NHS-wide initiative to support clinical teams and NHS organisations to improve the quality of care they deliver. The detail of how PCTs and NHS trusts intend to achieve the required QIPP and efficiency savings should be in their QIPP or CIP plans. In practice, many organisations now have an integrated plan.
To make sustained annual savings and deliver service improvements, trusts need to look at opportunities for service transformation and consider the services they provide. In recognition of the significant challenge that this represents, Monitor and the Commission completed a study on cost improvement plans and issued a guide for trusts, Delivering Sustainable Cost Improvement Plans. The guide stresses the importance of:
involvement and buy-in from the whole organisation (including clinicians) led by the board;
a clear organisational purpose and vision;
an organisational culture that seeks to improve safety, quality and the patient experience;
strong governance arrangements, clear lines of accountability and leadership; and
realistic, evidence based CIP schemes with clear measures of success that result in improved services.
The DH launched NHS procurement: Raising our game in May 2012, to help trusts improve their procurement. Trusts that spend more on goods and services than their peers and do not use national frameworks, where they exist, will have to justify why they are doing so under a ‘comply or explain’ regime.
Best practice and payment by results (PbR) tariffs will cover more activities in 2012/13 than 2011/12, in line with expectations set out in the NHS Operating Framework 2012/13. The national efficiency requirement is a 4 per cent cut in tariffs. Tariff prices have reduced by 1.5 per cent in real terms, while the pay and price inflation uplift is 2.2 per cent. Some of the best practice tariffs include a 0.3 per cent efficiency saving. Commissioners and providers will have to work together to identify the 1.5 per cent efficiencies for tariff and non-tariff activities. These efficiencies are in addition to the QIPP target of £20 billion.
The Commission’s report, NHS financial year 2011/12, says the expected 1.5 per cent reductions in tariff income in 2011/12 did not materialise for trusts, as income fell by only 0.8 per cent. Overall, income rose while activity fell, reducing productivity. Trusts need to reverse this trend to realise the targets for 2012/13.
The 2012/13 NHS Standard Contracts implement the first phase of the fundamental review of the contracts signalled in the NHS Operating Framework 2011/12.
In 2012/13 PCTs should start to offer patients a choice of any qualified provider in at least three services that are local priorities. It is not clear at this stage what financial impact this may have on NHS trusts. This is part of the wider national initiative to empower patients and give them more choice about their care.
My ambition for patient-centred care, published in June 2010, stated that hospitals will remain responsible for patients for 30 days after discharge. If a patient is readmitted with a related problem within those 30 days, the hospital will not receive any payment for the additional treatment. Undertaking unpaid activity will result in added financial pressures for NHS trusts. Following user testing, the system now requires a clinical review to identify the reason for the readmission.
The 'NHS Operating Framework 2012/13' confirms the 30 per cent marginal tariff rate for emergency admissions, above a contractual baseline, introduced in 2010/11. However, contracts worth 5 per cent or less of the 2008/09 baseline will not attract the marginal rate, where the overall value of emergency admissions is below the 2008/09 baseline. The DH wrote to NHS bodies to confirm these changes.
The CQUIN payment framework enables commissioners to link a part of healthcare providers' income to local quality improvement goals, rewarding excellence. In 2012/13, CQUIN will increase to 2.5 per cent on top of out-turn value. The two national goals on VTE risk assessment and on responsiveness to the personal needs of patients will remain in place. New requirements are:
a third national goal on improving the diagnosis of dementia in hospitals; and
a fourth national goal to increase the use of the NHS Safety Thermometer.
In addition, where the use of CQUIN funding has previously achieved a higher standard of quality, the commissioner may only make CQUIN funding recurrent where it is a necessary means to maintain the improvement.
The national goals must continue to be linked to around one fifth of the 2.5 per cent value of schemes unless commissioners decide there is negligible room for improvement.
In February 2013 Robert Francis QC published the final report of the Mid Staffordshire NHS Foundation Trust Public Inquiry. The inquiry focused on the role of the commissioning, supervisory and regulatory bodies in the monitoring of Mid Staffordshire Foundation NHS Trust during the serious issues the Trust faced between January 2005 and March 2009.
The report "identified numerous warning signs which cumulatively, or in some cases singly, could and should have alerted the system to the problems developing at the Trust", and makes many recommendations to address the key issues identified.
Among the warning signs identified at Mid Staffordshire were:
financial pressures arising from an underlying funding gap;
deteriorating staffing ratios; and
deteriorating waiting time indicators.
The report indicates that Mid Staffordshire was struggling to maintain patient care and service delivery standards, leading to higher mortality rates, in part due to tighter financial constraints. This could be relevant to both of the criteria specified by the Commission.
As a result of the Francis Report, on 6 February 2013 the Prime Minister asked Professor Sir Bruce Keogh, the NHS Medical Director for England, to review the quality of care and treatment provided by those NHS trusts and FTs that are persistent outliers on mortality indicators. A total of five NHS trusts are being investigated as part of the review:
Buckinghamshire Healthcare NHS Trust;
East Lancashire Hospitals NHS Trust;
George Eliot Hospital NHS Trust;
North Cumbria University Hospitals NHS Trust; and
United Lincolnshire Hospitals NHS Trust.
In addition, nine FTs are also being investigated:
Basildon and Thurrock University Hospitals NHS Foundation Trust;
Blackpool Teaching Hospitals NHS Foundation Trust;
Burton Hospitals NHS Foundation Trust;
Colchester Hospital University NHS Foundation Trust;
The Dudley Group NHS Foundation Trust;
Medway NHS Foundation Trust;
Northern Lincolnshire and Goole Hospitals NHS Foundation Trust;
Sherwood Forest Hospitals NHS Foundation Trust; and
Tameside Hospital NHS Foundation Trust.
The review is going to operate in three stages that will involve data analysis, hospital visits and a risk summit. Hospital visits for the five NHS trusts start between 7 May 2013 and 17 June 2013. A public report summarising the findings and actions resulting from all fourteen investigations will be published before the summer.
Auditors of the five NHS trusts under investigation may wish to consider the relevance of the results of the investigations and other outputs when considering their VFM conclusion. Where an audit supplier wishes to seek the Commission's view about the treatment of the review findings in the 2012/13 VFM conclusion, the case should be referred to ACTS.
Auditors of other trusts more generally may wish to consider whether trusts are responding to the outcomes of the Francis and Keogh reviews by ensuring appropriate arrangements are in place to monitor quality and financial outcomes, and that trusts are taking action to address any concerns identified.
The 'NHS Operating Framework 2012/13' specifies four key themes or priorities for NHS bodies:
getting the basics right every time;
maintaining a grip on performance;
meeting the quality and productivity challenge; and
building the new delivery system.
Good data quality is essential for NHS bodies to meet all of these objectives, to understand activities and costs, identify inefficiencies and poor quality services and have confidence in plans for service redesign. Improvements in data quality and information will better inform patients and commissioners about services on offer as part of the patient choice agenda.
A limited number of national performance measures are subject to assessment to enable NHS bodies to focus on their own local priorities. National measures are grouped into three priority areas of quality, resources and reform.
Quality indicators are based on outcome measures of how the NHS is:
preventing people from dying prematurely;
enhancing quality of life for people with long-term conditions;
helping people to recover from episodes of ill-health or following injury; and
treating and caring for people in a safe environment and protecting people from avoidable harm.
The Health Act 2009 and associated regulations require all providers of NHS healthcare services in England to publish a quality account each year about the quality of NHS services they deliver. The regulations introduced a formal requirement for external assurance in 2011/12 following a dry run exercise in 2010/11.
Auditors will be undertaking external assurance work on quality accounts for 2012/13 in line with the quality accounts auditor guidance issued with WAC 12-2013 on 25 March 2013. The results of this work are relevant to the VFM conclusion, for example, there may be significant data quality concerns identified in the work on quality accounts that impact on the auditor’s judgement about the NHS trust’s arrangements for challenging how it secures economy, efficiency and effectiveness.