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Don’t lose sight of the bigger picture

No-one working in healthcare currently can be unaware of the very real pressure to improve efficiency. At a national level we need to meet the rising costs of treating an ageing population and advancing technology from within a financial settlement that is broadly flat in real terms. The estimated £20bn savings by 2014/15 equates to a productivity gain of between 4% and 5% a year.

It is tough for everyone, but perhaps it is particularly tough at the moment – and I speak as a commissioner – for the hospital sector. First the Payment by Results tariff has a 4% efficiency requirement this year.. So just to stand still – to undertake the same activity as last year with the tariff income – acute trusts need to reduce their costs by 4%.

And commissioners own in-house QIPP (quality, innovation, productivity and prevention) savings will also hit the secondary care sector. Typically, these include plans to reduce excess bed days ,which attract a per day charge above tariff, inappropriate outpatient attendances or the number of unplanned admissions. While these actions will reduce expenditure from commissioning budgets, they will also reduce hospital income and potentially shift costs from hospital to primary and community services. And we must not forget the impact on other partners such as social services.

Joint working will be needed for planning required activity levels and activity reductions. Trusts cannot afford to plan and staff for lower activity only to find that actual activity is higher, forcing them to rely on more expensive agency staffing to meet the unexpected demand. Commissioners equally cannot afford to pay for activity above agreed contract levels. So working together to understand and agree expected demand - and working together to ensure the success of demand management schemes - can only help both commissioners and providers.

The challenge facing providers and commissioners will differ across the country.  For example, Monitor says foundation trusts are planning to make a 4.4% reduction in operating costs – their most challenging cost improvements to date, but  some report a 9% cost improvement programmes.  Commissioners also have to contribute to the £20bn saving requirement, while also managing local challenges and increasing demands. Social services are also under pressure, and the impact of their efficiency plans will need to be understood by us all.  

Pathway redesign initiatives, changing the point of delivery or enhancing support in the community for frequent hospital users to avoid subsequent admission, tick all the right boxes in terms of service improvement and an individual's wellbeing. But they may also add to the productivity challenge facing providers.

Activity reductions – for example resulting from a revised pathway – may produce savings for the commissioner. But they only become savings for the whole health economy if the provider can strip out capacity and costs. That means reducing provider capacity in volumes that allow real reductions in staff and other costs.

Careful planning in an integrated way across acute and community providers may mean we are able to redeploy staff at other points in the pathway, but however this is managed, the current economic climate means that costs must come out somewhere.

Not that we shouldn't pursue these important improvements. Of course we should – there is no choice in the current financial climate, and we should always be driving quality and wellbeing improvements. But we need to ensure we do not work in isolation with each organisation focusing on just its own targets.

Instead we must work as whole health and care economies, understanding the total impact our plans will have on each other. This is particularly challenging when commissioning is going through such radical structure and people changes, as mature relationships are critical to successful joint working.

There is enthusiasm among GPs and clinical colleagues to make a difference and real potential for their involvement in commissioning to deliver significant benefits for patients and taxpayers. More prevention, better pathways for patients, reduced reliance on hospital care – these are realistic goals. But current and future commissioners need to understand the wider consequences of decisions around individual services.

Cathy Kennedy is chair of the HFMA Commissioning Finance Group and chief financial officer at the shadow North East Lincolnshire Commissioning Consortium.

The Healthcare Finance Management Association (HFMA) is the representative body for finance staff working in healthcare. Download the HFMA's free finance briefings for GPs at