HEALTH MATTERSAutumn 2016

CONTENTS

INTRODUCTION 3

NEW MODELS OF CARE 4

BRIDGING THE GAP BETWEEN CONTRACT AWARD AND BUSINESS AS USUAL 7

IMPROVEMENT AND SAVINGS – TEMPORARY STAFFING 10

THE CHANGING ROLE OF THE FINANCE FUNCTION 13

WHISTLEBLOWING – THE IMPORTANCE OF GETTING IT RIGHT, FIRST TIME, EVERY TIME 16

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INTRODUCTION

Welcome to RSM’s Autumn edition of its quarterly Health Matters publication. The NHS is now half way through the financial year and its financial pressures continue. Recent weeks have seen public announcements of significant deterioration in financial positions of a number of providers and commissioners, and this is before we get into the key period for delivery of most cost improvement plans which in our experience have historically under delivered.

The next three months offer some key deadlines for the NHS in looking to provide medium and long term solutions. October sees the submission of STP strategic plans and December finalised two year organisational level operational plans. Whilst both plans are interlinked and cover much more than just finances, the importance of delivering both organisational and local system control totals is made fundamentally clear.

In this edition of Health Matters we have looked to provide RSM’s thoughts on a number of key areas to support the financial challenges the NHS faces, including articles on:

• the importance of get the most from your procurement teams;

• our thoughts on dealing with the constant temporary staffing pressure;

• the importance of tax planning in any new models of care; and

• a case study highlighting the work we have done with Kings College Hospital NHS Foundation Trust to develop their finance team to meet the challenges the Trust is now facing.

I hope you find the contents of this edition of Health Matters of interest. As always please do contact me or your usual RSM contact if you would like to discuss any of the matters raised in this edition. Alternatively, if you’re planning to attend the NHS Providers conference in November come along to our stand where we will be delighted to talk through the wider services RSM can offer.

Best wishes

Tim Merritt Head of Healthcare

NEW MODELS OF CARETax controls and identifying new saving areasVanguards and Sustainability and Transformation plans (‘STPs’) are helping to promote working across organisational boundaries to build consensus for the transformation, redesign and delivery of community healthcare.

However, the recent collapse of the £750M UnitingCare Partnership (‘UCP’) contract was a high profile event, with parliament commenting that they are astonished that a project approved by Monitor, the NHS strategic projects team and NHS England all failed to identify any potential VAT problems.

As a brief background, UCP was set-up as a consortium between Cambridgeshire and Peterborough NHS Foundation Trust plus Cambridge University Hospitals NHS Foundation Trust and, following an open bidding process, was the awarded provider of older people’s healthcare and adult community services.

A failure to account for unplanned VAT costs was a significant contributor to the contract’s early demise and inquiries commissioned by both the NAO and NHS England have now provided detailed analysis of shortcomings and offered a number of sensible recommendations for other new models of care being planned across the NHS.

So what are the lessons learnt and could these inhibit other co-design and joint working projects that are being progressed?New legal entities can often be created by the NHS, local authorities and other providers for reasons of risk, to pool resources or simply to provide more cohesiveness for better co-ordinated care. The subtleties of legal partnerships and the principles of agency are important areas and ones that can easily be overlooked, creating risk, potential negative publicity or reputational damage for the board. For example, whilst a legal agreement might assert that there is no partnership intention, formal status can still be assessable by the actual working conduct of the parties involved.

The UCP model (at a late stage in the procurement process) intentionally created an LLP in between the CCG and both NHS providers. This ultimately altered the tax status of the commissioning funds and the NHS provider’s business status. UCP, as a non NHS body, was also excluded from benefiting from VAT refunds enjoyed by the consortium members. The failure to factor these into their financial forecasts was, ultimately, a significant oversight.

The new models of care programme has significant merits to it and the ‘VAT inefficient’ UCP scenario may well have been avoided had better controls been in place.

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On the flip side, it is also possible that VAT efficiencies could be made by organisations working together especially when you consider the very different VAT regimes that apply across the various partners involved in our public care service delivery. For example, GPs and GP Alliances generally have minimal to no VAT recovery, an NHS body reclaims a proportion of their VAT whereas local authorities often benefit from full VAT recovery.

As fingers have now been burnt will VAT efficient models still be considered and driven forward? We think so. As the NHS is under external pressure to make saving after saving, we are still seeing both NHS Trusts and contractors push the boundaries on what is acceptable. Often, clinical or procurement leads are left to negotiate contracts without fully understanding the risks they could be exposing the Trust to should tax assumptions not be taken seriously enough or if they are not correctly quantified.

Ensuring there’s a rounded understanding of these factors should never be underestimated and is a topic the board should periodically visit. Given the sums involved, all flows of funds and financials should be scrutinised and their correctness challenged before commitment. This is easier said than done when you consider the significant pressures on NHS personnel to effect immediate change and hesitancy for engaging professional advice.

However, during this period of significant change and arguably one of outright experimentation, if we are to avoid more multi-million pound failures let us take one positive step forward and put in place stronger controls and ownership; this may just help avoid the NHS taking multiple steps backward.

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Questions to consider

Do you have a tax strategy policy?

Is it in-line with your organisational policy?

Are your finance executives sufficiently involved in the set-up of new care models?

Do you consider all the various taxes from the outset?

What process map is followed against large commissions or engagements?

Does this involve comment on the tax impact (whether neutral, positive or negative)?

Is tax included in your audit plan and measured against your tax strategy?

How often are independent appraisals required?

Who is your senior accounting officer?

Do they sign off major operational contracts including an assessment on the tax impact?

Does your Cost Improvement Programme include VAT saving projects?

Does procurement understand the VAT benefits/costs when procuring different forms of contracts?

Are tax savings/costs being measured in your organisation?

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MIND THE GAP!Bridging the gap between contract award and business as usualLord Carter’s efficiency review of 2014 identified that the NHS would be able to make a total of £5bn savings per annum in the years leading up to 2020/2021 if a number of steps were taken to improve efficiencies across England and Wales.

With increased pressures on NHS Trusts to deliver, procurement functions are under more scrutiny than ever to translate buying and sourcing activity into real and sustainable benefits.

Some of the challenges faced within public procurement in the NHS are clear and long-standing. Things are not getting simpler or easier; good procurement people are scarce, time and money is tight and procurement officers have to compete for the attention of equally stretched stakeholders. This means that most of the benefits identified at the procurement stage may not be fully realised further down the line simply because the resources needed to make this happen are not available. In addition, procurement staff are under pressure to move on to the next exercise making it difficult to focus on the work required to realise the benefits identified during the procurement stage. To further compound this problem, the sole focus of some finance and procurement departments on delivering against Cost Improvement Plan Savings (‘CIPs’) targets has somewhat blurred the vision of some procurement departments and executives within the NHS. This has sometimes perversely led to sub-optimal outcomes, ultimately unsustainable results and unrealised or diminished benefits. There seems to be a gap in the crucial period post contract award and prior to business as usual which needs to be filled if organisations are fully to realise benefits.

The very resources that the NHS needs to achieve and maintain their CIP targets and other objectives against the Carter review are the resources that it desperately lacks. This calls for a more creative and innovative approach if departments are to achieve lasting success against their objectives.

Notably, in our experience, the Trusts that deliver the sustainable outcomes are those that are able to focus their resources on this gap between the contract award and business as usual stages.

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Joined up working- Avoiding the collaboration gap Good procurement functions are able to interrogate the market for value for money solutions. However, these are not always readily adopted by business managers, contract managers and clinicians because of gaps in collaboration. The achievement of lasting success requires time and a joint effort from all the relevant stakeholders from the outset. The Carter report reinforces this sentiment by stating that; ‘we have learnt from our conversations with Trusts that close engagement and collaboration are essential and that this supportive approach needs to be maintained'.

We have identified the following three simple investments that can lead to improvements in bridging this gap:

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Keep key resources close- Filling the resource gap It is important to keep the same team that were involved in the delivery of the initial procurement exercise and use them to embed the change as these are the people that know the requirements inside out. They are very often the super users and voices of other users and they usually have the power and influence, as well as understanding to manage and mitigate issues and risks that may arise at the early stages of implementation. They are also likely to be in a position to undertake the granular work required at the user end to ensure that users adopt the new or changed product or service.

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Introduce good governance- bridging the accountability gap Trusts should consider appointing a Senior Responsible Officer (SRO) for key categories of spend so that there is good governance around procurement and accountability between procurement functions and their stakeholders to ensure benefits are realised. Governance should be informed by high level plans for sourcing and procurement. This would further strengthen accountability and improve communication which can contribute to achieving sustainable improvements in procurement.

How we can help?As organisations seek to meet the challenges around procurement promoted by Carter both by looking at current capabilities and outsourcing opportunities, this is the right time to undertake a review of the Procurement Function effectiveness to determine what may be required to ‘bridge the gap’ and help release the savings not previously reached.

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IMPROVEMENT AND SAVINGS – TEMPORARY STAFFING

Recent instruction from NHS Improvement Chief Executive Jim Mackey has focused the NHS’ attention on reducing temporary and agency staffing and consolidating services, many of which are traditionally back office. The NHS now faces a challenging time to bring about change, improve staff utilisation, increase retention and shift from a reliance on bank or agency.

So what are the issues that create ‘high’ temporary staffing in hospital?

1 Recruitment

• While there are many different reasons for the use of temporary staffing, one of the most common ones is that there just is not the supply of permanent staff out there. ie it’s an issue of supply and demand, and often the demand exceeds the supply.

• The question then has to be asked: At a time when jobs in the UK have been at a premium, why are so many people choosing to work as a temporary employee through an agency rather than as an employee?

Retention

• Hospitals are the training ground for health professionals, as there is only so much you can learn in the classroom or lecture theatre. This will always be the case as people retire and move on, and is the natural order of all organisations worldwide. However some hospitals seem to do more than their fair share of training as they train staff who then move on to get a job somewhere else or become locums or temps.

• Sometimes the wages are just better with your neighbours (especially if you live on the border of the London weighting zone).

• For some the job as permanent employee is too hard or comes with too much pressure, which is one of the reasons why many nurses approaching retirement choose temporary work as a more flexible option.

• For some temping is simply easier and more flexible for their lifestyle, making it easier to have that important home and work life balance.

Funding (and timings)

• Short term initiatives and uncertainty of length of funds for specific projects – mean organisations are risk averse to taking on permanent staffing.

• Temporary staff brought in by the Trust to help deliver one off change or improvement initiatives.

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Quality – ‘throwing staff at it’

• Poor CQC ratings or KEOGH or waiting lists or… you name it there is always an issue, now or just around the corner that extra resource will help solve (sadly this usually comes with a cost that can’t always be recovered). Then when things improve, costs and temp staffing are reduced … until the next issue and so on.

Custom and practice for staff management

• More common than you think one of the answers is ‘that’s the way we always do it’ when it comes to planning staffing levels, rostering and balancing out holidays and rotas.

• Temporary staff have been around for so long that they are like permanent staff members anyway.

Demographics / age / brain drain

• Simply put, some places are just more appealing to work than others:

• an out of town run down building away from any facilities or a nice new hospital site where there are lots of thing going on;

• the commute; or

• the dread ‘parking’ situation at some hospitals.

The reality is that for each hospital, it will be a combination of these and other factors that drive the high levels temporary staffing.

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So what can you do?Option A has often been the ostrich approach – hospital staff sticking their head in the sand and waiting, until the issue goes away or money is available. Unfortunately it does not look like extra funds are arriving soon. So Trusts have to tackle this one head on.

However there is light at the end of the tunnel and there are several things that can be done to improve the situation; there is no one size fits all magic wand to fixing this, but some of the areas to look at are highlighted below:

1 Tackling Entrenched behaviours

• Trust wide – one approach across the Trust

• Clinical areas and wards – diving into the problem areas individually

Procurement and third party relationships

• Contracts – taking a commercial and operational look at how temporary staff are procured (after all this is like any other purchase with opportunities to consolidate and drive down costs both locally and through national initiatives)

Staff

• Retention – looking at why people join in the first place, why they leave, and working to make being a permanent employee the best options. Working with other Trusts in the area to take a more global approach to staffing, and so remove some of the reasons to move elsewhere.

• Temporary staffing governance and control – Looking at setting up capacity planning across all areas where there is high usage of temporary staff, implementing a governance structure to drive down costs and improve staffing quality.

• Recruitment – working on the roles and levels needed, including taking a non-traditional view of what type of staff are needed where and matching this more closely to what is available in the market. Add to this there are lots of qualified staff across the EU and countries further afield that see the UK health sector as an appealing market, notwithstanding Brexit.

Clinical quality

• Service improvement – the improvement in service often drives out the inefficiencies and therefore the need for higher staffing level

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At a time of stretched capacity it can be difficult both to see what needs to be done and to implement change. Consideration should be given to a diagnostic, investigating the issues above and providing a clear signpost based on internal data and available benchmarks as to where the best opportunities may lie to reduce temporary staffing costs without jeopardising safety.

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THE CHANGING ROLE OF THE FINANCE FUNCTIONTrusts are faced with ever increasing financial challenges and consequent demands being placed on their finance departments with pressures emanating both internally and externally. Delivering the traditional transactional processing service alone is no longer sufficient, but transformational improvement to deliver faster, more insightful management information and decision support while simultaneously reducing costs in line with the national drive to reduce back office function costs has been a struggle. To achieve this objective, efficiency and effectiveness improvements must succeed together.

Approach to transformational improvementThe starting point of transformation improvement commences with a review and assessment of current practices. Achieving this is accomplished by:

1. conducting a time activity analysis of finance resources;

2. surveying internal stakeholders, capturing their view on both the ‘As-is’ state and the desired ‘To-be’ state of services delivered by finance; and

3. facilitating process workshops to fully understand the ‘As-is’ state pain points that exist in the current Finance Operating Model. A review of a Finance Operating Model covers the below six specific areas.

• People

• Technology enablement

• Organisation

• Financial close, consolidation and reporting

• Transactional processes

• Compliance

Key considerations – 10 questions to ask yourself

• Is the cost of the Finance Function greater than 1 per cent of Trust turnover?

• Does transactional processing account for more than 30 per cent of resource time?

• Is the IT landscape fragmented, comprising multiple and out of date non-integrated IT systems?

• Is there heavy reliance on spreadsheets and manual data manipulation?

• Is there a proliferation of paper based documentation and physical approvals?

• Are there variations in the ways of working, driving non standardised processes between departments and within teams?

• Is management information not available until more than 8-10 days after month end?

• Is management information insightful and forward looking providing clear signposting of decision making actions?

• Is management information appropriately detailed and flexible to meet user needs both internally and externally?

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CASE STUDY - KINGS COLLEGE HOSPITAL

Kings College Hospital (KCH) with an annual income of over £1bn continues to face significant financial challenges. The Trust has been under significant scrutiny from the Regulator, with particular emphasis on the financial performance. As a result, the Trust restructured the operational management of the Trust with significant implications on the back office functions including finance. The finance department had received criticism from external and internal sources and whilst it was clear that there were very capable individuals within the department a high proportion of transactional non-value adding work was impeding the team from delivering a world class service to the Trust. Working with RSM’s Finance Consulting team a fundamental root and branch review of the department operating model was undertaken.

The review commenced with assessing the perceptions from internal stakeholders in receipt of finance services delivered by the department. This entailed issuing a questionnaire which sought to understand the ‘As-is’ state and the desired ‘To-be’ state. The outcome from this clearly showed that stakeholders wanted more transformational support and improvements in reporting whilst maintaining the department’s perceived leanness.

To achieve the dual objective of releasing finance department resource for transformational support and maintaining current investment levels it was important for the department to consider what it currently did and how/where it adds value. The team mapped the current resources against current activities to understand the current resource drivers. This identified that 75 per cent of the current resource was spending time undertaking transactional activities and therefore if the department was to deliver stakeholders’ needs, this type of activity needed to be reduced significantly to release resource to improve the value delivered by the department. Through facilitated workshops with process

staff at all levels, the team mapped the core transactional processes end-to-end as well as the systems landscape, capturing current inefficiency and ineffectiveness pain points which were driving the resource demands.

Against each pain point, the team produced a prioritised and time bound improvements roadmap to enable the Trust to deliver its ‘To-be’ state Finance Operating Model. Proposed recommendations were used to design clear, standardised ‘To-be’ state process blueprints for Purchase to Pay, Order to Cash and the month end close processes. A reconfigured department structure was also proposed to improve span of control. The reconfiguration also included the creation of a centralised business partnering sub department with resource aligned to the restructured divisions of the Trust as well as external requirements.

Finally, the team presented a statement of system functionality requirements to drive efficiency and governance benefits to the Trust.

Reallocation of resource time from

transactional processing to more productive value

add analysis and business partnering decision support while eliminating excessive

hours being worked.

1Delivery of flash

reporting on day three and final budget statements /

finance pack presentation on day five, outperforming the

NHS benchmark.

2Standardised flexible

reporting meeting the needs of users and

providing forward looking insightful management

information for informed decision making.

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Overall benefits from the review

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WHISTLEBLOWING – THE IMPORTANCE OF GETTING IT RIGHT, FIRST TIME, EVERY TIME

Whistleblowing has been under the spotlight in recent years following the Francis Report, which led to a number of recommendations, in part to seek improvements to organisational culture, support for those who raise concerns and a reminder for organisations to review their own procedures to ensure they are known, accessible and operating effectively.

So why do organisations still sometimes get it wrong?Well, there are several factors relevant to this point, not typically because of intentional failure to follow policy, but often down to:

• lack of understanding of the processes in handling information;

• lack of understanding of the importance in maintaining confidentiality; and

• failing to meet obligations placed upon management within organisations to identify and investigate whistleblowing independently and on a timely basis.

Examining each point enables a better understanding of where the symptoms often arise from, with some key lessons to take note of so you can ensure that your systems are robust.

Lack of understanding in handling informationPart of the challenge that organisations face, is not just identifying cases which fall under the whistleblowing procedure, but also in identifying what can be a disclosure which covers many aspects, such as complaints or grievances entwined with a potential disclosure. Part of the skill required is to assess the referral, identify swiftly whether it is a disclosure under the procedure, or something that should be dealt with under another internal procedure, such as a grievance procedure or similar. These are two distinct processes, and often we see matters being progressed as whistleblowing which are not appropriate for this process.

It is important to communicate where possible, with the referrer (if known) to advise them of your receipt of the referral and the procedure that it will be progressed under. Remember, it is for the investigation to determine the terms of reference for any investigation and not for the referrer to dictate the terms or the basis of an investigation proceeding. It is important to establish these parameters at the outset, to manage expectations.

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Lack of understanding of the importance of maintaining confidentialityThis can be a big hurdle to get over, as many individuals may not wish to report concerns unless they are treated in a supportive manner, where their confidentiality is respected. Line Managers in particular are an important element whereby they may be the recipient of such information initially, where it is necessary that they understand the importance of handling information in confidence and not exposing the referrer to any possible detriment.

Under the Public Interest Disclosure Act 1998 (PIDA) there are several factors which organisations must be alert to which place a legal duty upon them to comply with. One of these focusses around the protection afforded to whistle-blowers if they have made a qualifying and protected disclosure. Whist this article does not go into detail on what constitutes a qualifying and protected disclosure, the Act is very clear in that employees are protected from suffering any detriment on the grounds of having made a protected disclosure. This includes dismissal, if a protected disclosure is the reason for dismissal. Getting this wrong can be very costly, as compensation payable at tribunal is uncapped. This is in addition to the reputational damage and harm to your culture that would follow as a result.

Failing to meet obligations placed upon management within organisations to identify and investigate whistleblowing independently and on a timely basis To inspire confidence in a process, it is important that referrals are investigated as quickly, but thoroughly as possible. Acknowledging and thanking the referrer (where possible) allows engagement and reassures the referrer that they are being taken seriously and the matter is being looked into. Whilst it is a simple thing and promises as to updates or outcome may not be provided, a simple thank you and acknowledgement of the referral can be reassuring to a person, especially when they may have had to pluck up the courage to refer the matter in the first place.

We see that matters often become contentious or difficult with referrers when there is no action taken or things do not appear to be taken seriously or treated with priority. I have a certain level of sympathy as these matters typically get passed to a manager, often within another department or site to investigate, on top of the day job when they may have had very little, or any investigative training on dealing with such matters, or what techniques to use. It is then where things can start to spiral, a loss of confidence in the process or a belief that matters are not being taken seriously can lead to difficult relationships developing and a widespread disillusionment in the process across the organisation. The consequences of this one incident can be far reaching if handled incorrectly.

Handling whistleblowing effectively is a specialist skill, which is something that you only have to get wrong once to diminish staff confidence in management; despite the level of work you may have done to develop your procedures. It could also cost you financially and impact negatively on your reputation.

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Culture – Do you assess the culture in your organisation?

• Engage with your workforce by using anonymous secure surveys or mailboxes to seek feedback to inform your view.

Review – Does your Board review the level of incidents? Do you get none?

• Consider whether this is down to inadequate reporting procedures and as such matters are not being flagged up.

Reporting accessibility and responsiveness - Are your reporting mechanisms clear and accessible? Where a response is required do they respond swiftly?

• Consider whether you communicate the different reporting lines clearly and triangulate what is received, to ensure that incidents don’t get reported through incorrect channels or missed altogether.

Professionalism and skills – Do your staff have a clear understanding of how to deal with whistleblowing?

• Provide training so they have the tools to do this effectively, including handling information securely, escalation procedures and investigative techniques.

Strategic position – Do you have a whistleblowing champion in your organisation, who fully understands the regime as the point of contact for advice and guidance?

• This person should be suitably senior with access to the board with a degree of independence, to issue a positive message as to the stance that you take in tackling these matters.

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5 key areas to consider

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CONTRIBUTORS:Tim MerrittHead of HealthcareT +44 (0)1908 687 800 tim.merritt@rsmuk.com

Nick AtkinsonInternal Audit PartnerT +44 (0)7730 300 307 nick.atkinson@rsmuk.com

Pelle Langli Consulting Partner T +44 (0)7703 539 130 pelle.langli@rsmuk.com

Scott HarwoodTax Director T +44 (0)7855 846 419 scott.harwood@rsmuk.com

David FoleyFraud Risk Services DirectorT +44 (0)7721 977 523 david.foley@rsmuk.com

Steve Uttley Associate DirectorT +44 (0)7800 617 223 steve.uttley@rsmuk.com

Patricia NwekeManaging Consultant – Procurement and Contracts Advisory T +44 (0)7737 638 514 patricia.nweke@rsmuk.com