In this age of financial constraints and constant pressures on efficiency saving, a recognised barrier to improving efficiency and control has been financial reporting.
At present very few performance reports adequately reconcile fluctuations in the financial position of Trusts with their activity (and subsequent income). As a result the question has rightly been asked “How does the NHS manage its position at anything other than the macro level?”
Service Line Reporting (SLR) is viewed as an answer to this issue. It has been developed by Monitor for use in Foundation Trusts, but this, almost inevitably, will flow into the wider NHS. Ultimately in commercial terms it is good old fashioned management accounting identifying income and expenditure and then producing gross profit across defined ‘business units’. The ultimate goal is to provide sufficient finance and performance data to enable the management team of each of these units, specifically including clinicians, to improve both quality and productivity. An example of how it can be used, by all NHS Trusts as a powerful management tool, is provided below.
A case Study
An NHS Acute Trust was considering the introduction of ‘Trading Accounts’. The Trading Accounts were to introduce service Line Reporting which would create a contribution target for all clinical areas based on income targets for patient care, the direct costs of the provision of that care and then an evolving range of support service costs that are recharged.
This approach was essential as, for the first time in this Trust (as in many others) clinical staff needed to become engaged in the financial management issues. As part of this all staff needed to understand that budgets are not infinite and that their craving for the ability to manage their own affairs and also meant that they would succeed or fail on the basis of their service. The Trading Accounts were to provide the incentives to attract patients, to capture management data and to size services accordingly.
The key benefit for this Trust (and others) was that Service Level Reporting created incentives for clinical and managerial staff at the ‘coal face’. The key perceived benefit, as already noted above, was that SLR provided up to date (hopefully) information on the performance of defined units to enable local management to manage performance with worthwhile data. This reporting also enables easier access to the reasons behind budget fluctuations.
However, looking to the future, a more radical use should be to enable the organisation to make significant, but informed, decisions as to the future development of specific service lines. The implication of this is that the Trust’s Board will have sufficient data to make decisions not only on new investments and developments but, where necessary, those harder decisions on whether loss making areas need more drastic action!
The benefits & pitfalls
SLR is not, of course, a panacea to cure all ills (no pun intended) and the usefulness of the SLR tool critically depends upon how the results are used. If it becomes the ultimate decision making tool questions will need to be asked about how the income the Trust receives outside of PBR is split between the individual units. This is far from an insurmountable problem but will have to be managed carefully to ensure acceptance of SLR. Certainly this can create frustrations as Trading Accounts do not deliver the ‘promised land’ suggested by an income driven world.
Boards will also have to factor in those non financial issues such as the local needs of the population, the training benefits, etc.
Overall, the benefits of the SLR, in helping Trusts to meet the challenges they currently face, are clear and the need to provide Trusts with timely, accurate and relevant performance data is long overdue.
But, outside of the Foundation Trust environment, do NHS Trusts have the skills, processes and capacity to rise to this challenge in the foreseeable future?