This chapter examines the starting point for any future efficiency challenge. It describes whether trust leaders believe there is waste in the system and how confident they are that they can maintain or accelerate their current performance on efficiency. It also describes the main current measures for reporting efficiency CIPs and implied provider productivity. It explores the rise in non-recurrent savings, and the difference between efficiencies that release cash and those that do not. It also briefly reviews the current NHS provider sector efficiency approach.
Trust leaders' confidence in realising efficiencies
Trusts acknowledge that there is waste in the NHS (figure 1) but they are strikingly lacking in confidence (figure 2) that they can eliminate it or continue to tackle it at the rate delivered to date.
Our survey suggests the reasons for this potential paradox are that trust leaders believe:
- there is no such thing as a system without waste and the NHS already compares favourably with other systems internationally
- the most easily realisable savings have largely been made and continuing to identify further efficiency gains is becoming increasingly difficult
- the current degree of day-to-day operational pressure in trusts is limiting management bandwidth for other initiatives, including realising efficiency savings
- trusts do not have access to the resource required to deliver the complex transformation needed to improve efficiency for the medium to long term
- there is a danger of too great a national focus on short-term savings being generated within single organisations, potentially diverting attention away from system transformation that trusts believe would now yield the largest, long-term, efficiency benefit.
Figure 1 demonstrates that trust leaders can still see waste in the NHS – however the comments attached to this part of the survey show that they also believe the NHS compares well with other systems internationally. This is consistent with a 2017 study published by the Institute for Fiscal Studies which found that the NHS performed well on length of stay, administration spend and drugs costs (Institute for Fiscal Studies, 2018).
Trusts acknowledge that there is waste in the NHS but they are strikingly lacking in confidence that they can eliminate it or continue to tackle it at the rate delivered to date.
Nearly three quarters of trust leaders surveyed agreed or strongly agreed that the NHS wastes too much money through inefficiency, while around half agreed or strongly agreed that their own trust is too inefficient. The fact that more respondents acknowledged waste in the NHS overall than in their own organisation suggests that trusts believe that reforming local system working now represents a greater opportunity for efficiency gains than cost reductions or productivity gains within a single organisation. This is explored in more detail in chapters 2, 3 and 4.
Figure 1
"International studies show the NHS is one of the most efficient health systems in the world. I think improvements can be made but it is overstated."
Operations director, combined acute and community trust
"There is room for further efficiency, however there is also a tremendous amount of work done as a result of the goodwill of staff. If this were included, the NHS would be highly efficient on any benchmark."
Chief executive, mental health and community trust
"There is always room for improvement and much scope for increased efficiency comes from the systems that we [are] operating, the regulatory burden we are under and the need to maintain a wide range of performance metrics rather than a focussed view. There is scope to release time to care but requires a brave look at competition, contracting, performance measurement procurement and regulation, as well as a rigorous focus on value and productivity within teams."
Chief executive, combined mental health and community trust
"I think the inefficiency is strongly linked to capacity and any business would be inefficient if it is running at over 100% occupancy so efficiencies cannot be addressed without addressing urgent and emergency care."
Finance director, acute trust
However, figure two demonstrates that 61% of respondents were 'not confident' or 'not at all confident' that their trust can increase its rate of efficiency savings in the next five years.
Only 15% are 'confident' that their trust will enter the next financial year in a better position than it began this year – 48% were not confident. Meanwhile, 59% 'disagree' or 'strongly disagree' that they have delivered efficiency savings at a rate they can safely continue. Our survey also found that almost two thirds were 'not confident' or 'not at all confident' that their trust will be set a reasonable efficiency target in the next five years.
Figure 2
In interviews, finance directors from all sectors consistently told us that they think the easy wins have been exhausted and the savings available to them now are harder to realise than they were three or four years ago. They described a task that gets incrementally more difficult each year.
Although trusts have so far sustained their performance on delivering efficiency savings, past achievements do not guarantee future success. It is also concerning that respondents from some solvent, high-performing trusts felt that 2018/19 would be the first year where meeting efficiency targets does not look achievable.
In their comments, survey respondents suggested that their low confidence levels stemmed from unrealistic expectations set by the national bodies:
"Although there are efficiencies to be gained, the requirements centrally are far in excess of this."
Divisional director, acute specialist trust
"The overall ask will not be reasonable due to a mismatch between resources and expectations/demand."
Finance director, acute trust
Although trusts have so far sustained their performance on delivering efficiency savings, past achievements do not guarantee future success.
Trusts also told us that their existing CIP requirements would be unsustainable in the future, as they had exhausted many of their options:
"The trust has delivered 4% efficiency annually for the last seven years. The ability to deliver this recurrently in 2019/20 is not going to be possible."
Chief executive, mental health/learning disability trust
"We are one of the few Trusts to make financial targets consistently for the last six years, but now running out of ideas of how we can take 5% every year out"
Chief operating officer, combined acute and community trust
"We are being increasingly driven from the top, with block contracts for acute work, multiple regulators pulling in different directions, and demand not being met in the community. This will make delivery of efficiency savings required very difficult."
Strategy/transformation director, acute trust
Respondents also cited the current uncertain context within which they are working as a major challenge to their trust making further efficiency savings. This context included workforce pressures, projected increase in demand, increasing acuity, changes to payment mechanisms and uncertainty over Brexit.
Trusts did not feel that the NHS would have the capacity to continue making efficiency improvements at the current rate because the resource available to make improvements – management time and the investment of staff time in new ways of working – is finite, and is increasingly committed to efforts to improve performance and quality of care in the face of a relentless growth in demand.
One trust leader told us that staff were exhausted by change, which is exacerbating issues with retention, and will in turn increase costs and reduce performance overall. Another said a plan to implement a new electronic patient record system would probably divert attention from schemes that could save money quickly, even though it would improve how the trust operated in the long term. These are just two examples of the frontline operational trade offs trust leaders must make in order to balance efficiency requirements with other imperatives.
Respondents also cited the current uncertain context within which they are working as a major challenge to their trust making further efficiency savings. This context included workforce pressures, projected increase in demand, increasing acuity, changes to payment mechanisms and uncertainty over Brexit.
Taken together, this demonstrates the scale of the task facing national leaders as they draw up the long-term plan. There is a clear risk that the difference between the money available and the understandable aspiration for improvements will result in an efficiency requirement that the service does not believe can be delivered.
CIPs, efficiency and productivity – what do they all mean?
The debate around efficiency in the NHS is clouded by a lack of clarity in the terminology commonly used. NHS Improvement’s quarterly reports include details on two measures: "implied provider productivity" and "cost improvement programmes (CIPs)".
The implied provider productivity measure is calculated by reviewing the annual change in provider costs, adjusted for inflation, and then comparing these with the change in provider outputs. It is a pure productivity measure, which does not take quality of care or operational performance into account. It therefore does not measure increases in value, which may be increased by an improvement in quality for no extra cost. For 2017/18 the implied productivity measure was a 1.2 % gain.
CIPs are individual trusts’ efficiency targets, which are reported to NHS Improvement and aggregated up to give a national figure. The efficiency targets are set at the beginning of the financial year based on the projected income for each trust, set against expected costs. Trusts must reduce costs, contain expected cost growth or demonstrate productivity improvements to calculate their CIP. For 2017/18, trusts overall made CIP savings of 3.7%, against a plan of 4.3%. This is an average figure – as the comments quoted above make clear, many trusts’ targets will be 5% or more.
Trusts must reduce costs, contain expected cost growth or demonstrate productivity improvements to calculate their CIP. For 2017/18 trusts overall made CIP savings of 3.7%, against a plan of 4.3%.
There are problems with using CIP as a metric for comparing efficiency between organisations. While CIPs are reported centrally, there is no consistency from one trust to another about how they are calculated or what is included in them. For example, a trust may deliver an increase in productivity for a particular service for low marginal cost, which will reduce the average unit cost of each episode of care. While this does not release any cash, some trusts include the reduced unit costs in their CIPs, while others do not. CIPs also include non-recurrent savings, which may release funding in-year but do not represent genuine sustainable efficiency. Many trusts have also used income gains, for example by increasing their elective surgery activity, to contribute to their CIP savings targets.
Non-recurrent savings
The percentage of trust CIPs being delivered via one-off, or 'non-recurrent' savings has been steadily rising in recent years. In 2015/16 non-recurrent schemes represented 23% of total savings, but by 2017/18 this had risen to 26% (NHS Improvement, 2018). There are two main drivers for this: the growing gulf between the efficiency gains trusts can make and what they are being asked to deliver and the control totals regime potentially penalising trusts that do not hit their surplus/deficit targets. Trust leaders tell us that the latter factor has rewarded them for making short-term and what, in some cases, they describe as "desperate" savings.
Non-recurrent savings can encompass any measure that improves a trust’s in-year financial position, but which do not fundamentally change the cost of running the organisation and cannot necessarily be repeated in subsequent years. These might involve land sales, holding vacancies open and delaying maintenance work. They may also include technical adjustments, such as revaluing estates or changing the way annual leave is accounted for.
Figure 3
Figure 3 demonstrates that, of finance directors who responded to our survey, 39% said they would have to rely more on non-recurrent savings to hit their cost improvement plan targets this year. Just 24% expected a lower rate of non r-current savings compared to last year.
However, this rising reliance on one-off measures cannot be sustained indefinitely. As the finance director of one high performing acute trust put it: "We are rapidly running out of family silver to sell".
Cash releasing savings
We asked finance directors roughly what percentage of efficiency savings they could consistently make every year which would release cash or resource that could be reinvested in services.
There was a range of responses to this question. Some were optimistic in their response and suggested that 100% of these efficiency savings could fund additional services, whereas 45% of respondents felt that these efficiency savings would release no additional resource to be spent on services. The average (mean) percentage given by finance director respondents was 29% and the median was 10%.
Although waste exists in the system, trust leaders have told us that efficiencies cannot continue to be delivered at their current rate in the way they have been in the past (figure 2). There is an increasing reliance on non-recurrent savings and many CIPs do not release cash. For example, a trust may make excellent productivity gains and be able to treat more people per day. These gains may count towards a trust’s CIP, but will not reduce its costs or release cash, because it will still be employing the same number of staff and running the same facilities.
Although waste exists in the system, trust leaders have told us that efficiencies cannot continue to be delivered at their current rate in the way they have been in the past.
Similarly, a trust may move its back office staff into cheaper accommodation offsite. This may allow an office area to be converted into a ward and therefore increase inpatient capacity more cheaply than if it had to be built from scratch. Again, such an intervention, while valuable, does not release resource to be spent elsewhere in the way that closing the back office function entirely and ceasing to employ its staff would have done. This is especially true for services where there is unmet need. Mental health trusts particularly tell us when they make their services run more efficiently, it can only ever enable them to reach more people – not take costs out or free up resource to be used elsewhere.
It can therefore simultaneously be true that the NHS is performing impressively on improving efficiency, and that this is not freeing up much resource to accommodate new demand or improve the service offer.
Current approach to provider sector efficiency
The NHS planning process sets an annual provider sector efficiency assumption. This is then reflected in the tariff which determines the prices acute providers are paid for different treatments and procedures and the underlying uplift to the block contracts prevalent in the mental health and community provider sectors.
The danger of a national efficiency assumption historically is that it has been treated as the "balancing item" against the overall financial allocation for the service. Given that annual NHS funding increases since 2010 have mostly been significantly lower than the increases in demand and costs, this has led to very stretching efficiency targets for the provider sector.
The danger of a national efficiency assumption historically is that it has been treated as the "balancing item" against the overall financial allocation for the service.
Different efficiencies will be available to different trusts – responsibility for identifying and delivering these lies with the trust board. One of the limitations of a blanket, tariff-driven approach is that it does not take into account vital factors such as the differences between local systems, whether a trust is in difficulty or not, whether there are structural problems in its local system that are beyond its control, whether it needs investment, or how easily it can make the savings required to break even or record a surplus.
NHS Improvement’s operational productivity team helpfully aims to identify where inefficiency sits in the system and provides benchmarking data to the provider sector. This is done through national programmes such as: Lord Carter’s operational productivity work, GIRFT and Model Hospital. These initiatives arm trusts with information and data, however, this by itself does not guarantee that inefficiency can be eliminated.
The next three chapters address the main approaches that may be taken to generate further savings. Efficiency initiatives can release more than one type of productivity gain however we have aimed to organise the material against the primary driver of efficiency: cost reductions, productivity improvement and system change.