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The NHS Is Currently Engaged in a Significant Effort to Deliver Cost and Efficiency Gains - Assignment Example

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This assignment "Availability of Information to NHS From Costing, Budgeting and Accounting" focuses on the National Health Service that provides medical facilities to the patients from whom it is funded. The achievement of this objective is dependent on defining the value of money…
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The NHS Is Currently Engaged in a Significant Effort to Deliver Cost and Efficiency Gains
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AVAILABILITY OF INFORMATION TO NHS FROM COSTING, BUDGETING AND ACCOUNTING FOR EFFICIENCY GENERATION INTRODUCTION The objective of the National HealthService is to provide medical facilities to the patients from whom it is funded. The achievement of this objective is dependent on defining the value for money by generating maximum possible benefit from the available resources. Value for money is most effectively achieved by striking the right balance between economy, efficiency and effectiveness. In a further detailed way, the value for money available to any organization and so NHS is to achieve the equilibrium among the three dimensional activities. First, managing the lowest cost possible for expenditures, second, optimal productivity and third, successful outcome is derived with the effective employment of resources available (AOMRC, 2009). The spending of UK in the health care system is considerably less than many other countries as depicted from the given below image: (Dredge, n.d.) With these spending, the rate of mortality in UK as compared to other countries still have considerable room for improvement as can be seen from the given comparative trend of the countries: (Dredge, n.d.) CURRENT POSITIONS OF NHS AND CHALLENGES AHEAD As a matter of fact, though there has been consistent growth in the NHS spending, the growth has declined significantly as from the second half of first decade of this century from 7.2% to 2.7% since the first half of the second decade. Additionally, the limited growth of the spending when discounted with the GDP deflator, it reveals that growth of NHS has only been 0.1% over the three years period. NHS England estimates that if the same trend continues, the gap of funding will expand to £30bn by 2020 (Monitor, 2013). The trend of resource available and cost projected for the years to come is as follows: (NHS England, 2013) NHS also has realization of the issue and has called people including politician, staff of NHS and other related and relevant people for generating recommendations in order to achieve the better performance and improved health care. The improvement in the health care system is not only mandatory for the increasing challenges that are ready to raise head in the near future but also to ensure the financial sustainability of the system (NHS England, 2013). Efficiency measures taken by the NHS is expected to generate £20 billion by 2015. Hence, meeting the rising gap requires that greater efficiencies are generated in the process mainly in terms of effective financial measurement. According to Monitor, an independent agency, NHS requires to take measures of efficiency which are able to generated 6.5% to 7.5% of savings which is higher than the efficiency requirement estimates of NHS to be 5% to 6% (Dredge, n.d.). Moreover, there has been consistent debate that funding for NHS has increased considerably; however, the systems of NHS are not generating efficiencies as requires. At this point it is important to understand that measures to integrate the efficiency measures are dependent on the fact that process provides evident information about areas where performance can be improved. This paper assesses the costing, budgeting and reporting of financials aspects in terms of providing information of improvement. METHODS OF COSTING, BUDGETING AND ACCOUNTING IN NATIONAL HEALTH SERVICES The efficiency generation in any organization is more dependent on the level of coordination between the activities and those who conduct activities than mere implementation of the new processes. NHS has taken different measures for generating efficiencies across the board. For example, introduction of Payment by Results (PbR) which implies that hospital and other providers under NHS will receive payment for the activity they conduct rather than receiving commissions for block agreements. This new system has three core benefits; first, patients will have authority to make choice of treatment location and making selection on the basis of the performance of the hospital. Second, PbR will press the commissioner to put greater emphasis on the quality of performance as they will be receiving fixed prices. Third change is implemented for the providers who will be given incentives to increase the efficiency for achieving the targeted tariff rates (Jarvis and Barker, 2013b). With these objectives at work to generate efficiency, PbR was also aimed at integrating transparency, fairness and rewards (Jarvis and Barker, 2013a). Development at NHS is considered to be driven by the efficiency requirement and not only to overcome the challenges of finance, according to one view (Rumbold, Alakeson and Smith, 2012). Effectiveness of all these implies that NHS is available with the information in order to duly assess the performance of the measures taken to deliver cost and efficiency gain. However, there has been consistent debate on the efficiency performance of NHS (CIMA, 2005). The role of information is extensively emphasized in the modern world organizations irrespective of the industry. Information collected from varied sources provides organization ability to exploit the potential opportunities of improvement and further growth. In addition to this, information is also critical in identifying the areas of weakness which in turn enables the business or organization to focus on the progressing on lacking areas. For the accurate information, the organizations are available with two sources of information. These two sources include external and internal information providers. Internal processes carry significant insights about the valuable information available from the implemented procedures for generating efficiencies. NHS has been constantly evaluating its procedure for making improvement. The costing at NHS is based on functions which are defined as Cost Centres such as Ward, Theatre, finance etc. The Full absorption costing is employed for the direct cost. The indirect cost is allocated on the basis of the Cost pools and Cost drivers. Further, NHS requires provider to give reference cost for the development of PbR National tariff. For effectiveness of such process of costing, the patients’ notes presented in the accurate manner play a significantly crucial role. Moreover, any error in Coding eventually results in loss to NHS or commissioner. As noted correct information of patients is critical, however, shortcoming of PbR affects the ability of NHS in generating efficiency which has the potential be highlighted by information. For instance, PbR’s facilitation for the patients for making their own choice of location is based on the system process. Therefore, the patients may end up making choice of a location not in total alignment with the patient’s preference. Such selection of the locations by patient will wrongly refer the service providers as best. As a result of this, the efforts of NHS will wrongly divert to certain patient care service providers for improvement while ignoring the real points where improvement is required. PbR induces commissioner to make selection based on fixed prices. These prices have greater inclination towards the gain for supplier. Hence, the commissioner may also end up selecting the code that is best fit with certain compromises due to fixed prices. This in turn also hides the issues faced by commissioners in finding the strategic fit that has best price and quality which will otherwise be presented in negotiations. Finally, the claimed benefit of PbR to provider is also having negative impact on the information generation. Providers do totally different set of activities and with this system providers keep on raising concerns for the fixed price issues. This issue leads them to discontinue the development out of information, hence, negatively impacts the innovation. The information for the efficiency potential is generated from the trends and preferences; therefore, these limitation result in developing trends that does not actually reflect the pattern by the claimed beneficiaries of PbR (Jarvis and Barker, 2013a). The budgeting process by the NHS has evolved over a period of time. As compared to the system of incremental budgeting the new system employed is the zero based budgeting. Though zero based budgeting has overcome the shortcomings of incremental budgeting but it does not also facilitates the required level of information for generating efficiency. For instance, zero-based budget is developed from scratch with all new assumptions. Importantly, this was also the shortcoming of previous method. Furthermore, the zero based budget is developed with all new assumption which in turn affects NHS’s ability to develop the trend of performance on horizontal as well as vertical level. Also, it does not provide any information about the changes across the term in the preference of the organization over the term since base year. For example, earlier years the preference of hospitals was to overcome polio disease while in the current point in time the preference of the hospitals is to deal effectively with cancers as well as moving hospitals from mere centre of cure for illness to centre for health well being. Therefore, all these affect the information generation for developing the plan of improvement for National Health Services. In addition to this, these mere systematic budgets do not appear to involve the stakeholders to the full. Stakeholders’ management is considered as one of the most critical process for an organization to achieve growth targets and competitive edge (NHS, n.d.). Stakeholders’ management is the process of involving all the stakeholders having stake in the organization in designing the future strategic direction of the business. Stakeholders of NHS include parliament, funding agencies, regulatory authorities and more importantly the value drivers in the value chain. Information from stakeholders such as patients provides the organization with the preference in term of quality, service and other related matter between the hospital and the patient. The stakeholders which are value drivers such as doctors and clinicians etc provide information about the future mode of demand; hence, enabling the organization to prepare itself to effective align for meeting the demand of future successfully. Further, stakeholder’s information in the short term is also important for the process of identifying potential deficiencies on way towards the completion of budget year. For example, AOMRC (2009) in a report stated that doctors shall also have understanding about the financial matter of the hospital. According to the report this is important not only for the organization but the doctor him/herself for the career growth. The report also cited the case of 2gether NHS Foundation Trust which is a mental health and learning disability services centre redesigned its system. The change was totally led by clinicians in coordination with the finance team. As a result of the redesigning activity, the centre generated £1.2 million which was approximately eight percent of the budget originally required for the purpose. Hence, the information that be generated directed from the stakeholders is required to given a considerable attention for the efficiency generation. The reporting requires that financial statements are presented in a manner that is comparable, easy to understand, carry all relevant information and have high level of reliability. In NHS, the reporting of the financial information is done on the monthly basis. Also functions’ based reporting is done which is then consolidated for the cost centre. The financial reporting of the organization has evolved significantly which requires the organization to incorporate greater amount of information. It also makes the forecast for the future while creating assessment of variances across the months. For example, the given below financial forecast provides the some important information: (AOMRC, 2009) The above reporting of variance assessment as taken from audit commission provides information that General Ward has overall underutilized the funds in all aspects except the other staff recharges. Moreover, this trend is reflected across the two times-lines (month and year to date). This information alarms the bells and in turn requires organization to explore the factors that is causing overspending in the referred particular dimension while all other heads are spending less. Hence, such information will help the organization either to catch the overspending in particular time while reassessing the requirement of budget. As a matter of fact, organizations in every industry are dependent on the information from processes of the organization. Higher the coordination in activities across the broad with effective information system, greater will be the insights generated for improving efficiency. Effective systems that provide more details about the components driving revenue and cost, greater will be chance for the organization to improve. For instance, Patient-Level Information and Costing Systems (PLICS) that is employed in certain trusts has developed interesting information from one trust’s data analysis. The analysis of the Patient-level cost reported significant variation in the income and cost in the group of HRG and consultant teams. The analysis revealed the greater the number of consultants providing treatment (per HRG), the variation in cost will increase in return. Hence, this in turn provided an opportunity to identify the cases that caused increase in cost as compared to the tariff price. Hence, without patient level costing that is giving details at increasing level, information of such cases would not be evident for further effort of efficiency generation (Blunt and Bardsley, 2012). Further, information reflection pattern of one component such as costing provides the opportunity to align the other interconnected process towards the system that provides more information. In addition to the information from internal sources, the costing, budgeting and reporting process of the public organization remain under constant scrutiny from other organizations. NHS being the public organization is assessed by range of agencies for its systems. For example, assessment of NHS measures is conducted by the regulator, Monitor. For example, Service Line Management was developed for NHS Foundation trust by Monitor. Importantly process implied that organization needs to develop the leadership as well as performance indicators in the areas of the performance as defined in the balance score card under the Service Line Management (SLM) in Derby Hospital (NHS Foundation Trusts) (Monitor, 2009; Foot et al., 2012). Similarly, institutes like CIMA (The Chartered Institute of Management Accountants) also provide constant review for the accuracy of the implemented tools in generating efficiencies. For making such an attempt, these institutes identify the areas where information is incomplete for inculcating a process of improvement. For example, the CIMA is working on the paper for introducing the Target Based Costing in NHS claiming some of the shortcomings of the Payment by Results system. With this recommendation, CIMA claims efficiency of NHS can be improved significantly by transforming the entire system of financial management for using target costing system where activities are unlike current organization of NHS with functional structure (CIMA, 2005). CONCLUSION The assessment of the NHS costing, budgeting and financial reporting has revealed that there is considerable room for improvement in the process of the efficiency generating. The assessment also revealed that lack of information is a problem present in under discussion domain of the NHS. The current assessment has depicted the short comings of the processes in ability to provide detailed information for further efficiency generation. Therefore, it is quite predictable that as NHS moves on towards the better and improved program such as Target Costing that is claimed to be more beneficial for NHS by CIMA (2005), the greater potential of efficiency generation will be identified. List of References AOMRC. (2009). A guide to finance for hospital doctors. London: Audit Commission. Available from http://www.aomrc.org.uk/publications/statements/doc_view/36-a-guide-to-finance-for-hospital-doctors.html [Accessed 24 January 2014] Blunt, I., and Bardsley, M. (2012). The quest for NHS efficiency: use of patient – level costing to increase efficiency in NHS trusts. Available from http://www.nuffieldtrust.org.uk/sites/files/nuffield/120920_use_of_patient-level_costing_full_report.pdf [Accessed 24 January 2014] CIMA. (2005). Target costing in the NHS – reforming the NHS from within. Available from http://www.cimaglobal.com/Documents/ImportedDocuments/ReformingtheNHSfromwithin.pdf [Accessed 24 January 2014] Dredge, B. (n.d.). Afm financing health care slides. Foot, C., Sonola, L., Maybin, J., and Naylor, C. (2012). Service line management: can it improve quality and efficiency? Available from http://www.kingsfund.org.uk/sites/files/kf/service-line-management-quality-efficiency-kings-fund-january2011.pdf [Accessed 24 January 2014] Jarvis, S., and Barker, T. (2013a). Introduction to NHS Finance – part 1. Derby Hospitals NHS. Jarvis, S., and Barker, T. (2013b). Introduction to NHS Finance – part 3: reference costing. Derby Hospitals NHS. Monitor. (2009). Service line management: an overview. Available from http://deardensearchselect.co.uk/files/Monitor_SLM___Overview___Feb_09.pdf [Accessed 24 January 2014] Monitor. (2013). Closing the NHS funding gap: how to get better value health care patients for. Available from http://www.monitor.gov.uk/sites/default/files/publications/ClosingTheGap091013.pdf [Accessed 24 January 2014] NHS England. (2013). The NHS belongs to the people – a call to action. Available from http://www.england.nhs.uk/wp-content/uploads/2013/07/nhs-belongs.pdf [Accessed 24 January 2014] NHS. (n.d.). Becoming a Foundation Trust – what are the Issues for Clinical Commissioning Groups?. Available from https://www.google.com.pk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CCYQFjAA&url=http%3A%2F%2Fwww.england.nhs.uk%2Fwp-content%2Fuploads%2F2012%2F06%2FBecoming-a-Foundation-Trust-What-are-the-issues-for-CCGs.ppt&ei=yM7kUpaPDo-IyQPr0IHAAg&usg=AFQjCNFMTeonArZHn5YCzb4pPmS1bSDLZA&sig2=dfvM-RtJ9UOXcwrUm1AMRQ&bvm=bv.59930103,d.bGQ [Accessed 24 January 2014] Rumbold B, Alakeson V and Smith PC (2012). Rationing Health Care: Is it time to set out more clearly what is funded by the NHS? Nuffield Trust Read More
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