Health finances – like landing a jumbo jet on a postage stamp?

It has often been said that Health Boards in Wales find living within their annual budget allocation a bit like trying to land a jumbo jet on a postage stamp. And there is some truth in this.

Take last year’s health board accounts for example. Some of them have annual budgets well in excess of £1 billion but, by year-end, were showing expenditure for the year at just £50k less than their Resource Limit.

Steering such a narrow course every year, and often relying on additional funding injections from the Welsh Government each winter, has inevitably led to some bad behaviours and spending decisions within the sector.

Both the Auditor General and the Public Accounts Committee have issued highly critical reports in recent years, identifying deep-seated concerns about the financial health of NHS Wales.

But some of the problems identified have actually been caused by a financial regime unsuitable for large health bodies delivering a complex range of services and facing rising demand and public expectations.

That’s why the NHS Finance (Wales) Act 2014 was passed in January this year – to move away from this perennial problem. Health Boards will now no longer have to balance their books over a one-year period. Instead, they will work to a three-year planning cycle designed to provide greater flexibility and encouraging longer-term planning and decision-making. Or, at least, that’s the hope.

The changes come into effect next month and, while I strongly support the principles behind the Act, as an auditor it’s not surprising that I also urge some caution. The new three-year integrated plans need to be properly thought-through, stress-tested and challenged to avoid the risk of past bad behaviours simply being carried forward into the new era.

It was good to see this being recognised this week at a Policy Forum for Wales event in Cardiff, where I was asked to speak as part of a panel discussing budgets, accountability and the impact of the new legislation. There were many delegates from across the health and social care sectors there to explore the challenges and opportunities being faced.

I stressed the need for Boards to take genuine ownership of their plans, especially the Medium Term Financial Plan. And the Welsh Government, which has the statutory duty under the new Act to formally approve those plans, has to both require and enable real depth and rigour from the Boards.

I also urged the health boards not to fall into the trap of deferring difficult decisions or postponing necessary actions until the third year of the new planning cycle.

With new financial freedoms comes the obligation to demonstrate maturity and to exercise good stewardship. Otherwise, we risk seeing the problems of the existing annual financial regime – including the need for ‘bail-outs’ – being replicated within a three-year timeframe.

And, with the space and time afforded by the new Act, there is also a need to conclude those difficult discussions on how the health sector can best change to deliver high quality patient services in a sustainable way.

With a longer runway on which to land now, there will be little excuse for pilot error.

The full transcript of my speech is available here

About the Author:

Mike Usher photoMike Usher is a member of the Wales Audit Office’s senior leadership team and is our Sector Lead for Health & Central Government.  He has over 25 years’ experience in public sector external audit.

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