Governance in the NHS: Accounting & Business

The right governance structures are essential to achieve high performance outcomes and to prevent money being mis-spent.  That has been demonstrated repeatedly by infamous corporate failures in the private sector – but the same principles apply equally in the public sector.


Nowhere is this more true than in the NHS, which for the last two decades has been going through an often gradual but sometimes very fast transformation.  It is moving from a centralised monolithic service to a more responsive system that delivers personalised services. 


The change in government has brought with it a dramatic acceleration in the speed of reform, with the need, now, to achieve more from the same resources.  While the Labour administration improved health outcomes and reduced waiting times for treatment, it did so without improving NHS productivity. 


Now, though, the emphasis is on achieving more for the same resources.  And new health secretary Andrew Lansley is a man in a hurry to transform the NHS into a network of autonomous bodies, which respond to the needs of patients, away from the command-and-control system.


But these structural reforms change much more than the arrangements for face-to-face service delivery.  They also raise questions about whether organisations that historically have been driven centrally can be quickly converted into independent bodies with appropriate and effective corporate governance arrangements. 


The structural reform is certainly far reaching.  Strategic health authorities are to be abolished, as are primary care trusts.  The instruments of centralised control will be abandoned – including most performance targets.  Competition and defined minimum service standards are to be the mechanisms driving service improvement and cost cutting.  In place of PCTs, consortia of GPs will commission treatments.


Providers will, over time, become not so much a part of the NHS, but more suppliers to it.  All health trusts, other than PCTs, become foundation trusts, all of which will be regarded as independent social enterprises, competing for business.  They may be allowed to raise money privately, free from public spending and public borrowing constraints.


Trusts will become more independent, but they will still be regulated (though perhaps in a less hands-on way).  Monitor, the regulator of foundation trusts, becomes an economic regulator, overseeing competition between provider trusts, regulating prices and safeguarding service continuity.  An NHS Commissioning Board is to be established to drive improved health outcomes and better use of resources.


With this wide-ranging change to the healthcare structure come new challenges to corporate governance.  Freedoms bring new dangers – as has been recognised by the Government with temporary increases in central control, while the new structures bed down.  There is also the risk that organisational leaders will focus on managing change, rather than managing services and service improvement. 


There can be no doubt that instilling high quality corporate governance into these new arrangements is central to improving health outcomes and productivity.  Getting improved performance from the new structures “completely hinges” on the corporate governance arrangements that are used and their effectiveness, says John Appleby, chief economist at the King’s Fund.  “It also hinges on the proposed NHS [Commissioning] Board to discharge its duty,” he adds.


Appleby argues that the NHS Modernisation Agency has previously driven service improvements, especially in bringing down waiting times.  Yet it has been abolished and lessons from that experience may now be difficult to apply.  With a more decentralized and devolved NHS going forward, the tensions between desired outcomes and actual practice could become greater, Appleby suggests. 


“As the system is more fragmented, how do you get organizations down there to do good things?”, Appleby asks.  “They need good information and so on.”  It will have to be those devolved NHS bodies themselves – including the new and untested GP commissioning consortia – that ensure they perform at an optimum level.  “I don’t think giving money to GPs is enough to make sure it’s going to happen,” warns Appleby. 


Anxiety about corporate governance in the NHS is not new.  Julia Rudrum is Assistant Director of Assurance at NHS Brighton and Hove PCT and also a member of the ACCA Health Service Network Panel and its Corporate Governance and Risk Management Committee.  She has just completed her third year report as part of a review on corporate governance arrangements in the NHS as part of a joint research project by ACCA in collaboration with the Department of Health.


Corporate governance standards in the NHS are “still variable” says Rudrum, despite the increased focus on this in recent years.  “I think that one of the things that come through in the report is that while they [boards and committees] think they understand [good corporate governance practice], it doesn’t always turn out [that they do, when assessed] in independent measures.    There may be a lack of understanding about what is really needed.”


In recent years trusts have been under enormous pressure to correct financial deficits, but this focus may have been at the expense of improving clinical practices and outcomes.  Other than with financial management, corporate governance has not improved over the three years of the study, concludes the Rudrum review. 


Yet there is a recognition from the King’s Fund and others that improving productivity and health outcomes rely, more than anything, on spreading best clinical practice across the whole NHS.  The risk is that in a more devolved, less centrally driven NHS, this is less likely to happen.  “I think it will make things more difficult in the sense the people will focus on local issues,” suggests Rudrum. 


It is clear, though, that the old central NHS model is being consigned to history.  “We are moving to the point where the NHS is a brand, with a plethora of providers and services,” says Rudrum.   The biggest uncertainty within that brave new world is with the corporate governance for GP commissioning.  “GPs are independent contractors who are not part of the NHS and they are not used to the corporate governance arrangements that come with spending £80bn of public money,” points out Rudrum.


Both Rudrum and Appleby worry about the white paper’s lack of clarity about two big, inter-related issues: raising productivity and the new corporate governance arrangements.   “There was virtually no reference to productivity at all in the white paper,” says Appleby.  There was a similar void regarding corporate governance oversight of the new structures.  Is Rudrum anxious about this.  Her reply is clear.  “Absolutely!  Yes!”




Key findings from ACCA/Department of Health report


·        Board members of NHS bodies must recognize need for good governance and take their corporate governance responsibilities seriously.

·        Board members are generally more content with their corporate governance arrangements than are external studies – which report worrying levels of non-compliance with good practice.

·        NEDs should play an important role in corporate governance, but may have insufficient time to fulfill their role properly.

·        Board members see their corporate governance roles as exercising control, rather than direction.

·        Understanding corporate governance is usually based on Cadbury, rather than NHS guidance.

·        Focus on financial performance has increased, but otherwise corporate governance practices have remained consistent across three years of study.

·        Boards prefer guidance to checklists.

·        NHS Foundation Trust Code of Governance is an improvement on previous NHS guidance.




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