Financial Management of the National Health Service (NHS)

Introduction

This academic paper described a public sector in health care particularly on its financial management. The chosen public sector is the National Health Service (NHS). A description of the sources of funds and expenditures of NHS is provided. Financial decision-making, control and monitoring in public sectors are analysed within the context of this organisation. Specifically, a discussion of financial accountability and budgeting in public sector are explained. At the end of the paper, the tender process and specification for NHS England was provided and a criteria for selection was devised.

The National Health Service (NHS)

The National Health Service (NHS) is a publicly funded organisation that provides health care services to residents of United Kingdom. It was established in 1948 and currently provides a wide array of services including antenatal screening, treatment of chronic diseases, emergency care, transplantations, preventive care and end-of-life care (NHS, 2013). The Washington Commonwealth Fund, this organisation is the best health care system in the world in 2014 (NHS Confederation, 2014).

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With the exception of some prescription, optical and dental services, all health care services by NHS are free for all the 63.2 million residents of United Kingdom (NHS, 2013). Health services being provided are determined by the Secretary of State for Health (England), the Minister for Health and Community Care (Scotland), the Minister for Health and Social Services (Wales) and the Minister for Health, Social Services and Public Safety (Northern Ireland) (Harker, 2012).

Funding

Harker (2012) released vital information on the way the NHS gets its fund. The funds of the NHS are being given by the Department of Health and come from the taxes collected from the people. For 2012/2013, the latest published fund was £108.9 billion (NHS, 2013). An estimated 80% of NHS funds go to the 151 existing Primary Care Trusts and the amount they receive would depend on the serviceable population and their need (Harker, 2012). In addition, the money primary care trusts are getting can be dispensed by commissioning health services from NHS, independent and voluntary sectors they deemed most needed by their local residents (Harker, 2012).

For prescription charging in England, patients pay an amount of £7.20 while Wales, Northern Ireland and Scotland charge none (Harker, 2012). The Department of Health Resource Accounts for 2010/11 estimated that £450 million were raised from prescription charging in England. For dental treatment, on the other hand, the amount being paid by patients cost around £17.50-£209 depending on the dental case in England, £12 to £177 in Wales, up to £384 in Northern Ireland and Scotland (Harker, 2012). The amounts of funds raised were estimated to £614.3 million in England and £27.3 million in Wales for 2009/10 (Harker, 2012). Other sources of funds would overseas patient charging, treatment of private patients and hospital parking and telephone use fees (Harker, 2012). The funding and expenditures of the NHS per year is made known to public through the government’s annual reports.

NHS Public Accountability

Maybin et al (2011: 7) defined accountability as the “relationship involving answerability, an obligation to report, to give account of, actions and non-actions”. Primary care trusts who are the main recipient of most of the NHS funds and the commissioners of health services are held accountable in terms of: 1) management by the strategic health authority and the Secretary of State for Health; 2) regulation on the quality of commissioning by the Care Quality Commission; 3) scrutiny for financial management and disbursement of resources by the Audit Commission, local overview and scrutiny committees, non-executive directors of the boards and patient and public representatives of local involvement networks (Maybin et al, 2011). In the future, commissioners will likewise be held accountable by the new national NHS Commissioning Board, standing rules of the Secretary of State, Monitor, new health and well-being boards, local HealthWatch, and the National Audit Office’s consolidated annual accounts (Maybin et al, 2011).

The NHS Trust are accountable to primary care trusts, Care Quality Commission, local involvement networks, Audit commission, local overview and scrutiny committees, and externally appointed non-executive directors of the boards (Maybin et al, 2011). For the NHS Foundation Trust are likewise monitored the same as that of NHS Trust with the addition of the governor and Monitor (Maybin et al, 2011). In addition, independent sector providers are held accountable only by the primary care trusts, Care Quality Commission and local involvement networks (Maybin et al, 2011).

Financial Control and Monitoring

Good financial control and monitoring are keys to effective financial management in the health care sector (Cichon, 1999). A formal management control system includes the following processes: 1) programming, 2) budgeting, 3) operating measurement, 4) reporting and evaluation, and 5) feedback and correction (Finkler et al, 2007). Programming involves selecting the programmes that the organisation wants to engage at in the future (Finkler et al, 2007). Control of the future programmes will ensure that adding these to current programmes can meet the mission, vision and objectives of the organisation. Next is setting the budget. The budget is used to compare the budgeted amount with the actual amounts used by the organisation in a fiscal year and would mainly tell if the organisation has met its targeted operating and financial performance (McLean, 2002). Moreover, the management must be able to produce reports of its operating finances for evaluation, feedback and correction (Finkler et al, 2011).

In the NHS, the chief executive is the one responsible for the organisational finances and he/she is held answerable to the Permanent Secretary or the Chief Executive of NHS (Audit Commission, 2004). Meanwhile, the director of finance is tasked to ensure that all practises and procedures related to the organisation’s finances are sound and in place (Audit Commission, 2004).

The Audit Commission (2004) explicitly suggests way to improve financial management especially in controlling and monitoring. The first step is financial planning. A financial plan should be able to project the revenue and the capital needed in a particular period of time while placing consideration on possible shifts in capital spending. NHS bodies are suggested to consider extra investments that can improve the services such as spending for technology and research. In the long run, these may lessen capital costs and provide more revenues. After the financial planning, the budget must be set and prepared to ensure proper allocation. The budget must be created consistent with the vision, mission, goals and objectives of the organisation. In NHS, a combination of zero-based budgeting and incremental budgeting are being used. In zero-budgeting, the organisation starts from none while in incremental budgeting, the budgets are carried forward and adjusted yearly. Budget reporting and monitoring comes next wherein the budget is reported to budgetholders especially the variances so that corrective actions can be applied. Board reporting comes next wherein financial information is relayed to NHS boards so that they can take corrective actions as early as possible whenever necessary. Financial reports are also produced as part of the statutory obligation of NHS bodies. Through financial reports produced annually, the NHS is able to inform the public where their taxes for health go. Treasury management, on the other hand, ensures the sufficiency of cash through receipt and payment management, borrowings and investments, and cashflow monitoring. The Department of Health sets the amount of cash expenditures that NHS bodies are allowed to spend. The NHS also implements system for financial control to ensure public accountability. This is signified by the chief executive’s annual statement on internal control. Lastly, the NHS must ensure value for money by fostering learning, transparency and openness in using new resources.

Financial Information and Decision Making

Decision-making is a process of selecting course of actions from a pool of actions that may be feasible or applicable (Cleverly et al, 2010). In terms of finances, the management must be able to utilise financial information in aid of decision-making. The information must then be accurate, timely and relevant in order to arrive at an effective and high quality decisions (Cleverly et al, 2010). For example, a financial forecast of a new technology serves as the information for the NHS. Based on the forecast, the decision question now is to whether the new technology must be purchased or not. Supposing that the decision was to purchase the technology and the result was significant earnings for the NHS, then the financial information was successfully utilised to aid in making the right decision. Khan and Jain (2007) suggests that to arrive at financial decisions, the finance manage must be able to determine sources of short-term and long-term financing and their alternatives at a given point in time. In the case of the NHS for example, short-term financing could be the dental charges from patients while long-term financing would be the tax funds coming from the government. Supposing that there is a shortage of funds for the coming fiscal year, the finance manager must ask what could be a good source of readily available short-term and long-term financing at the moment to meet the first quarter needs.

Tender Process and Documentation

The tender process may be used by organisations which need a particular service (Oakley, 2008). The organisation is expected to release a tender specification which provides the details of the type of services they need, volume of work, locations and costs (Oakley, 2008). In the NHS, there are five stages in the tender process namely: 1) assessing sustainability; 2) submission of the pre-qualification questionnaire; 3) invitation to tender; 4) final interview and presentation; and 5) contract award (Royal College of Nursing, 2005). Assessing sustainability includes performing pre-tender checks, finding a tender notice, obtaining a copy of the tender and evaluating it, providing an expression of interest and completing subsequent forms (Royal College of Nursing, 2005). The next step would be to submit the pre-qualification questionnaire which is then decided by the Commissioner. Once the Commissioner gave a favourable decision, an invitation to tender will be issued to which a response would be needed for final evaluation of the Commissioner (Royal College of Nursing, 2005). A final interview will be conducted together with the Commissioner and a positive response would end with the awarding of the contract (Royal College of Nursing, 2005).

Based on the NHS process, tender criteria have been devised (Morledge and Smith, 2013; Ward, 2008). The scoring will be based on organisation details (10%), workforce information (10%) , financial standing (10%), relevant experience and technical ability (15%) , health and safety (15%) , insurances (5%) , references (5%), quality assurance (15%), equal opportunity declaration (5%), and evidence of registration with the regulatory bodies (5%) (Royal College of Nursing, 2005). A corresponding score will be given which range from 0=failed to 5= very high standard. The score will be multiplied with the percentages per item to get the weighted score. The weighted score will be totaled. The total weighted score will serve as basis for ranking (Ward, 2008).

Summary and Conclusion

They say that the health of the people reflects the richness of a nation. Health care is a fundamental right and a public concern. Thus, a public organisation such as NHS must be able to exercise effective financial management, control and decision-making so that more citizens can be given the right quality care that they pledged to provide for free. Since most of the funding of the NHS come from the money of the people, accountability must be observed by those in-charge of handling the organisational finances. A system of check and balance through transparency in financial auditing and reports and vigilance of the public are necessary in ensuring that the people’s money are spent rightly on where it is needed the most.

In public sectors, the tender process is usually applied in evaluating and selecting suitable suppliers. Before one can enter into public contracts, the tender process is usually observed as a means to determine the quality of the services being procured by the government. It also ensures that every purchase has clean documentation and has gone through a thorough process of screening. For public organisations, the tender process is usually followed since the money being allocated are in huge amounts and most of all from the people who pay their taxes.