DEFINING FINANCIAL MANAGEMENT - Ireland's Health …

[Pages:155]DEFINING FINANCIAL MANAGEMENT

A Finance Operating Model for Health in Ireland

30 August 2013 FINAL REPORT

CONFIDENTIAL ? between PA and The Health Service Executive

PA Regional Office: PA Consulting Group 2nd Floor, Embassy House Herbert Park Lane Ballsbridge Dublin 4 Tel: +353 1 6684346 Fax: +353 1 6681771

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CONFIDENTIAL ? between PA and The Health Service Executive

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EXECUTIVE SUMMARY

The new Finance Operating Model for Health in Ireland will support far reaching and fundamental change in financial management practice and will be an important enabler of wider Systems Reform. Underpinned by a single integrated financial management system and a mandated financial management framework, these changes will ensure financial stability within a reformed health system and will drive a culture of collective responsibility and cost consciousness.

This report recommends a new Operating Model for Finance and seeks approval to progress with Phase 2 of the Finance Reform programme as outlined in the Implementation Strategy with immediate effect.

The future sustainability of healthcare funding remains a key Government priority

The economic crisis has had a profound impact on public services in Ireland. The Government's efforts to manage public expenditure in line with commitments made to the Troika has seen budget reductions in Health of 3.3bn (22%) since 2008.

Staffing levels have reduced by over 11,268 WTEs since the peak employment levels in September 2007. Health services continue to experience very significant budgetary challenges alongside increased demands for services.

Budget overspends during 2012 prompted external reviews into financial management practices in Health, and managing Health finances became a priority for the Troika in ensuring the future economic stability of the country.

The Programme for Government will drive significant changes to the way health services are managed and delivered to ensure:

A public health service that is leaner, more efficient and better integrated to deliver maximum value for money and respond to public needs; and

Continuity of service delivery in the context of significantly reduced staff numbers.

In November 2012, the Minister for Health published Future Health: A Strategic Framework for Reform of the Health Service 2012 ? 2015), outlining the main healthcare reforms that will be introduced in the coming years as key building blocks for the introduction of Universal Health Insurance in 2016.

Future Health seeks to support innovative models of care delivery and in particular integrated care pathways. All this must be achieved under the most stringent fiscal constraints experienced for decades and cognisant of health trends and drivers of change such as:

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 Demographic change; New medical technologies, health informatics and telemedicine; Rising expectations and demands; and Spiralling costs of healthcare provision. Health services in Ireland face the dual challenge of reducing costs whilst

improving outcomes for patients. In these circumstances the need for strong, effective financial management is of paramount importance.

There is a clear consensus for the need for change

The review of current financial management arrangements secured consensus amongst the finance community that the current operating model is no longer fit for purpose. There are three distinct drivers for change in the financial management practices within the health system in Ireland, and these are considered below:

The current operating model is no longer fit for purpose

Reports by Ogden and PA during 2012 identified significant weaknesses in financial management practices.

We have worked closely with the finance community to understand current ways of working and have found many examples of good practice, achieved in spite of variations in processes, multiple financial systems and limited engagement with the voluntary sector.

However it was clear that current practice was not fit for purpose and is characterised by:

Inconsistency in the level and standards of service provided to different customer groups across the system;

The extent of financial management activity being supported by teams with no direct accountability or responsibility to the CFO;

The extent of process variation, inconsistent data definitions and multiple finance systems in place inhibit the ability of staff involved in decision support and compliance to make best use of their skills and expertise;

Effectiveness of decision support being compromised by time spent validating and manipulating data to meet information requirements of customers;

A lack of shared ownership of transaction processes ? finance, HR and procurement results in duplication and inconsistency in processes and a lack of integration;

Significant under-investment in technology which has compromised the ability of finance to improve current working practices;

Weak accountability for actions and recognition that financial management is a corporate responsibility undermines the controlling role of finance; and

A lack of investment in training and development of both finance staff and budget holders to ensure that they discharge their financial management responsibilities effectively.

The current financial management framework does not support the CFO's responsibilities and accountabilities

The Health Service Executive (Governance) Act, 2013 strengthens the accountability arrangements between the HSE and the Government. The role of CFO was introduced to support these new accountability arrangements.

The CFO's appointment sends a clear statement of intent to stakeholders that steps will be taken to improve confidence in financial management practices and to achieve greater financial control.

The CFO has accountability for financial management across the entire health system. To discharge that accountability the CFO must ensure that the financial management framework enables him to deliver against all four facets of his role:

Stewardship and accountability: ensuring the compliance framework is in place to provide a true and fair view, that builds trust in the financial information provided;

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 Financial Management: ensuring practices across the system inform decision making, promote probity and value for money and a culture of cost consciousness and continuous improvement;

Corporate Leadership: as a Board member providing strategic direction, effective corporate governance and building strong relationships; and

Professional Leadership: driving professional standards, leading the profession and building capability across the system.

The current operating model does not provide the CFO with the adequate tools to discharge this responsibility.

The fundamental changes in healthcare heralded by Future Health bring new requirements which current practices cannot support

The long term changes in Ireland's health system, as described in Future Health have significant implications for finance.

The introduction of Money Follows the Patient (MFTP) and ultimately Universal Health Insurance (UHI) will fundamentally change the financing system requiring:

The creation of new organisational entities to support commissioning, tariff setting, pricing & payment and service regulation;

A fundamental change in the relationship between the Department of Health, these new organisational entities and Health and Social Care Providers (HSCPs);

A change in culture and behaviour amongst HSCPs particularly in financial management, so that they understand the cost of service provision by procedure, and have the ability to operate effectively in a commissioning environment which defines services to be provided and the payment streams for these services, and

The development of a new relationship between the Insurance sector in Ireland and the Health system together with a supporting infrastructure to underpin the mechanics of UHI.

Whilst finance has traditionally found innovative solutions to new requirements, the consensus reached is that the current operating model cannot effectively respond to these changes. The success of health reform is fundamentally dependent on having a transformed approach to Financial Management.

The scope and scale of change required presents a significant challenge to the system

It is important to recognise the flexibility, professionalism and commitment of the finance team in the way that they work within current structural and systems constraints to support financial management across the system.

Phase 1 of the Finance Reform Programme has made a significant impact in tackling specific challenges in service planning, budgeting and costcontainment, and it should also be recognised that this added to the workload of an already stretched finance team. There is tangible evidence of change fatigue in the system which will potentially impact on the pace of change.

The challenge facing the HSE is how best transform financial management during a period of unprecedented change across the healthcare system.

There is a need to build on what has been achieved in recent months and to deliver an approach to financial management that secures medium term stability and cost containment while allowing sufficient flexibility to support the reforms under the vision for Future Health.

Critical to success will be:

Demonstrating intent and ability to deliver; Securing timely approvals for any investment; Addressing workforce issues effectively; and Resourcing the programme properly using key finance staff and external

support where required.

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A new operating model for Finance will drive real change over an extended period

This report defines a new Finance Operating model for Health in Ireland, which addresses the challenges of current financial management practice, and is capable of meeting the future needs of a dynamic and complex health environment.

This will fundamentally transform finance from being a reactive, disjointed, reporting function into a proactive, coherent decision support capability, adding value at all levels of the business at a significantly reduced cost.

The model builds on leading practice principles to ensure the CFO's responsibilities and accountabilities for financial management are delivered, and the desired changes in behaviours amongst both finance staff and budget holders drive the improvements in financial management practices required. The CFO will:

Define the financial management framework to be followed ; Provide trusted and timely information to support decision making, in a

standard and consistent way Inform strategic and operational decision making through trusted

professional advice, insightful analysis and decision support; and Ensure expected standards are maintained through effective compliance

and performance management.

The model is underpinned by a commitment to develop the financial management capability of both finance staff and budget holders to build a cost-consciousness culture and change behaviours across the system.

A service delivery model reflecting leading practice

Finance will provide a consistent and appropriate level of service to all users reflecting user requirements and focused on improving the quality of financial management and enabling informed decision making.

This will be achieved through a service delivery model comprising three distinct components as illustrated in the figure below:

Operations Excellence: the `finance engine room' which will ensure that the infrastructure is in place to deliver financial reporting and transaction processing effectively and efficiently;

Finance Specialists: deep technical skills and expertise providing a single point of contact for expert advice; and

Business Partners: supporting financial management decision making and promoting a culture of financial responsibility across the system by working closely with the business at a strategic, national and operational level.

Process, Governance and Controls to demonstrate effective financial management practices

The CFO will define the financial management framework which is mandated across the health system. This will define the process, governance and controls required to demonstrate effective financial management practice

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In practice that means:

Processes are standardised, simplified and automated wherever possible Clear line of sight from a national consolidated position to a functional

business unit level is possible for all areas of expenditure Controls and rules are embedded within systems and guidance on their

application is available in a user friendly format online Governance and controls are mandated The CFO owns all end to end financial management processes

Information systems providing trusted management information

We recognise that technology is a key enabler of change and the successful implementation of the new model is dependent on technology.

In practice that means:

A single financial management system supporting HR, Procurement and Finance processes will be deployed across the health system

A national system to support patient level costing and tariff pricing Information and data governance to be owned by CFO A single version of the truth Trust in data Information to be collected once and used many times with financial

reporting and data analytics being delivered in a standardised, consistent way to all users through Operations Excellence

A commitment has been made to introduce new financial systems for Health within the Memorandum of Understanding between Government and the Troika. Our plan to implement a new operating model for Finance provides the means to deliver against this commitment.

Developing the Skills and Capabilities of all our people

The necessary changes in financial management practice rely upon changes in behaviours from those involved across the system.

There is a requirement to invest significantly in building skills and capabilities to support these changes. In practice this means: Skills and capabilities mandated for key finance roles Continued Professional Development (CPD) compulsory for all finance

professionals CFO "head of profession" to improve standards and quality of financial

advice Learning and development for both finance professionals and non-

financial managers to be recommended and supported by CFO.

The model will be supported by a high level organisational structure as follows:

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An incremental approach to change

The future operating model for Finance is only achievable if the following components are in place:

A single financial management system providing line of sight and supporting embedded controls, standardised processes and facilitating effective self-service principles;

Trusted financial management information which supports effective decision making; and

Budget holders who are supported in undertaking their financial management responsibilities and appropriate performance management arrangements which reward good practices and provide sanction where appropriate

The Finance Reform Programme will deliver these components over time, but is a need to change the structures and operating model for Finance to support the system during this transition period. This will support the delivery of the Finance Reform programme whilst ensuring that systems of financial control remain robust and effective during transition.

This is particularly important given:

Many commissioned reports, including the C & AG Audit show that the current financial systems are not fit for purpose;

The recent establishment of `National Directors' and the immediate necessity to prepare financial systems to support their requirements; and

The overall transition, in the next few months, from the current reporting structures and the need for continuity of financial reporting through this change, while ensuring financial integrity.

The diagram below illustrates the implementation strategy.

Step 1: Interim Structure

An interim structure will be introduced from 1 October 2013 for a period of 6-9 months. This will enable the CFO signal to the system that changes are underway, and will allow the Finance Specialist and Operational Excellence functions to be established. It will also support the consolidation of regional finance operations into two units as an initial step towards Business Partnering. The move to Step 2 can take place when the following conditions are in place: ISA review outcome is known; Interim BI reporting solution in place; New system requirements defined; and The future role of Shared Services is confirmed.

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