Article Summary
Drawing from a discussion with FORTIS, David Carter, former Director of Finance at Barnet and Chase Farm NHS Trust and former CEO of Bedfordshire Hospitals NHS Foundation Trust, considers why financial performance is often discussed as a problem for the NHS rather than as part of how individual services are managed. He argues that greater visibility into service-level income and costs could help clinical leaders understand the economics of what they run, strengthen accountability and create opportunities to reinvest financial gains, while keeping quality and patient outcomes aligned with financial performance.
Itās almost heretical to talk about making a profit in the NHS
That was how David Carter, former Director of Finance at Barnet and Chase Farm NHS Trust and former CEO of Bedfordshire Hospitals NHS Foundation Trust, describes the discomfort many NHS organisations still have around discussing financial performance and the economics of service delivery, with the perhaps misconception that there is a conflict with the duty of partnership which NHS bodies now operate under. Interestingly, the reluctance persists despite the issue being well established. NHS boards have spent years dealing with financial pressures, efficiency requirements and the consequences of services that are difficult to sustain. Carter’s point is that there remains a resistance to examining the specific ‘economics of individual services’ with the same openness applied to other aspects of performance.
He saw this repeatedly during his NHS career. New ways of delivering care could appear attractive on paper, particularly when they promised to move services closer to patients. Still, the basic economic questions were not always given enough attention.
“When I was with the NHS, my frustration often was people just not looking at it from the economics perspective,” he says, believing that economic viability needs to be considered alongside clinical considerations. The point is that a service that cannot operate efficiently at the required volume and operational efficiency will struggle to maintain access, regardless of how compelling the original proposition might have been.
The debate around community diagnostic centres and, more recently, women’s health hubs, was used as one example during the discussion. The policy ambition is clearly justified, but the absence of real debate about whether these models work from a finance perspective has meant roll-out can be much slower than expected as local systems work through the financial implications. Carter argues that the NHS still needs to ask whether a proposed model can be delivered efficiently enough to last. Often, this means finding the sweet spot: services that are local enough to be accessible and meet patient needs, but large enough to create the economies of scale required for an acceptable level of operational efficiency. He notes,
The question is not whether these services are a good thing; of course, they are. But the question is, do they work for the taxpayer as well as the patient? Can they be made to do work efficiently? Because unless they are a value-for-money operating model, then eventually, they will start to unravel with ultimately poorer outcomes for patients
This is where finance has a more constructive role to play. The role of financial professionals, both nationally and locally, is not to act as a barrier to development but to enable better change. Too often, finance asks, “Can we afford it?” when the equally important question is, “Have we got the model right?” Answering this question is often harder, requiring a deeper understanding of operational realities and financial implications, as well as the acumen to bring the two together.
That means the issue goes beyond balancing the books. Leaders need visibility of which services are financially sustainable and where resources could be used more effectively, allowing them to make informed decisions about delivery, improvement and long-term access.
The pressure to answer those questions is becoming harder to avoid. The King’s Fund has highlighted the difficult choices NHS organisations are making as they try to balance their finances, with leaders reporting growing pressure on services and investment. Put simply, financial sustainability already influences operational decisions, but how clearly do organisations understand the financial position of individual services?
Why NHS service leaders need a clearer financial picture
Carter’s answer is to make the economics of services visible to the people responsible for running them. Rather than viewing financial performance through Trust-wide or divisional accounts, he argues for greater transparency at speciality level, where clinical and operational leaders can understand how their service is performing and where improvement opportunities exist. In his experience, accountability becomes far stronger when leaders can see the financial consequences of decisions within the services they manage.
He recalls introducing service-line pricing and service-level financial reporting after joining Barnet and Chase Farm NHS Trust. The approach was unfamiliar enough to one long-serving member of the finance team that they jokingly described it as “witchcraft”. Carter saw it rather differently: he was simply trying to answer a basic management question by understanding the financial performance of individual services.
The model involved creating profit-and-loss (P&L) accounts at speciality level, recognising that a Trust-wide position can conceal considerable variation beneath the surface. An important question to ask is, “What is the business I am running?” Often, the answer is cardiology, dermatology, trauma and orthopaedics or urology. Yet most Trusts measure accountability and performance at divisional level, where costs, income and activity are absorbed into larger units. That can obscure the financial position of individual specialities and disempower the clinicians who lead them.
For Carter, clinicians are often more interested in financial information than NHS organisations assume. When financial performance is linked directly to a speciality, clinical leaders can engage with it as part of managing and improving the service rather than treating it as a separate finance function. As Carter says,
If youāre the clinical director of urology, you have a genuine interest in knowing whether your service is profitable or not
Service-level P&Ls can also make accountability more practical. Rather than asking only why a Trust is overspending, leaders can investigate which services are driving costs, whether activity is generating the expected income and where changes in the operating model could improve performance.
Payment mechanisms, however, complicate the picture. Carter brings up the move from payment by results towards block contracts, arguing that block contracts can create incentives that work against service improvement. Under payment by results, additional activity generated additional income. Under a block arrangement, taking on more patients can increase costs without increasing revenue, because each additional patient brings a marginal cost without generating additional income. This can make it difficult to direct clinical and operational leaders towards greater efficiency and may even create an incentive to reduce throughput.
Consequently, financial transparency needs to go beyond producing a set of accounts. The information must reach the people who can act on it. For Carter, the objective is tighter financial control and better decision-making. When clinical and operational leaders understand the economics of the services they manage, they are better placed to balance financial sustainability, service performance and patient outcomes.
How NHS financial incentives can support service improvement
Greater visibility creates an opportunity for a second change: connecting financial performance with greater autonomy.
During the discussion, one possibility considered was whether services could have agreed financial targets and retained some of the surplus generated above them for reinvestment. Carter supports the principle. He says “If you meet a profit target, that’s yours to reinvest.”
For a clinical team, this could make financial performance more tangible. Better productivity would no longer simply contribute to an organisation-wide financial position; it could create room for improvements that the team itself values.
In other words, the important concepts here are autonomy and accountability rather than commerciality. Allowing services to reinvest improvements locally could give clinical teams a practical reason to act on financial information and strengthen the connection between responsibility and results.
The approach, however, has limits. A financial target cannot become the sole measure of success in healthcare, and Carter is particularly cautious about linking financial performance directly to individual remuneration. He explains,
In a business, you’ve got one fairly clear objective, which is to make a profit. In the NHS, you’ve got to measure the profit, but more importantly to make sure you haven’t caused harm
Quality and safety therefore must align with financial performance. Improving financial results is only meaningful if patient outcomes and standards of care are maintained. That creates a practical challenge because some specialities have much stronger quality measures than others. A crude incentive system could end up rewarding financial improvement where corresponding clinical measures are difficult to capture. It is to the advantage of the NHS that, unlike in other parts of the world, patients can be reassured that clinicians’ decisions about their care are not influenced by personal financial considerations.
The challenge, then, is to make services more financially successful and create a framework where financial sustainability, quality and accountability reinforce one another. In Carter’s view, better visibility of service-level performance is what makes that conversation possible in the first place and crucially allows the engagement of clinicians in the performance and improvement of their service.
How can NHS leaders use financial information operationally?
Carter’s observations point to a persistent disconnect: Trust-wide figures can obscure the sustainability of individual services, while clinical leaders remain accountable for performance without a clear view of the costs, income and incentives behind it.
Better financial information will not resolve those problems on its own, but it can give leaders a stronger basis for deciding how services should operate. The practical shift is to treat financial information as operational information. Speciality-level P&Ls, appropriate incentives and local reinvestment can connect service-level decisions with financial performance and improvements to care, giving financial management a more constructive role.
For boards, the implication is to look beyond the headline financial position and ask whether the organisation understands the economics of the services underneath it. For clinical leaders, it means treating financial performance as part of service management rather than as an external judgement. For the wider NHS, it means becoming more comfortable with answering the question: is the way we are delivering this service financially sustainable?
