Financial management

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Chapter: Hospital pharmacy : Managing services

The total annual budget for a hospital trust will vary greatly depending on the size of the organisation. About 70% of a trust’s expenditure will be taken up in staff costs.


Financial management

 

The total annual budget for a hospital trust will vary greatly depending on the size of the organisation. About 70% of a trust’s expenditure will be taken up in staff costs. Medicines expenditure will account for about 15–50% of the remaining non-staff expenditure depending upon the nature of the services provided (for example, the provision of human immunodeficiency virus services can increase the proportion of medicine costs). Not surprisingly, managing and controlling medicines expenditure is often given high priority by hospital management teams; Chapter 11 addresses this issue.

 

Trust managers will expect the chief pharmacist to take responsibility for all aspects of financial management relating to pharmacy services and the organisation’s medicines budget. This requires the ability to obtain sufficient resources to maintain and develop services and to respond to the introduction of new services arising from changing trust priorities. It means working with the pharmacy team to ensure that pharmacy services are as efficient as they can be, that they deliver value for money and that the contributions made are recognised at trust level. With the increasing emphasis on efficiency savings in the NHS, budgetary management cannot be solely the responsibility of the chief pharmacist, and specialist pharmacists in particular will be essential to the delivery of savings in drugs budgets.

 

Budgets are set on an annual basis, although some changes may be incorp-orated during the financial year, particularly where changes to staffing levels have been agreed or cost improvements have been delivered. The chief pharmacist, as the budget-holder, will be expected to ensure that expenditure does not exceed the agreed budget. Income and expenditure used for pay and non-pay costs during the year are described in financial terms as revenue. Capital is used for the construction of new or refurbished facilities or the purchase of new equipment. Availability of capital depends on the organisa-tion delivering a surplus – income exceeding costs – unless specific funds are made available for the NHS or from charities.

 

In many trusts, the chief pharmacist will be expected to be involved in the contracting process that occurs between the commissioner (primary care trusts at the time of writing, but soon to be general practitioner consortia) and the hospital (the provider) to ensure that sufficient money (income) is gained to cover the full cost of providing services (expenditure). The chief pharmacist can, with the support of his or her team of specialists, bring valuable expertise to the contracting negotiations in relation to the predicted medicines expenditure for the year ahead.

 

Within the organisation, an NHS hospital trust will normally devolve the budget to the individual clinical and non-clinical directorates or div-isions. Directorate/divisional managers will have responsibility for manag-ing their budgets and for developing their own business plans and constructing budgets with their finance advisers to cover their services. The crucial role of the chief pharmacist, supported by the rest of the phar-macy management team, is to act as an advocate for the pharmacy service and ensure that sufficient resources are available to maintain and develop services in line with the overall direction and objectives of the directorates and the trust. This will invariably require the application of considerable negotiating skills to secure an appropriate share of limited resources. As new hospital services are identified and developed, the chief pharmacist will need to ensure that their impact on the pharmacy service has been properly assessed and, where appropriate, additional resources are allo-cated. This requires the chief pharmacist to be well connected and informed at a corporate level to avoid overlooking pharmacy service costs.

 

Within the current financial climate, with the quality–productivity chal-lenge, chief pharmacists are expected, with their teams, to think differently about the way services are delivered so that pharmacy services deliver more in terms of quality and breadth of service for less expenditure. Although a proactive approach to service development may not always be successful, a positive outcome is more likely to be achieved when pharmacy managers recognise that strategic planning aligned to the trust objectives is essential. Requesting realistic funding for new services or managing to deliver a change in service provision without the need for additional funding will also enhance the pharmacy team’s reputation and increase success in these negotiations.

 

Staffing budgets

 

Staffing levels vary greatly between trusts. The staffing establishment will comprise professional, technical, ancillary, administrative and clerical staff, as well as pharmacist and technician trainees. As often staff work on a part-time basis, the number of people employed, known as the head count, will generally exceed the number of established whole-time-equivalent posts (WTEs). A ratio of 1:1:1 (pharmacist : technicians : others) has been suggested as an appropriate balance.

 

The final staffing budget will be calculated on the agreed staffing establish-ment for the department, measured as WTEs. The budget will reflect the grades, salaries and allowances, such as emergency duty commitments, for each staff member and will also include the employer’s overhead costs, such as national insurance and superannuation (pension) payments. A hospital pharmacy with a staff of 160 WTEs will have an annual budget of about £4.5 million.

 

When managers experience difficulty in filling vacant posts on a long-term permanent basis they may rely on the availability of temporary staff supplied by locum agencies. Such staff are more expensive than permanent staff and present a particular challenge for budgetary management and for maintaining the morale of the permanent staff members. The financial position in the NHS currently means that in many trusts agency staff are not employed and existing staff resources have to cover services or discussions occur about service reductions.

 

Medicines budgets

 

As part of a trust’s annual business-planning process, pharmacy managers, in collaboration with their directorate pharmacists, should be involved in the estimation of medicines budgets for the forthcoming year. The primary purpose of this exercise will be to set budgets that have been adjusted for the impact of a variety of critical factors and influences. These may include anticipated changes in clinical activity and case mix, the potential impact of new – invariably more expensive – recently licensed drugs, changes in drug treatment preferences, savings from negotiated purchasing contracts and, conversely, increases in the acquisition costs of medicines. Although it would be extremely difficult to achieve total accuracy in the budget-setting process, it is important to achieve a level of confidence in the budgets so that a greater commitment to effective expenditure control can be maintained during the financial year. This is also important for the ex-tariff medicines (see Chapter 1 for an explanation of ex-tariff medicines).

 

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