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1.15 pm
The Parliamentary Under-Secretary of State for Wales (Mr. Win Griffiths): I congratulate my right hon. Friend the Member for Llanelli (Mr. Davies) on securing this important debate so soon in the life of the Parliament. I am grateful to him for bringing this issue to the attention of the House. The publicity that has surrounded the difficult financial position in Dyfed Powys health authority has aroused considerable strength of feeling locally and I welcome the opportunity to debate the matter in this forum.
Before we go into the detail, it is important that I explain something of the background to the position that we have inherited. Back in the early 1990s, as part of the market reforms, the previous Government decided that funding for health care should be population based--health authorities should receive money to meet the health needs of the residents living in the authority area. Money would follow the patient so that, no matter where treatment occurred, the health authority would still have to pay. Under that policy, the capitation formula used to distribute resources provided by Parliament showed that, if the total amount of cash were allocated solely according to population rather than on the old service basis, some authorities were not getting enough cash while others were receiving too much. Dyfed Powys was one of the authorities that was receiving too much.
To enable a more equitable distribution, a weighted capitation formula was introduced and the move to it was phased over five years. Funding by a weighted capitation approach seeks to take account of the need for health services in a population by adjusting the crude population share according to various factors. Those are chosen to show the relative demand for health services and include, for example, the relative death rate and the proportion of elderly people. I am quite sure that my right hon. Friend
can be given information on how that formula works. This financial year is the last year of transition to that arrangement.
As a result of that readjustment to the existing capitation formula, over the past four years, the allocation for Dyfed Powys health authority has risen by only 19 per cent. compared to growth across Wales of 23 per cent. Nevertheless, the formula and the arrangements for its phased introduction were designed to provide time for the service to plan and were agreed with the NHS in Wales. While I expect that the process was manageable, it would have posed some difficult choices for the authorities involved.
Mr. Lembit Öpik (Montgomeryshire):
Does the Minister agree that, even with a transition time, the provision in rural areas will not become any cheaper? We have therefore compounded the problem--the net income per capita is coming down, but the problems of increasing elderly provision are rising. That is why so many of our residents in Powys have been concerned about the future of the cottage hospitals which seem to be under threat for the very reason that the Minister was giving.
Mr. Griffiths:
As services for the elderly are increasing, the capitation formula will be of some help. Like the hon. Gentleman, I am concerned about the future of the health service, not only in rural areas, but in industrial areas. Although the formula has been accepted by the NHS in Wales as a robust means of distributing resources, my officials have convened a working group consisting of a wide range of NHS interests in order to review the methodology. I believe that that is necessary for a number of reasons.
Since the formula was introduced, there have been developments in the approach to determining health need; health authorities in Wales have been reorganised; and new sources of information on the health status of the population have become available--for example, the Welsh health survey. We must consider, together with the service, whether any of those developments should influence our approach. It is my intention to ensure that the distribution of resources between health authorities in Wales is done in the most effective and efficient way, but, clearly, these are early days and we cannot predict the outcome of the review or its effect on any particular health authority.
That is for the future. I shall now answer one or two of my right hon. Friend's questions.
Mr. Cynog Dafis (Ceredigion):
When it is reviewed, the formula must take account of rurality in relation to the provision of hospital services.
Mr. Griffiths:
There is an element for that in the current formula, but there may be a need to consider whether its weighting should be increased. That is one of the matters that the review group will consider.
This year, Dyfed Powys received £265 million for hospital, community and family health services, including £257 million that is available for the authority's discretionary expenditure--that is, to purchase health services according to local priorities. The sum represents an increase in funding of 2.6 per cent. over 1996-97, which in cash terms means that the authority received an
additional £6 million. As well as funding for hospital, community and family health services, almost £10 million was allocated to the authority for cash-limited general medical services--£600,000 more than in the previous year, or an increase of more than 6 per cent.
Of course, the move to weighted capitation funding has not been made any easier by the decision to reorganise health authorities. The new authority was created on 1 April 1996 and its unaudited accounts for its first year show a deficit of £1.9 million, adding to its inherited deficit of over £3 million. I assure my right hon. Friend the Member for Llanelli that such accounts do get properly audited and that he will be able to receive a copy of them. In addition, I cannot envisage any difficulty in placing a copy in the House in Commons Library.
In income and expenditure terms, the authority is obviously spending more money than it receives from the Welsh Office and, as I told my right hon. Friend when we met recently to discuss the matter, I have been asked to provide additional resources to help overcome that situation. In considering that, it should be recognised that, in allocating resources to authorities, the Welsh Office does not routinely keep cash in reserve at the centre. Consequently, we expect authorities to live within the resources allocated to them. Despite that, we try to be flexible and, in 1995-96, the Welsh Office provided a loan of £810,000 to the former Powys health authority, and, in 1996-97, provided the new Dyfed Powys authority with a further loan of £1.7 million. Therefore, as my right hon. Friend rightly said, the Welsh Office is now owed £2.51 million.
The authority has asked for a further loan in the current year totalling well over £5 million. That is a considerable sum and, although it helps with cash liquidity to pay bills in the short term, it masks a much more serious underlying problem about the ability of the authority to maintain its existing level of commitments in future years. Cash injections in the form of repayable loans may have a part to play in managing the short term, but I would be unwilling to countenance their use as a substitute for addressing the underlying resource problem. Moreover, I am sure that, as a former Treasury Minister, my right hon. Friend would agree that, before I can reach a decision, it is essential that the authority produces a plan to demonstrate how it will get back to a balanced position. That is awaited, but, in the meantime, officials are giving the matter careful consideration and I hope to announce a decision this month.
From all of that, it is clear that the current contracting round with the authorities' main providers in the area is going to be very difficult and I can understand the frustration of all the trust chief executives. Representatives of the Llanelli trust have impressed on me their frustration--indeed, the small delegation from that trust which accompanied my right hon. Friend gave me a clear picture of the situation. I understand that, until contracts are agreed, temporary arrangements have been put in place to ensure that patient services--which must be the prime consideration--are not disrupted and trusts have a cash flow.
As I mentioned earlier, the provision of cash loans is not the only answer and neither can we add more money permanently to the allocation. That would create an imbalance in the move to a capitation-based mechanism and cause tensions elsewhere in Wales. The way forward is for the authority to develop a more acceptable strategy
for the delivery of health care to its resident population than was proposed in the consultation document "Effective Care and Healthy People". That was intended to provide opportunities for residents and others to contribute to the review of health care provision in the area.
As my right hon. Friend will know, after considering the responses to consultation, the authority decided at its board meeting on 3 June that it should work with local interests to produce a revised strategy. A progress report on work towards completion of the revised strategy is to be made to the board in the autumn. It is now for the authority to take the matter forward, although I shall continue to take a keen interest and have asked to be kept closely informed of developments.
Of course it is not simply a matter for the health authority. The trusts in the area do need to play their part and, although I understand the difficulties they face, they must realise that resources are severely stretched. They will need to ensure that their organisations operate as efficiently and as effectively as they can. That will often mean careful consideration of the management of the capital estate, much of which is old, poorly maintained and in many cases not suited to modern health care techniques. Some estate rationalisation might therefore be necessary.
The Powys trust is developing proposals with the private sector for the rationalisation of patient and support services currently provided by Bronllys and Mid-Wales hospitals. That will enable the old establishment at Talgarth to be closed. Hospital services at Newtown will also be redeveloped in a new hospital to complement the services envisaged at Bronllys. The total cost of the two new developments is almost £19 million and negotiations are currently under way with the private sector to develop those schemes. The estate rationalisation flowing from the projects is likely to result in cost savings that will go some way to alleviate the financial problems of the authority.
In my right hon. Friend's constituency, the Llanelli trust is currently working with the Pembrokeshire and Derwen trusts in the development of proposals for elderly people that will incorporate alterations to Mynydd Mawr, Tumble and Bryntirion hospitals, and also for the reprovision of in-patient psychiatric services from St David's hospital, Carmarthen and Bryntirion hospital, Llanelli on to the Prince Philip hospital site. Those proposals will also allow some site rationalisation that may result in cost savings to the authority.
I was also interested in the plans that the Llanelli trust has in mind for an integrated model of care delivery in the Llanelli-Dinefwr area. As I explained to the chairman and chief executive of the trust when I met them with my right hon. Friend, the proposals need to be properly costed; nevertheless, it is encouraging that the trust and local GPs are working together. The GPs will need further to develop their thinking and perhaps consider producing clear, costed proposals for consideration as one of the locality commissioning pilots which I announced last Thursday.
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