Select Committee on Health Memoranda


MEMORANDUM

Memorandum by the Department of Health

Table 2.1.2

EXPLANATION OF MAIN AREAS OF EXPENDITURE IN TABLE 2.1.1


Area of Expenditure Description

NHS Hospitals,
community health,
family health (cash
limited) and related
services (HCHS)
The main elements of these are the provision of hospital services, and certain community health services, such as district nurses, which are not, provided by the family health services (FHS). These are services purchased by health authorities and provided in the main by NHS trusts. HCHS provision is cash-limited and also includes funding for some FHS spending (general medical services (GMS) cash-limited expenditure). It also covers related activities such as R&D and education and training purchased centrally from central budgets.

CapitalCapital expenditure is that used on the acquisition of land and premises, individual works for the provision, adaption, renewal, replacement or demolition of buildings, items or groups of equipment and vehicles etc. where the expenditure exceeds £5,000.

NHS Family Health
Services (FHS)
(non-cash limited)
Services provided in the community through doctors in general practice, dentists, pharmacists and other dispensing contractors, optometrists and ophthalmic medical practitioners, all of whom are independent contractors. Their contracts are set centrally by the Department following consultation with representatives of the relevant professions, and administered locally by health authorities. Funding of the FHS is largely demand-led and not subject to in-year cash limits at health authority level, though FHS expenditure has to be managed within the overall national cash limits.

Departmental AdministrationThe administrative costs of running the Department of Health, including the NHS Executive.

MCA Trading FundThe Medicines Control Agency (MCA) is a DH executive agency. It safeguards public health by ensuring that all medicines on the UK market meet appropriate standards of safety, quality and efficacy. This is achieved through a system of licensing and inspection.

Central health and
miscellaneous services
(CHMS)
These are a wide range of activities funded from the Department of Health's spending programmes whose only common feature is that they receive funding direct from the Department and not via health authorities. Some of the services are managed directly by Departmental staff, others are run by non-departmental public bodies, or other separate executive organisations.

Other NHS CapitalIncludes the capital elements of departmental administration and CHMS.

NHS TotalThe sum of HCHS current and capital expenditure, FHS, Departmental administration, MCA Trading Fund, CHMS and other NHS capital.

Personal Social
Services
Personal care services for vulnerable people, including those with special needs because of old age or physical or mental disability, and children in need of care and protection. Examples are residential care homes for the elderly, home help and home care services, and social workers who provide help and support for a wide range of people.

Central Government
(specific and special)
grants to local
authorities
Cash grants targeted at services which require a higher priority, where pump priming is appropriate or where the service is needed in only some authorities.

Credit Approvals
(LA capital)
Central government permission for individual local authorities to borrow or raise other forms of credit for capital purposes.

Health and Personal
Social Services Total
The sum of NHS total, central Government personal social services, central Government (specific and special) grants to local authorities, credit approvals (LA capital), and civil defence.

Local Authority,
Health and Personal
Social Services Total
The sum of Health and Personal Social Services Total and Local Authority Personal Social Services Total.



CHANGES BETWEEN PLANNED AND OUTTURN EXPENDITURE

  4.  Table 2.1.3 details significant changes between forecast outturn in 1997-98 and planned expenditure in 1997-98 from HC 959 with the outturn position in 1997-98 and forecast outturn position in 1998-99 in Table 2.1.1.

Table 2.1.3

COMPARISON OF NET EXPENDITURE PLANS FOR 1997-98 AND 1998-99 WITH THOSE ON PAGES 13-16 OF LAST YEAR'S HEALTH COMMITTEE WRITTEN EVIDENCE (HC 959)

£ million

1997-98 1998-99

HC 959 Forecast outturn difference Table 2.1.1 outturn HC 959 Plan difference Table 2.1.1 Forecast Outturn

HCHS current24,84229 24,87226,175641 26,816
HCHS capital1,086-18 1,0681,178-290 888
FHS current7,968-38 7,9308,36149 8,410
Dept admin current258 10268262 -9253
CHMS current506-1 505515-44 471
Other health capital21 021158 23
PSS320 3232032
Specific Grants534-1 532576120 696
Credit approvals690 69541 54



Table 2.1.3 (continued)

COMPARISON OF NET EXPENDITURE PLANS FOR 1997-98 AND 1998-99 WITH THOSE ON PAGES 13-16 OF LAST YEAR'S HEALTH COMMITTEE WRITTEN EVIDENCE (HC 959)

  The main areas of change (£10 million or over) to the spending plans for various parts of the programme other than LAPSS are as follows. The grant to local authorities for central government is unhypothecated. Local authorities determine their own expenditure. £ million


1997-98

HCHS current29+18 reattribution from HCHS capital
+33 reattribution from FHS current
-20 Moving TDR into the DEL
HCHS capital-18-18 reattribution to HCHS current
FHS current-38-33 reattribution to FHS current
Departmental admin current10 +10Revised cost of collection estimate following NAO review

     
1998-99
HCHS current641+138 take up of EYF
+209 money for Winter pressures
+63 from trusts non-voted expenditure
+227 switch from HCHS capital
HCHS capital-290-227 switch to HCHS current
-63 to HCHS current
FHS current49+50 from demand led CHMS
+18 increased spend
-16 reduced spend
CHMS current-44-50 to FHS
Specific Grants120+120 PSS Winter and Spring claims on Reserve for Asylum seekers grant



  5.  Table 2.1.4 details significant changes between estimated outturn in 1998-99 and planned expenditure in 1999-2000 from the Departmental Report (Cm 4203) and forecast outturn in 1998-99 and current expenditure in 1999-2000 in table 2.1.1.

Table 2.1.4

COMPARISON OF NET EXPENDITURE PLANS FOR 1998-99 AND 1999-2000 WITH THOSE IN TABLE 2.3 OF THIS YEAR'S DEPARTMENTAL REPORT (4203)

£ million

1998-99 1999-2000
Cm 4203difference Table 2.1.1Cm 4203 differenceTable 2.1.1
Estimated ForecastPlan Current
Outturn Outturn Provision

HCHS current26,8160 26,81628,2880 28,288
HCHS capital8880 8881,3990 1,399
FHS current8,4100 8,4109,0410 9,041
Dept admin current253 0253272 0272
CHMS current4710 4715770 577
Other health capital23 023270 27
PSS320 3234034
Specific grants6960 6965530 553
Credit approvals540 54560 56



  The main areas of change (£10 million or over) to the spending plans for various parts of the programme other than LAPSS are as follows. The grant to local authorities for central government is unhypothecated. Local authorities determine their own expenditure.

£ million

1998-99

HCHS current0 0
HCHS capital0 0
FHS current0 0


ASSESSMENT OF PERFORMANCE

  6.  Table 2.1.3 shows that there were changes between forecast outturn for 1997-98 and final outturn in all but other health capital. Table 2.1.4 shows that in 1998-99 there was no change between estimated outturn and forecast outturn.

  7.  Overall, table 2.1.1 shows that forecast outturn in 1998-99 will be higher than outturn expenditure in 1997-98 in all programmes except NHS capital, Departmental administration, Central Government Personal Social Services and local authority credit approvals.

PURCHASER EFFICIENCY INDEX

  8.  The Purchaser Efficiency Index (PEI) has been abolished from 1 April 1999 in line with the Government's commitment in the White Paper The new NHS. The new Performance Assessment Framework, which was published on 9 April 1999, sets out the broader-based approach to performance which replaces it. The Framework will provide comparative performance information across six dimensions (health improvement, fair access, and effective delivery of appropriate care, efficiency, patient/carer experience and outcomes of health care). The associated set of high-level performance indicators is designed to encourage benchmarking of performance locally and to boost overall NHS performance nationally. Included in the HLPI set are two new adjusted unit costs (for maternity services and for mental health services) which look at packages of care rather than individual procedures. Work is under way to develop these new indicators further, and to produce similar measures for other service areas. Health Authorities and Primary Care Groups will be encouraged to compare the performance of local services with those elsewhere across the NHS. Working with local NHS Trusts, they will be expected to agree the actions needed to reduce unacceptable variations, where they exist, in both the quality and efficiency of local services. Technical efficiency targets have also been set at trust level—see below.

  9.  These broader-based measures of performance are complemented by technical efficiency targets based on variations in trust unit costs revealed by the Reference Cost Index. The White Paper included a commitment to publish reference costs for NHS procedures, and the first such schedule was published in November (HSC(98)163). This revealed wide variations in unit costs in trusts across the country for in-patient surgical procedures; and the technical efficiency targets aim to reduce these variations and to deliver overall improvement in unit costs. Because this year's RCI covers only 20 per cent (by cost) of acute trust activity, it has been extended (making use of activity and financial data from trust returns) to give an "RCI plus" index at trust level covering G&A, maternity and A&E services. When setting efficiency targets, ROs have taken into account local factors (eg about planned service re-configurations and/or cost improvement programmes).

  10.  Technical efficiency targets are in the range of 2.25 per cent-3.41 per cent at RO level; and ROs have set differential targets for their trusts in the range of 2.0 per cent-4.5 per cent. Other VFM measures, including efficiency gains in non-acute trusts, will contribute to the overall efficiency gain of 3 per cent agreed in the CSR.

HOSPITAL AND COMMUNITY HEALTH SERVICES (HCHS) COST WEIGHTED ACTIVITY INDEX

Background

  11.  The Department has traditionally measured the efficiency of the HCHS by the Cost Weighted Activity Index (CWAI—discussed in paragraphs 12 to 15), using retrospective, provider based data derived mainly from audited final accounts. Since 1992-93, the Department had complemented the CWAI index by an in-year estimation of health authority efficiency using the Purchaser Efficiency Index.

Cost Weighted Activity Index

  12.  The index (Table 2.1.5) provides a broad measure of the overall growth in HCHS activity, in which the contributions of the individual components are weighted by their costs. Following changes in accounting practice within the NHS it has been difficult to gauge the increase in expenditure in both volume and real terms. However, estimates have been made using broadly comparable data and are shown in Table 2.1.5 and its associated graph (Figure 2.1.1). Over the 10 years since 1987-88 overall activity levels increased by around 32 per cent. Over the same period, the volume of inputs—that is expenditure after allowing for increases in HCHS pay and other input unit prices—increased by around 19 per cent, suggesting an increase in efficiency of around 11 per cent. There was a 0.4 per cent reduction in efficiency in 1997-98 which was driven by the high growth in expenditure on the Acute sector (8 per cent), coupled with lower growth in activity (3.5 per cent). This trend is reflected in the Programme Budget covered in Question 2.2.

  13.  Improvements in HCHS efficiency are dependent on several factors. An important driver is medical advance supporting new patterns of care delivery. For example, the introduction of minimally invasive therapies has reduced hospital stays for many treatments and thereby improved efficiency over this period. The relocation of much long stay care to community settings has also had a similar effect. Each has contributed to significant gains in labour and capital productivity. Other efficiency measures, such as the movement towards the use of Day Case procedures and the closure of long stay psychiatric hospitals, which in the past have contributed to efficiency gains, appear to no longer deliver the same benefits. On the other hand, we can be reasonably sure that the ageing of the population works against improvements in efficiency. Elderly people tend to require more expensive care, and their increasing numbers have placed upward pressure on average unit costs. This is borne out in that the efficiency referred to in paragraph 10 has reduced from 12 per cent over the 10 years to 1996-97 to 11 per cent in the 10 years to 1997-98.

  14.  Trends in efficiency are the inverse of trends in unit costs. The efficiency gains, which have been recorded, are consistent with unit costs, which have fallen compared to HCHS specific inflation.

  15.  The evidence presented to the committee in last year's report stated that there were problems with the activity data, which influenced the CWAI. The data presented in this year's report incorporates the amended data referred to in Question 2.1 paragraph 12).


 
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Prepared 18 October 1999