Select Committee on Health Minutes of Evidence

Examination of Witnesses(Questions 280-293)



  280. And on their ability to service the debt?
  (Mr Milburn) And on their ability to pay; on their ability to service the debt.

  281. Since the Primary Care Trusts are the organisations which commission the hospitals and services, presumably the PCTs will need to agree to fund any new borrowing?
  (Mr Milburn) There are several sets of conditions which, when you see the prospectus, will set it out in detail but I will tell you for the benefit of the Committee, one of the very important conditions for going ahead with foundation trust status is that an individual NHS trust which wants to become a foundation trust, apart from having to satisfy me and due diligence and so on and so forth, will have to demonstrate sign-up by local stakeholders. Amongst the most important local stakeholders are the Primary Care Trusts, not least because they are the organisation, as you know, which will have their hands on most of the resources and decide where the commissioning is going to take place.

  Chairman: I am told there is going to be a division at ten past six. I do not think it is reasonable to ask the Committee to come back afterwards so we will have to skip over a few areas which we would otherwise want to cover.

John Austin

  282. Although they will be free-standing legal entities, free from direction from the Secretary of State for major capital developments, they will still presumably have to go down the PFI route?
  (Mr Milburn) I think for major capital schemes—if you think about some of the schemes we are doing in London now, Barts London is £600 million, UCLH is £400, £450 million—it would be quite difficult to envisage a foundation trust would want to go with other than PFI. For smaller schemes, which is where I think PFI really has not delivered as much, the medium-sized schemes, diagnostic treatment centres, £15 to £20 million, £15 to £25 million, that is precisely the sort of arena where I would imagine the foundation trusts would want to borrow either publicly or privately.

  283. What does "the freedom to establish private companies" mean?
  (Mr Milburn) They will be established in law as a variant of companies limited by guarantee because that is the only legal structure we have today. There is a debate which has been raging for very many years in the Co-operative movement, for example, although not exclusively to the Co-operative movement—there is also the Institute of Directors, who one might have thought were unlikely bedfellows with the Co-operative movement—which has been arguing the case for a new legal entity of public interest or community interest, a benefit company. I personally think there is much in that but we have not got it today so we have to go for the legal structures we have got. I think when you see the proposals you will see in law the foundation trusts will be enshrined as companies limited by guarantee but with democratic structures which people I hope will think better locate ownership and accountability. Non-profit-making, obviously.

Dr Taylor

  284. Just a quick question about the care bought from abroad. We asked this last week and did not really get an answer from the officials. The 190 patients who went on the trial from the South East, if you calculate the NHS reference costs, that should have cost about £0.75 million, and in fact the estimated cost was £1.1 million.
  (Mr Milburn) That is right.

  285. What is the view of that, because it obviously was not best value for money? Can you improve on that?
  (Mr Milburn) I think that is a slightly unfair charge, to tell you the truth. There were huge set-up costs in doing this. Remember, the 190 patients were intended to pilot the whole business of patients going abroad. Incidentally the response from patients has been very, very positive. For example, there were quite substantial legal set-up costs and we had to get that right. I remember talking in Committee about the worst possible hypothetical case being sending patients abroad, there being a legal problem there and we could not deal with it. So there were substantial set-up costs. I think over time what you will find is that that option becomes cheaper overall. I think that some of the costs associated with sending patients abroad, even with the up-front set-up costs, have been very competitive compared to sending patients to UK private sector organisations. Although you did not get on to this last week, it might be helpful to say that we think this year, although I do not particularly want to be held to this because it is not my set of decisions, it is for local PCTs and commissioners to decide, around a thousand patients will end up being treated abroad, largely in orthopaedics but in other specialties too. Obviously the patient has to be happy with that, the clinical governance has to be right, it has to be safe for them to travel and so on.

  286. The Department will be watching the value for money aspects?
  (Mr Milburn) And we will continue to assess the overall value of the scheme, not just in terms of value for money but the clinical outcomes and crucially whether the patients themselves are satisfied.


  287. At what stage will you be able to indicate the value for money of the concordat with the private sector? We raised questions about this last time and the survey which was undertaken by the Department was not particularly well-supported, shall we say.
  (Mr Milburn) It was disappointing. It was very disappointing. I think we got a pretty poor response rate to it, around 50 per cent as I remember. I have commissioned, as you know, a further follow-up survey and I hope to get a higher response rate. I think the response rate we had makes much of the data not particularly scientific. Provided we get a decent response rate and it is reasonably scientific, I think we can share that with the Committee.

  Chairman: Thank you.

Dr Naysmith

  288. You said earlier on, Secretary of State, it was regrettable that people often preferred to focus on acute services rather than on primary care provision. If we look at Table 3.1.3 we can see for the most recent year, total hospital spending rose 9.7 per cent, spending on in-patient admissions rose 9.3 per cent, spending on general medical services only 1.11 per cent. Now these figures could mean that spending has maintained a strong hospital bias, in fact we got confirmation of that from the officials last week: inadequate investment in General Medical Services, support and staffing. Do you agree with that analysis? Do you think that is what is happening?
  (Mr Milburn) As I remember, I cannot find the figure now but as I remember it, and I will correct this if it is wrong, the GMS figure, I think, was artificially low in that year because if you look at the PMS figure—personal medical services—there was quite an increase. Why? Because what is happening amongst GPs is that the number of PMS GPs, particularly salaried GPs, is growing at a very, very fast rate indeed. Why? Basically because it is a better lifestyle opportunity for many younger GPs, rather than being a partner in a GP partnership, instead to become salaried. The numbers are growing very, very quickly indeed, particularly in poor areas, and that is very good news. I looked at this, and I have got some figures which I am quite happy to share with the Committee which show that between 1997-98 to 2000-01, HCHS hospital spend, the main hospital spend, grew at an average annual real terms rise of 4.6 per cent, total community and primary care spend grew at an average annual rise of 4.1 per cent. The differences are not as great as they should be perhaps. One final point on this. When PCTs get local budgets, as they will from next April, of course they will be able to decide where the money is spent and what is more they will get three-year budgets. What I have been saying to the PCTs is that they must use those budgets to get the appropriate share of services for the local community. If that means that they want to build up primary and community services as their priority then there will be nobody happier than me but that is a decision that they have got to take. We have given them commissioning powers and what we want to see them do is use those commissioning powers so that they get the right services for local patients.

  289. That is a good analysis of what is likely to happen in the future. What will you say to the local PCTs if they say they are stuck with greatly increasing costs from acute hospitals because of things like nursing agency costs and things like that?
  (Mr Milburn) I know but it is like the earlier discussion we had about elderly care versus children services. I have not yet met a PCT anywhere in the country which thinks it has got the appropriate range of services in its area.

  290. True.
  (Mr Milburn) We know that there is not the appropriate range of services. There is far more that we can do to keep people out of hospital, to get them out of hospital appropriately and so on, maintain their independence and restore their independence after a hospital operation. Somebody somewhere has got to take decisions about that. I cannot take the decision sitting in Whitehall. I cannot decide for Bristol what is needed, the people in Bristol have got to decide that, and that is why the PCTs have got the commissioning powers to do it. The great advantage of three-year budgets is precisely this, that they can decide now how to plan for the medium term rather than the short term. I think short-term planning, frankly, has bedevilled the National Health Service for too long. It means that you do not get the appropriate services in the right place and PCTs are free, also, to commission services from wherever they like. If they want to commission more private sector or voluntary sector they have to justify that to their local community and obviously to the taxpayer.

Andy Burnham

  291. Can I move on to the issue of resource allocation and the review of resource allocations that the Department is conducting currently. You said recently, Secretary of State, that the poorest areas tend also to have the poorest health services, the two tend to go together. Can I ask to what extent do you think that is a product of the current resource allocation system within the NHS? If that is the case, that the two are linked, how radically different or how significant are the changes we are likely to see in the new formula when it is finally produced?
  (Mr Milburn) I do not know yet because I have not had the results of the academic work that we commissioned from Glasgow University but others were involved in it: Imperial College, York University, Oxford and the Institute of Fiscal Studies amongst others who were looking at the whole way we redistribute cash from a growing pool, remember, across the NHS. You can only redistribute if you have got growing resources and thank heavens the NHS can look forward now to the foreseeable future to growing resources. I think we have got two objectives. One is to ensure that we better get resources to the areas of greatest health need and I think there is little doubt—which is why we have had to adjust the current formula over the last couple of years with an inequalities adjustment, as you know, worth about £148 million in the current financial year—that the current formula does not hit the areas of greatest health need, that has got to be put right.

  292. There is too much focus on age profile and factors like that.

  (Mr Milburn) I think it is a variety of things, not least the most obvious is that it is using 1991 Census data and that is a long time ago. It is also using, I think, RPB indices of deprivation which are not necessarily the best or the most up-to-date indices. They are not the indices, certainly, which are used elsewhere in Government, for example by the Office of the Deputy Prime Minister which uses a different set of indicators, multiple deprivation. Objective one, get it to the areas of greatest health need. Objective two, we have areas of high health cost in our country and that is evidenced very clearly, for example, in the differences in nurse vacancy rates which are three times higher in this city, London, than they are in the north of Yorkshire or in the use of agency staff which are five times higher in London and the South East than they are in the North West, for example. We have two objectives here because unless we do something about the areas of high costs as well as the areas of high health need we will continue to have not just health problems but health care service problems.

  293. I understand those two pressures, I see that very clearly. It was rare, I think, looking at the figures for the allocations last year, there were very isolated cases where somebody received a health inequalities adjustment and an area cost adjustment, in very few health authorities was that the case. Given that I would think that the areas where wage pressures are greatest possibly tend to be the areas where the health is better but, secondly, they will be the areas where the use of private medical insurance is far higher. They have less pressures again. I would want strongly to point you towards a system where it is based on the cost of delivering health care to their local population in those areas. I am concerned that if too much weight is given to the area cost adjustment, as the Local Government Review claims, that might negate the very pressing and real need we have to improve health.
  (Mr Milburn) Shall I answer this briefly. We have got to get the balance right, absolutely. There are areas which benefit from both. I can think of the East End of London, for example, which is actually the poorest community in the whole of the country, one of the poorest communities actually in the whole of Europe. I think I am right in saying that it benefited both from the inequalities adjustment and from the cost of living supplements and rightly so because it is expensive to staff out there. We have got to get that balance right. That is what we need to do and it will be a difficult judgment, as always with these things. I think the work of the Commission will be very good.

  Chairman: Can I say that obviously we will have to end this very interesting session, Secretary of State and Minister. We are most grateful to you for your attendance. We had a number of questions that we had wanted to ask which obviously we could not ask and we will follow up with a written note if that is possible. You have promised to come back on one or two points in your evidence. We are grateful to you and your colleagues in the Department for their help. Thank you.

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