Examination of Witnesses(Questions 280-293)
MP AND JACQUI
TUESDAY 5 NOVEMBER 2002
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.
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 schemesif
you think about some of the schemes we are doing in London now,
Barts London is £600 million, UCLH is £400, £450
millionit 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 movementthere
is also the Institute of Directors, who one might have thought
were unlikely bedfellows with the Co-operative movementwhich
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.
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
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.
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 figurepersonal medical servicesthere
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
(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.
(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.
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 doubtwhich 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 yearthat the current formula does not
hit the areas of greatest health need, that has got to be put
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
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
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.