Examination of Witnesses (Questions 60-79)
MR JOHN
BACON, MR
RICHARD DOUGLAS,
MR GILES
DENHAM AND
MR ANDREW
FOSTER
16 OCTOBER 2003
Q60 Dr Taylor: Is there evidence
that NHS Professionals is taking over the work which has been
passed out to these other, private agencies?
Mr Foster: Yes, on the basis of
the fill rates.
Q61 Dr Naysmith: Could I pick up
something that comes out of the NHS Professionals and the deficit
that there was, because NHS Professionals was one of the things
involved in North Bristol Trust and its amazing deficit, £44
million, acquired in one year. There are a couple of questions
I would like to ask about that. First of all, do you think that
actually NHS Professionals contributed to that; do you know, does
anyone know? The other question is, how can a Trust, which in
2000-01 was not in deficit and then in 2001-02 had a small deficit,
report that in the year 2002-03? I think it is a question for
Mr Douglas really, because I am sure he knows the detail. There
are two questions and maybe we should take them separately. One
is the role of NHS Professionals, which I know caused lots of
problems for that particular Trust, which agency nurses had to
pick up. Finally, I want to go on to some quotes. Your Head of
NHS Counter-Fraud and Security Management said things like: "There
are certainly issues that we come across relating to the weakness
of audit in the NHS. That's something that is currently being
looked at." Another quotation from an article he wrote is
where he said the internal accounting and audit practice in the
National Health Service is "patchy". So there is a third
question really, what can be done to improve all of this? I must
say, having been in local government for 18 years before coming
in here, whatever you might say about local government, that kind
of accounting, I do not recall one ever reaching that proportion,
£44 million, and I think councillors would have been surcharged
long before that happened. So I am interested in what you have
got to say on all of this?
Mr Bacon: Perhaps you would allow
Andrew Foster to answer your first questions on the NHS then Richard
will pick up your further questions.
Mr Foster: NHS Professionals is
not part of the problem in Bristol. It was the high prevalence
of agency nurses that was part of the problem, for which NHS Professionals
is intended to be the solution. I would agree that NHS Professionals,
partly because of its operational expansion problems, at that
stage had not been able to make a significant contribution to
reducing the cost of agency nurses, but that is very much the
intention now.
Q62 Dr Naysmith: It caused a lot
of it, because there were nurses ringing up my office, and everybody
else's office, saying they had not been paid and therefore they
were not going to do work for NHS Professionals. This meant that
the hospital had to get in proper agency nurses, for whom they
had to pay a lot more money, to come in at the last minute, and
they had to pay even more money. So clearly that was one of the
factors which contributed to it, and I realise it was at the early
stages of NHS Professionals?
Mr Douglas: I think it was a small
contributory factor. We have never had an organisation that has
gone financially out of control like this, ever, I think, in the
history of the NHS.
Q63 Dr Naysmith: Which one are you
talking about?
Mr Douglas: I am talking about
North Bristol. The scale of the problems with West Yorkshire was
not anywhere near as great. Anywhere that can go to a position
of a £40-odd million deficit, on that size of organisation,
is out of control, and it is unacceptable to us. How did it happen?
We have commissioned and just had a report out, we have seen the
report, from Deloitte and Touche, which the strategic health authority
commissioned to track through what actually happened in that organisation
that year, and what lessons we can learn from it for the future.
Basically, it was that the Board were not fully focused on the
financial issues. Effectively, these were being handled by a finance
director in isolation.
Q64 Dr Naysmith: The accounts were
being audited and sent to the regional health authority then the
strategic health authority?
Mr Douglas: The accounts were
audited only at the end of the year, formally audited, so information
was coming up to the next tier. In a number of cases, that was
based on some quite optimistic assumptions about what was going
to happen halfway through the year. In the autumn, I think it
became pretty obvious to the strategic health authority that,
if you started looking at the cash figures, something was going
seriously amiss in this organisation. It was at that point that
some real intervention happened, there was an assessment externally
of the financial position and, essentially, the management team
in the Trust was changed. If normal governance procedures had
operated in the way that we would expect them to operate, and
which operate in 99 point something per cent of the NHS, this
would not have happened, it would have been identified much, much,
much sooner.
Q65 Dr Naysmith: I do not understand
that. I do not believe the deficit occurred in one financial year
and I do not believe you think that either?
Mr Douglas: There were underlying
problems in the organisation, as there have been in a number of
organisations in that part of the country, which effectively could
be covered through short-term measures, so it is not always a
matter of the whole amount arising during that year. Their ability
to cover their problem through short-term measures effectively
came to a head during that year.
Q66 Dr Naysmith: Is this the business
where you can borrow between health authorities and pretend that
you are in surplus when you have borrowed just enough to get you
past the end of the financial year?
Mr Douglas: It can be a whole
mix of things. There can be short-term cost reductions, there
can be money that you could have borrowed from capital in some
way. There are a number of things that could happen. What we are
doing is, on the back of North Bristol, I have the report from
Deloitte and Touche, and when I agreed with the strategic health
authority to do this one of the things I asked them to do was
say where were the failings in the system here, not just in the
Trust but in the strategic health authority and in the Department
of Health, why did we not know about this.
Q67 Dr Naysmith: I have to say, I
have read the report and it is much stronger on attributing blame
to the Board than it is on the Department of Health or the regional
health authority?
Mr Douglas: It is.
Q68 Dr Naysmith: That is justified,
is it?
Mr Douglas: The problem arose
locally. I would like to do some further work myself still about
why this was not picked up at another level, because that is the
only way we can learn lessons from this.
Q69 Dr Naysmith: Obviously, that
is the thing which is worrying me, and I hope it is worrying you
too?
Mr Douglas: I am using the report
with the other 27 finance directors across the strategic health
authorities at the moment. I have a meeting with them regularly
and I want to go through some of the lessons learned from this.
You mentioned also the comments, which I think were quoted probably
from "Accountancy Age", which were attributed to Mr
Gee. I do not think Mr Gee would agree necessarily with the way
those comments by him were reported.
Q70 Dr Naysmith: Why? Why do you
think he would not agree any more?
Mr Douglas: Because I asked him.
In any service as large as the NHS there will be variations across
the piece, in terms of the quality, whether it is of management,
internal audit or any other part of the system. I think Jim did
make some specific comments about the need to make sure that audit
was properly staffed up and was functioning properly. I do not
think there is a widespread problem in internal audit across the
NHS, personally.
Q71 Dr Naysmith: Yet we have got
figures in front of us which show that since Mr Gee took up his
post four years ago there has been a 40% reduction in fraud and
£295 million that you can detail as clear savings, as a result
of his work. That must mean that he may have retracted some of
these statements, you say he has, but also probably he is right,
is he not, when he got into the job?
Mr Douglas: I would not say he
was wrong or right, because I would not say he said it, but Jim
Gee was appointed specifically with a counter-fraud brief, that
was what he was there for. We knew there was a problem with fraud
and we needed to set up a team which was focused purely on doing
that. That is not a role on which internal audit, in most organisations,
will spend a great deal of their time, it is not their primary
function. Having set up the Counter-Fraud Service, if it had not
delivered those sorts of savings then I think we would have made
a mistake in setting them up. I do not think it is a criticism
of the standard of internal audit in the system.
Q72 Dr Naysmith: What was happening
before Mr Gee was appointed? He must have detected some kinds
of procedures which enabled these savings to be reported and the
fraud to be reduced?
Mr Douglas: He has gone through
a number of different processes. He has focused purely on fraud
reduction. He has done that through changing systems, improving
fraud awareness, taking sanctions against people when they are
discovered, having committed fraud. There is a very big difference
between what a fraud unit will do, in any organisation, and what
internal audit will do. Clearly the two work together, and the
lessons that Jim Gee and his team learned about how fraud has
been committed will then be fed across to internal audit colleagues
so they can make sure the same system weaknesses do not occur
in other parts of the system.
Q73 Dr Naysmith: I am not saying
there is any connection. We have been talking about fraud just
now and what happened in North Bristol, but I do hope that, overall,
lessons have been learned, because I think, quite clearly, it
has shown some weaknesses in the system which have got to be corrected
for the future, and I am glad you agree with this?
Mr Douglas: I could not agree
with you more.
Q74 Jim Dowd: Moving to NHS Direct.
From the evidence we have seen, I noticed that, just apropos of
what Doug was talking about, on the projection of savings there
you have got a ratio of return on investment ranging from 13-1,
17-1, so clearly this is a proposition you recognise. On NHS Direct,
it seems to be costing two quid to save one. Is that a good use
of resources?
Mr Bacon: Clearly, this is a new
service we are offering, and we think it is a very good service
to enable people to make initial contact with the NHS and to be
advised on the most appropriate course of action for them. Therefore,
it does not surprise us that there is a premium above the direct
savings that we get for that.
Q75 Jim Dowd: Do you imagine that
will be permanent, or do you think that will fall?
Mr Bacon: For instance, if you
look at the way in which we are changing the "out of hours"
service, involving NHS Direct in that, there is a series of issues,
we are changing the way in which service is delivered at the very
first point of contact, which offer a much wider range of opportunities
to individuals. Therefore it would not surprise me if we continued
to pay an additional cost for that new service.
Q76 Jim Dowd: The primary objective
of NHS Direct then was not to save money, it was to provide an
improved service?
Mr Bacon: Yes.
Q77 Jim Dowd: You expect to have
to carry on indefinitely the overhead that represents?
Mr Bacon: It would be quite difficult
to work out direct cause and effect. We would expect, over time,
the patients would use the NHS both for their own benefit and
the benefit of the Service more effectively, and you would have
to do quite a complex calculation to work out the exact cost/benefit
analysis. What we are really very keen on here is, and I think
the success of NHS Direct reinforces this, that this offers individuals
much better access to advice on the most appropriate form of treatment.
Q78 Mr Burns: Can we move on to an
area which is of considerable interest to many people, and that
is the concordat activities and the costs that the Government,
or the taxpayer, is paying for treatment in the private sector
for NHS patients. I notice that, in answer to one of the questions
of the PEQ, you have stated that the data which would facilitate
a comparison between NHS reference costs and the costs of the
same procedures in the private sector will not be available before
November. Does that mean it will be available in November? If
the answer to that question is no, when will it be available?
Mr Douglas: I would expect it
to be available in November. I remember the Committee last year
discussing the survey we had done and the poor quality of the
response. To deal with that, what we have tried to do, in the
reference costs collection that we do every year, from every NHS
organisation, is ask them to provide the same information for
private sector commissioned activity. That information is all
in at the moment, it is all being analysed at the moment, so my
expectation is still that it will be available and published in
November.
Q79 Mr Burns: We have used a comparison
of figures supplied by you to get the Office for Health Economics
to seek to get an answer to this question. They suggest that the
prices paid by the NHS to the independent sector for certain procedures
in 2001-02 are running at about 40% higher than the NHS reference
costs. If I can give you some examples, so we know exactly what
we are talking about, based on mean costs. If you take cataracts,
the independent sector's cost to the NHS is £922, the NHS
cost to itself is £632, which is 46% higher in the private
sector. Hip replacements, £5,777 in the independent sector
for the NHS, compared with £4,356 to the NHS itself, a 33%
higher price. Knee replacements, £6,914 in the independent
sector, compared with £4,817 in the NHS, a 44% increase.
Coronary bypass grafts, £8,761 in the independent sector
for the NHS, and £6,273 in the NHS itself, a 40% increase.
If you accept they are accurate assessments, those are significantly
higher charges that the NHS is paying for treatment in the private
sector. Do you think that those are reasonable assessments, give
or take, and, if so, why is the NHS paying significantly above
for treatments in the private sector when it is so much less expensive
when it provides a service itself?
Mr Douglas: I will take those
two things in turn. Is the comparison fair? I was looking at the
table while you speaking, and I think what has happened is your
advisers have taken the average from the survey over the two six
months and compared that with the average NHS reference costs.
Those figures that you quoted, in that case, broadly are the ones
that I would have come up with.
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