Health and Social Care (Community Health and Standards) Bill

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Mr. Lansley: The Minister gave a rather expansive response to the earlier stages of the debate, and I fear that in the course of doing so, some of my more detailed questions were lost, so I will return to them. They follow on directly from the point made by my right hon. Friend the Member for North-West Hampshire; in that context, we can apply the situation to a particular hospital. I know what the sources of capital are for Addenbrooke's NHS Trust by virtue of reading their board papers, which are public documents.

I want the Minister to help us, step by step, to understand the Exchequer contribution to NHS foundation trusts, because that is what clause 11 deals with. I referred to the contributions earlier, but I will go through those again to avoid any doubt.

First, I shall address the matter of operational capital. Again, to avoid doubt, I referred to the bids for capital inside the trust, compared with the capital available and was speaking about the operational capital. The bids for operational capital inside the trust are £22.5 million. The amount that is to be allocated—there is some overcommitment—is £7.5 million. The

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block allocation to the trust for 2003–04 is around £6.9 million.

As the Minister told the Committee, those are three-year allocations. Therefore, we have allocations for 2003–04, 2004–05 and 2005–06, and we have heard that those would not be clawed back. However, what would happen after that? What would happen to the block allocation of operational capital after 2005–06? Would it continue to be made by the Department to an NHS foundation trust in the normal way, or would it become part of the trust's requirement for borrowing?

The Department has given certain approvals to the trust through its discretionary capital schemes, which are now called strategic capital schemes. I will not go through what those are, but there are several others in the pipeline. Would the discretionary capital schemes, or strategic capital schemes, continue? Would they continue to be funded directly by the Department, or would they become part of the capital investment for which the trust would need to secure support through the financing facility?

We know that there is a three-year access fund arrangement. The Minister might reasonably tell us that that is available for allocation by strategic health authorities. It might, or might not, follow the three-year programme, but presumably NHS foundation trusts would not be excluded from having the access fund made available to them during the three-year period. I hope that that is agreed. The same applies to modernisation funding. There are specific objectives—ministerial priorities, as it were—and if they apply across the NHS, foundation trusts will have access to those funds in the same way.

I asked a specific question about three-star trust status. In 2002–03, £1 million was delivered to the Addenbrooke's NHS trust because of its three-star status. We do not know if that status will give rise to another capital allocation of £1 million for 2003–04, or some different sum. We are now in the 2003–04 financial year, and we have to assume that the Addenbrooke's NHS trust's capital programme is not receiving such an allocation.

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Chris Grayling: Another capital element of the trust to which my hon. Friend, the Member for South Cambridgeshire referred, and others with which we will come in contact over the next two to three years, is the national IT programme. The Minister's clarification would be appreciated as to how that will be handled in capital terms for foundation trust hospitals as, clearly, it will impact upon the balances of the Addenbrooke's NHS trust over that time.

Mr. Lansley: Yes. We could go into detail on the matter, but it is likely to form part of the modernisation funding stream to which I referred previously. The relevant document for the Addenbrooke's NHS trust states that

    ''In addition, the Trust hopes to obtain funding from the national IM&T programme, although this is yet to be confirmed.''

My hon. Friend the Member for Epsom and Ewell asked the question, but we do not know yet. My assumption is—if I am wrong I hope the Minister will

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let us know—that in so far as the foundation trusts participate in the programme and incur capital expenditure, they will receive modernisation funding from the Department in the same way as other NHS bodies. Those are the questions that relate to the sources of Exchequer funding.

We have discussed the link to the national tariff, and the question is to what extent are NHS bodies going to be treated on a like footing. My hon. Friend the Member for West Chelmsford also touched on the matter. If the national tariff and the price that is paid by commissioning bodies to all NHS bodies are to be on an equal basis, they will in all cases include not only the costs of the provision of a service, but all the associated capital costs.

Section 3.7 of ''Reforming NHS Financial Flows: Introducing payments by results'' of October 2002 states:

    ''This initial set of tariff rates will be derived from 2001/02 NHS reference costs.''

Simply put, what will the tariffs be, based on those reference costs? In economic terms, will they be short-run incremental costs, not reflecting, therefore, the long-term cost of capital associated with the provision of particular services; or are they going to be on a long-run incremental cost basis? We may get on to the argument later, but I will not disguise my feeling that the tariffs have to be based on long-run incremental cost for NHS foundation trusts if they are to sustain the costs of borrowing capital to put additional capacity in place.

If they are all on the basis of long-run incremental costs, do they not, of necessity, involve a misallocation of resources, as, in some respects, commissioning bodies will be buying spare capacity? The Minister reminded us that we want to use up underused capacity; certainly not at the Addenbrooke's hospital, which has 98 per cent. occupancy levels, but we will leave that on one side. Surely underused capacity ought to be able to be offered by providers on the basis of their marginal cost, and should not be bought by commissioning bodies on a long-run incremental costs basis. The risk is that we will generate surpluses in less efficient and less popular locations in the NHS, using up their capacity and giving them surpluses that are unrelated to cost. Prices ought to be reflective of cost and there is a risk that, in this case, that will not be the case.

Dr. Harris: We have had an interesting debate today. I suppose we ought to be grateful to the Minister for his exposition of the new flows of resources within the national health service.

When we arrived today, we could have been forgiven for thinking that when we reached the stand part debate on clause 11, we would have a response from the Minister. The hon. Member for South Cambridgeshire asked many questions; he has asked them again, although he has added a few more, following the Minister's comments. I thought that we would have a response from the Minister to those issues, then a brief clause stand part debate, and then we would move on to the issue of capital in clause 12. I have tabled an amendment to clause 12 that must be

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addressed, and other hon. Members have also tabled amendments to that clause.

I suppose we should be grateful to the Chairman for allowing a long discussion of the new approach to commissioning and the question of having a volume-led or activity-led approach, rather than a cost-based approach. However, if that was the plan, it would have been helpful had we realised how detailed the debate would be. As the Minister said, documents that many of us read last October are available on the web site, although he did not specify the web site address.

We would have benefited from knowing in advance that we might want to read—I see that some more documents have arrived on the Table since 2.30 pm—the 50-page document, ''Reforming NHS Financial Flows'' that was published in October 2002. It would have been helpful had that been provided for Members to re-read for this debate. We may also have wished to re-read the response document and the series of specific questions before this debate.

It is unfortunate that I was not alerted that we would have the opportunity—which I will certainly take—to address some of these interesting questions that the Minister has raised. In response to our debate this morning, a three-page document produced by the Department of Health was placed on the Table. It is entitled ''Information sheet No. XX'', which implies that it is very new. It gives us a little more information than we already have in these couple of hundred pages.

Nevertheless, the Minister has given us a valuable chance to question the Government about this matter. However, his contribution raised more questions than it answered. The first question is about the position of those who are able to retain the surplus. In my intervention on the hon. Member for Epsom and Ewell, I said that it might be possible to know the answer if the Minister clarified the position in a response to my intervention.

However, as hon. Members will be aware, in the document ''Specific Questions, Annexe C''—a response to the consultation produced last October, entitled ''Reforming NHS Financial Flows''—that is one of the key questions raised in the consultation. The answer is not entirely clear. Paragraph 20 on page 33 of annexe C of that document asks whether trusts will be allowed to keep a surplus as a reward for efficiency. Will there be rules governing how such surpluses should be split? What will be the rules governing retention of trust surpluses? If trusts are able to retain surpluses, will they be allowed to carry them over to the following year, or will they be received in the following year?

Those are interesting questions. In a debate on foundation trusts, one can double the number of questions by asking what is the case for foundation trusts and for non-foundation trusts. Since the Minister raised this question in the clause stand part debate, one would have thought an answer might be forthcoming. I am still hopeful.

However, the response given in the document is that the issues around how surpluses should be split, and

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the mechanisms to be used in allowing trusts-PCTs to carry forward surpluses, are to be considered as part of a wider review of the trust financial regime and PCT financial framework. The trust will look at various things; break-even duties, brokerage, special assistance under the new financial flow system, risk management issues and possible medium-term roles for an NHS bank. It continues that the review was expected to report by September 2003.

That may give another place the opportunity to debate some of the questions that have been raised in our debate today, but before this Bill passes into law and becomes an Act.

I fear—unless the Minister is able to prejudge the response to that review—that that will not enable us to get answers today, nor will it enable us to consider how the establishment of foundation trusts relates to the answers given to those questions. Although we are grateful to the Minister for allowing us to question him and to hear his exposition, I suspect that he is being a little tantalising. I fear that he will be unable to answer some key questions, unless, for the first time in the recent history of the Department of Health, a review is able to report any time earlier than the indicated date. I fear, from the Minister's lack of response by way of intervention, that we are not going to get answers.

In that sense, it is hard to understand why we are having this debate on foundation trusts. Can the Minister say whether we will have an opportunity to come back to the matter in hand? I should have thought that that be addressed in his first comments on this section.

I have several specific questions to ask about the new financial flow. I was disappointed by the Minister's earlier response to one of my interventions. In his contribution, he said very little about how that would benefit patients directly, and very little about how quality would be levered up. It may come as a surprise to him to know that I believe there to be some merit in these new financial flows. It is important to allow the commissioning process to focus on something other than cost. Clearly, with the overwhelming focus on cost, there is no opportunity to consider some of the other things that are important, such as responsiveness, quality, getting capacity in quickly and flexibility for commissions.

I was trying to support the Minister when I said that I recognised that it was important that commissioning must be made more flexible and not just cost-driven. That was met with the response that it was well known that I supported the provider interest. I do not know where that came from; I question whether it was justified. It might have been good knockabout stuff, but I thought that we were having a serious, non-partisan debate about the potential benefits that might flow from the reforms to the commissioning process that the Government are proposing.

It was a bit of a cheek to answer what I thought was a reasonable question about equity with the rather partisan response that the approach that we have to commissioning, or to the health service, is

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conservative, even with a small ''c''. I do not believe that to be the case, nor do I believe that this debate is an appropriate place for the Minister to make those allegations. If it were otherwise, I would be allowed to answer them.

The question is; how will this help the patient, and what are the potential perverse incentives that may flow from some of the proposals? I do not know whether the Minister recognises, as I do, that in any change like this there are risks of perverse incentives. There are questions that must be answered about what this will do for equity, for quality and for genuine patient choice, particularly for those patients who do not have the flexibility to follow contracts or financial flows around the country, and who rely on being treated in their local hospital where they can be visited by their family and where they have had continuity of care throughout their illness from existing providers.

The Minister said that the tariff would be derived from 2001–02 reference costs and, in response to something that I said, told us that there would be adjustments for projected cost inflation and local market forces factors; he made specific reference to the south and the south-east. Clearly, labour costs are higher there, but I worry that that will not be sufficient to compensate for the actual costs of delivering the capacity required to meet the needs of the health service.

In the Oxford Radcliffe hospitals trust—one of many—it is not that NHS nurses have to be paid more in wages or extra living costs, or that the trust has to arrange additional investment in childcare facilities in order to compete with other employers that do that better than the NHS. Up to three times over the odds has to be spent on agency nurses. That sort of cost pressure is vastly more than what the Minister described—I hope that I am not misquoting him—as ''some adjustments for local market forces factors''.

In my trust, the percentage increase in the cost of providing services has been huge because there are simply no nurses available locally, which is part of the reason why the trust has such a huge deficit. An approach that does not adequately compensate for that state of affairs, regardless of who is to blame, would spell even further disaster for a trust in such a position. Such hospitals are kept afloat by local commissioners, who are pretty much bound—at least in the short to medium term—to purchase services from them. Sadly, they must try to meet, as far as they can, the additional costs that that implies.

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I should like the Minister to give an assurance that the position of those trusts will be recognised. Perhaps it is a clause 11 matter; perhaps there will be direct financial assistance to such trusts. I know that an announcement was made a few weeks ago about a pot of money taken from the NHS to be allocated by the Government. Providing local commissioning and purchasing flexibility is a step forward, but the Minister must accept that too large a centralised structure is a step backwards. It may be necessary, but it is not the brave new world of uniform improvement

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in the devolution and decentralisation of commissioning decisions that the Minister proclaims.

The NHS Confederation's response of November 2002 to the financial flows document contains a paragraph on quality, which was not properly addressed in the original consultation document of October 2002. Indeed, ''Frequently asked questions'' is the shortest section in the document. There is very little in it about patient issues and quality. The NHS Confederation, which is as enthusiastic for reform as we are, recognises the following:

    ''There is no reason why a fixed price system should by itself create improvements in quality except where improvements may reduce costs.''

It also states, although I find the view regrettable, that:

    ''Experience suggests that reliance on external inspection will also fail to make sufficient impact''

on quality. I will be grateful if the Minister told us whether anything in the new arrangements would persuade me or the NHS Confederation, which will be running the system, that there will be a direct impact on quality from the financial flows alone. Will the Government set up and fund properly a system of audit available for local commissioners that does not rely on annual reports from the Commission for Healthcare Audit and Inspection or on other, more long-distance, means of measurement?

There are concerns about how emergency care will be treated under the tariff system and how complex, chronic disease will be managed. The Government say that they will start with elective surgery, and the healthcare resources groups that they have set up are mainly in the field of elective surgery. Simply starting with the low-hanging fruit does not explain how the system will be translated into the management of chronic disease and emergency care treatments. That will be much more difficult to cost. I am not sure that experience in elective surgery will help to do that. We must work out whether it will be possible to do that without creating distortions. The NHS Confederation in its response, under ''Designing a meaningless system'', says:

    ''There is a danger that the new system will become an accountants' and information specialists' 'anorak-fest' of impenetrable rules and massively overspecified detail with little connection to clinical practice and no chance of engaging clinicians.''

The confederation says that the system must be driven by a desire to improve clinical practice and patient outcomes rather than by an obsessive search for the perfect system. The Minister must address that, as he said very little about a desire to improve patient outcomes and a great deal that was in danger of straying into that anorak-fest.

The Minister may say that that does not sound like a positive response to the document, but one of the duties of Opposition politicians is to point out potential drawbacks; the Minister did not suggest any in his exposition. The fact that there may be drawbacks, distortions or perverse incentives is not an argument for not moving forward, but it is an argument for clearly addressing those problems in advance. I hope that the Minister does not think that because I have concerns about the impact of the proposals that I am against reform; on the contrary, I

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believe that the proposals may be of some benefit. I hope that when I mention some potential perverse incentives, he will not consider, as he tends to do, that I have taken a negative or conservative—with a small or large ''c''—approach to his suggestions.

The NHS Confederation states:

    ''Creating a system that incentivises admission for conditions can and should be managed on an ambulatory basis. Payments and activity targets for conditions such as asthma, heart failure, and so on will need to be capped and even have penalties for high rates of admissions or rewards to incentivise admission reduction.''

That is clearly a potential perverse incentive to generate activity and the need for capacity to attract contracts.

The confederation states:

    ''Since the HRG price is significantly determined by length of stay, providers that can treat patients in less than the average time can make a profit. Experience in other systems suggests that this gives incentives to discharge early.''

That is a concern because incentives to discharge early already exist in the form of fines for delayed discharges. That will go against patients' best interests.

 
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