UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1114-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

HEALTH COMMITTEE

 

 

PUBLIC EXPENDITURE 2004

 

 

Thursday 28 October 2004

MR JOHN BACON, MR MARTIN CAMPBELL,

MR ANDREW FOSTER and MR CRAIG MUIR

Evidence heard in Public Questions 1 - 193

 

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Health Committee

on Thursday 28 October 2004

Members present

Mr David Hinchliffe, in the Chair

Mr David Amess

John Austin

Mr Keith Bradley

Mr Simon Burns

Siobhain McDonagh

Dr Doug Naysmith

Dr Richard Taylor

 

 

________________

Witnesses: Mr John Bacon, Group Director, Health and Social Care Delivery, Mr Martin Campbell, Head, Resource Planning and Acquisition, Mr Andrew Foster, Director, Workforce, and Mr Craig Muir, Director, Older People and Disability Division, Department of Health, examined.

Q1 Chairman: Good morning, everybody. Can I warmly welcome our witnesses from the Department. Perhaps, as usual, I can place on record our gratitude to you and your officials for your responses to this exercise. I know it is a big job but we do gain a great deal of information from it that otherwise we would not be aware of perhaps. Would you like to each briefly introduce yourselves to the Committee.

Mr Campbell: I am Martin Campbell, Head of Resource Planning and Acquisition.

Mr Bacon: I am John Bacon, Group Director of Health and Social Care Delivery.

Mr Muir: Craig Muir, Deputy Director of Care Services.

Mr Foster: Andrew Foster, Director of Workforce.

Q2 Chairman: Thank you. Can I begin by asking about the overall financial position of NHS trusts. The figure that we have been given indicates another net deterioration in trusts' aggregate financial positions. We wonder what the background is to this. We have seen that we have moved from £56 million overall surplus in the 2000-01 financial year to a £94 million deficit in 2002-03. I wonder what the reasons are for this. Should we be concerned by this? What steps are taken to independently monitor the individual financial performance of each acute trust?

Mr Bacon: Perhaps I can start, Chairman, and then ask Martin Campbell to continue. I think we had some of this discussion last year at this event when we were explaining to you that we have a very deliberate policy of ensuring that the financial position of health organisations is transparent and, as I said last year to the Committee, we let deficits lie where they fall and we do not seek to manipulate money around the system to cover those. Inevitably, given the very tight financial regime that trusts operate under, that means this is going to produce deficits in some places. We think that is a good policy because it ensures that trusts focus on their financial duties and manage themselves tight financially. Over the period of the last few years, we have tightened up the regime quite considerably to ensure that happens. For instance, in the past trusts were allowed to vire capital to revenue as a capital revenue issue in agreement with the Treasury but that is now no longer the position so the revenue position is the revenue position, as it were. We will continue to run that regime in that way so that we ensure people focus fully on that position. In overall terms, as I think Mr Martin will describe, the NHS achieved financial balance last year, which is our overall objective.

Mr Campbell: As John Bacon has just said, in overall terms the NHS did achieve financial balance last year with a surplus of over £74 million. Within that there were 67 trusts who achieved a deficit in total of around 236 million but that was offset by surpluses within the PCT and SHA sector of around 210 million. This reflects our new policy, as Mr Bacon said, of letting deficits lie where they fall.

Q3 Mr Bradley: I am a Manchester MP and part of the deficits that we have with trusts in Manchester is based on the failure of the Census to count the number of people who are in Manchester and, therefore, their care is not reflected in the budget allocation to the various trusts. The Deputy Prime Minister's Office accepted the failure of the Census and has made adjustments to local authorities for the numbers of people who were missing. The Department of Health so far has refused to do that which has exacerbated the problem, so we are caring for and treating people who are not being given money because they have not been counted in the Census. Would you like to comment on that?

Mr Bacon: Again, I can give you a general answer and Martin may want to comment more specifically. As you will be aware, I am sure, we have a very well developed capitation based formula for allocating resource to primary care trusts and over recent times we have increased the amount of resource that is allocated directly to primary care trusts and it is now approaching 80 per cent of total resource. We do that as a whole sum, so effectively the amount of money that is available to distribute is distributed on the formula. In seeking to distribute for the current financial year we used the best available ONS statistics at the time and we were assured by ONS - I think to use their words - "this was the most accurate Census that had taken place".

Q4 Mr Bradley: You believed them?

Mr Bacon: It is not for me to comment. I am just saying what they told us. What we will be doing for the next allocation round is to take the revised ONS statistics so assuming that they are now more correct that will properly reflect the population of Manchester.

Q5 Mr Bradley: But if you do that you have not properly reflected the amount of money that should have been allocated, therefore there are deficits which are based on the underestimation of the population at the time, so that problem will never be compensated for that failure.

Mr Bacon: It is true that for the period of the allocation that we made we will not retrospectively adjust, but then we do not retrospectively adjust for any of these factors. That would be just one of a number of factors that could be argued. We took the view that given that we allocate the total resource available through the allocation formula, in order to give Manchester more we would have had to have retrospectively given somebody else less and in year that would have been very difficult to manage. That is the approach that we have taken but we will reflect the revised populations in the next series of allocations.

Q6 Mr Bradley: You are confirming that there will always be a shortfall.

Mr Bacon: To the extent that there was, and we do not fully know this, a shortfall in the period of the allocation we will not retrospectively adjust that. In the new allocations it will reflect the new formula.

Mr Campbell: In the new allocations for 2006-07 and 2007-08 the populations that we use will be the most up-to-date available from the ONS. I think there is a trade-off that we have between giving PCTs the certainty of a three year allocation or making allocations every year on the most available up-to-date data, and we took the decision that we would give PCTs the certainty of three year allocations on this basis.

Q7 Mr Bradley: There is an inconsistency between your approach to it and the local government's approach.

Mr Campbell: There is, but the local authorities did not have that certainty of three year allocations that the PCTs did.

Mr Bradley: This will be pursued further.

Q8 Dr Taylor: I think you said that there were 67 trusts in deficit. Are those all PCTs? Are they PCTs and acute trusts? Do they fit into any particular area of the country? Could we have a little more detail on that?

Mr Campbell: They are all NHS trusts.

Q9 Dr Taylor: So they are PCTs or acute trusts?

Mr Campbell: They are not PCTs. They are all NHS acute trusts.

Q10 Dr Taylor: They are all acute trusts?

Mr Campbell: That is right. There could be some mental health specialist trusts.

Q11 Dr Taylor: So there are no PCTs in deficit?

Mr Campbell: 41 PCTs were in deficit at the end of 2003-04.

Q12 Dr Taylor: So 41 PCTs and 67 acute or mental health trusts, so that is well over 100.

Mr Campbell: 108.

Q13 Dr Taylor: Do they all fit into particular strategic health authority areas or are they equally scattered throughout the country?

Mr Campbell: Some strategic health authority areas have more financial problems than others but I am not aware of any particular geographical split.

Q14 Dr Taylor: Are there any strategic health authorities in overall deficit?

Mr Campbell: I do not have the exact figures to hand. If you took all the trusts and PCTs added together within some strategic health authorities, some of those would be in deficit I imagine, for example Avon, Gloucester and Wiltshire maybe.

Q15 Dr Taylor: Would it be possible to ask for a written answer to that to know which strategic health authorities are in deficit?

Mr Campbell: Of course.

Dr Taylor: Thank you.

Q16 Dr Naysmith: Before I ask my question I wanted to agree with what Mr Bradley has said on Manchester because something similar applies in Bristol in terms of under-funding because of ONS statistics. I am putting that on record to make sure that I can refer to that later. I am a simple man and the explanation that you gave did not quite satisfy me about why the deficits are showing up in this financial year and not previously because this was clearly well discussed at last year's equivalent event and, as you say, one of the things that was agreed, and Mr Dixon said would not happen in the future, was allowing trusts to move money from a trust in surplus to other trusts that were not in surplus and that has stopped now. It should give the same average result, should it not, whether the money moves around from trust to trust or whether it sits in the trust and is added up at the end of the year? You say that because that now happens and you leave the deficits with the trusts and add it up at the end of the year it does not matter as much. I am a bit simple, can you explain that to me?

Mr Bacon: It certainly does matter. We are progressively seeking to introduce very strict financial rigour into the system, which is why we have taken the approach that we have. If you understand the way in which trusts have to manage their resource in an economic sense, in that they are allowed only to price at cost, so they are not allowed to price to make a margin, therefore they are bound to be running a very tight financial regime because there is very little headroom, if you understand me, to make surplus. Therefore, in a rather anecdotal fashion, the result they can get is a draw or a defeat.

Q17 Dr Naysmith: But these are real deficits and bigger deficits than they were the year before, that is the point I am making.

Mr Bacon: What the NHS trust financial regime requires, and I must emphasise that this is different from the foundation trust regime, is trusts to break even taking one year with another. The definition we have applied to taking one year with another is that if a trust makes a loss in one year it has to recover that loss over the following three years or, by exception, over the following five years. What we will be doing now is working with those trusts that made a loss last year to ensure that they both achieve recurrent balance and recover the deficit over the following years.

Q18 Dr Naysmith: That is being managed in which way, by the strategic health authority?

Mr Bacon: That is managed by the strategic health authorities who are charged with firstly ensuring financial discipline and that trusts seek to achieve financial balance and, if they fail to do so, to agree the recovery plan which gets them back into recurrent balance and recovers the loss.

Q19 John Austin: Can I seek clarification on the response you gave to Mr Bradley about Manchester. If Manchester, or any other trust, received less money than it should have done given its real population as opposed to its assessed one and then provides services for that and, as a consequence, moves into deficit, you are saying that in the following year, once the figures have been verified, that year they will get right again but they will get nothing to write off or to assist the deficit which has come about because of the use of wrong figures.

Mr Bacon: I think we need to set this in the context of the overall resource allocation position. As Members of this Committee will know, the formula determines the theoretical allocation to each PCT but most PCTs will lie plus or minus to that because the actual allocations are based on historic allocation and we have a pace of change policy to try to move people back towards their target allocations. All over the country there will be PCTs which are either above their target allocations or below and we cannot run a system that says, "If you are below your allocation and you make a deficit in the trust that is all right then" and ask PCTs that are above to have the ability to generate a surplus. That is not the way the regime works. We just have to accept that we adjust this over time. The basic duty of NHS trusts is to break even and we do not vary from that.

Q20 John Austin: Let us take another example where the Census got it wrong. Let us take the example of part of the area I represent, which is in the Thames Gateway, which is undergoing massive population growth. I represent an area which has two PCTs, both in deficit, and two hospital trusts, both with substantial deficits - Queen Elizabeth's and Queen Mary's - and no additional funding coming in to take account of the growth of the population or certainly not commensurate with that growth of population. How is that going to be addressed?

Mr Bacon: The way in which we work this is that we look to ONS to give us the best advice possible on the population for the period we are allocating. We know that areas grow and occasionally the growth of a population is ahead of the ONS forecasts. As the ONS forecasts catch up with that growth of population, so the allocation reflects that. We are aware that there are areas of growth, and Kent is one of them, where I think I am right in saying that for Kent and two other growth areas we have made a special allocation this year of 20 million to reflect the fact that you will need to be putting some infrastructure in place ready for that population to arrive.

Q21 John Austin: Perhaps you can provide a statement of where that allocation has gone.

Mr Bacon: There are three areas, one of which is Ashford in Kent, one is the Stansted corridor and the other is Milton Keynes. We can give the Committee details of that.

Q22 John Austin: Neither of which is Greenwich or Bexley.

Mr Bacon: I should have said also within the Thames Gateway, forgive me, I forgot. Actually that is the principal recipient. Let me stress the point here that this is in recognition of the need to start to develop the infrastructure to receive that population rather than a reflection of the fact that we are slightly out of kilter on the population itself.

Q23 Mr Bradley: From that, you are establishing the principle that you can make special allocations outside of the total budget that you set at the beginning of the year for exceptional circumstances so where you can project an increase in population you are putting additional resources in and where it has been shown that thousands of people in Manchester actually exist because we pointed out to the Census people that people who pay council tax tend to exist rather than not be on the register, and we were surprised they did not agree with that position, there is an opportunity to make an additional allocation in the circumstances my friend has described but you cannot do it for the thousands of people who are actually receiving care and treatment in Manchester currently.

Mr Bacon: I said earlier that ONS had assured us that this Census was the most accurate that there has been.

Q24 Mr Bradley: But it has been discredited. You are compounding the problem by accepting it.

Mr Bacon: The point I was going to make is that there are other areas of the country. I happen to live in the Borough of Westminster which appeared to have lost a quarter of its population overnight in the Census and there are other instances where ONS are looking at the numbers in the Census. I think the difficulty is we could not completely rerun the model during the course of our three year allocation process and reallocate money that we had already allocated and, therefore, we took the decision, in my view rightly, that we would live with the allocations that we had made and that we would revise for the next allocation process based on the new ONS statistics. That was the decision that we took.

Mr Bradley: All I can say is you may say it is right but I think it is wholly wrong.

Q25 Mr Burns: Can I just pick up one point there. You said that the Department was making extra money available in anticipation of development in Ashford, the Thames Gateway and the Stansted/M11 corridor, but what happens though if a local authority has to build 14,000 extra dwellings between now and 2011 in an area that directly adjoins the boundary that has been drawn for the M11/Stansted corridor, because 14,000 extra dwellings over a relatively short period of time is going to have a significant impact on the provision of health care and yet they will not be getting any of this extra money?

Mr Bacon: The straightforward answer is that we took the decision to restrict this to the designated areas.

Q26 Mr Burns: Even though with the designated areas there is an inevitable overspill?

Mr Bacon: We have never sought to seek to adjust for every development. We have taken the decision to adjust for these four designated areas.

Q27 Mr Burns: Right.

Mr Campbell: I think it is worth adding that for the next set of allocations, the ONS population projections that we will be using should take into account exactly those sorts of developments.

Q28 Mr Burns: When will that be?

Mr Campbell: That will be for 2006-07 and 2007-08.

Mr Burns: In Mid Essex, my own PCT, there is a serious deficit and there is an argument----

Chairman: Can you say how serious, Simon. I am interested in how you define "serious".

Mr Burns: About £4.5 million.

Chairman: I will be a bit more serious in a moment or two.

Q29 Mr Burns: Fortunately they have not got problems on the scale that you have. For the Mid Essex area that is having quite a serious impact on the provision of services. There is a school of thought that PCTs in Mid Essex are actually too small and there seems to be a movement to vote with their feet in that the chief executive of the Chelmsford PCT is now exactly the same person as the chief executive of the Braintree PCT, which seems sensible because you are saving a salary, etcetera. Is there not an argument in the light of the experience of PCTs so far to allow some of them that are considered too small to merge so that one can cut out some of the bureaucracy in the senior management to save costs which can be ploughed back into patient care? If one agrees with that analysis, and I see you nodding your head in what I assume is an affirmative way, when will they be allowed to do it?

Mr Bacon: Currently we have 302 PCTs across the country and those were determined by some natural population groupings and what we considered at the time to be sensible populations through the local development of primary community based services. PCTs have essentially three roles, two of which suggest smaller populations, one of which suggests larger populations. The role in terms of developing primary community based services and in local public health issues really does benefit from small-ish scale.

Q30 Mr Burns: What is your definition of "small-ish"?

Mr Bacon: I think something up to 200,000 population. In London they are slightly bigger because they are coterminous with the boroughs of London, which is a very sensible arrangement. Across the piece, 150,000 to 200,000 lends itself to that sort of activity. For what we have termed as their commissioning arrangements, which is the interaction with NHS trusts and other providers, in a sense we would take the view that probably a larger size would be sensible. In the immediate term we want to avoid massive disruption by another wholesale set of structural changes, and I think this Committee has expressed views on that before, but we do see, particularly for the areas of business which benefit from larger scale, that where it is appropriate to do so we should allow PCTs to share senior managers which concentrates expertise and reduces bureaucracy. Across the country we have given people permission to put those arrangements into place. What we have not formed a view on yet, and at the moment it would not be appropriate to do so, is whether over time we would wish to move towards rather more formal mergers of those organisations.

Q31 Mr Burns: That is very interesting because there is a school of thought that the Government does actually want to allow mergers where it is sensible, where you do not lose the whole ethos of local organisations providing local health care, but they will not do it before the next General Election although they will immediately after the next General Election. I am not quite sure why the General Election should be so important in taking these decisions. If you are here in a year's time, on the assumption that the General Election has taken place, and mergers have been allowed and given the green light, it will be quite interesting to hear your analysis of the situation then as opposed to what it is now.

Mr Bacon: I think it would be inappropriate for me to comment on what Government may or may not decide on this matter either before or after the election. The stated policy position as of today is that we are not allowing mergers of PCTs and, indeed, our ministers have taken that decision in one or two specific cases recently. Of course, we will continue to reflect on structural issues as we progress through this major series of reforms.

Q32 Mr Burns: In a year's time I look forward to your answer.

Mr Bacon: If I am here in a year's time I would be delighted to discuss it with you again.

Mr Bradley: You are assuming no change in Government, Simon.

Q33 Chairman: Can I press you further on the whole issue of financial controls giving an example I referred to a moment or two ago of the situation in the Mid Yorkshire trust which covers part of my constituency. In terms of the 2003-04 financial year they had a report to their trust on 2 May 2003 indicating a gross financial gap of £19 million with £8.4 million of identified savings proposed, leaving a residual 10.6 million financial problem. The picture looked broadly similar with a financial outturn deficit worst case of 8.7 million reported in July 2003. We had a new financial director who appeared later in the year, I believe in August, and the trust board was told on 3 October that the gross financial challenge was by then £34 million. What I do not understand is how we have a situation where a trust is given figures which are markedly different over a very short period of time. Without looking just internal to the trust, my concern is, and this is what the first question was from my point of view in this session, is there sufficient financial rigour at SHA level outside the trust looking at the way that trusts are managing their finances? I find it incredible that we can have a situation where the board are being told one thing in one month and something fundamentally different a couple of months later.

Mr Bacon: First of all, if I briefly describe the mechanism for monitoring and performance managing financial control and then I will come on to talk about the specific trust that you have mentioned. The process we currently have, as I said earlier, is the basic financial duty of the trust is to break even taking one year with another. Each year a trust is required to produce a business plan which demonstrates prospectively that it can achieve financial balance or, if it is forecasting that it cannot, what mechanisms will be put into place either to bring it back into balance or to give it transitional support while it is coming back into balance. When I was describing earlier the process of leaving deficits where they lie, that does not exclude the possibility of prospectively giving support to an organisation which has any structural problem or whatever to overcome in order to do the balance. That arrangement is put into place prospectively and then on a monthly and more rigorous quarterly basis the health authority examines, monitors that performance and reports to us. There is a process of that to do. We were aware during the course of 2003-04 that the trust that you referred to, which I think is called Mid Yorkshire Trust?

Q34 Chairman: Yes.

Mr Bacon: Was running into serious financial difficulties and the health authority were giving very heavy oversight to that. There were changes in the finance structures and reporting and subsequently changes in the chief executive and the health authority put one of their senior directors into the trust to seek to help overcome the issue but by the time the issues were really fully understood by the new finance director I think the issues were too big to deal with in year. As you no doubt know, that trust is on a very heavy recovery programme currently, very heavily overseen by its health authority and is managing its way back into current balance. I should stress that I think this is an exceptional circumstance. We commented last year on North Bristol, if you remember. We would seek to avoid these but from time to time, sadly, there will be a failure of financial control in trusts where that happens, given that we have got 572 of them, but the mechanisms are put in place to minimise the risk of that happening and to ensure rapid intervention when we discover it.

Q35 Chairman: When you discover it. This trust has been in deficit and its predecessor trust in quite serious deficit over many, many years, this is not a sudden discovery. The discovery is jumping from the one figure I mentioned of 19 million to 34 million in two months which was a concern but that 19 million reflects a problem over a long period of time. Having been in local government, I cannot see this kind of situation occurring in local government. I find it very interesting that we do not appear to have mechanisms to address this kind of serious problem which has been going on, not just for two months but for many years.

Mr Bacon: I would not dispute the fact that this is an example of failure of financial control, there is no purpose in trying to do that.

Q36 Chairman: Obviously you are aware because you are prepared on this issue and you had an idea that I might be interested in this issue. Where has the failure been because the failure is not just within the trust, the failure is elsewhere, the failure could arguably be in your Department as well as the SHA?

Mr Bacon: If we come back to a very early discussion we had this morning about the ability of the system in the past to move money around to disguise these issues, I think I am right in saying that this trust in the year before the one we are talking about had a deficit of around about £2 million. Clearly that disguised an underlying position that was much more serious than that. I think the ability of the system to cover that through the sort of manipulations I have talked about, legitimate as they were at the time, probably led the trusts to feel that they did not have to take these issues as seriously as they should. The current system really does focus attention very heavily on individual organisations such as this. We are now of the view that the regime that we have put in place very recently, and remember we described this for the first time last year, will, over time, ensure a much tighter position. The Wakefield and Pontefract situation, as you rightly described, had been developing over many years and really came to a head in 2003-04. You are quite right to say that the system should have been much sharper on addressing that earlier, but it did not and what we are trying to do now is to ensure that in future situations of that sort we are much more on the ball and quicker to intervene.

Q37 Chairman: Can I ask you about the issue of monitoring the financial performance of foundation trusts because in the last few days we have had this development in Bradford, again which is near to where I am from. As a Committee we are particularly interested in Bradford because we had them as witnesses in our inquiry into foundation trust status. My understanding is that prior to the prospectus being issued by the Bradford Trust in terms of foundation status, there was a dispute between the acute trust and the three PCTs over payment for treatment, an issue of £2.5 million. There was adjudication by the SHA in favour of the PCTs but this was before the submission of the prospectus in terms of foundation status. In the prospectus the trust had stated that the SHA had found in their favour on this dispute, in other words that they had an income of £2.5 million higher than they actually had. Are you satisfied that the regulator, in terms of approving this application, was sufficiently rigorous in analysing the financial circumstances of this foundation trust application?

Mr Bacon: Chairman, you are correct in your comment about the adjudication of the specific issue. I find myself in some difficulty answering the rest of the question because, as you know, the monitor accounts directly to Parliament and, therefore, to this Committee on issues of how it appraised the prospectus and how it has dealt with the financial issue subsequently. I think the regulator has submitted some written evidence to this Committee about how it approaches that. It would be inappropriate and, indeed, impossible for me to comment on that because I do not know how he approached it.

Q38 Chairman: So to get any information at all about this trust and what has happened, we need to get the regulator before the Committee?

Mr Bacon: Yes.

Q39 Chairman: So for every foundation trust where we have got questions about the manner in which they presented their prospectus or management details, we have to have a session with the regulator on each trust, is that what you are saying?

Mr Bacon: It is my understanding that the regulator accounts directly to Parliament for his actions.

Q40 Chairman: You are absolutely washing your hands of the situation. It is a "Not me guv" job, is it?

Mr Bacon: In terms of the financial position in Bradford, and of course I am aware of the issues, this is a matter for the regulator against the licence that he has issued them. The discussions between the regulator and Bradford Foundation Trust are not discussions that we are party to and, indeed, not issues that we have responsibility for. In terms of accountability to this Committee, that is a matter for the regulator.

Q41 Chairman: So basically, in the not too distant period when you have far more acute trusts having foundation status, this session will become largely irrelevant?

Mr Bacon: The Department retains overall responsibility for the NHS and many of the issues that we will be talking about today will continue to be our responsibility. Similarly, the overall policy applying to the NHS remains a matter for the Department. The individual relationships between foundation trusts and regulators are matters that you would have to put to the monitor.

Q42 Chairman: I think we might have to pursue this with the Secretary of State next week. Can I just ask you, in terms of the financial situation affecting a significant number of acute trusts, what bearing do you feel this will have? I am not specifically talking about Mid Yorkshire, although that is in the back of my mind, but there are other trusts as well. What effect will this have on the capital schemes, the PFI schemes, that have been approved by Government and are about to be signed up? It is not just Mid Yorkshire, there is a whole range of them where there are similar points that they are addressing.

Mr Bacon: With any major capital scheme the Department or, if it is a very significant size such as the one in Wakefield, the Treasury, are required to give final approval before the contract can be signed. That requires approval based on both value for money and affordability. We would be looking at any scheme that was about to come up for final business case approval and, therefore, the immediate prelude to signing the contract with a PFI partner, to ensure that it was affordable. In the case of a trust which has a very significant deficit we would need to be convinced that the scheme was affordable in its own right and that the trust was able to get itself back into recurrent balance to be able to afford it. Sorry, this is a slightly complicated answer. If you take the position where you look at the trust's income and you assume it is in balance, is it affordable, that is question number one. Question number two, if the trust is not in financial balance, is it able to get back into financial balance and, therefore, afford it. That is the sort of process that we are going through with the trust that you have mentioned.

Q43 Chairman: I am trying not to ask a political question here but in terms of the statements made by the Prime Minister and the Chancellor of the Exchequer as to how many hospitals we will get, you have no reason to believe that because of the deficit status of a number of trusts concerned we are not going to see the delivery of those new schemes?

Mr Bacon: We are confident that the commitment we have got to, I think it was, 100 new schemes by 2008 we will achieve.

Q44 Dr Naysmith: Turning briefly to the whole question of monitoring trusts and the role of the strategic health authority. When we were talking last year about North Bristol Trust, which still holds the record, it was said that monthly accounts, quarterly accounts, were being submitted to the strategic health authority but they are now slimmed down bodies that do not have the ability to look in detail, or they did not last year, at the accounts of all of the trusts in the area. Is that part of the system that has been put right? Has that been sorted out? Does the strategic health authority look carefully at the accounts of every trust?

Mr Bacon: I think the answer to that is most definitely yes. The strategic health authorities account to me for their operational performance and I hold them responsible for delivering financial balance within their health authority area and for the financial performance of each of the organisations under their control, with the exception of foundation trusts, of course, which are the responsibility of the monitor. There is a clear process of accountability that runs from me through the health authorities to the trusts. Are they equipped to do that? I think the answer to that is yes. Each of the health authorities on average has about 25 or so organisations that it has to look at and I think that is manageable. When I was a regional director in London I had something like 80-odd organisations that my organisation was responsible for and we had roughly the same sort of number of people to do it. I am confident that they have both the expertise and the size of organisation to do that thoroughly. You can debate, and we have just debated, whether that worked in the case of North Bristol or in the case of Mid Yorkshire, but ----

Q45 Dr Naysmith: We were assured last year that this was going to be looked at and you have assured me again that mechanisms are in place.

Mr Bacon: As we were just saying, the Mid Yorkshire situation was happening, as it were, as we were talking to you. The systems that we were beginning to put in place and to strengthen should avoid repetitions, if they are effective, but the Mid Yorkshire situation had already started and, in fact, had happened.

Q46 John Austin: One of the things taken into account in allocations is the market forces factor in determining or adjusting the allocations. Are you satisfied that the criteria on which they are based are accurate and are a fair outcome?

Mr Bacon: I think the straightforward answer is it is as good as it is possible to make it. We are in the process of reviewing the way that is done and I think Martin may be able to explain to you how we are looking to revise that.

Mr Campbell: Briefly, we have got the University of Warwick who produce the market forces factor for us and they have just done a review of it, as they do on a regular basis.

Q47 John Austin: Would you accept that it throws up some very strange anomalies within London?

Mr Bacon: I think one of the difficulties with it is that it has a sort of cliff edge approach, if you see what I mean. We define the market forces factor for a piece of geography and then for the next piece of geography and it is not a smooth transition, you are either at that level or the next level. That can look as if that throws up anomalies.

Q48 John Austin: You are going to have trusts which are competing in the same markets for a start.

Mr Bacon: What we are looking at to try and smooth that is to increase the number of bands, as it were, so that there are smoother transitions over those cliff edges which should mitigate the problems that you have described.

Q49 John Austin: When do you think that is likely to come?

Mr Campbell: I do not know. We can let the Committee have a note on the future of that.

Q50 Dr Taylor: A quick question about foundation trusts before I move on, probably to Mr Foster, about the appointment of consultants to foundation trusts. I was approached by the College of Physicians just yesterday expressing their alarm that there is something about consultants to foundation trusts being appointed by a different mechanism from consultants throughout the rest of the NHS. Is that true? Can you give us any detail on that?

Mr Foster: Foundation trusts were given a substantial range of freedoms from Secretary of State directions, many, many freedoms, one of which is that they are not obliged to use the National Consultants' Appointment Procedures, although they are perfectly entitled to do so, and my understanding is that the vast majority of them are continuing to use them.

Q51 Dr Taylor: So this is not anything new, this was in the original ----

Mr Foster: Yes.

Q52 Dr Taylor: Thank you very much for clarifying that. Moving on to NHS activity and productivity. We have been given a graph of NHS output which shows from 1995 to about 2000 output was just better than input and then very gradually input has now become greater than output. We are also told that that does not take into account quality and that you are in some way working on trying to build quality into this. Could you explain this, please, because it is really completely puzzling to me?

Mr Bacon: I think it is widely recognised and, indeed, you will have seen exchanges to do with the ONS report recently on NHS productivity, that the old productivity measure was a very poor measure of the productivity of the NHS. As you rightly say, it counted inputs and a limited number of outputs, mainly around hospital based activity. It took no account of any quality improvement even in clinical quality or in quality of management.

Q53 Dr Taylor: Was it just FCEs?

Mr Bacon: It was wider than FCEs.

Mr Campbell: There were about 16 categories but the vast majority of the index was related to FCEs.

Mr Bacon: We have been working with ONS for some little while now in seeking to make this index a better reflection of the true productivity of the NHS. The reports that came out last week or the week before reflected some of the work that we have been doing with them in widening the number of things we are able to count, which is why the productivity measure increased. We still feel very strongly that the interim review that was published recently does not fully reflect productivity because it still fails to measure the quality improvements. There are some slightly perverse issues, such as it measures the cost of extra prescribing so that, as it were, would diminish productivity. It has no measure of the benefit of that prescribing, so if you take something like statins, which are very widely accepted as having very significant health benefits, and the number of prescriptions for statins, as you will know, has risen very substantially in recent times, the cost of those would be in the cost base, the input side, but the benefits in terms of reduction in heart failure are not measured, so in a curious way we would be better off not prescribing statins if we were just interested in the productivity index which, of course, would not be very sensible for us or for the public. We are very keen that we get this quality dimension of our productivity firmly built in, both in clinical quality and in the quality of service that we provide on some things, such as faster access.

Q54 Dr Taylor: Can you give us any idea of the quality issues that you can measure?

Mr Bacon: I think I have just given you an example but, of course, these are much more difficult to measure, particularly in the short-term, than something as simple as the amount of pound notes that go in and the amount of FCEs we produce for them.

Q55 Dr Taylor: Are you coming anyway towards being able to measure health outcomes?

Mr Bacon: Perhaps I can ask my colleague, Mr Campbell, to describe the work that we are doing currently.

Mr Campbell: We can measure health outcomes on a fairly consistent basis.

Q56 Dr Taylor: Like survival?

Mr Campbell: Survival rates, for example. The difficulty is putting a cash value to those things. We have commissioned some work from the University of York to look at this. That is feeding into the Atkinson review which will be reporting in January which we hope will point in a direction for us to be able to measure this.

Q57 Dr Taylor: If we are all here next year will we be able to ask you something about how you measure health outcomes?

Mr Campbell: That is right, you will be.

Q58 Chairman: It has always struck me as being unfortunate that we have this naïve debate about the amount of money the Government has put in and the output not reflected in the proportions. How would you measure in quality terms the impact of an organisation like the NHS Commission, the quality work that is done by an organisation like that, the impact of revalidation of doctors, the impact of clinical governance? Is there a way of measuring it? Looking at it as a lay person from the outside I see some significant improvements arising from that but how can you quantify them in the terms that we are talking about here?

Mr Campbell: I think, again, we have to measure the downstream impact of that by looking at the improvements in death rates and improvements, for example, in readmission to hospital, hospital rates and things like that. I think that is the only way we can measure the impact of these.

Mr Bacon: As my colleague said, the conversion of that into a pound note equivalent or a measure equivalent is really very difficult, which is why we have struggled with this for quite a considerable period of time.

Q59 Dr Naysmith: I would like to turn to the European Working Time Directive, switching to something which has been discussed a lot over the last 12 months. The BMA says that the European Working Time Directive effectively reduces the number of junior doctors by a figure of 3,700 at the moment. I know the Department was a little surprised when the Directive came in and it was applied to doctors not actually on duty but asleep and on call. What has the effect been on NHS trusts and so on? What is being done to compensate for this? Are the figures of the BMA accurate?

Mr Bacon: Perhaps I could ask Mr Foster to answer that.

Mr Foster: The substantial change that has affected the NHS is that the old style pattern of working was to have a 16 hour shift worked at night or weekends by a junior doctor, of which they were expected to work half of that on average and be available for the other half. The effect of the particular rulings, the SiMAP and Jaeger rulings in the European Court, meant that time asleep or time doing nothing, playing pool or whatever, counted as time working. So if we had continued with the old style of having people on call for 16 hours we would have had to have paid them for 16 hours, so the calculation that the BMA are reporting to you is effectively saying that half of that time is lost. What we have done to avoid that time being lost is switched substantially to shift working, so we are moving away from on-call working to shift working, so we get larger rotas of doctors doing eight hours at a time or 11 hours at a time or whatever and that is a way of avoiding a substantial loss of resource.

Q60 Dr Naysmith: That must mean you need more junior doctors?

Mr Foster: No, because you can do cross-cover between different specialities where you can collapse more junior and middle rotas or more middle and senior rotas. It has been a very major change programme and many professional medical organisations were predicting that there would be a real meltdown of services in August of this year, which simply did not happen. The BMA will tell you now that they have had literally no cases of junior doctors contacting them about being required to work illegal shifts. In all but a handful of cases we know that we have achieved compliance with the Working Time Directive so far.

Q61 Dr Naysmith: Why did we not do this before without having to be forced to do it by the European Court if it is an efficient system and saving money?

Mr Foster: It is quite a complex question. There are arguments by doctors that they prefer working those very long patterns because it establishes greater continuity of care with patients. There is really quite a balance of views as to whether shift working or on-call patterns are qualitatively better. That is why we did not change it before.

Q62 Dr Naysmith: You feel that there really is not a problem, it has been satisfactorily solved?

Mr Foster: I would not go so far as to say that there is not really a problem but it has been solved extremely well in some places. There is a project called Hospital At Night which starts by analysing what are the patient care needs at night and then designing the clinical team to best meet those needs. Where that approach has been implemented, which is in something like a third of NHS trusts, I think it has led to genuine improvements, better services, less waiting by patients and higher quality training. Other organisations have simply hired more doctors to prop up rotas and, therefore, I feel that they have incurred more costs and not more benefits. What we are trying to do is to encourage those organisations to look at the Hospital At Night project and move towards that as a solution.

Q63 Dr Naysmith: Has that resulted in consultants and other senior but not consultant level doctors working harder and coming into hospitals more often than they used to?

Mr Foster: I am not quite sure how you define working harder. In some cases it has required greater reliance on consultant working at nighttimes and weekends, but I am sure that where that has happened those doctors have been compensated by having work taken out of the rest of their working week.

Q64 Dr Taylor: Coming on to NHS staffing. First of all, consultant staffing. You wrote in The Telegraph back in April that you thought we were going to miss the consultant target by 1,000 to 1,500 doctors this year. Is that still the case or do you think we are going to make it?

Mr Foster: I was very slightly misquoted at the time. What I said was on the basis of the level of increases that were taking place at that time, if there was no improvement we would miss the target by up to 1,500. In fact, what happened was that the target was to achieve an increase of 7,500 consultants by the end of March 2004 and we have had an increase of 6,850, so there was a shortfall of about 650, less than I had said three or four months previously. We are confident that we will meet the 7,500 target later on during 2004. If I can also say that was the last time we did a separate target for consultants and GPs because the policy since then has been to try and drive work away from the hospital sector into intermediate care and into primary care, so as originally constructed that target did not take into account the other policy. In fact, the shortfall on the consultant target was exceeded by the degree to which we overran the GP target. The total achievement of consultants and GPs was higher than the total of the two targets.

Q65 Dr Taylor: Thank you. Turning to nurses and particularly agency nurses, because we were very bothered last year by the spending on agency nurses. According to the information we have got, in the year 2002-03 it actually went up even more than on the last year by 6.4 per cent. Is there any sign that this is beginning to come down?

Mr Foster: Yes.

Q66 Dr Taylor: We have had various criticisms of NHS Professionals, is that working any better?

Mr Foster: Yes. There are now some very positive signs although, as you correctly say, the last full year figures that we have showed an increase in overall expenditure on non-NHS pay. What we have seen in London where there has been the greatest concentrated effort on nurses is there have been two years of sustained reduction in spend on agency nurses. In the first year the reduction was around about four per cent and in the second year the provisional figure we have is around about a 17 per cent reduction. That is just on nurses and just in London. That is a combination of the NHS Professionals' approach working with the London Agency Project. Our next step is effectively to roll out the learning from that into not just nurses but other professions as well and to roll it out not just in London but the other areas of high expenditure, for example in Avon and the South East.

Q67 Dr Taylor: So will we see next year that Guy's and St Thomas' and University College London, which are the two highest spenders on agency nurses, one at 14 million and one at ten million, will have come down?

Mr Foster: Not necessarily. I happen to know about one of those because I was speaking to the HR Director very recently. The HR Director was saying that they have quite a fine balance to choose between continuing a relationship with a very high quality efficient agency which carries out all the administration and securing of high quality staff at a relatively small premium or whether they should go into the international recruitment market, and in that case it was a finely balanced judgment that they were going to continue with their agency approach.

Q68 Dr Taylor: Can you give us any idea how much less NHS Professionals charges than first class agencies like the one you have just described?

Mr Foster: The agencies themselves have a huge range of prices so I cannot give a single figure. The effect of the existence of NHS Professionals has been to begin to drive down the prices in the agency sector and certainly the ones that are part of the agency projects, the collaboratives, are required to come in at a price below a certain cap.

Q69 Dr Taylor: So NHS Professionals would always be cheaper than any of the other agencies?

Mr Foster: Competition may begin to drive the other agencies down even further because that is what we want to happen. It is not the problem of the agencies themselves, it is excess costs in the labour market that we are trying to remove.

Q70 Mr Burns: Before we move on, given the fall in the use of agency nurses, four per cent and 17 per cent this year, what impact in money terms do you think that will save the NHS?

Mr Foster: As I said, the figure that we had for 2002-03 - I have to do some fast maths in my head here - was just under 600 million being spent on agency nurses, so if we were able to replicate the 17 per cent that was achieved in London then the answer is 17 per cent of 600 million, which I think is about 100 million.

Q71 Mr Burns: If you just go on the assumption that there was simply a 17 per cent reduction in London, will there be an overall saving across the NHS?

Mr Foster: No, because that saving that I am referring to was in 2002-03 so it was the same year as the overall increase.

Q72 Dr Taylor: Moving on to treatment centres. Approximately what proportion of all treatment centre treatment for NHS patients is now provided by the independent sector treatment centres?

Mr Bacon: I am not sure I can give you a percentage because, rather like my colleague, Mr Foster, my maths is not that good. In the independent sector treatment programme, and I mean the treatment programme, not all work that has been put to the independent sector, if I can just distinguish that, in the last full year 2003-04 that was at the very early stage of the build up of our independent sector programme and we only carried out some 3,000 to 4,000 episodes last year. It was at the very early stages of the programme. We have now let contracts on our first phase of our independent sector programme for about 68,000 episodes which will be building up during the course of this year and we would expect under the first wave of our programme to take that up to about 248,000 episodes during the course of this year coming into next year. I think you will have seen the Prime Minister announced an intention for a second phase of independent sector programmes which would add a further 250,000 FCEs by 2008. So we have a programme which by 2008 should result in about half a million episodes taking place in the independent sector.

Q73 Dr Taylor: There are approximately 30 NHS treatment centres now working.

Mr Bacon: Of that order.

Q74 Dr Taylor: What I really want to know, and I do not expect you to answer now but I would love you to give me an answer before next week, is what is the unfunded spare capacity in NHS treatment centres now?

Mr Bacon: I certainly do not know that.

Q75 Dr Taylor: Can you find it out for next week before we see the Secretary of State?

Mr Bacon: We can endeavour to do so. To the extent that some of those centres are in foundation trusts I may not be able to do that.

Q76 Dr Taylor: Right. I am thinking particularly of NHS Elect, which was founded specifically to push NHS treatment centres, so even just the four or five trusts in NHS Elect would be something to go on.

Mr Bacon: I will endeavour to get you a figure but I should warn you that we do not collect that information in that way and I cannot collect it from foundation trusts, so it will be very much a rudimentary answer.

Q77 Dr Taylor: Forget about foundation trusts, just NHS Elect.

Mr Bacon: I can certainly try and do that.

Q78 Dr Taylor: I was at a cancer conference yesterday where the Secretary of State was saying that the Department had provided 104 MRI scanners. You probably saw not long ago in the Health Service Journal an article about mothballed MRI scanners. It is really the same question: what is the unfunded capacity that exists in NHS MRI scanners now?

Mr Bacon: I do not think I could produce an answer to your specific question, which is what is the unfunded capacity, because we do not fund MRI scanners in isolation from the general funding, so the amount of funding individual organisations choose to spend on their MRIs is not something that we would have a figure on.

Q79 Dr Taylor: I am not asking for the actual amount of funding, I am asking for the actual hours or sessions that are not being used by NHS scanners.

Mr Bacon: You cannot interpret that saying they are not funded. You can say how much they are being used and, by inference, how much they are not being used. Because we do not collect that information it would be very difficult for me to establish that by next week and, again, I certainly cannot establish it for foundation trusts.

Dr Taylor: It would be very helpful to have some rough idea.

Q80 Mr Bradley: I am slightly confused about what information you do and do not have on foundation trusts and the use of treatment centres or whatever. You are saying you do not have that information routinely provided to you because foundation trusts are separate, so how do you then strategically develop a plan if you do not know what is happening in one bit of the market, if I can put it like that?

Mr Bacon: Let me just correct that and if I did not make this clear, I apologise. The first point is we do not collect information on MRI scans full stop in the sense that we collect them for each scanner, how many they are doing and how many hours they are working. We do not have that information and never have had. I think your colleague asked could I collect it and my answer was by next week it would be very difficult but I cannot collect it from FTs because we can only ask foundation trusts for information that is set out in the agreement between the regulator and foundation trusts. Unless we can persuade the regulator to add a piece of data to the information that FTs are obliged to supply, we cannot collect it. I doubt, certainly not by next week, I could persuade the regulator to allow me to do that and to do it.

Q81 Mr Bradley: Do you feel slightly limited, therefore, in the information that you have on what is happening across the piece in terms of the health service and will this be compounded over time as more foundation trusts are established?

Mr Bacon: Perhaps I could expand my answer slightly. I think there is a difference between our ability to plan and the precise activity of each individual scanner. Through the new NHS Improvement Plan that was issued in July, for the first time we are making the diagnostic phase of an episode of care part of the overall waiting time target. That will require us to collect information about that diagnostic phase and the probability is, therefore, that we will be able to persuade the regulator to include that in the information that he collects and we will certainly be able to put it into the contracts between the primary care trusts and the foundation trusts as part of the formal contract between the two. That does not exist now and until we introduce this from April of next year, building up to our 2008 objective, we do not collect any information currently about diagnostic performance at all. We are now having to think about the quantum of diagnostics, not just MRI but the quantum of all diagnostics, necessary in the system to achieve our target by 2008. We have got some pilot work going on in Manchester actually to look at the current diagnostic position, to work out both by combination of the additional capacity and by using the capacity we have more effectively how much we will need in order to do the 2008 target and that, through our commissioning process, we will wish to buy either from NHS trusts, foundation trusts or, indeed, the independent sector.

Q82 Dr Taylor: Moving on to independent sector treatment centre staff, when the idea first came up I think we believed that they would bring their own staff with them but that is not the case now because NHS staff are being allowed to work in them. Can you give us any idea of the percentage of the independent treatment centre staff who are NHS staff?

Mr Foster: Can I distinguish that certainly in the first wave of independent treatment centres there was the principle of what we call additionality, that all staff had to be additional to simply avoid the risk of transferring the work from one area to another. That has been maintained absolutely in the first wave. That throws up certain anomalies. For example, you get somebody who has come from overseas, has done a week's work as a locum in an NHS trust and is then barred for a year from going to work in an independent sector treatment centre. Also, in some of the new independent sector treatment centres we will be taking advantage of the sheer physical space to relieve some of the high pressure on NHS acute units, so you will have NHS work being done by NHS staff alongside independent sector treatment centre staff, so those will be NHS staff. So the principle of additionality is going to be somewhat more flexible in the second wave. The precise detail of that is part of the current contractual discussions that are taking place so I am not in a position to give you an answer on percentages but we are just trying to have a more reasonable and sensible regime.

Q83 Dr Taylor: If a consultant is doing work in an independent sector treatment centre during his NHS hours because he has not got facilities in the NHS, will he be paid more or at the same NHS rates?

Mr Foster: He will be paid the same NHS rates for doing NHS work for the NHS inside an independent sector treatment centre. If a consultant is employed by an independent sector treatment centre doing extra contracted work then that is a matter for the independent sector treatment centre and the consultant.

Q84 Dr Taylor: But it has got to be extra?

Mr Foster: It has got to be extra, yes.

Q85 Siobhain McDonagh: Looking at figures from the NHS Reference Cost database for 2003, taking the top procedures that accounted for 75 per cent of the total independent sector cost and comparing with the NHS equivalent, an inpatient coronary by-pass costs 91 per cent more while knee and hip replacements cost about 50 per cent higher. On the other hand, some independent sector day cases, such as pregnancy termination and vasectomy, are cheaper than the NHS equivalent. In the light of the introduction of national tariffs in commissioning hospital treatment, will the Department comment on these significant cost differences? Also, what measures will be taken to ensure the quality of the health care provided by the independent sector is not compromised to meet the lower national tariff requirement?

Mr Bacon: Thank you. Perhaps if I could start that answer. First, could I distinguish between NHS work carried out in the independent sector generally and the independent sector treatment centre programme because they are different. We have explained to this Committee, and certainly we discussed it last year, that we were aware that our current practice of buying work from the independent sector was resulting in fairly high premiums, and I think we gave the figure of 40 per cent last year. We have not got a figure for this year, we think it is going to be lower but still it will be significantly above the NHS Reference Cost figure. This is precisely why we have moved into the independent sector treatment programme, because it allows us to buy on a much more organised and, therefore, a much better rate. Whilst at the moment we have let contracts for about 68,000 episodes with the private sector through the independent sector treatment programme and we have produced a range of prices, some below the NHS tariff, some above, the average is roughly ten per cent above at the moment but significantly less than the premium that we were paying through what we used to call spot purchase into the independent sector. Already we think the independent sector treatment centre programme has significantly improved our relationship and our economic power with the private sector, so we think that is successful. What we are wanting to do over time is to bring private sector provision down to the level of the NHS tariff for whatever procedure it is. We will do that over time but we think that as we are moving into a widening of the provision of NHS service essentially we need to establish a level playing field between the private sector and NHS facilities so that patients can choose which facility to go to provided that provider can supply at NHS tariff and, importantly - the question you asked - meet our quality standards. If they cannot meet our quality standards or if they cannot meet our tariff then that will not be a choice that is offered. We are some years away from that position, that will be post-2008.

Q86 Mr Burns: You are saying that although the figures are not available, you suspect that the difference between the independent sector and the NHS cost has dropped on average from about 40 per cent above to about 10 per cent above, you think?

Mr Bacon: That is not quite what I said. For the traditional method of contracting with the private sector, which is essentially to place individual episodes of care, the figures that we reported before and commented on were, on average, 40 per cent above the tariff. We are just in the process of analysing the consolidated accounts to see what that figure will be this year. Our early indication, but this is an unvalidated figure, is that it will be significantly lower than 40 per cent. The ten per cent number I quoted is the average price above our Reference Costs that the first set of contracts with the independent sector treatment centres have come out, but they disguise a range of plus and minus the tariff. Does that make it clear?

Q87 Mr Burns: That makes it clear. Let me just clarify again: so the 40 per cent figure, you believe, is lower than that now?

Mr Bacon: The provisional work that we have done on the consolidated accounts would suggest that but it would be wrong of me to tell the Committee that ----

Q88 Mr Burns: I accept that. What it will not suggest is that the independent sector is at the same level of costs as the NHS or below the NHS.

Mr Bacon: For the spot purchases that we have talked about certainly it will not suggest that, although there will be isolated examples because we are talking about an average. In fact, we know that the figure that will emerge will be higher than the average NHS Reference Cost for spot purchases.

Q89 Mr Burns: Thank you. Why is it that when this has been raised, as it had been with the last Secretary of State, he said that there was a problem and they recognised that but they have now eliminated the problem and it is not more expensive in the independent sector?

Mr Bacon: What we are doing is progressively driving down private sector costs and, curiously, we are driving them down for people who use the private sector privately as well as for the NHS. I do not know whether that is a good thing or not but we are. I think what you have seen over the last year or so through our approach is that fundamentally we are changing the terms of trade between ourselves and the private sector, which I think is a very good thing.

Mr Burns: Absolutely, but that is not the question I asked you. The question I asked you was why does the Secretary of State say ----

Chairman: I think you ought to ask the Secretary of State next week.

Q90 Mr Burns: Let me ask the question and if Mr Bacon thinks I should ask the Secretary of State, now that you have prompted him, I am sure that Mr Bacon will be able to tell me. Why do you think the Secretary of State says that it has already happened?

Mr Bacon: I am grateful to the Chairman for giving me ----

Mr Burns: It is wonderful having a Labour majority on this Committee, is it not?

Q91 Dr Taylor: What is the premium on MRI scanners because the move now is to have Alliance Medical's mobile MRI scanners all over the place rather than the NHS? What is the premium on those?

Mr Bacon: The Committee may be aware that during the course of the summer we contracted with the private sector for 12 mobile MRI scanners, five are on stream and the other seven are coming on stream rapidly, which we are targeting at areas of the country where we have significant waits for MRI scans. This has added something of the order of 15 per cent per annum to our scanning capacity. The deals that we struck are significantly less than the current NHS costs.

Q92 Dr Taylor: The MRI scans are less?

Mr Bacon: Less than the cost of the NHS. We have not got a premium, we have actually struck a deal at a lower price than the average cost on the NHS.

Q93 Chairman: Do you have any figure for the total cost of using the private sector over and above what it would cost for the same treatment in the NHS? We have got some figures here. Going back to when the current Government initiated the concordat with the private sector, what is your latest estimate of the full cost over and above what it would cost to use the NHS?

Mr Bacon: As I said earlier, I do not have a breakdown for the current year because we are just analysing the numbers. I do not have in front of me the exact way in which you have asked the question.

Q94 Chairman: Would there be a way of you getting that back to us fairly soon?

Mr Bacon: I might just say that the way in which the accounts are presented show the total expenditure for non-NHS providers was 2.3 billion last year and will be a higher number this year. I hesitate because I am not sure how accurately we can break that number down but if we can, and I think we can probably derive a number for you, we will offer it to you in a note or next week.

Q95 Chairman: The other question which I think I probably asked you last year was an evaluation of the impact of using the private sector, what impact that has on the NHS in terms of you using the same consultant to treat a person in the private sector who would otherwise be working in the NHS. Has any work been done to look at that? It strikes me as odd that we do not look at the implications of that.

Mr Bacon: I may ask Andrew Foster to talk about this in the context of the new consultant contract which has a much more accurate job planning aspect than we have had available to us before. Perhaps, Andrew, you would like to comment?

Mr Foster: It is certainly the case that one of the significant changes derived from the consultant contract is that we have moved away from the situation where we had so-called fixed and flexible sessions in which we knew what was happening during the fixed sessions but we did not know what was happening in the flexible sessions, we did not know where they were being conducted. The new contract is based on the currency of programmed activities all of which are defined in terms of what the consultant is doing and where. That enables us to have a much tighter control over consultants' working lives in order to coordinate them better with the rest of the multi-professional team.

Q96 Chairman: What I am trying to get at is if you have got patients who you have referred to a consultant in their private practice, as NHS patients, what will the implications be if you had the same consultant treating on the NHS? It might be a simple question but it seems rather bizarre that I am getting consultants expressing their concern, they are embarrassed at the amount of money we are paying them in terms of their private practice to treat their NHS patients.

Mr Foster: What is quite difficult to give you is a figure here in a market which is changing quite rapidly. As Mr Bacon has pointed out, the advent of independent sector treatment centres has reduced, also, the prices which are now being paid to private practice. BUPA has announced it is reducing the price that it pays and, of course, there used to be a very substantial premium indeed between BUPA rates and what we pay our own consultants. In between the two there was a sort of market for what you would pay to consultants for waiting list initiatives and this ranged from being just a small surplus on NHS rates to anecdotally tales of people being paid five and six times the normal NHS rates. I do not have a central collection of data but I hear a great deal of anecdotal evidence that that premium is declining but there is still a very variable picture which is why it is difficult to give you a precise answer.

Q97 Chairman: Let me put it another way. When Alan Milburn was Secretary of State, I recall, when we were discussing the aims and objectives with the renegotiation of the contract with consultants, he gave an estimate of the amount of additional hours that would be available to the NHS were they to deliver the contractual changes in terms of private work.

Mr Foster: Yes.

Q98 Chairman: Now if that is the case, I cannot understand why it is not possible for you or the Department to give me an answer as to the implications for the NHS of pushing patients into the private sector to be treated by a consultant who would otherwise be working in the National Health Service. It is part of the same equation, am I right?

Mr Foster: This goes back to the question I was asked about additionality earlier on. If these are existing NHS consultants doing existing levels of workload which has been transferred to the private sector because of better facilities or space then there is no ---

Q99 Chairman: Or earlier access.

Mr Foster: Yes.

Q100 Chairman: The reason there is earlier access is because they are doing the private practice and they are not working in the NHS. It is the same people we are talking about, that is what I do not understand. The reason why we have got waiting lists in many areas is because the consultants are doing private practice. I cannot understand how you can suggest it is an answer to send more people to private practice because you still have their lack of commitment in the NHS as a consequence.

Mr Foster: That is the reason for the ruling on additionality. We do not want to simply reinvent waiting list initiatives by another name within the independent sector treatment centre. That is why existing NHS consultants are not permitted to take on extra work in this way.

Q101 Chairman: Is it possible for you to have a look at this issue and get back to us to see if there are any calculations which can be done? It adds into the whole issue about how much more we spend using the private sector. I think we ought to be aware of the resource implications of NHS consultant time as a consequence of this initiative. Can I leave it with you to think about?

Mr Foster: Yes.

Q102 John Austin: Can I turn to the public's perception and users' views. I preface my remarks by saying that out of surveys carried out by the Healthcare Commission the vast majority of people's experience of the NHS was either excellent, very good or good. There does seem to be some disparity between those experiencing, say, the acute services compared with those who are experiencing long term care. The second area there seems to be a disparity between the public's perception and their statement of experience and the Department's figures in two significant areas. One is in relation to GPs and the time it takes to see a GP and the other is in the A&E times. The Commission survey shows quite clearly there has been an improvement in waiting times in A&E whereas your figures suggest that only nine per cent of people wait in A&E for more than four hours. Of those surveyed by the Commission, 26 per cent said they waited more than four hours. Then if you look at the survey of those who had to wait more than two days to see their GP, it was 25 per cent who said more than two days and your figure was 3.6 per cent. Can you give us some reason for the disparity?

Mr Bacon: Yes, I will endeavour to do so. Perhaps we can take general practice first and then come on to A&E. The current target for general practice is that patients should be able to see a health care professional within 24 hours or a GP within 48 hours. We monitor that through a process of sample - given that there are 10,000 practices it is very difficult to collect this on an instant basis - by a process of contacting general practice to ask what their position is. Our most recent figures suggest that we are approaching the 100 per cent target we set ourselves, we are in the very high 90s on both of those figures. Our sampling process suggests that position. We have done some MORI polling of patients and we know that the position that you have reported is what comes through that survey. Approximately 25 per cent of the people who were asked about their last experience said that they could not get the appointment within the time that we said. We analysed that further and the first point to make is that the pledge is to see a GP and the public interpret that as their GP, so there is an interpretation issue as to what the question is about. Within that 25 per cent there are also a number of people who agree that the reason they could not get the appointment was their difficulty as much as the practice. We do know there is a figure of around about 15 per cent, the last time they did this sample, where the public's perception and our numbers are different. I would concede that is the position. We are looking very hard now at why that is and we can offer you two or three explanations of that. The first of which is by the nature of the sample it is their last experience - and this is a fairly steep improvement process - so if you ask somebody who had not been to the GP for quite a while it is quite possible their experience was worse then than it would be now. That is the first point. The second point is the point I made about the misunderstanding between their GP and a GP. The third point - and we do recognise this as a problem - is that some practices in order to hit the 48 hour commitment are restricting appointments to just the next 48 hours and not the ability to book further downstream. That comes through the survey as not being able to get the appointment you want. That is something we are addressing quite rigorously now with our general practitioners because the way in which this should work should allow you to book either within 48 hours, if that is what you want, or a later date if that is what you want. So we are now addressing that issue. We fully agree with you that there is a gap, currently, between the reported number through our survey methods which are necessarily quite a high level, since we have 10,000 practices to address, and the data coming through MORI and that we are trying to address very rapidly now. On the A&E front, this is a much more accurate measure because all of our A&Es have a mainly computerised system of logging people through the A&E departments. When you go to register at the A&E the clock starts and it is monitored at each stage of the process through and there are mechanisms in all of our hospitals to flag when people are coming up towards critical parts. We are pretty confident that the numbers we are reporting on A&E - which in the last published data was around about 94 per cent, moving up to our 98 per cent target by Christmas - are accurate reflections of the way in which we measure A&E. I think what you see is that, firstly, there are still six per cent, as it were, of people who are not experiencing that, and, secondly, some of the ways of managing A&E for better patient experience, such as moving people into an assessment facility, I think some folk still see that as part of the A&E experience whereas actually it is separately nursed with more privacy areas than the A&E. Far be it from me to criticise the public in this but the way in which we measure is very accurate but I think the public's understanding perhaps at the margins of what that measurement is, we may not have communicated that very well so far.

Q103 John Austin: If you wanted to see your GP urgently because of something then it is quite reasonable you see a health care professional in 24 hours or a GP in 48 hours. If it is not something which is immediately urgent, given the importance of the patient/doctor relationship, particularly in primary care, it seems to me that it is important, and for continuity that a patient ought to be able to see their GP. In terms of the appointment system you were referring to earlier, certainly in my practice it is not possible for me to ring up my practice today and book an appointment for next week. To what degree is there control over that or can you influence the way GP practices work?

Mr Bacon: Certainly. I think your position is absolutely right that in emergency situations it would be impossible to guarantee you could see your GP within 48 hours 365 days a year. The commitment has always been to see a GP or a health professional, the timings for those two things are 24 for a health professional and 48 for a general practitioner. We accept that we will never be able to guarantee the individual GP but your point about continuity of care and if you wish to see your GP the ability to do so, I absolutely agree, and that is firmly the intention of our policy. As I said in my earlier answer, we know that in introducing the mechanisms to get to 48 and 24 hour targets, some practices, and I should emphasise this is by no means the majority, have instituted this temporary arrangement where you cannot book a long way ahead. We have issued clear instructions that is not acceptable practice. There is an explicit instruction from my office that is not an acceptable practice and over the next four or five months we will be ensuring that is progressively managed out of the system.

Q104 Dr Naysmith: There has been a huge and real improvement, I do not want in any way to question that. You have said various reasons why you do not accept the public's view of what is happening, most of which I agree with. It might be a long time since people have been to the GP, different information. How do you measure what you call the Department's figures which you consider to be accurate? How are they measured?

Mr Bacon: They are measured by monthly phone calls to practices to ask when the next appointment is available. We fully understand and accept that is not a random process, the practices know it is going to happen and there is no absolute guarantee the practices will give an exact answer, but we feel from the evidence we have collected through MORI that there has been a huge improvement and that we are seeing progressively a narrowing of the results we get. That is our controlled process, if you like.

Q105 Dr Naysmith: There is a slight fuzziness at your end which might result from false reporting?

Mr Bacon: I would strongly hope that there is not false reporting. If I can contrast it with the A&E figure, there are just over 200 main A&Es in the country so it is relatively easy to collect the data. There are 10,000 practices, so it is very much more difficult to collect the data. The process we have we think is as good a process as we can put in place without huge bureaucracy which general practitioners would not welcome and we are testing it through patient surveys.

Dr Naysmith: I am not questioning that there has been a real improvement. I am pointing out these figures can be a little bit soft.

Chairman: Can you ask some questions about prescribing?

Q106 Dr Naysmith: We asked some questions about prescribing of the pharmaceuticals and so on and one of them you did not answer in our original request. I am going to repeat it in a slightly different form.

Mr Bacon: Right.

Q107 Dr Naysmith: What attempt has the Department made to assess the incidents of illness due to the adverse effects of medicines overall? Then what resources has the Department applied to establish such costs to the NHS of such illnesses?

Mr Bacon: Chairman, forgive us for not answering the question, I am afraid nobody on the panel today is equipped to answer the question. I will make sure you get it.

Q108 Chairman: Can you come back to us on it?

Mr Bacon: I will get an answer to you.

Q109 Dr Naysmith: Have you any idea?

Mr Bacon: I am afraid it would be wrong of me to try and guess.

Q110 John Austin: If we can go on to management and administration costs, I want particularly to refer to the Commission for Patient and Public Involvement in Healthcare. You have indicated in a response to our questions that you anticipate efficiency savings of the order of £4 million a year by abolishing CPPIH.

Mr Bacon: Yes.

Q111 John Austin: In answer to another question you said, "The replacement arrangements arising from the Arm's Length Body Review are still being planned and costed". How confident are you that you will achieve the £4 million savings if you have not yet ascertained the cost of replacement arrangements? I would ask whether your estimates have proven accurate in terms of the costs of abolition of CHCs and the establishment costs of their replacement?

Mr Bacon: The factual position is that we spent £33 million on the Commission for Patient and Public Involvement, that is the budget for the current year, of which we estimate that around £13 million is spent on the administration of it. Part of that is to do with the set up so it is not an accurate reflection of what would have been the ongoing costs. Nonetheless, a very significant element of the resource available to this area of activity was being absorbed by the administrative infrastructure. We are going through a process of consultation, currently, on what should replace the Commission and there are a number of strands to this. The first of which is what mechanism for networking the forums we should put in place. We are discussing actively with the forums themselves now how best to do that. The second issue is how we manage the support contracts that are in place to support the forums - and you may remember, I should not assume, we had the CPPIH put in place to support the forums - this is administrative arrangements. The third is how we should appoint members to forums and, having discussed this with both the forums and appointments Commission, how that should happen. Our estimates - and they are estimates I must stress - are that we ought to generate £4 million savings from that process, from the money that is currently spent on the overarching infrastructure of the Commission's activities.

Q112 Chairman: You mentioned a figure of £33 million for establishing the new system. Do you have an overall cost on abolition of CHCs? Does that include the cost of abolition of CHCs, the £33 million?

Mr Bacon: The £33 million ---

Q113 John Austin: £15 million in redundancy costs.

Mr Bacon: The £33 million was the current year cost of the Commission, of which only, according to my numbers, £770,000 were the residual costs of the CHC abolition. We did spend £15 million, you are quite right, on redundancy costs for the CHC.

John Austin: Getting rid of very competent people experienced in looking after patients.

Q114 Chairman: Can you give me a total of what it has cost us to get rid of the CHCs and set up a new system?

Mr Bacon: The direct cost of redundancies of CHCs was £15.3 million in the first year and -I am trying to make sure I get the most accurate figure here - we have had a further £77 million in the current year. The set up costs of CPPIH in the first year were £21/2 million. We will have spent £33 million in the current year.

Q115 Chairman: I am lost for words. I am not often lost for words but I am lost for words.

Mr Bacon: Can I just emphasise, the £33 million is not the set up cost of the forum, it is the cost of running the forum.

Q116 John Austin: To what extent has the Department monitored the new structures? There are some strange figures in here saying on average every forum gets £34,790 worth of support. Certainly I have not seen any evidence of that on the ground and we have seen this month the mass resignation of all the members of the forum in my area because "they ain't getting the support at all". It is a bit strange for a forum in Bexley to be offered its support by an office in Stratford. I am wondering to what extent the Department has its figures wrong?

Mr Bacon: Chairman, may I just correct one number that I gave you. I have misread my figures here. The £770,000 I quoted this year for CHC redundancies is not right, in fact it relates to an earlier year of set up costs for CPPIH. Probably rather than me keep quoting numbers at you, if I can give you a table which illustrates this?

Q117 Chairman: That will be very helpful.

Mr Bacon: I will do that. Obviously we have empowered CPPIH to oversee the creation and operation of forums and that is the position currently. Our chief nursing officer is the senior departmental sponsor of the Commission and obviously she works with them on ensuring this process works properly. The responsibility for ensuring both the function of the forums and the support to them is one for CPPIH currently. As I said earlier, we are just in the process now of consulting on how best to do that once CPPIH is abolished.

Q118 John Austin: Is there not a danger that this arm's length body when it is removed will be replaced by an arm's length body an hour and a half further away?

Mr Bacon: No. We have no intention to create another body called son of CPPIH or daughter of CPPIH in this review.

Q119 Chairman: Chip of CPPIH.

Mr Bacon: Possibly! What we are looking to do is to ensure that as far as possible the arrangements would mirror the arrangements we have for other areas. For instance, in the appointment process, the logical location for appointments to forums would lie with the Appointments Commission, the department which does all other non executive appointments.

Q120 Dr Naysmith: One of the other things that patients forums are supposed to do is select one of their members to be a board member of the trust. That seems to have gone into abeyance. Can you give us any information about what is happening about that particular policy feature?

Mr Bacon: As I understood it, that is happening.

Q121 Dr Naysmith: It certainly is not in some areas.

Mr Bacon: I do not have in front of me today a guarantee that they all are but certainly I can make further enquiries to check that out for you.

Q122 Dr Taylor: I am very concerned about these savings of £4 million a year resulting from the abolition of the CPPIH because I had the last Adjournment Debate in July just before we broke up - very well attended, precisely me, the Minister and I think one other - but the Minister did say quite categorically that all the money for CPPIH would still be available to go in to supporting patient forums, that is actually in Hansard. I do not think that £4 million can be counted.

Mr Bacon: It depends whether you say it is saved from the administration of CPPIH. That is true, or at least that is our estimate. What we then do with it is a separate issue and the commitment that was written into Hansard was that we would reutilise it in this general area. We are not saying that because it has been reused in the patient involvement arena it is not safe from the administration, they are two different points, I think, if I may say so.

Q123 Dr Taylor: We can say that the £33 million, or whatever it was, will still be available for the support of forums?

Mr Bacon: That is the commitment ministers gave in the House.

Q124 Mr Burns: Do you think the Department of Health money is being well spent and getting value for money investing in these structures?

Mr Bacon: I think it is imperative that the public and patients have an ability to engage with the NHS through a structure of this nature.

Q125 Chairman: Excellent answer, Mr Bacon.

Mr Bacon: Thank you.

Q126 Mr Burns: You are absolutely right but the trouble is, and one sees it on the ground in one's constituency, that when you had community health councils - I accept the argument some were very, very good and some were weak, and one could argue, though it is not appropriate here, that one should strengthen the weaknesses in the system to bring the weak ones up to the level of the strongest - there was a highly visible public presence of a body in each area which fought for the interests of patients. Now, I imagine, if you go down any high street in any of our constituencies and ask them "Who does the work of the CHCs?" the vast majority of people you ask would not have a clue. One does not get any sense that their replacements are doing the sort of job that the CHCs did. That must be wonderful for the Government because you do not have a thorn in your side of a body that is looking to rectify problems, mistakes and complaints about the service. I get back to my original question: it is good from the Government's point of view, it was an absolute fiasco that they created, it is great value for money because you have silenced the thorn in the side of the Government, but do you think it is value for money for patients who they are meant to be representing and, if so, why?

Mr Bacon: I think if you take the totality of the arrangements we have put in place this strengthens the ability of patients and the public more generally to contribute to the development of the NHS and to address issues.

Q127 Mr Burns: Why do the public not know about them?

Mr Bacon: I would not necessarily say that the vast majority of the public knew about CHCs. Forums are new organisations which we are in the process of promoting their existence and advertising what they do. If I may just run through the issues that we have put in place. First of all, as we discussed with this Committee last year, we have strengthened the in-house, in-hospital liaison service. We have changed the complaints procedure, also, so that the second stage of the complaints procedure has a much greater degree of independence through the Health Commission than it used to have, so I think that has strengthened that particular dimension. I see no reason at all why forums cannot do the work that the CHCs used to do in that area as well as, if not better than, the CHCs and we have given local authorities a scrutiny role that the forums used to carry out. If you look at that in the broad I would argue that gives a greater degree of ability for the individual patient and for the community at large to contribute to the debate and to have their concerns addressed. That would be my view.

Mr Burns: I admire you for keeping a straight face.

Q128 Chairman: Do you have any information on the extent to which overview of scrutiny committees are referring closure or change of use issues to the Secretary of State compared with the number of referrals on similar issues by CHCs? It is early days yet, I know.

Mr Bacon: It is very early days. The Committee may recall that we have set up now the independent review panel, a reconfiguration panel, for looking at cases which are referred to the Secretary of State by local authorities. Currently the panel has made recommendations on one case in East Kent and the Secretary of State accepted the recommendations. I think one other case has been referred currently. The whole intention here, of course, was that through this process issues that were of concern to the public and to local authorities were discussed and agreed locally without reference to the Secretary of State. In a sense my test of success here would be that we would have no references because that would mean that local communities had agreed the way forward on issues themselves without the need to refer upwards.

Q129 Chairman: You do not know in terms of referral to that body how it compares with practices the CHCs referred for consideration?

Mr Bacon: I do not have the exact figure. I could give you a note of the number of times CHCs referred to the Secretary of State.

Q130 Chairman: Okay.

Mr Bacon: I can tell you that thus far the reconfiguration panel has only adjudicated on a single case.

Dr Taylor: Can I just add, I have had dealings with the independent reconfiguration panel, not surprisingly, and they are getting involved now much earlier to try to diffuse a referral from the Secretary of State. They have been involved with five or six, including Hartlepool and others I have a list of, at an earlier stage. We have got them coming to talk to an All Party Local Hospital Group on 9 November when we will hear all about it.

Chairman: Nice plug, Richard.

Q131 Siobhain McDonagh: Last year the Secretary of State announced job cuts of 1,400 to the Committee. The 2004 Spending Review says that the Department will be cut by 727 staff. Is this in addition to the earlier announcements? How many still will be left in the Department when these cuts are complete? What impact have all these announcements had on staff morale and how the Department functions?

Mr Bacon: The Department has been going through a major change programme, and, indeed, was probably the first Government department to go through what is now happening in most Government departments as part of the reduction in bureaucracy across Government. The core Department figure, which we were targeted to arrive at in October this year, in other words Sunday, if I have my dates right, is 2,245. That will be the core establishment of the Department. Currently, we are waiting for a number of staff to move to new organisations. For instance, as of 1 November, responsibility for the day-to-day negotiation of pay and condition issues moves from the Department to the NHS Confederation. Those will be happening over the next few months. We have a number of displaced staff who we are helping to get new jobs or helping to manage part of the organisation. The core number is as reported by the Secretary of State, 2,245.

Q132 John Austin: Can I switch to the national programme for IT. I am sure you are aware there was some degree of scepticism on this Committee about the ability to deliver given the scale of the project. My understanding was the first phase should have been up and running by June of this year, which should have enabled me to go into my GP and get an appointment booked with a consultant there and then. That has not happened, has it?

Mr Bacon: The first pilot of this system did go live on 1 July in two practices. I admit this was small scale. What we have managed to do with the electronic booking module of the national programme is to get a proof of solution from the supplier and we have demonstrated its ability to work in pilot practice. What we are doing, currently, is having to work with the suppliers of general practice systems to interface it to the general practice systems and we will be rolling that programme out over the next year or so. The target date is to ensure that all patients are able to choose and book through their general practitioner by December 2005. We are fairly clear that in a limited number of cases that will have to be through a route other than the electronic booking module because of the need to connect at both ends and some of the rather more obscure systems - if I can put it that way - are requiring a bit more time to do that than others. The basic system, we have a proof of solution and it was demonstrated in a practice in July.

Q133 Dr Taylor: My understanding is the current systems which many and varied GPs have is that something like 50 per cent of GPs are on a particular system and package which they think works and is satisfying, yet the new add-on that you are bringing in is incompatible with that system. Why has there been no consultation with GPs or, indeed, with the service provider who provides that system which the majority of GPs have?

Mr Bacon: You are referring to a company which supplies a product which is called EMIS, I think, and that does supply roughly 50 per cent of general practitioners. Currently we are in discussion with EMIS about the interface.

Q134 Dr Taylor: When will that start?

Mr Bacon: When? It has been ongoing since the project commenced. This is commercial territory which is quite difficult to get into in public but we are in discussion with EMIS currently about that process.

Q135 Dr Taylor: Has there been any consultation with GPs or representation from GPs?

Mr Bacon: We have had clinical advice from the service and we are just in the process now of gearing up a major campaign of engagement with all clinical professionals, GPs, hospital doctors, nurses and others. I announced some developments on that only a fortnight ago.

Q136 Dr Taylor: I understand the original estimate of the cost of the programme was £6.2 billion. I know the National Audit Office is currently conducting an inquiry but estimates are suggesting it will be between 18 and 35 billion, three to five times the original estimate. Would you comment on that?

Mr Bacon: Certainly, the £6.2 billion is the cost of the sensory procured elements of the national programme, of which there are eight I think. I can rehearse them if you want. There are five cluster contracts for the five areas of the country plus the booking module I have described, the electronic prescribing module, the national spine for patient records and a new national network. Sorry, there are nine elements - I sound a bit like Monty Python here, forgive me - of the national programme. We have placed contracts for those nine elements and the cost of the initial contracts is £6.2 billion, so that is a factually correct position. There are other elements that we have decided to add to the national programme since the original programme was announced where there will be additional costs, such as the PAASS (Picture Archiving and Storage Systems for images) which are not in that £6.2 billion. You have to be very clear how you define it. The numbers that were reported in the press recently referred to the theoretical costs ‑ and I stress the words theoretical costs ‑ of the overall implementation of a major computer system. This is based on evidence from big organisation implementations both here and across the world, where the total cost of implementation can be in the order of three to five times the capital investment. That is not a number that we have produced, that is a number that is perceived industry standard for these things. It contains a range of issues and the best analogy I can give, if you like, is that in a sense we have bought the car with our £6.2 billion but the cost of petrol to put in it over its life and the cost of training people to drive it, both initially and throughout its life, is a much bigger number, and that is the sort of number we are referring to. If you are asking me how much we might spend on IT over the next period, the best answer I can give you is for IT in total the Wanless Report recommended that the NHS should move up to roughly four per cent of its revenues over the life of the current settlement, so by 2008, that is for the total IT spend. If you are trying to work out from that how much you spend on the national programme, you would have to ascribe the money we are already spending on those systems which the national programme will replace, which we reckon to be about a billion a year. But we do not account for it very accurately in our current account and costing systems, so we have no certainty about that. Then, also, the training requirements which we would require but, of course, currently we are training people on all sorts of systems all the time and the improvement here will be that as people move between hospitals - and there is huge turn around between hospitals in the NHS every year - they will not require to be re‑trained every time they move hospitals because the same system will present to them as they move around. Forgive me, it is a very complicated and long answer but it is a complicated and long question.

Q137 John Austin: I am not sure I accept your petrol analogy. It sounds more like you bought a car without a steering wheel and headlights.

Mr Bacon: No. I think I could say, with complete confidence, that the product we have built is complete and will work.

Q138 John Austin: If it did not take into account the cost of picture archiving or whatever, should we not request it take into account those original costs or at least if there is some theoretical figure of the initial cost that any IT system might be in industry, that should have been announced?

Mr Bacon: Forgive me, but we did. First of all, on the picture archiving this was not a part of the national programme as we initially envisaged it. As we have seen picture archiving systems introduced into our hospitals, the advantages of them both in terms of the ability to deliver patient care, the convenience to staff and the economics have led us to conclude we must get those systems in place very quickly. We have a programme to get picture archiving into every hospital over a three year run. That was not part of the original programme and not in the costs very explicitly but such are the advantages of it we now feel we want to add it to the programme. That is the first answer. The second answer is Wanless and our settlement for SR 2004 included an assumption that the NHS would progressively increase expenditure on IT up to the Wanless recommendations which would be sufficient to cover the costs which you have described.

Chairman: Mr Muir, I am conscious we have had two hours and have not involved you but one of my colleagues will be coming on to your area in a moment or two. We have not forgotten you.

Q139 Dr Naysmith: Just a very quick question about hospital inpatient activity in the replies you gave us to your questionnaire. In terms of inpatient activity you used Finished Consultant Episodes for measurement. We noticed that in the recent Chief Executive's report it was talking about Finished First Consultant Episodes. There is clearly room for confusion from these different measures. Is there an intention to have some standardised way of reporting this? When is it going to be adopted?

Mr Bacon: Yes. We think the Finished First Consultant Episodes is the appropriate measure to move to because, obviously, depending on the complexity of the case you can have several individual consultant episodes during the course of a stay. We will be migrating to that position.

Q140 Dr Naysmith: In future that will be the information you give us?

Mr Bacon: Again, my understanding is that is what we are looking to move to.

Q141 Dr Naysmith: It will be slightly difficult to compare with the existing methods.

Mr Bacon: Clearly, if you change the method of count, you have to make some estimate of transition but I think it does reflect a better measure of activity.

Q142 Mr Burns: PSS, who is actually doing that part?

Mr Muir: That is me.

Q143 Mr Burns: If you look at table 4.1.4 you have set out the unit costs for various PSS from 1998-99 to 2002-03. The figures indicate that there are real term unit costs supporting older people and residential care has increased. You comment - and I quote - "...this rise may have been associated with better or more intensive services ... and changes in cost or efficiency". Are you able to tell us more precisely exactly what the increased unit costs indicate?

Mr Muir: I think it is very difficult to get much below those figures. Over time I think the Commission for Social Care Inspection, and the SSI's predecessor body, have found that residential and nursing home costs have gone up and quality has gone up. It is quite difficult to get a systematic relationship between those, particularly at local level and at individual level.

Q144 Mr Burns: If I can just ask you my next question. There is an increase in quality as well as a rise in cost?

Mr Muir: Yes.

Q145 Mr Burns: Can I just ask one thing for clarification. If you look at the chart itself that has been produced, it talks about gross expenditure per week and it is broken down to unit cost price. When it says gross expenditure, does that mean the actual cost of providing the service or the actual cost that local social service departments are paying for the service?

Mr Muir: You mean net of charges, is that what you are getting at?

Q146 Mr Burns: Yes.

Mr Muir: I think it is the gross cost not taking account of charges but I could not swear to that, I could get back to you with a definite answer on that.

Q147 Mr Burns: Local authorities pay X pounds a week per client to a home, but that might not necessarily be the actual cost to the home that is providing the service, and I was just wondering about that explanation.

Mr Bacon: I am fairly confident that the number you see in there is the cost to the local authority of placement.

Q148 Mr Burns: Sorry, cost to the local authority?

Mr Muir: The gross cost to the local authority, in other words feeding the local authority placements.

Q149 Mr Burns: So it is not necessarily the cost of the service?

Mr Muir: Of course that is a combination of the actual cost they pay to run their own facilities and the amount they pay to a private sector or a voluntary sector to run theirs. I am fairly confident what it is but if it is not that we will let you know.

Q150 Mr Burns: There is a belief abroad that a number of social service departments use their power of purchasing to force down the prices that they are prepared to pay to residential homes, particularly medium and small sized ones who are weaker economically, by offering them X amount a week on a take it or leave it basis. The leave it basis sometimes means that a home would then have to go out of business. Do you agree with that belief?

Mr Muir: I think that councils negotiate fee levels and decide fee levels in the light of local circumstances including what the market conditions are, what the supply of care home places are and their overall policy in terms of the mix of intensive support at home or in residential homes. All those factors as well as local costs factors need to be taken into account. The guidance the Department gives in this area is that you should have proper negotiations and discussions with all the parties involved and that you do take into account all of those factors which I have just mentioned and that the discussions should reflect the real cost to the provider of providing the service. It has to be for the local authority to decide what level of fee is appropriate in the light of all of those conditions.

Q151 Mr Burns: Have you ever had any personal experience of these negotiations?

Mr Muir: I have not had direct experience of a local authority negotiation but I have chaired a group of local authority representatives, provider representatives and so on talking about this very issue.

Q152 Mr Burns: Can you explain to me, in the light of everything you said, if you take Rowntree Trust figures, Langan Buisson, if you were to talk to Essex Social Services department - and just to make the point I will give you some figures to illustrate it - why is it then that when Essex, for example, owned their own homes, they were charging in effect about £600 per client a week, the homes where they placed residents that were privately owned they pay about £350 a week?

Mr Muir: It is very difficult to get comparisons between the costs, and I think you are talking about the costs of the local authority home rather than the fees, because it is quite difficult to get comparable costs between local authority provision and private provision.

Q153 Mr Burns: To be fair, if you make the point that I have just made to Essex County Council, they would not be taking your line and disputing the figures, they would say "Yes, we do".

Mr Muir: I have not disputed the figures, I am saying it is quite difficult at a general level to get very comparable figures partly because councils associate the costs in different ways in accountancy terms but also because private organisations do not want necessarily to tell us what their costs are because that is commercially confidential. I think I do accept there is probably a differential in cost between the private sector ---

Chairman: Is not a fairly obvious reason, certainly from my experience ---

Mr Burns: Do not feed him the answers.

Chairman: I am not.

Q154 Mr Burns: Let me finish. I have not finished questioning him. When I have finished questioning him maybe then you can try and bail him out. Let me just carry on for the moment. You have accepted that but what you have not answered is why does it happen?

Mr Muir: There could be a number of reasons for that. One might be that they are less efficient, I suppose, but another might be there is a greater dependency in council homes.

Q155 Mr Burns: Not necessarily.

Mr Muir: In a sense, the provision of the commissioning of care has to be done through best value so a council will need to take account of the quality, the outcomes and the cost in doing that.

Q156 Mr Burns: Are you familiar with the Competition Tribunal decision in Belfast on this issue?

Mr Muir: Is this the super complaint you are talking about?

Q157 Mr Burns: Yes.

Mr Muir: Yes

Q158 Mr Burns: Why does this not apply on mainland Britain or even England?

Mr Muir: The position is different.

Q159 Mr Burns: Why?

Mr Muir: I am afraid I would have to look into the details of that and give you a note.

Q160 Mr Burns: But you are convinced it is different?

Mr Muir: Yes.

Q161 Chairman: Simon, is not the answer to your question if you look at the wage costs of local authorities, they pay their staff more and, secondly, they are more likely to train their staff, so they employ staff who have had a fair amount of money spent on their training which is a factor in terms of higher costs?

Mr Bacon: Chairman, perhaps I may offer an additional point which I think may be helpful to the Committee. We have had an interesting debate here about the different costs and I think all of the points that have been made up to a point may be correct. We are clear there is probably a better way of purchasing in this area. As part of the Gershon Review, my commercial directorate are assisting local government in developing an approach to this which should ensure better quality and better value for money. I think in accepting there are explanations that you can offer as to why these are - and there will be differing views as to the strength of those - nonetheless we recognise there are opportunities to do this better and we are investigating them currently.

Q162 Mr Burns: Mr Muir will let me have a note on why the Belfast decision does not apply to mainland England?

Mr Muir: Yes, I will do that.

Q163 Mr Burns: Thank you. Can I move on. It is stated in here there has been an increase in health care provision from about £2.6 million contact hours in 1998-9 to £3.1 million in 2002-03 which is obviously very good news. If you table questions to ministers on this, they point out that the number of hours provided has increased quite dramatically, as these figures show, but the number of people receiving the care has decreased. That is correct, is it not?

Mr Muir: That is absolutely right. The number of contact hours has gone up by 20 per cent since 1998-2003 but the number receiving them has reduced.

Q164 Mr Burns: By?

Mr Muir: The figures are 447 households in 1998 to 362.

Q165 Mr Burns: What is the percentage decrease?

Mr Muir: I think that is about 19 per cent. What it means, of course, is a smaller number of households are getting much more intensive help and it is true the corollary of that is the less intensive side has gone down. That does not give the whole picture, of course, because it is not only home care as defined in that sense that helps people to live at home, there are other things like meals on wheels, day centres and so on which are also important to support people at lower intensities at home, and those figures have gone up for older people more generally by about four per cent from 1999. We do not have earlier figures than that.

Q166 Mr Burns: I suppose up to a point you would expect the figures to increase because of demographic changes and they will continue to increase?

Mr Muir: Yes.

Q167 Mr Burns: Why is it then that ministers, rightly, make a great deal of importance of "...the care for the elderly must be the most appropriate care for the individual based on an individual assessment..." ‑ and that need not exclusively be residential care but domiciliary care? Certainly if you listen to your Parliamentary Under Secretary, he seems to be most anxious to increase the number of people in this country receiving domiciliary care so they can remain in their own home for all the very obvious reasons. Given that he feels so strongly about that, why is it not happening?

Mr Muir: It is happening.

Q168 Mr Burns: Your figures have just shown that it is not happening. The hours are increasing, but the number of people receiving it has decreased by 19 per cent.

Mr Muir: When you look at exactly what you were talking about, the support for people who might otherwise need to be in care homes, it is certainly appropriate to look at those receiving intensive support. The number of people receiving intensive support is increasing and that is what you need to look at if you are saying people need a choice between being supported intensively at home or in a care home.

Q169 Mr Burns: Sorry, I am completely baffled by that reply. Could you repeat that?

Mr Muir: Certainly I will try and explain it more clearly. If you are saying that the choice is between being helped to live at home and in a care home, you would only go into a care home if you had needs which were quite intensive requiring, say, ten hours of home care a week and the number of people getting high intensity home care has increased by 43 per cent since 1998. The people getting maybe one hour a week has reduced but in terms of alternatives to residential care or nursing home care, certainly that would not be a substitute.

Q170 Mr Burns: Do you know the impact of reducing the lower band domiciliary support for those with lesser needs?

Mr Muir: Are you talking about free nursing care?

Q171 Mr Burns: Yes?

Mr Muir: We had always intended to phase out the lower band of nursing care and we have introduced more flexibility with the second band.

Q172 Mr Burns: Sorry, "...you always intended to phase out the lower band"?

Mr Muir: Of free nursing care support and to merge it into the second band.

Q173 Mr Burns: People are not going to lose out altogether?

Mr Muir: No, not at all, it was going to be merged at a higher level.

Q174 Mr Burns: Why did you bring in a banding system? If you go back to statements in March/April 2001, one was given the impression that you were simply going to provide free nursing care so that the state would pay for the nursing care that the individual may have got free of charge if they were in a hospital. No mention was made of bandings.

Mr Muir: I think it makes sense to take account of different levels of need. I am not quite sure what you are suggesting. If you are suggesting there should be an individual assessment in every case I think that would be very bureaucratic and very difficult to organise whereas a banding system takes account of different levels of need but does not require quite the same level of bureaucracy.

Chairman: Simon, you were going to cover variation in costs. I am aiming to conclude by one o'clock if we can.

Q175 Mr Burns: On the variation in costs, if you look through the figures from different local authorities there are some quite staggering differences. I am just looking at figures of £200 a week in Waltham Forest to over £600 in Harrow and Southampton. If you look at chart 4.1.4b you will see the average cost for England was £494 but there are nine authorities that have a unit cost greater than £1,000 a week. Do you have any idea why there should be this massive variation?

Mr Muir: To some extent you would expect there to be a variation in cost to take account of different markets and so on and different cost levels in London and metropolitan areas and so on but that certainly cannot explain all the variation. There are a number of factors which could affect it, like the mix between in-house provision and other provision. The efficiency of commissioning, the effectiveness of commissioning, the lack of information on costs and successive joint reviews by the Audit Commission and Social Services Inspectorate have found there is variation in cost which is not systematically related to quality. There are a number of reasons why it can arise, some of them inescapable but some of them which could and should be avoided and there are a lot of arrangements we have put in place to try and get better commissioning and better quality service at lower prices to reduce the spread and to get better value for money. Those include, as I have already said, the requirement on councils to commission through best practices procedures which go for quality, cost and good outcomes for individuals. The Commission for Social Care Inspection which has been set up since the last of these inquiries last year, its first duty is to improve social care services and it also has a specific duty to improve value for money in social care. As part of its inspections and its registration arrangements it will look at value for money and quality and outcomes for users and that feeds through into their star rating system for councils which will provide an incentive for them to drive through efficiency savings. Also, we put in quite a lot of arrangements to support councils in introducing good practices. We have a team of agents of for older people's services, for example, which supports councils both individually and through best practice advice and toolkits and so on, to improve commissioning, and, for example, they have a learning and improvement network to develop skills and effectiveness of commissioning in councils. The final point really is the one that Mr Bacon made a moment ago, as part of the Gershon Review across Whitehall but in particular in health and social care we are working very closely with councils to identify ways of making quality gains and cost improvements so that it will allow councils to provide high quality services at a lower cost. Of necessity that will look at variations in cost, particularly if they are not associated with improvements in quality.

Q176 Dr Naysmith: Mr Muir, you look at the charges on residents in care homes, they are determined nationally, and around 36 per cent of the costs are eventually recouped through scales of fees and charges. As you know, there have been recent legislative changes that mean that people do not have to sell their homes immediately but they can leave them until they die and then the money gets paid out of their estate. Obviously, we do not know the statistics on this but how many people are making such arrangements? How many people are making arrangements like that?

Mr Muir: I do not have the figures for that in front of me. Certainly the amount of money used in that way is available. I am not sure we necessarily have the information on how many individuals are helped but I could certainly let you have that.

Q177 Dr Naysmith: We need some record of the incidence, how widespread it is.

Mr Muir: Yes. One thing I can say is that in some ways it is slightly disappointing that the extent of this has not been as great as initially we hoped, planned and budgeted for, so not all the money that is in the grants for deferred payments is actually used.

Q178 Dr Naysmith: Maybe we need to get the figures and find out why it is not working.

Mr Muir: Yes.

Q179 Dr Taylor: Three quick questions about PFI. I am not sure who takes PFI. You have given us a lot of information, particularly a list of projects where the increases in costs since the outline business case have gone up from, in some cases, nought per cent to 195 per cent. Is that extra going to be borne by the NHS in the shape of higher unitary costs?

Mr Bacon: The straightforward answer is inevitably.

Q180 Dr Taylor: Right, so there is no risk of the private consortia going bust?

Mr Bacon: That is a judgment for the private consortia.

Q181 Dr Taylor: If a private consortia does go bust, what arrangements are in place to keep the hospitals going?

Mr Bacon: Let me give you perhaps a fuller answer here. Of course, we seek to control costs as tightly as possible with our private sector partner during the development phase but inevitably, from time to time, the nature of the scheme or the extent of the scheme could change, it could expand in some cases, actually it can reduce. The capital cost of that and the ongoing service cost of that is incorporated into the unitary payment that the private sector partner seeks from us. How much they ask for and what we contract for eventually is the subject of negotiation and clearly this a commercial judgment by the private sector partner as to what they think they can afford to let the contract at, still to cover their profit, etcetera. That is not a matter for us, we would only be engaging in negotiations to see that we got the best possible deal. That then becomes the unitary charge for the contract and is incorporated into the cost to the NHS of that deal. If you think about this in terms of the some 25 to 30 year life of these projects, there is little point in either us seeking to nail a cost that is so ridiculously low that the private sector could not possibly sustain it, even though it is their judgment, or in the private sector seeking a price which would cause us to walk away from the deal. Like any of these negotiations it is what it says it is, it is a deal based on both sides' perception of what is a sensible outcome. There are in every contract conditions which apply if the private sector partner fails but they are the subject of each contract, there is not a universal, we would require certain minimum standards and certain minimum clauses to cover those eventualities.

Q182 Dr Taylor: Just a quick question about risk transfer because you probably remember in our report we described risk transfer, or rather the calculation of it, as an art rather than a science. I think you have given us details of 13 projects with the value of over £25 million and the difference between the publicly funded option and the PFI option varies from half a million to £10 million. The bulk of that is always the figure for risk transfer. It strikes me as slightly odd that in all of those 13 projects - every one of them - the PFI option came out best and also that the risk transfer was the major thing that decided in favour of the PFI option. Can I have your comments on that?

Mr Bacon: By the nature of risk transfer it is what it says it is, transfer of risk from us. Therefore, in a sense that does add favourably to the public sector comparator.

Q183 Dr Taylor: It biases things in favour.

Mr Bacon: No, it does not bias them but because it is transferring risk from us to the private sector of course the impact on the comparator will be in that direction. But, let me stress, neither we nor the Treasury would allow us to sign a contract unless we were able to demonstrate value for money by comparison with the public sector comparator.

Q184 Dr Taylor: Is it not the risk transfer, which is not a science, that decides the issue every time?

Mr Bacon: We would not be allowed to ascribe a risk transfer that the Treasury did not accept as being a legitimate one.

Q185 Dr Taylor: Is there any plan to evaluate how a risk transfer is worked out?

Mr Bacon: The simple answer is we have not done so and we would have to see how a contract matured in order to do so.

Q186 Dr Taylor: Will the independent inquiry that we have been promised, presumably by the Health Care Commission, take this into account?

Mr Bacon: Forgive me. I do not know is the answer.

Dr Naysmith: Not unless one of the hospitals goes bankrupt between now and next summer.

Q187 Dr Taylor: Do we know when this independent review will take place and report?

Mr Bacon: I do not know, but certainly I am happy to let you know. Forgive me, I do not know.

Q188 John Austin: As someone who has already argued that it is cheaper for the Government to borrow money through the private banks, can you tell us how much of the PFI programme is going to be financed by the Credit Guarantee Finance scheme?

Mr Bacon: Yes. This is a new experiment that we are setting up and there are two projects currently being considered, the first one of which was Leeds which has just been signed. The intention here, as I understand it, and I am not a personal an expert in the finer points of this I am afraid, is that essentially the Treasury underwrite the bond financing.

Q189 John Austin: And lend it to the PFI partner?

Mr Bacon: As I understand it.

Q190 John Austin: My understanding is if that applied to all PFI schemes in the coming year it would save the NHS £15 million a year for 30 years. Presumably that is cumulative?

Mr Bacon: Clearly, we have just - very recently - let the first contract under that scheme and there is a second one being negotiated currently. Obviously we will be looking at what the product of that is and essentially it will be for the Treasury to decide whether that is the way in which they want to pursue some or all PFIs in the future. We have done one and we can now look at the product of it.

Q191 Dr Taylor: NHS dentistry, there is a fearful concern about this because people cannot get it and yet the NHS plan objective in 2001 said everybody should be able to see one. Could I ask, not now, but for a written answer, we are told the number of dentists has increased steadily over the last ten years by 24 per cent but they are doing less NHS work. If it is possible, could we have a breakdown of the number of NHS dentists and the number that do any NHS, the proportion, to give us some idea of the depth of the crisis?

Mr Bacon: We will certainly endeavour to give you that. I am not sure what we collect in that. To the extent we collect the information, by all means, we will let you have it.

Q192 Dr Taylor: As constituency MPs I am sure our question is that none of the local NHS dentists is doing NHS work any longer, or very few. I would just like to get a handle on that somehow.

Mr Bacon: We will do that, Chairman.

Q193 Dr Naysmith: Can we find out how many of the dentists are full time in the National Health Service?

Mr Bacon: I think we hold that data and we will let you have it.

Chairman: Gentlemen, we have been quite a long time and it has been a very helpful session. You have undertaken to come back to us on several points. There are some questions which we have not been able to put to you so we will write to you. Can I thank you all for your co-operation this morning. Can I say it is a sad occasion for the Committee today as our Clerk, John Benger, is here for the last time as he moves to another post within the House next week. John, on behalf of the Committee and myself I would like to thank you. You have been a first class Clerk and helped us with many different inquiries and all of us will miss you. Simon, do you want to say something?

Mr Burns: On behalf of the official Opposition we would like to thank John very much indeed for the sterling work he has provided for the Committee. It is always said if you want excellence on any Committee or in any walk of life, you need to get someone from Worcester College, Oxford. John has shown me as an ex Wadham man that he has reached the highest levels of excellence in pandering to our vanity, our needs and our demands and ensuring that our Committee has been a smooth running one, and an efficient and varied one. Thank you very much indeed and we wish you all the best in your next career on the third floor.

Chairman: Thank you very much.