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Westminster Hall

Wednesday 6 July 2005

[Mr. Edward O'Hara in the Chair]

Royal West Sussex NHS Trust

Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Watson.]

9.30 am

Mr. Andrew Tyrie (Chichester) (Con): I am pleased to have secured this debate, but I am angry that it should have been necessary. I have no party political points to make. The NHS has not been right for a long time. Given the limited NHS resources that are available, all I want to do today is to deal with how we can find the best possible health care for the area that is covered by St. Richard's, for my constituents and for those who use the hospital, a high proportion of whom are elderly and live in a rural area.

Before I go any further, I shall map out the scale of the problem, with the hard numbers. In the financial year 2003–04, the hospital went into significant deficit for the first time of £3.5 million. In the past year, 2004–05, that deficit increased to £13.8 million and it is forecast that, in the next financial year, it will increase to £28 million, on an income base of just over £100 million. As a result of this, the Audit Commission has issued a public interest report—a so-called section 8 report.

Those figures sound catastrophic, but the reality is that the lion's share of the deficit is purely a consequence of resource accounting and budgeting—the RAB system that is in use by the NHS. To put the whole matter into perspective, if the deficit were funded as if it were a commercial loan, before RAB cuts, and if a normal rate of interest were being paid, the total deficit would only be a few million pounds. The lion's share of the hospital's funding crisis has far more to do with the labyrinthine nature of NHS RAB than any financial mismanagement in which it might have been involved. During a five-year period in which a business would accumulate £1 of deficit, under RAB a hospital will be accumulating £3 of deficit. That is the scale of the problem caused by RAB.

The second crucial point that needs to be made concerns what people are saying about the hospital. Everyone says that it is a first-rate hospital. That is not only my conclusion, but that of the cohorts of experts, arbitration reviews and the Government's indicators. The catalogue is so long that I shall not do much more than refer to it. We are dealing with a top-class hospital.

The Government's reference cost index suggests that the trust is one of the most efficient in the country. It is currently in the top 15th percentile. As for the hospital's clinical performance, according to independent benchmarking, it has been among the top 40 in the country—out of more than 120 trusts—for each of the past five years. And in clinical outcomes, over the past two years the trust has had either the lowest or the second lowest mortality rate in the south-east, and that is after taking account of a difficult catchment area.
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So far I have not mentioned patients. It is not only whether patients stay alive that we must consider, but whether they believe that they are being treated properly. The latest MORI satisfaction index for acute trusts, which is produced each year, shows that the trust has the highest level of patient satisfaction in the south-east. St. Richard's hospital is top out of 26 hospitals in the south-east for patient satisfaction.

Of course, if a hospital is delivering the goods on that scale on each and every one of the Government's indicators, we would expect the staff to be engaged, committed to delivering high-quality care and happy about working there. That is exactly what is happening at St. Richard's. Last year, the NHS's own national staff survey found that it was an extremely happy place in which to work. Furthermore, the senior management were judged to be in the best 20 per cent. for quality of leadership. So that is the judgment of people working in the hospital, assessing their own management.

All of those indicators that I have just described were further reflected in one general measure, which is that the hospital has held the charter mark for excellence for nearly a decade. Even the Healthcare Commission feels obliged to give the hospital two stars out of three, and it withholds the third star only because of the deficit. That takes us straight back to where we started.

No one is disputing the fact that the hospital is first rate; I do not think that the Minister will try to dispute the fact that the hospital is one of the best in the country, or that it is treating more patients every year at a lower cost per patient than almost any other hospital. However, the response of the strategic health authority and the Department of Health has been to restrain its income. They seem not to consider that, as a result, people will either go untreated or be treated at greater expense elsewhere.

Only in the NHS could an institution as successful as this be having its income cut. If it were a private sector institution it would be expanding rapidly and people would be saying, "Let's get this institution to grow as fast as possible. We have found a successful method of delivering what we want to deliver: better health care." The hospital would be the regional success story in health care if it were in the private sector, run according to private sector common-sense norms.

So why is the hospital being treated in this way? There are a number of detailed explanations, and I shall come to those in a moment. First, there is one general explanation that must be dealt with, which I hope the Minister will take on board. I worry that St. Richard's could be the victim of regional health politics. I have spoken to a large number of people about St. Richard's since I became a Member of Parliament, particularly over the last year. I often hear variations on the same theme: St. Richard's is the success story that should not happen. It is a small district general hospital which is outstandingly efficient. On all the planning boards and computer screens, taking into account all the theories and models that the NHS bureaucrats put together, hospitals of 500 or fewer beds are not supposed to be efficient, or to do that well. They are not supposed to be able to deliver cheap, efficient health care in the modern age.

Time and again I have been told—on the quiet—by senior NHS bureaucrats that the long-term future of St. Richard's must be as an outpost of Portsmouth or
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the Portsmouth hospitals. People say that we may, by all means, keep a campus in Chichester, and that there will need to be an accident and emergency department, but not a general hospital; super-hospitals are the future.

Mr. Nick Gibb (Bognor Regis and Littlehampton) (Con): I am grateful to my hon. Friend for giving way in his excellent and informed speech. Is not the driving force behind the move towards super-hospitals the Royal College of Physicians more than any politicians? Is it not up to elected politicians and Ministers to resist such pressure from the profession?

Mr. Tyrie : I think that the drivers come from many sources. It is the job of Ministers not to allow such things to be decided entirely by their officials in discussions with various interest groups, but to try to think through the issues from first principles. The York study on economies of scale in hospital care—the most famous study, although it is a relatively old one—suggested that there were no economies of scale above about 200 or 250-bed hospitals. However, in numerous documents and in speeches it has been made clear over many years by Ministers that 500 beds is probably the cut-off point for the minimum size at which an all-singing, all-dancing general hospital can function efficiently. Incidentally, St. Richard's is a 500-bed hospital, so it is right on the cusp that I am describing.

I do hope that the Minister can reassure me today that the Government are fully committed to helping hospitals of the size of St. Richard's to flourish. Patients want that. They do not want super-hospitals; they want to be treated near where they live, if they can be. St. Richard's has proved that it is possible to do that efficiently. My constituents, and those of my hon. Friend who are affected, will be listening to the Minister's response on that point.

All that St. Richard's really needs—I will now get into the detail of how we have developed the huge deficit—is for the Government to implement their own health policy. St. Richard's does not need a handout; it needs reasonable payment for the treatment that it provides. As Ministers know, the hospital is being paid for its work at well below the cost of providing it, as shown by the Government's national tariff rate. If St. Richard's was paid at the national tariff rate, it would never have got into deficit. In fact, it would be in surplus and would be expanding, as common sense suggests that it should. Full implementation of the national tariff would yield an extra £15 million in 2006 and more in subsequent years, more than covering the deficit, even including the extraordinary RAB accounting, which has artificially inflated the financial crisis.

I have had a good look at the issue of the national tariff. The question that I have been wanting to clarify is by how much the hospital is paid under tariff. The short answer is about 20 per cent. In other words, it is getting only about 80 per cent. of what it should get, based on the national tariff. That is a key issue in understanding what has gone wrong with the hospital's finances.

I quite understand why the Government have decided to slow down implementation of the national tariff. It was originally intended to be phased in from April this
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year. However, a national tariff means winners and losers, and the Government do not yet have a plan for the losers. They do not have a plan for those inefficient hospitals that are receiving above-average tariff and which would have money taken away from them—those hospitals up and down the country that deliver the same treatment or less good treatment for more money than St. Richard's does. Those cuts will be painful and the Government will need to plan for them. I understand that.

I am concerned that St. Richard's, which will be one of the winners, should not be penalised in the meantime. What is more, a penalty is being built into the Government's current method of moving to the national tariff: the so-called payment by results scheme. That is because low-tariff hospitals are permitted increases in tariff in slugs of only 2 per cent. per annum. In St. Richard's case, starting 20 per cent. behind—or, to put it another way, starting from such an efficient base—it is a mathematical impossibility for the hospital ever to get up to the national tariff rate under the Government's payment by results scheme. That must be crazy. At least the Government have said that they will look again at payment by results; thank goodness. Penalise by results would be a better description of the current scheme.

Let us put the tariff point another way, which illustrates it even more clearly. Imagine that St. Richard's was shifted 12 miles due west to the other side of the county border, in Hampshire. The Hampshire and Isle of Wight strategic health authority prices the cost of treatment almost at tariff. If St. Richard's hospital was 12 miles due west it would be in surplus.

There has to be something amiss when a first-rate hospital, which would be a candidate for foundation status in one county, finds itself having to cut its budget under RAB in another. Something is seriously at fault with the internal financial arrangements of the local health economy.

Of course, in Hampshire a deficit is now mounting in the primary care trust instead of the hospital trust. What is their alternative? The only alternative to giving more money to the local health economy is to leave patients untreated. That is my second worry. I have frequently heard senior health bureaucrats talk about the need for "better demand management"; the public should know what that might mean. What it really means is that people would be left untreated. "Better demand management" means less demand: squeezing it out and rationing.

I hope that the Minister will be able to say categorically today that she rejects that approach to solving the problems at St. Richard's and in West Sussex. That approach is tantamount to saying to St. Richard's that, because it is successful, it is attracting too many patients, who are referred by GPs or come through in accident and emergency, and that it has become too well known as a centre of excellence. So it had better close its doors to some patients and force them to be treated elsewhere. I am sure that the Prime Minister did not mean that when he said that we need a health service fit for the 21st century; I am sure that it is not what successive Health Secretaries had in mind when they told us that the main constraint on more health care in Britain was not cash but capacity.
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Coming along and moaning to a Minister about the fact that not enough cash is being provided in the health economy and that as a result a very good hospital is in trouble, is not enough. I have tried to think through what reasonable response the Minister might try to make. What has been sitting in her brief overnight?

The Minister could say, for example, that the PCT already receives more than its fair share of the national cake. I have no doubt that she will have a statistic that shows that. That, however, would not take full account of the demands in areas such as Chichester, which has such a large rural and elderly population.

The Minister may have been briefed that the primary care trust has the allocation of its own funding wrong and that it should allocate a higher proportion of its budget to secondary and tertiary, rather than primary, care. She might have a point if she said that. The PCT is spending only 45 per cent. of its budget on secondary and tertiary care, whereas the average for PCTs in Surrey and Sussex as a whole is nearer 50 per cent.

However, before alighting on that as the explanation, the Minister would need to remember the extra and growing amount that needs to be spent on mental health in the area, particularly in view of the history of nearby Graylingwell, which was the county asylum before it closed. Many former patients live in the local community and, understandably, they bring extra costs for the PCT. That is why the mental health element of the PCT's spending is higher than average and it is one of the causes of the fact that only 45 per cent. of its budget—a limited cake—can go to secondary and tertiary care.

Another line that the Minister might have up her sleeve might be to say that some of the hospital-based services should be borne by GPs or provided in the community, closer to where people live. This is the new line that a person gets when they talk to a large number of people in NHS senior management. However, I will wager that if the Minister probes her officials about that policy, she will discover that the savings claimed could turn out to be highly speculative. It is at least arguable that such community-based care could generate as much demand as it diverts, and it is the view of many experts that it will.

The Minister will definitely tell us that after intensive negotiations, the trust, the PCT and the strategic health authority are much nearer a solution. She will be right, at least in the very short run. The hospital has found an extra £5 million of savings and has also offered to raise a further £3.7 million by selling assets owned by the trust. We should all be pleased to hear that the negotiations are going a bit better and that they have moved forward a little. However, I worry about the deal that has been put together.

What will taking £5 million out of that trust really mean? It will mean fewer nurses per patient, but the hospital is already in the lowest quartile nationally in terms of the nurses-per-patient ratio. It will mean shortening the length of stay, but the hospital already has among the shortest stay lengths of any hospital trust for each main type of treatment. Among other things, it may also mean that rehabilitation services need to be cut. That is the real effect of the £5 million of savings. What about the £3.7 million of asset sales? Frankly, the proposed sale of land is nothing more than asset
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stripping; it is no more than a sticking-plaster solution because one cannot sell assets to pay for current expenditure for long.

Everybody will need to row together to make the current negotiations a success, but we also need to be clear that a few asset sales will not solve the growing health care crisis in West Sussex or Chichester. My constituents need a long-term solution to the problem, and that will require the Government to examine at least four issues. The first, to which I have alluded, is the need to ensure that there is a proper national tariff for the work that hospitals do. Are the Government committed to paying hospital trusts the full national tariff within four years? I hope that the Minister can answer that question. It is the current stated policy, but what is the strength of commitment to it? If a full commitment can be given, and we can get rid of the 2 per cent. cap on payment by results, St. Richard's will be out of the woods in a few years.

That brings me to the second point. We must have a basic principle in the NHS that we will reward success such as that shown by St. Richard's. In theory, the Government have already done that with foundation hospital status. Even if the hospital had foundation status, however, it would still be strapped for cash because of the 2 per cent. cap on payment by results.

The third issue is the capitation formula. The Government must look again at this. It has resulted in the transfer of health resources from the south to the north. The arguments involved are long and I do not intend to go into them in detail, but re-examining the formula is inescapable. The whole health economy of the south is developing similar problems. The recent National Audit Office report on the NHS nationally showed a steady deterioration in the south compared with the north. Not every hospital in the south can be getting things wrong, so something is clearly wrong with the capitation formula. I should be grateful if, today, the Minister would commit the Government to looking again at the formula.

There is a fourth point, which it is essential for the Government to consider if we are to get through this growing crisis: they need to shed some of their nostrums about the way in which health care is provided. The suggestion that St. Richard's is too small to survive as an independent hospital, and the funding treatment that it has received over the past few years, owe more to a communist state planning system than to a modern democracy. It is absurd. When one goes through the way in which the numbers have been calculated, one can scarcely believe that a major institution such as the NHS is being managed in this way in the 21st century. A group of serious, dedicated clinicians, health care professionals and managers are being pushed around as a result of the most extraordinary, byzantine rules.

If the Government really are committed to doing what they say—to letting success flourish in the NHS—they must think out of the box and more imaginatively. Specifically, I hope that the Minister will return to her Department and ask about economies of scale and super-hospitals and whether the Government should be giving much more encouragement to hospitals of 300, 400 and 500 beds, rather than having an idée fixe that a hospital of fewer than 500 beds cannot survive or be efficient in the modern age.
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I have spoken to many constituents about this subject, including patients, staff, management and clinicians. They all say much the same thing:

Actually, those are not my views—I have just been quoting a leading clinician, the medical director at St. Richard's hospital.

I have suggested a number of long-term solutions to the Minister. Best of all would be for her to come and see for herself. She should not believe everything that she has heard about the hospital from the regional health authority; she should just go down, take a look and discover for herself the gap between the numbers and reality. As another clinician who does not work at the hospital put it to me:

Several hon. Members rose—

Mr. Edward O'Hara (in the Chair): Order. This is a debate of local interest and, according to the Speaker's ruling, contributions from the Opposition Front Bench may be limited to five minutes in order to allow local Members to have full opportunity to speak. If that becomes necessary, the first Opposition contribution will be called at 10.40 am.

9.56 am

Mr. Nick Gibb (Bognor Regis and Littlehampton) (Con): I congratulate my hon. Friend the Member for Chichester (Mr. Tyrie) on securing this important and timely debate. He has an impressive track record on fighting for local hospitals sited in his constituency. He has the backing and support of all of us who represent constituencies in West Sussex because we share his concerns.

St. Richard's hospital is an excellent hospital that is used heavily and frequently by people in my constituency, as Bognor Regis is only six miles away from Chichester. The hospital is well loved and its medical proficiency well respected and understood by people in the Bognor Regis area. The Friends of St. Richard's is a widely supported group that has raised millions of pounds for the hospital in recent years. Volunteers from Bognor Regis can be seen throughout the hospital on any day of the week.

The hospital's reputation is supported by the raw data. As my hon. Friend said, it has a two-star Healthcare Commission rating, with only its financial position preventing it from receiving the top three-star rating. In a sense, the hospital is in a vicious circle because if it had a three-star rating it would have more independence, but it cannot have the third star because of the financial position that the current structure has put it in.
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St. Richard's is a hugely efficient hospital and is in the 15th percentile of all NHS trusts. It has also been among the top 40 hospitals for each year from 2001 to 2005 for clinical performance, according to the CHKS Ltd. rating. St. Richard's also has the lowest and second lowest hospital mortality rate in the south-east in the past two years, as my hon. Friend said, as well as the highest patient satisfaction rating in the south-east.

We are talking about a well-loved and highly efficient hospital that is in trouble because of a deficit of £13.8 million last year, which, on an accumulated basis, now totals £20.5 million since 2001–02. St. Richard's hospital performs well on the cost side and is efficient by comparison with other hospitals. The problem must therefore be on the income side. That clearly is a problem, as the hospital is being paid significantly below the NHS tariff for its operations—as my hon. Friend has calculated, about 80 per cent. below the tariff in 2004–05 and 86 per cent. below in 2005–06. That is because payment by results has been only partially implemented, and merely includes elective care for 2005–06.

It is likely that, had full payment by results been implemented, the trust would have been in surplus in 2004–05. The sin that St. Richard's has committed has been to treat too many people. Those who know the area that the hospital serves will know that it has an elderly population, particularly in Bognor Regis, where 25 per cent. are over the age of 65—that is forecast to rise by a further 19 per cent. over the next 10 years. The population also contains a high proportion of the very elderly—those aged over 85—so of course there are severe demands on the hospital. I am glad that St. Richard's treats my constituents when they call on its services. I would be the first at the barricades if it started to turn patients away because it had breached its financial barriers.

Is there not something odd in the way in which the NHS is managed? Somebody sits in Whitehall and calculates what the area covered by Western Sussex primary care trust needs, based on its population, profile and other requirements, and we all sit and hope that that calculation is correct. Then, lo and behold, more patients than predicted by the formula turn up and are treated, so the costs accumulate and a deficit arises, and we all scurry around trying to plug the gap. Surely, if the hospital is efficient, which this one is, and it is engaged only in treatment that is accepted as appropriate for an NHS hospital to carry out, which it is, that should be the end of the matter; the funding should be given.

It might be that GPs are referring to the hospital people with particular medical conditions that in other areas are more usually dealt with without hospital admission. If that can be proved, it needs to be addressed. Perhaps we need more district nurses in the area so that the number of hospital admissions can be reduced. However, if it is not the cause or the whole cause of the problem and it is the case that more patients are becoming ill than the formula predicted, it is wrong for the hospital—or the PCT and the whole health economy of Western Sussex—to cut its level of service to match the funding. Cost cutting is a fine and proper way to deal with inefficiency, but we must not plug this deficit by cutting the level or quality of service to a very elderly population whose lives depend on this good, effective hospital.
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The funding gap should not be plugged, either, by cutting other NHS services in the area. I understand that Western Sussex PCT intends to reduce the number of district nurses by 30 per cent., and to move them out of the GP practices, where they currently work, into five regional centres. In an area such as the one that I represent, that is entirely unacceptable. I have had a raft of letters from worried elderly constituents in response to the announcement about the changes for district nurses. One constituent, Miss Duncanson, who lives in Pagham, writes that she is appalled by the proposal by the PCT to reduce the number of district nurses. She goes on to state:

and that, under the new arrangements proposed by the PCT,

Another constituent from Pagham writes:

and continues:

Tim Loughton (East Worthing and Shoreham) (Con): I have been following my hon. Friend's points carefully. He acknowledges that his population of the very elderly is very high, as it is in other parts of West Sussex. The very elderly make the greatest demands on the health service, and if we are unable to look after them in their own homes through visiting nurses, it is likely that they will end up requiring more acute care, in hospitals, at a vastly greater price. The scheme is a false economy.

Mr. Gibb : My hon. Friend is absolutely right; that is the madness of the system. It is likely that a reason for the deficit is that there may have been an excessive number of accident and emergency admissions because there is an elderly population. One of the best ways to reduce the number of admissions is to have more care in the home, but to plug the financial gap, the PCT health economy wants savings across the board and is proposing to cut the number of district nurses by 30 per cent., which, as my hon. Friend said, is likely to lead to more admissions to St. Richard's, exacerbating the problem in the long run.

A constituent from Nyetimber in Bognor Regis writes:

My constituent pleads with the Minister, via me, and urges her to think again.
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Other constituents have written to me expressing huge concern about the proposal. One states:

The letter concluded:

That is what I hear from a number of constituents on this issue. And we are talking about the war generation because it is an area where the very elderly—people over the age of 85—live. I quote from a letter that exemplifies that point. It states:

The Minister has now heard first hand the consequences of trying to plug an artificial financial deficit, dealing with a formula drawn up in Whitehall that has proven to be inaccurate in the real-life circumstances of western Sussex.

I do not know how many hours of highly paid accountants' time has been consumed in pouring over the details of the hospital's deficit and in finding savings from the service provided, but I expect that it is excessive. Here we have an efficient hospital that is simply treating more patients than were predicted and for which it is being paid less than it should be. We need to implement payment by results immediately so this problem would be resolved, and so that we do not start cutting vitally needed medical services, which are keeping people alive.

This debate really is a matter of life and death. I trust the Minister will ensure that no decisions are taken that will result in a lower level of service than is currently being provided.

10.9 am

Mr. Nick Herbert (Arundel and South Downs) (Con): I too congratulate my hon. Friend the Member for Chichester (Mr. Tyrie) on securing the debate and on taking such a close interest in St. Richard's hospital in his constituency.

The hospital also serves a large number of people in my constituency and my constituents share the concern that my hon. Friend succinctly expressed about the hospital's financial position and its future. I underline what he said about the way the hospital is perceived by the local community. According to the objective measures of performance indicators, it is a very efficient hospital, topping the league; also, on the crucial measure of patient satisfaction, The Sunday Times gave it a score of 82 per cent., which is the highest in the south-east. By all measures, this is an extremely good local hospital, and we should start from that position.
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There are considerable and growing pressures on the hospital because of the nature of the local population, and we need to recognise that. Nearly 25 per cent. of the local population are over 65, and the number of over-65s is forecast to increase by nearly a fifth in the next decade. This is an area where the population has grown at twice the national rate for nearly a century. Controversial proposals to increase the number of houses in the area are being driven through, so the population pressures will increase. Furthermore, the area gets a large number of visitors because it is very popular with tourists. Chichester, my town of Arundel and the south downs receive a large number of visitors, adding to the pressures on the hospital. That underlines the need for a continuing local hospital to serve the needs of the growing and elderly population.

I should therefore like to question a view that I believe may be prevalent among senior NHS management, to which my hon. Friend alluded—that too many people in the area are being sent to hospital. In the first place, that view does not recognise the situation, the demographics, the growing pressures that the hospital will face and the continuing need for the hospital. Secondly, even if it were true that too many people were being sent to hospital, that certainly does not provide any kind of solution to the financial situation of the trust. If that was part of the problem, and I am not sure that I would accept that—I would like to know whether that is the Government's view—it would seem to suggest that there was no need for trust provision on such a scale, and that would concern me. I will come to that in a minute.

We have to recognise that the problem affects the whole health economy. In meetings with the chairman of the trust, I was encouraged to hear that he is working closely with the chairman of the PCT. We have to recognise that a solution for one of the bodies may produce problems for the other. Therefore it is necessary to recognise that there is an underlying deficit in the whole health economy. Once one recognises that, it is possible to view the short-term measures that the trust has been required to undertake with a certain amount of cynicism. Things like asset disposal and sale and leaseback schemes can only be short-term fixes for an underlying deficit and, in themselves, are very disruptive and problematic.

I agree with my hon. Friend's points about the RAB scheme. It is worth pointing out, as did the public interest report published last month, that under the RAB scheme, if the underlying deficit is not addressed, then because of the need under NHS accounting rules to roll forward deficits and meet them by penalising the amount of grant that the hospital receives, by the end of 2007–08—only a few years away—the accumulated deficit will be £142 million, a sum considerably in excess of the trust's income. That demonstrates the absurdity of the RAB rules and the need to address the structural, underlying deficit that affects the entire local economy, not only the trust.

The real problem, as my hon. Friends have clearly put it, is that activity is not being matched by income and that the trust is paid below tariff. The results are perverse, which is a great pity. All too often in the public sector, good, efficient local institutions do their job and
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increase activity, and are penalised for it rather than rewarded. We cannot have a system that produces such results.

My hon. Friend the Member for Chichester made a very good point about the tariff, and drew attention to the fact that if the hospital was simply relocated a few miles to the west and if it paid the same tariff as a neighbouring trust, these deficit problems would simply not exist on the same scale.

That point can also be made in another way. In its contribution to the strategic review, the trust has been forced to consider whether some sort of arrangement or even merger with Portsmouth would be a viable option. The trust pointed out that that would not produce the solution that was hoped for, because unless the tariff situation was dealt with, it would increase costs because the local PCT would have to send patients to Portsmouth trust, which has higher costs than Chichester. That demonstrates the absurdity of the tariff situation.

I view with particularly grave concern any suggestion that there might be a gradual transfer of activity to Portsmouth and away from St. Richard's. My constituents live to the east and north-east of St. Richard's and are currently served by the hospital. They would be furthest away from Portsmouth, and I am very aware, from debates happening on the east side of my constituency some 40 miles away, of the problems caused by a stealthy determination to downgrade local facilities in favour of placing them in a different hospital some miles away from a rural area. That has happened at the Princess Royal hospital in Haywards Heath, whose accident and emergency facilities are being downgraded in favour of sending people to the Royal Sussex hospital in Brighton.

Consultants are up in arms about these proposals, as are local people, who fear, with some justification, that there is an agenda to regionalise NHS provision. People in rural areas have grave concerns about that. They want local hospitals to continue to exist, particularly in rural areas with a population of elderly people who find it difficult to travel.

As well as addressing the deficit, I hope that the Minister will take on board the fact that the national, and certainly the local, mood is for the preservation of good local facilities, and that behind-the-scenes moves to rationalise facilities are very damaging to the entire political process, particularly when local people are not properly consulted or consulted in a way that does not meet with their approval.

There is also an urgency to the situation confronting St. Richard's. It is very unsatisfactory that the trust should be forced to take part in a series of crisis meetings with the strategic health authority and then be in an acute cash-strapped position. The public interest report last month described that position as extremely serious. At one point, payments were frozen to creditors, which is unacceptable, particularly when those creditors could be in the private sector. At another point, the trust was forced to freeze purchase orders, which could have had an effect on service delivery if essential supplies, such as food and drugs, were unavailable.

One of the ways in which the trust has dealt with its cash position is by renegotiating its payment schedule with the contractors who built the Chichester treatment
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centre. That may have been a sensible short-term measure to ameliorate its position, and I am sure that it was, but the irony is that it increases costs for the trust in the longer term. It is a good example of a measure being forced on the trust that does not deal with its short-term problem.

The trust has little local control over national costs. Generally, national health service managers who are confronted by problems of the kind in question have little control over their costs, which constrains their ability to deal with structural problems like the one that I mentioned. The public interest report pointed out that a substantial portion of the current deficit—about £3.2 million, which is about 25 per cent.—relates to national developments. It did not specify what they were. What can the trust do about them?

That matter points to a wider problem, which I hope that the Minister will take on board, if she does not respond to it immediately—the extent to which the large spending increases in the national health service are being absorbed in higher costs. The King's Fund—an independent health body, as the Minister knows—estimated at the time of the general election that 73 per cent. of NHS spending increases are being absorbed in higher costs.

The NHS overall faces year-on-year spending increases that are leading to stored up spending costs. The think tank of which I used to be director, Reform, has estimated that by 2010 the NHS will have to find an extra £10 billion just to stand still, because of meeting those stored up cost commitments: the new primary care contract, more staff, new IT and more expensive drugs.

Mr. Tyrie : I have already had a good innings, so I shall try to be brief. My hon. Friend is right to mention the £3.2 million extra costs from central initiatives. Is he also aware that funding was provided to the tune of £17 million for the Chichester treatment centre, which was recently opened, but that the running of it has not been funded? The running costs of about £4.2 million have come the trust's way, but the hospital is not getting the money. That is another extra, unexpected burden.

Mr. Herbert : I am grateful to my hon. Friend for making that point. I was going to discuss the Chichester treatment centre. He is right about that.

The treatment centre is a good example of the trust doing what the Government would like it to do. The existence of the new treatment centre, which is just coming on stream, is a good example of one of the perceived successes of Government policy on health care. When a hospital trust is doing as the Government want and performing a good service for the community, whose demands will only increase, it is unfortunate that we should allow a structural deficit to go unaddressed and force the trust into a position in which it must take improbable and short-term measures.

I hope, on behalf of my constituents, who value the hospital greatly, that the Minister will be able to deal with the great concerns about the situation affecting this good trust.

10.24 am

Julia Goldsworthy (Falmouth and Camborne) (LD): I congratulate the hon. Member for Chichester (Mr. Tyrie) on securing the debate, which has been informative and
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illuminating. It has cast light on many issues that the Royal West Sussex NHS Trust faces, and it has raised wider questions about the financial management of NHS trusts, which I hope that the Minister will deal with later this morning—issues of financial management, the implications of payment by results, resource allocation and the funding formula.

We have heard today how the Royal West Sussex NHS Trust, like many other hospital trusts, now has a record deficit. We have heard that the recent PricewaterhouseCoopers report, published in June, reported an accumulated deficit of £20.5 million in 2004–05. Because current accounting rules dictate that any deficit recorded in one year must be recovered the next, the forecast deficit for 2005–06 will be £30 million, and £51 million by the end of that year. That represents over 60 per cent. of the trust's annual income.

In its current circumstances, the trust looks in danger of becoming trapped in a downward spiral of financial difficulties, but it is not the only NHS trust reporting such problems. In 2002–03, seven NHS trusts reported deficits; by 2003–04, that had grown to 12 trusts. In both years, the Royal Cornwall Hospitals NHS Trust's Trelisk hospital, which serves me and my constituents, was sadly represented in those figures, despite providing excellent care and efficiency in every other respect. There is a concern that not only is the number of trusts reporting deficits rising, but the size of those deficits is growing. That is worrying, not just because of the north-south divide that was reported by other hon. Members, but because it is a rural-urban divide. Cornwall is a lot further south, but there is a rural-urban divide issue. Real consideration must be made of what the actual health care needs in rural areas are, not only in terms of age, but in terms of the provision of health care services in many different ways. I would appreciate the Minister's comments on what she may be able to do about such problems.

This morning's discussions touched only briefly on what the contributory factors to those deficits may be, and we have heard a lot about the problems of St. Richard's. I should like to speak briefly about some other areas that have contributed to the problems that other trusts reporting deficits have experienced. One of the first areas is the lack of financial understanding of many board members of hospital trusts. That has been highlighted by the conclusions of the National Audit Office and the Audit Commission's report on financial management, which was published a few weeks ago. It stated that in many cases,

The report also asked for recognition of the fact that boards often do not have the financial skills to drive forward improvements in their financial position. Although that may not be the case with the NHS trusts about which we have heard today, it is certainly the case with many other trusts that are reporting deficits.

The report also made a series of recommendations for executive and non-executive board members as well as for management, and I hope that the Minister will confirm that the Department will accept those recommendations and ensure that they are taken up by the NHS trust boards. Many of the recommendations make eminent sense, and it seems amazing that they are
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not already being taken on. They include ensuring that the position given by the financial reports is understood by all the board members, and that non-recurrent income is clearly identified.

Mr. Edward O'Hara (in the Chair): I am listening very carefully to the hon. Lady, but I must advise her that she must confine her remarks to the subject of the debate, which is funding for the Royal West Sussex NHS trust.

Julia Goldsworthy : Thank you, Mr. O'Hara. I hope that more will be done to help to ensure that board members understand and can predict their financial situation. The resource accounting and budgeting may not help them to do that. The concern is not simply about financial mismanagement, but about whether that represents good value for money for the taxpayer, and about the impact that recovering those deficits will have on the quality of care that patients receive. That concern has been highlighted.

The Royal West Sussex NHS Trust has made the difficult decision to cut an operating theatre and two wards to help to recover some of its deficits. Some of the other deficit recovery mechanisms have already been discussed this morning. The cuts may help to recover costs, but I am not clear how such measures will do anything but impact negatively on the quality of care that patients receive. The hon. Members for Chichester and for Arundel and South Downs (Mr. Herbert) gave further examples. Given that the trust has met all its key targets apart from that of financial management, it is difficult to see how it can resolve the problem without having an impact on patient care.

I have already referred briefly to the fact that something has to be done with the funding formula. Again, that reflects my experiences with the Royal Cornwall Hospitals NHS Trust, which lost a star rating not because of the level of patient care or the efficiency and hard work of the staff but because of financial management problems. There is a widespread concern among Members who represent rural areas that the existing funding formula does not accurately represent need, and I hope that it will be reviewed.

I have one last question for the Minister. Financial difficulties prevent the Royal West Sussex NHS Trust from switching to foundation trust status, which would give it greater financial independence. However, I wonder whether financial independence automatically means greater financial stability. The Healthcare Commission's review of NHS foundation trusts, published yesterday, found that four foundation trusts have a projected financial deficit and that changes such as payment by results remain major risks. Although payment by results may help the West Sussex trust recover from its financial difficulties, for many others it will cause huge difficulties.

Given that the Government intend all NHS trusts ultimately to achieve foundation status, and given that some of those foundation trusts already face financial difficulties, will the Minister allow those trusts and hospitals to go bust if they encounter the sort of financial difficulties faced by St. Richard's? That is the logical extension of market-based reforms in the NHS,
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but the question has not yet been answered. Is it the Minister's view that continual changes such as payment by results are increasing those risks—

Mr. Edward O'Hara (in the Chair): Order. I remind the hon. Lady once again not to stray too far from the specific subject of the debate.

Julia Goldsworthy : I would appreciate hearing the Minister's views; her answers are important not only for the Royal West Sussex NHS Trust but more widely. Once again, I congratulate the hon. Member for Chichester on securing the debate.

10.32 am

Tim Loughton (East Worthing and Shoreham) (Con): I, too, congratulate my hon. Friend the Member for Chichester (Mr. Tyrie) and my other hon. Friends who have spoken. I am responding with two hats, Mr. O'Hara—as the Opposition health spokesman and as a West Sussex Member whose constituency is covered by the neighbouring trust.

I congratulate my hon. Friend the Member for Chichester particularly because he has form; he is well known for taking up the cause of local health establishments. Indeed, I remember a debate held in this Chamber some years ago on the King Edward VII hospital at Midhurst, and it is due in no small part to my hon. Friend's efforts that that hospital has survived. He is now rightly taking up the cause of another centre of excellence in his constituency that benefits many thousands of people in West Sussex and Hampshire. I record my warm congratulations to him on that.

I know the trust well; as I said, it is one of my neighbouring trusts. It has problems because of its size; as my hon. Friend said, it serves 212,000 people in the local community in West Sussex and in Hampshire. However, it is a particularly elderly population—I hasten to add that it is not quite as elderly as the population of Worthing—with about 25 per cent. being over 65. As we heard, a higher proportion are over 85, with all the additional costs on health care that that involves. The trust serves a large rural area that is difficult to manage.

The hospital has been hit particularly badly by its financial deficits, despite having an excellent reputation. My hon. Friend the Member for Arundel and South Downs (Mr. Herbert) pointed out that, at the current rate of growth, the deficit will be £142 million some years ahead. The accumulative deficit is forecast to be about £51 million in 2005–06. That is a large percentage of the trust's income. However, the report that the trust gave to the board earlier in the financial year warned of the risk that the trust would not break even in the year 2004–05. There is a heck of a difference between not breaking even and forecasting a deficit in the past year of about £14 million. I wonder how those projections could have been so askew.

The hospital is, by all accounts, excellent. It was awarded two stars by the Healthcare Commission, the reference costs are 90 per cent. of the national average, putting it in the best—15th—percentile, and the trust has been in the CHKS Ltd. top 40 UK hospitals for clinical performance for each of the five years. The hospital is consistently good, with excellent clinical
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outcomes, excellent patient satisfaction, excellent staff satisfaction—it is in the top 20 per cent. for quality of senior management leadership according to the NHS national staff survey—and it has held a whole hospital charter mark for excellence in public service for three successive year terms since 1996.

The hospital is doing its job rather well in terms of the quality of its health care and its reputation among its customers and staff, and is financially efficient. It has a highly respected chief executive who would be prized at any other trust in the country. As my hon. Friend the Member for Chichester said, the hospital is largely doing what the Government want it to.

The real problem with the finances is the artificiality of the way in which accounting is done. My hon. Friend told us about resource accounting problems, and we have heard that the tariff system has been partially implemented for elective care only, which has yielded just over £1 million in extra income for the Royal West Sussex NHS Trust, whereas full implementation was expected to raise an extra £10 million in this financial year, and to reach £16 million in additional income by 2008–09, which would turn the deficit into surplus. Will the Minister explain why the brakes were applied in the tariff procedure applied to the trust?

Despite lengthy negotiations with the Western Sussex primary care trust and having sought strategic health authority arbitration over the past two years, the Royal West Sussex NHS Trust is paid significantly below the tariff—the assessment is 80 per cent. of the tariff in 2004–05. That explains why the trust can be efficient yet in deficit. The key issue is that of local price. The trust is clearly efficient, but is paid significantly below the national average.

The increase in trust activity is another issue. As was pointed out in the PricewaterhouseCoopers public interest report, the increase in trust activity has not been matched by an increase in income. The report also says:

That is the problem that we face.

Where does the trust go from here? My hon. Friend told us that it has come up with total savings targets of £5.1 million for the coming financial year, including a cost reduction programme of £1.2 million. The trust is working closely with the local PCT; together they have identified 10 streams of service redesign, which are projected to yield savings of £9 million across the local economy over three years. It has really pulled out all the stops, but the trust has indicated that the current level of savings of £5.1 million is the maximum that could be achieved this year, and that the board does not feel able, on the grounds of governance, to agree to a business plan that cannot realistically be delivered. I am sure that that is what the Government would want it to do. We do not want trust boards to cut costs for the sake of meeting artificial targets that could seriously imperil the quality and level of health care offered by the trusts. That is what the board appears, rightly, to want to avoid.

How does the Royal West Sussex NHS Trust balance its financial position? As we have heard from my hon. Friends the Members for Bognor Regis and Littlehampton (Mr. Gibb) and for Arundel and South Downs, it could be forced to take a number of cost-cutting measures.
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However, the hospital already has a low nursing ratio, so would that mean even shorter stays in a hospital that is already efficient in its throughput of patients? That, in turn, would mean pressure on rehabilitation services. As I mentioned, there are already severe pressures on the PCT in dealing with an increasingly elderly population, and it would be a false economy not to continue its current work. The situation would come full circle as those people would end up back in hospital, with all the financial and personal misery that that would cause.

What will the hospital do? Will it reduce the number of operations? The sticking-plaster effect of the sale of assets is purely a short-term solution. Will it have a recruitment freeze? That would lead in the short term only to a reduction in the work that it could carry out. Will it have to cut the information technology budget, and what is the future of the £4.2 million running costs of the treatment centre?

As has been said, many of the measures that have contributed to a financial deficit are out of the hospital trust's hands: targets to reduce waiting times; a shortage of skilled staff; the new GP contract; "Agenda for Change"; the new consultant contract; the measures against MRSA; the European working time directive; implementation of electronic patient records; payment by results; and quality and outcome frameworks. All of these measures, rightly or wrongly, were imposed by the Government, and the hospital trust must comply with them. That is the problem.

My final point is about scapegoating—who is being blamed for the problems. We have already seen the resignation of the trust's chairman, which in part was down to the defence of the chief executive, on whom pressure was put to resign. However, he has an excellent reputation, and the chairman fell on her sword in his place. That is happening all over the place. In the same strategic health authority—Surrey and Sussex—we lost the chairman, the chief executive and three non-executive directors, who left the trust board in May in the light of a £30 million deficit. The chairman of the Bradford Teaching Hospitals foundation trust was sacked, and the Royal Wolverhampton Hospitals NHS Trust non-executive board was ordered to stand down. The story goes on and on. There is a real fear that people in both executive and non-executive roles are being scapegoated throughout the country, but particularly in the Surrey and Sussex strategic health authority area, where we seem to have had a disproportionate number of dismissals in the past couple of years.

That problem has been pointed out in the Health Service Journal, not least by the person responsible for the Monitor report and the head of the NHS Appointments Commission. The latter has acknowledged that under current arrangements non-executives can be left vulnerable:

The journal article continues:

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My point is that there are serious financial pressures, and in many cases, as with the Royal West Sussex NHS Trust, those pressures are on hospitals that are delivering what the Government want and doing a good job.

I finish with some questions for the Minister. What help will be forthcoming from the Government? Her Department has said that it is prepared to consider sympathetically the financial plight of some indebted trusts. We are looking not for bail-outs but, as my hon. Friend the Member for Chichester has said, for the trusts that are doing a good job to be paid what they are due. What is the full extent of the problem? Reports have suggested that deficits of hospital trusts amount to at least £1 billion and that they are getting worse. Where has the money gone? Are the Government really prepared to let an excellent hospital and hospital trust like St. Richard's go to the wall simply by doing their bidding and by having to work within a very artificial financial situation?

10.45 am

The Parliamentary Under-Secretary of State for Health (Caroline Flint) : I congratulate the hon. Member for Chichester (Mr. Tyrie) on securing today's debate on funding for the Royal West Sussex NHS Trust. I also thank the hon. Members for Bognor Regis and Littlehampton (Mr. Gibb) and for Arundel and South Downs (Mr. Herbert) and the Opposition Front-Bench speakers, the hon. Members for Falmouth and Camborne (Julia Goldsworthy) and for East Worthing and Shoreham (Tim Loughton), for their contributions.

There have been some thoughtful contributions today, reflecting the complexity of issues in terms of the demands on the health service. Every day it seems that there is a discovery—a new drug or a new way of helping people. In my primary role as the Public Health Minister I am interested in what we can do at the prevention end of health services to reduce the number of people who need treatment for cancer or coronary heart disease, which are our two major killers. Excellent work is going on in our hospitals, but there is also recognition by those working in the NHS that we could do more to reduce the number of patients presenting in the first place. That demonstrates the complexity of the health service and how it is run.

Local needs vary around the country. For example, I represent Don Valley in Doncaster in South Yorkshire, which may differ greatly on a number of health indices from Surrey and Sussex, although there will be some commonalities in other areas. It was for those reasons that we felt that we could not micro-manage hospitals and services from the centre and that it was right and proper, while having a national framework, to ensure that decisions about health service needs were made at a more local level.

A number of concerns have been expressed today about St. Richard's and its financial situation. I agree that the trust and other local NHS organisations in Surrey and Sussex are facing significant financial challenges, but I am assured that people are trying to
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address them. There is no easy solution in some of these areas. I will try to respond to the specifics today and if I do not cover everything in the time that I have left I will write to hon. Members.

First, as has been pointed out, performance at the trust has been consistently good, and I pay tribute to all the staff who are dedicated to the process of delivering good quality services. The trust has achieved and continues to achieve the national standards set out in the NHS plan. Published figures for May 2005 show that no patients are waiting more than nine months for in-patient treatment. Published figures for March 2005 show that no patients are waiting more than 17 weeks for out-patient treatment. Latest published figures for accident and emergency waits show that 98.8 per cent. of patients spent less than four hours in the accident and emergency department, and the trust qualified for all incentive payments. One hundred per cent. of urgent referrals for suspected cancer were seen by a specialist within two weeks.

Given those results and that efficiency, it has been asked why the trust finds itself in this difficult financial situation. Again, that demonstrates the complexities of running hospitals. It is not beyond our comprehension that, even while there are efficiencies and good clinical service, there can still be underlying problems of financial management. That is one issue that the discussions between the strategic health authority, the primary care trusts and the hospital are covering. Under the payment by results regime, the trust has a reference cost index of 90, as the hon. Member for Chichester said. That is indicative of costs efficiency and there is no doubt that under payment by results, over the next few years the hospital will benefit.

Mr. Tyrie : Could the Minister say categorically when the hospital will be able to benefit from obtaining the full national tariff under payment by results?

Caroline Flint : The roll-out is expected over the next three to four years, so I cannot give a specific answer about that hospital, but we have identified a problem in the system that has meant that hospitals such as St. Richard's have not been receiving the payment that they deserve, and that is why we have introduced the new system. I hope that the hon. Gentleman can understand that it is a national system whose roll-out must be handled carefully. However, payment by results is not the only answer to the problems faced by the trust in trying to overcome its forecast deficit of £33,843,000 for 2005–06. We know through the independent review that in October 2004 the trust reported a forecast deficit of just over £9 million. That was a significant increase on the figure in the report of the previous month. I think that the hon. Member for East Worthing and Shoreham asked how the figures could change so substantially within a month.

In October 2004, the SHA board agreed to commission an independent review to advise the SHA, among others, on whether the trust had a viable and robust plan to deliver financial balance in the current financial year and on a long-term sustainable basis. The review found that the trust had not taken decisive action early enough and had relied on the availability of non-recurrent funding and the prospect of a lasting solution. In addition, the financial recovery plans and contingency plans were not considered
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deliverable. The independent review was presented to the   trust and in December it accepted all the recommendations, including the recommendations to consider a more focused approach to recovery planning and to examine critically all the areas for cost savings advocated in the SHA's "improving financial health" guidance. So the hospital has acknowledged that it is not just a question of how payment by results will help it in future and that it has to consider the problems of financial management overall.

In March the trust's auditors, PricewaterhouseCoopers, wrote to the trust board expressing concern about the financial standing of the trust and issued a public interest report. The report advised that arrangements should be put in place to support the trust's cash position while it recovers, that the trust needs to put in place a cash management strategy that enables it to return to normal supply and payment practices, that that should be done in partnership with the Western Sussex PCT and the SHA and that the Department of Health should be involved if necessary to ensure that the needs of the local health economy are addressed. It is a complex situation.

Mr. Tyrie : By far the most important single sentence in the PWC report to which the Minister refers is the one that states that an increase in the trust's activity level

The Minister has said that the hospital has not been receiving the payment that it deserves for its treatments, but at the same time she seems to be suggesting that even if it had been, it would still have a financial problem. All the people who have considered this matter extremely carefully have concluded that that is not the case. If the hospital were properly paid for the treatment that it was providing, there would not be a deficit at St. Richard's; there would be a surplus. That is the nub of the problem.

Caroline Flint : I am not convinced that that is the only part of the problem. There are other areas of deficiency in which the hospital has to address how it runs the organisation and how it can improve. For example, there have been difficulties and work has been done on reducing the length of stays in emergency admissions. A number of other issues are included in the discussions with the SHA and the Department of Health on improving the way in which the hospital's finances and services are managed. The issue is about much more than just how payment by result will help to ease the situation.

Rationing was mentioned earlier in the debate. The local NHS must ensure that it uses its resources to commission appropriate levels of service. Over the next two years, PCT income will increase by some 17 per cent. PCTs can commission for required levels of activity and service, but there must be local discussion about what services and activity the commissioning trust wants.

Mr. Gibb : But how will issues such as the length of stay in hospitals be dealt with if the number of district nurses is simultaneously cut by 30 per cent.?

Caroline Flint : I note the hon. Gentleman's point about district nurses. I do not have full details about
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that situation, but PCTs, SHAs and trusts have responsibility for assessing capacity and work force requirements for the services that they are to deliver. In doing that, they must consider the issues surrounding services in the community and in the hospitals. There must be some synergy in determining when people leave hospital and the services that would be needed in the community to shorten a hospital stay, if that is appropriate, but I cannot comment in detail on the case mentioned by the hon. Gentleman.

As I said, the local NHS must ensure that it uses its resources to commission appropriate levels of service. Although the Royal West Sussex NHS Trust is efficient in several areas and is rated highly, there is an understanding that more needs to be done in respect of its overall financial accountability. Every year, it has failed to break even or to recover its position, so the debt problem has accumulated. I give the example of a neighbouring trust, the Worthing and Southlands Hospitals NHS Trust, which is in circumstances similar to those of the Royal West Sussex. It has a relatively low reference cost. It is funded at a similar tariff, yet it broke even in the financial year 2004–05. I am not saying that every trust's situation is exactly the same, but we must look more deeply into why another trust in similar circumstances seems to be doing better in certain areas.

Mr. Tyrie : The Minister said that we need to look more deeply, but she has failed to provide anything of substance when she does that. As far as I can tell, the only thing that she has come up with so far is the suggestion that, despite the fact that the hospital is more efficient than almost any other and despite the fact that it does extremely well on almost every indicator, it needs to shorten the length of stay in hospital. However, it already has among the shortest stay lengths of any hospital trust.

Caroline Flint : That was just one example. The fact is that the hospital has failed to deliver robust recovery plans—that is part of the discussions at present. [Interruption.] It is one of the reasons why the public interest report was published and why the SHA and others are working very hard with the trust to deal with the situation and to resolve some of its problems. I am sure that the SHA would be happy to speak with hon. Members in more detail, should they require it, about some of the other issues around recovering the situation—it is not just a straightforward matter of cutting services. Improving services and making them more efficient is not always about more money; it may be about making better use of resources.

In the time left, I wish to say something about super-hospitals. As I have said before, we have no plans to dictate on super-hospitals. It is for local commissioners to decide, in the interest of their local communities, what services are needed. The fact is that more money has gone into the NHS under this Government than ever before. PCTs will receive large increases during the next two years. Financial management accountability is absolutely right and proper, and that means that we must analyse clearly the small number of organisations that are going into deficit.
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