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Mr. Barron: Yes, but I do not think that it is a structural issue. The cost charged to the PCT may not be the cost of the activity itself. That is a crucial issue for the NHS.
Monitor—the independent regulator of NHS foundation trusts—identified the fact that NHS foundation trusts incurred an aggregate deficit of £36.9 million in 2004–05, which represented 0.9 per cent. of their income. This year, one in every 32 trusts is forecast to incur a substantial deficit for the first six months of 2005–06, although in aggregate trusts forecast a surplus for 2005–06. However, that forecast carried heavy caveats in Monitor's report, a copy of which has been placed in the Library. No doubt hon. Members will wish to look at it, as it deals with the issues raised by the right hon. Gentleman. We need to know how foundation trusts with a large increase in income have achieved that balance.
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Dr. John Pugh (Southport) (LD): On PCTs and foundation trusts, is there any variation in the position of PCTs depending on whether they predominantly serve foundation trusts?
Mr. Barron: That has not been brought to my notice, but I hope that it will not be long before the House has a chance to debate the causes of the deficits.
Another serious concern is the number of reports in the public interest issued by the Audit Commission to acute trusts, strategic health authorities and PCTs following significant financial problems. The hon. Member for Enfield, Southgate (Mr. Burrowes) raised that earlier, but has now left the Chamber, presumably to issue a press release. Under section 8 of the Audit Commission Act 1998, the external auditor must consider whether it is in the public interest to produce a report on any significant matters that come to his attention. If it is, they are set out in a public interest report. Twenty-seven public interest reports have been issued for SHAs, PCTs and NHS trusts since March last year, which reflects the number of NHS bodies with significant and potentially destabilising financial problems. No matter what people say, the Government cannot avoid the Audit Commission which, like some parliamentary Committees, exists to look at public expenditure. I am sure that it will do the competent and professional job that it has done in the past.
A number of reasons have been given for the continuing financial deficits. A review by KPMG in December 2005 concluded that management capability was inadequate to deal with the financial position of trusts, that the quality of information was impeding recovery and that, in some cases, SHAs had permitted unproductive behaviour to damage the relationship between PCTs and hospital trusts. The Audit Commission's managing director of health said that the number of such problems may lead to organisations having to merge to remain viable and he has asked for clarification of matters such as the way in which charges are made for elective and emergency care.
Mergers are under way, so a debate on the issue is for another day, but in the next few days and months, we should look at the wider issues that have been highlighted and the questions that have been asked to try to find out exactly what the NHS costs. I gave an interview to a national newspaper earlier this month in which I said very much what the Secretary of State had said: we must make sure that we discover the cause of the overspends so that, hopefully, they will not happen again.
Dr. Howard Stoate (Dartford) (Lab): May I remind my right hon. Friend that last year was the first full year of the new GP contract and the new consultant contract, both of which were long overdue and have made significant differences in patient care and outcomes? We talk about large overspends, but it is also fair to say that they have often been put to very good use and that to keep within 1 per cent. of the overall NHS budget is not a bad result if looked at in that way.
Mr. Barron:
I cannot agree with my hon. Friend about that. I will not say that he has a vested interest, although he has on some days of the week. All trusts pay exactly the same increases for the health professionals
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that he mentions, so why do some trusts work to budget when others overspend massively? That overspending is not right. It is not fair on those that keep to budget and try to do the best that they can within certain limits—although the limits have increased, year on year, for the past four years.
John Hemming (Birmingham, Yardley) (LD): I have here a report, dated 2004, in which the Chartered Institute of Public Finance and Accountancy says that, if national tariffs are imposed, as has been the case for £8 billion-worth of expenditure, about
"160 NHS trusts and PCTs would suffer deficits of more than 9 per cent.—with almost 70 facing deficits greater than 25 per cent."
Does the right hon. Gentleman think that the imposition of national tariffs is relevant?
Mr. Barron: I am about to move on to that issue. I gave an interview to a national newspaper, and I got a letter the following day from someone—I will not name him—who works with an SHA department that is considering the costs of the NHS. I have copy of the letter in front of me. He said:
"As you will be aware, it is a statutory requirement for all hospitals within the NHS to provide cost data—'reference costs'—to the Department of Health. These data are then used to formulate the national Payment by Results tariffs. The philosophy behind this is sound and used elsewhere."
He cites Australia, where he has worked. He has worked in a few health services around the world. He continued:
"The immutable truth of this system, however, is that your funding policy is only as good as your cost data. If your cost data lack integrity and the methodology for costing contains flaws, then it follows that the funding policy is also going to lack integrity and be flawed. After four months here, I have to say that I, and my colleagues working on this project, have been shocked at the level of cost data produced in the reference costing process. I could only describe it as the lowest common denominator of costing I have seen in a health environment. I think it goes some way (obviously not all) to explaining the financial problems of hospitals here.
There are a few reasons why the state of costing is so poor here in the NHS. The main problem is that reference costing in the NHS is an extremely 'top-down' averaging process."
He then gives an example, which I hope my right hon. Friend the Minister will consider. I will ask the person who wrote the letter whether she can have a copy. I could not contact him at work today. I have got his phone number, but he was not at his desk when I tried to contact him. He then continued:
"More often than not, no adjustment is made for differences in patient acuity during this cost allocation process. This method of cost allocation makes the assumption that on an obstetrics ward (for example), a woman recovering from a caesarean in one bed is accruing the same nursing, medical drugs, medical supplies and other resources as the woman in the next bed, recovering from the normal uncomplicated delivery of her second child. As a clinician yourself"—
He then says that, while we have that system in the NHS, the most sceptical people will be those who work in it, and he makes a very good point. I would not dispute what he says about what we are doing at the moment, and if it is true, it will have that impact.
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My constituency is covered by the Rotherham PCT, which, in an e-mail to me a few weeks ago, said:
"The national tariff price is higher than our local price so we are now paying more for the same level of work."
That is grossly unfair in the circumstances, so we should charge the actual cost of the health service. I am not too sure whether we will do so if we are basing payment by results on reference costs. That might be a good start, but it will certainly not be an end in finding out exactly what the different activities in the NHS cost.
Andrew George (St. Ives) (LD): Has the right hon. Gentleman, who is the Chairman of the Select Committee on Health, considered applying the same principle to PCTs more widely, not just to the cost of individual procedures, instead of perhaps finding reasons that are associated with poor management, which is the direction in which he appears to be steering? I think that that is the theme that he is developing. His assumption presupposes that funding is provided evenly across all trusts and meets need. Does he accept that there may be circumstances where acute deficits are occurring because the funding formula does not properly reflect need?
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