House of Commons - Health - Written Evidence

Select Committee on Health Written Evidence

Evidence submitted by the Chairmen of local-authority NHS Overview and Scrutiny Committees in the South East (Def 31)

INTRODUCTION

1. We are a cross-party group of Chairmen of NHS Overview and Scrutiny Committees, drawn from the following Shire Counties and Unitary Authorities in the South East of England:

— Brighton and Hove City Council

— East Sussex County Council

— Hampshire County Council

— Isle of Wight Council

— Kent County Council

— Medway Council

— Portsmouth City Council

— Surrey County Council

— West Sussex County Council

2. While the deficits currently being experienced in the NHS are arising in NHS bodies across the country, it seems that a significant proportion of deficits are occurring in the South of England.[56]

3. We acknowledge both the very significant additional funding that the NHS has received in recent years and the government's laudable attempts to address health inequalities through the allocation of NHS funding. We are aware that the current deficits are being attributed to a range of factors—and that this issue is politically highly contested.

4. We are, though, agreed that there is strong prima facie evidence that the financial problems currently being experienced by some NHS bodies in the South East can, in some measure, be attributed to shortcomings in the NHS funding formula. These shortcomings can be summarised as the failure of the formula to take adequate account of the following factors, all of which are of importance in the South East:

— Additional costs associated with rurality

— Pockets of deprivation

— Ageing population

— Regional cost variations

— Rapid population growth

5. We hope that our argument will not be regarded as resting on "special pleading" for our region; in what follows, we will attempt to set out how we have arrived at our conclusions and indicate the supporting evidence.[57]

The NHS Funding Formula

6. The NHS resource allocation formula is essentially an instrument for allocating funds to meet the healthcare needs of a given population, within a given (pre-set) budget, over a given time period. The formula has been progressively refined and developed since the 1970s (when significant geographical inequities in the distribution of NHS funding were acknowledged), with the core aim of securing equal opportunity of access to healthcare for people at equal risk.[58] Following the Acheson Report (1998),[59] an additional fundamental objective in allocating NHS resources in recent years has been to "contribute to the reduction in avoidable health inequalities". The formula is thus now intended to help bring about: more equal health outcomes ("vertical equity"), rather than simply equity in access to healthcare services ("horizontal equity"); and social, rather than simply geographical, equity in health.[60]

7. Resource allocation takes place through the medium of a "Weighted Capitation" formula, which was most recently revised in May 2005.[61] This formula is used to determine Primary Care Trusts' target shares of available resources (on which actual allocations of funds are based). Recurrent revenue allocations to PCTs cover:

— Hospital and Community Health Services

— Prescribing

— Primary Medical Services

— HIV/AIDS

8. For each PCT, crude population data is weighted under each of the above headings, as appropriate, to take account of:

— age- and sex-related need for healthcare

— additional need (over and above that accounted for by age and sex)

— geographical variations in the unavoidable cost of providing healthcare (covered by the Market Forces Factor and the Emergency Ambulance Cost Adjustment)

9. Account is taken of a wide range of indicators for health need, including some that are perceived to reflect health-related socio-economic circumstances, in order to attempt to address the goal of contributing to the reduction in avoidable health inequalities.

Additional costs associated with rurality

The case for a "rural premium"

10. In recent years, a growing body of literature has argued that there are additional costs associated with the provision of healthcare in a rural setting and that, consequently, the NHS resource allocation formula needs to contain a major adjustment for rurality (a "rural premium").[62]

11. This literature has included discussion of the following extra costs associated with rural healthcare provision:

— diseconomies of scale (including the cost of maintaining scattered small community hospitals with low bed-occupancy, and mobile and outreach services/branch surgeries)

— additional transport costs

— high levels of unproductive staff time spent travelling

— additional communications costs

12. There is also some evidence that people in rural areas are lower-than-average users of routine healthcare services (due to the way that healthcare need tends to express itself in rural communities)—which may, perversely, in fact lead to higher overall healthcare expenditure. People in this section of the population appear to be more likely to present at a later stage of disease (perhaps because of a culture of "rugged independence" and self-reliance, and because of lower health-expectations), when their condition has become acute. They are, thus, more likely to make use of expensive ambulance, Accident & Emergency and hospital facilities, rather than routine primary-care services.[64]

13. The research team behind the most recent English NHS weighted capitation formula were confident that, by allowing for access costs in their service-utilisation model (used to calculate need for services), they had ensured that "Rural areas will have their different needs adequately reflected in the allocation formula".[65] It is also true that the Emergency Ambulance Cost Adjustment does take some account of the additional costs associated with serving a scattered population.[66]

14. However, it seems clear to us that an explicit and substantial adjustment for rurality is still necessary in order to address adequately the additional needs of rural areas. The case for this is strongly reinforced by the fact that the NHS allocation formulas in Northern Ireland, Scotland and Wales (whose rural populations are, in absolute terms, smaller than England's) do now include such adjustments. It is also noteworthy that funding allocation formulas in other countries in the developed world with socialised public healthcare systems, such as Australia, Canada, Finland and New Zealand, include explicit and substantial adjustments for rurality.[67]

15. Furthermore, local-government spending allocations in England (through the Formula Spending Share), including allocations for personal social services, now include an explicit element of adjustment for rurality.[68]

16. We also note that the new General Medical Services contract now has an explicit rurality component, through the Car-Hill allocation formula (which provides the basis for allocating funds for global sum resources and quality payments).[69]

17. With the government's drive to attain national quality standards in service provision, under programmes such as the National Service Frameworks, it is surely all the less tolerable now for rural areas to be provided with lower-quality services.[70]

18. Finally, we would refer to the government's 2000 Rural White Paper, Our countryside: the future—a fair deal for rural England, which introduced the idea of "rural proofing" policies—"a commitment by Government to ensure that all its domestic policies take account of rural circumstances and needs". The White Paper also included the first Rural Services Standard (now the Rural Services Review)—in which explicit reference was made to the need for appropriate access to healthcare services in rural areas.[71] Subsequently, the Institute of Rural Health, with funding from the Department of Health and the Department for Environment, Food and Rural Affairs, has developed a rural proofing toolkit for primary care organisations.[72] The principle of "joined up government" surely indicates that "rural proofing" should be extended to the NHS resource allocation formula.

Rurality in the South East

19. The South East England Development Agency has noted that, while the South East is perceived to be "predominantly urban or suburban", the region actually retains a significant degree of rurality. Using the 1993 Tarling study (Rural Development Commission) definition of rurality, the South East actually has the highest number of predominantly rural districts (a total of 35) of all the English regions. And half of its population (some four million people—2001 Census figure) lives in districts classified as predominantly rural—of whom two million (according to SEEDA's research) live in small rural towns (population less than 10,000), villages, hamlets and the countryside (as opposed to the urban edges of rural areas). The region has 26 market towns with populations of between 10,000 and 20,000, 164 small rural towns (with less than 10,000 population) and at least 1,400 villages. Twenty-three per cent of all South East businesses are in rural areas. SEEDA has also noted that the region has more than 10,000 full-time (and more than 17,000 part-time) farmers, with 10% of the farms in England located in the South East . The geographical county of Kent alone has 2,396 full-time farmers, making it twelfth out of 44 counties in the size of its farming community.[73]

20. A new official rural-urban definition was published by the Office for National Statistics in July 2004, based on settlement patterns and population densities, and on sparsity of population (derived from population density in neighbouring areas), and resolved to Census Output Areas and electoral wards. On this definition of rurality, 82% of the South East is classified as rural; and half of the region's district and unitary local authorities have 75% or more of their area categorised as rural.[74]

21. It is true that most rural districts within the South East are classified as "accessible" under the Tarling definition (only four are classified as "remote");[75] and, under the new rural-urban definition, only one Lower Super Output Area (covering part of Romney Marsh, in Kent) is classified as "Sparse".[76]

22. Nonetheless, it can be argued that the issues associated with rurality are not simply or entirely a function of peripherality/remoteness from urban centres and sparsity of population. And it should be noted that in one case, that of the Isle of Wight, issues associated with rurality are compounded by the additional impact of insularity (see, for instance, comments by the Island's MP, Andrew Turner, during an adjournment debate on public services in the Isle of Wight).[77]

23. Furthermore, it can also be argued that there is a marked compounding peninsula effect in Kent. Peninsularity in Devon and Cornwall has often been alluded to, but its significance in Kent is less recognised. It has historically led to regular patient flows from East Kent into the London hospital system for major clinical specialties—a patient journey that would be unacceptable in most other parts of England. This has been partially remedied by NHS capital investment in Kent hospitals in recent years, but market pressures (especially the need of London teaching hospitals—funded by the "spell" under Payment By Results—to maintain or increase their throughput) could reverse the trend.

Pockets of deprivation

24. As noted above, the resource allocation formula has been adjusted in recent years to take account of social deprivation (which tends to correlate with poor health and hence greater need for healthcare), in furtherance of the government's aspiration for the formula to "contribute to the reduction in avoidable health inequalities".

25. However, there remain concerns that the formula does not adequately capture all the forms in which deprivation occurs. Since the formula reflects the overwhelming preoccupation with large urban concentrations of deprivation, smaller pockets of deprivation in rural, and other generally better-off, areas go "under the radar".

26. SEEDA has pointed out that:

The South East is the UK's second most prosperous region. In this context, deprivation may not always be very visible or very measurable and it often occurs in isolated pockets. However it is evidenced by the designation of development/assisted area status in rural (eg Isle of Wight) and urban (eg Thanet) areas alike. [78]

27. A 2004 academic report on rural policy in the South East (for the South East England Regional Assembly, South East England Development Agency, Government Office for the South East and The Countryside Agency) observed that:

Despite the relative prosperity of the region, significant areas of deprivation have been identified in rural districts, resulting from poor accessibility and declining traditional rural based activities including agriculture. Parts of the region's population continue to live in poverty and experience low quality housing, poor health, and enjoy limited opportunities. The national Index of Multiple Deprivation (2000) for example, ranks 119 wards in the South East as amongst the worst decile of deprived wards in the UK, of which 21 are located in rural areas. As outlined in the Sustainable Development Framework (SDF), there is a danger that in its desire to focus resources, the Government may underestimate the considerable scale and degree of hidden poverty and social exclusion in communities across the South East. Research by the Rural Community Councils in many different parts of the region has in fact demonstrated that this dispersed pattern of rural exclusion is a particular feature of the South East.[79]

28. The SDF itself states as follows:

The South East is the healthiest part of England, but on a number of indicators is poor by the standards of W Europe. There are also significant health inequalities within the Region, with concentrations of relatively poor health in areas of deprivation and areas with large elderly populations.[80]

29. We note that Gareth Cruddace, Programme Director for PCT Diagnostic and Development at the Department of Health (and a former Chief Executive of Hampshire and Isle Of Wight Strategic Health Authority), recently admitted that "Current funding formulas don't cope well with small areas of deprivation". We further note that Mr Cruddace also admitted that future NHS financial settlements were "likely to move money away from [the] South East, because [the] north/south divide on health inequalities [is] getting worse."[81]

Ageing population

30. The age profile of the South East reflects that of the UK as a whole—but the coastal and rural areas of the region have a relatively older population:

31. Furthermore, significant numbers of the older population in the South East are income-deprived. SEEDA has noted that:

There are over 176,000 older people in the South East (11.02% of the total) living in Income Deprived Households, a higher number than in North East (105,000), East Midlands (125,000), East of England (140,000) and South West (141,000).[83]

32. Although the NHS resource allocation formula does allow for age-related healthcare needs, it has been argued that the formula does not give sufficient weighting to this. This has been cited as another way in which the formula effectively discriminates against rural areas, since they tend to have older populations. Leading academic advocates of this argument have written that "… per capita allocations for older age bands may well be conservative. This will mean that the formula discriminates against areas serving demographically older populations"[84]

33. Some of the same academics have argued that, were funding allocations to be derived from a morbidity-based model (using available data on actual patterns of disease), this "would result in a significant shift in hospital resources away from deprived areas, towards areas with older demographic profiles and towards rural areas". The authors note the "wider policy context that is generally concerned to direct more health care resources towards the poor" and call for "greater clarity between the goals of health care equity and health equity"—ie between "horizontal equity" and "vertical equity". They note that "Whilst the former demands that the legitimate needs of demographically older populations for more health care resources are acknowledged, the goal of health equity requires real political commitment to resource broader social policy initiatives".[85]

34. More recently, two of the same group of academics have argued that:

Deficits in the NHS are invariably presented as a problem of financial mismanagement, but the pattern of deficits suggests that the current resource allocation model discriminates against particular communities PCTs serving populations which are both in the most rural and the least deprived quintile are most likely to be in financial difficulties. The pattern of deficits suggests that NHS funding provides insufficient resources for rural areas, for relatively affluent areas and, most particularly, for areas that are both rural and affluent. This reinforces previous work suggesting that the current resource allocation formula responds well to the higher relative needs of urban populations, but fails to cater for the higher absolute needs of older affluent populations, particularly in rural areas which incur additional costs in delivering health services.[86]

35. In 2002, the Rural Health Forum reported to the Rural Affairs Forum for England that the "Rising elderly population in many rural areas" was "not accurately reflected in the [NHS] funding formula".[87]

36. In a recent Commons (Westminster Hall) debate on NHS services in East Sussex, the MP for Lewes, Norman Baker, mentioned the concentration of "older older" people in his constituency (noting that "Polegate, for example, has the eighth oldest population in the country") and queried the extent to which this is allowed for in the funding formula.[88]

37. Individuals tend to make greatest use of health services towards the end of their lives. Morbidity and mortality are now increasingly compressed into the eighth and ninth decades of life. These trends are of particular significance in respect of the "older older" population—and they do not appear to be adequately reflected in the age-weighting element of the NHS resource allocation formula.

38. There is a case for saying that the NHS needs to place more emphasis on caring for people in the last 18-24 months of life—palliative care structures are currently financially fragile and dominated by cancer care. Our healthcare system seems to marginalise the very old and, arguably, marginalises death and the dying.

Regional cost variations

39. It is widely accepted that the South East is a high-cost region.[89]

40. We acknowledge that the funding formula does include an element (the Market Forces Factor) intended to take account of unavoidable geographical variations in the costs of providing healthcare—covering regional pay weighting (including that paid to NHS staff in parts of the South East),[90] variations in land values, and additional costs of buildings and equipment.[91]

41. A report by Prof David Blanchflower and Prof Andrew Oswald, commissioned by the Thames Valley Strategic Health Authority (in Oxfordshire), concluded that "an inappropriate data set is currently used to do MFF calculations" and that the "funding allocation going to health authorities such as Thames Valley is too low". The report also noted that the "steps" in the MFF between health economies within Thames Valley "do not seem to reflect the true cost of service provision".[92]

42. It can be argued that NHS labour costs in the South East of England are understated, because of the relatively high use of locum and agency staff in the region. The mismatch between NHS pay rates (even with regional weighting) and the real labour market in the South East leads to workforce shortages, which are filled with locum/agency workers, with staff opting to work at locum/agency rates rather than be directly employed on low NHS rates. The funding formula needs to reflect actual labour costs.

Rapid population growth

43. With a population of some eight million (13.5% of the total UK population), the South East is the most populous of the English regions. Its population is increasing more rapidly than that of any other part of the country, and this is mostly (75%) due to migration from other parts of the UK (particularly London, which accounts for almost half of total in-migration—an average of over 40,000 people a year).[93]

44. Whilst population estimates produced by the Office for National Statistics are taken account of in the Funding Formula, parts of the South East are experiencing extremely rapid growth that is not reflected in ONS statistics—since these are based on observed trends and do not take account of government policy. We are pleased to note that, in consequence, the 2006-07 and 2007-08 funding allocations do include a "Growth Area adjustment". This is paid to 44 PCTs in four areas designated by the ODPM as Growth Areas—including Ashford (Kent) and Thames Gateway (which in Kent includes substantial parts of Dartford, Gravesham, Medway and Swale district/borough/Unitary Authority areas). The following PCTs in the Kent and Medway SHA area are in receipt of the allowance: Ashford; Canterbury and Coastal; Dartford, Gravesham and Swanley; Medway; and Swale.[94]

45. However, population growth in these areas has already taken place and we are concerned that failure to take account of this in funding allocations prior to 2006-07 has had a detrimental effect on the finances of some PCTs. Towards the end of 2005, Kent County Council's NHS Overview and Scrutiny Committee heard from Ashford PCT that the Trust felt they were "under funded by approximately £3m as their population continues to grow at about 2% each year" (although they were managing to break even).[95]

46. And there are concerns about whether the Growth Area adjustment will be commensurate with the expansion in population that is actually taking place. Ashford PCT also informed KCC's NHS Overview and Scrutiny Committee that "the increase for 2006-07 looks conservative—compared to the increase in GP lists that they hold"; and a shortfall of £2.7 million in 2006-07 was still expected.[96]

47. KCC's NHS OSC also noted that the Kent and Medway Strategic Health Authority is involved in planning health services for increases in population and lobbying for more sensitive instruments for measuring population growth. However accurate the method, funding growth still remains a function of the amount of money available and this may still not be as much as Ashford needs. The SHA will continue to push, comparing local views of population growth which do not always reconcile to those of the Office of National Statistics.[97]

Conclusion

48. On the basis of the above, we believe that there is a strong case for asking the Advisory Committee on Resource Allocation to review all of these aspects of the NHS resource allocation formula. It must be established definitively whether the formula is still falling short of its objectives in terms of equity; if it is, its shortcomings must be addressed. This is all the more pressing in the current climate of mounting deficits, and with the advent of Payment By Results and other reforms that could have drastic consequences for the continued financial viability of many NHS bodies.

Councillor Alan Chell

Chairman of Kent County Council's NHS Overview and Scrutiny Committee (and on behalf of the Chairmen of the NHS overview and Scrutiny Committees listed in paragraph 1)

6 June 2006

The South East has 119 of [the] worst performing wards of England, with a population of more than half a million. These wards are mostly concentrated around the periphery of the region—the Kent, East Sussex and Hampshire coasts and the Isle of Wight.

The majority of these wards are urban but 15% are rural wards.

— 16 are rural wards in the remote rural districts

— 2 rural wards are in the accessible districts.

All these rural wards are in the more peripheral areas of the South East.