House of Commons - Health - Written Evidence

Select Committee on Health Written Evidence

Evidence submitted by UNISON (Def 18)

Introduction

1.1 UNISON is the major union in the health service. Our health care service group represents more than 400,000 employees in the NHS and staff employed by private contractors, the voluntary sector and general practitioners.

1.2 We welcome the fact that since 1997 the NHS has benefited from record levels of spending, and the fact that workforce shortages in the 1980s and 1990s have been redressed to the benefit of NHS staff and patients using the service, for whom waiting lists have fallen and the quality of care has risen.

1.3 Despite this very welcome investment, some trusts in England are facing substantial financial deficits, a situation which is leading to job cuts and placing in jeopardy much of the hard-earned goodwill towards the service, with the reduction and loss of some key services for patients. UNISON therefore welcomes the opportunity to contribute to this inquiry.

The reasons for the deficits: whether the causes are systemic or local (eg the role of poor local management and poor central management, the effect of pay awards and Government policy decisions)

2.1 UNISON does not believe it is fair to blame the deficits entirely on poor local management at trusts and Primary Care Trusts (PCTs). The Government has indicated that the deficits are largely the result of poor management within individual institutions, implying that solutions lie within the control of individual managers. Such an opinion is not, however, borne out by recent Public Interest Reports from the Audit Commission, which have singled out only a few NHS institutions for specific management failings.[98]

2.2 Where there have been local problems, there is little evidence of a structural management problem replicated across the country. Instead problems are often associated with individual circumstances, such as problems caused by capital projects funded under the Private Finance Initiative (PFI) that have cost more than expected in the longer-term. This may be indicative of one area in which management has fallen short: a failure to consider the longer-term impact of using such measures to avoid funding problems in the short-term.

2.3 Nor does UNISON believe that the funding of Agenda for Change is to blame for the deficits. Such initiatives are helping to secure long overdue changes in salary structures and are going some way to righting previous inequities. The new pay system aims to reward staff properly for the work they do, but also encourages more flexibility which should in the longer-term boost the efficiency of trusts.

2.4 The cost of implementing the new consultant contract for England has had an impact. The Department of Health has acknowledged that it will cost £90 million more than expected and research for the King's Fund into the impact this is having on management in London trusts concluded that "the underestimate at national level has caused considerable cost pressures at local level." Management have found the costs of the new contract producing deficits of £1 million and over.[99]

2.5 UNISON believes that one of the main reasons for the deficits is the continuing marketisation of the NHS. The previous Health Secretary, John Reid, claimed in 2004 that the vast bulk of health services would remain within the public sector (with no more than 15% going private), but successive policies to bring the market into health care are leading to the fragmentation and destabilisation of the service. Evidence from other countries shows that the transaction costs of administering new systems of competition between providers are high, and the Department of Health has itself recognised that new incentive-based reforms will bring some "financial volatility" to the NHS.[100] Reforms set out in Commissioning a Patient Led NHS and Our Health, Our Care, Our Say threaten to fragment the health service further, forcing providers to compete rather than cooperate which will cause greater financial pressures for trusts and PCTs. Competition between providers undermines collaborative working and the sharing of good practice, both clinical and financial. The efficient provision of healthcare requires long-term workforce planning, which is undermined by the constraints of a competitive market.

2.6 The first wave of Independent Sector Treatment Centres (ISTCs) has placed severe financial pressure on PCTs. The uneven playing field established between them and NHS providers means ISTCs being paid in full by PCTs regardless of contract delivery; the commercial costs and risks are effectively transferred back to the public sector. The new centres have been able to select the cases they take, leaving the NHS with the more complicated and costly ones but without any additional funding to cover a more mixed intake of patients.

2.7 It was claimed at the outset that the ISTC programme would provide value for money. One of the main areas of contention, however, has been the cost of private sector involvement and the effects on the NHS having to pick up the bill. UNISON contends that the future of ISTCs is about a sustainable market for the private sector and not what is in the best interests of patients or the public purse. Department of Health figures show that wave one and phase two of the ISTC programme will cost the NHS over £4 billion over five years[101] and the research so far has shown that ISTCs do not provide value for money, but instead place further strain on already demanding PCT budgets. Local decision making and accountability is threatened with PCTs being forced to sign up to potentially damaging contracts that are under utilised and sometimes in places where the NHS has spare capacity itself. One particularly vivid example of this from 2005 was quoted by UNISON in the evidence to the Health Select Committee on ISTCs: in the first six months of South West Oxfordshire PCT's contract with Netcare, the company were paid £255,000 despite having carried out only £40,000 of operations and assessments.[102]

2.8 Despite having been only recently introduced, the move towards Payment by Results (PbR), with money following the patient as hospitals are paid a set tariff for each procedure, is already having a detrimental financial effect on both PCTs and NHS providers and is likely to have a more profound impact on finances in the future. The Audit Commission has highlighted greater financial instability for PCTs as the most significant risk of PbR.[103] Under block contracts funding was not adjusted for activity levels, enabling PCTs to manage and control their costs. PbR on the other hand imposes a commitment on PCTs to pay for work done on a fee per patient basis. In addition under the old system the cost of an additional volume of operations reflected only the additional variable costs involved, such as additional staffing hours, but not fixed costs like providing an operating theatre. With PbR the amount charged for each additional patient reflects both fixed and variable cost, meaning PCTs are exposed to greater financial volatility and will find it harder to control their budgets. The picture of increased financial instability is replicated for NHS providers. Under the old block contract system trusts were guaranteed a certain income which enabled them to plan ahead more effectively. A trust would know the services it had been commissioned to provide and have some idea of their requirements regarding infrastructure and staff. With PbR this is not the case—a hospital could build new wards and then find they don't have the patients to fill them. Where hospitals are funded using PFI, cost implications are likely to be particularly grave because the fixed tariff fee for each item of treatment takes no account of the inflated overhead costs that come with large-scale PFI building schemes.

2.9 The 2005 Audit Commission Report highlighted the case of Bradford Teaching Hospitals NHS Foundation Trust, which used different and higher forecasts of patient activity than its commissioning PCTs, and on this basis employed 300 additional staff. This resulted in higher costs and lower than planned income, leading to serious financial problems.[104] For specialist hospitals the existing tariff is not sophisticated enough to account for the greater complexity of the operations and other procedures carried out. An example of this is the £22 million total deficit expected by four children's hospitals (Alder Hey, Great Ormond Street, Sheffield Children's Trust and Birmingham Children's Trust) as a result of fixed prices for NHS procedures. UNISON was pleased to hear the Health Secretary state in April 2006 that the Department is discussing such issues with the children's hospitals.

2.10 UNISON has been warning against the use of PFI and NHS LIFT (Local Improvement Finance Trusts) in the building and servicing of hospitals for many years. Far from being a cheaper way to run projects, PFI is allowing private companies to cream off profits while hospitals are saddled with high levels of ongoing debt. A recent example is the Norfolk & Norwich Hospital, where the hospital's PFI joint working company took £115 million out of the scheme and replaced the money in the project with borrowed funds, leading the Commons Public Accounts Committee to criticise this refinancing deal for having "lined the pockets of the investors" while the hospital has been left to deal with a large deficit.[105] In December 2005 a Price Waterhouse Coopers report for the Audit Commission warned that the deficit at Queen Elizabeth Hospital NHS trust in Woolwich would amount to £100 million by 2008-09 unless its PFI debt was restructured.[106] The deal added around £9 million a year to the costs met by an equivalent hospital built with money borrowed from the Government. A further example of the failure of PFI to provide value for money is Barnet and Chase Farm Hospitals which is also financially in the red. The capital value of their PFI scheme is £54 million, yet nearly £42 million has already been paid in unitary payments over the last two years with many more payments to come.[107]

2.11 UNISON does not believe that the apparent switch towards NHS LIFT will provide better value for money: in evidence to the House of Commons Select Committee on Public Accounts, the example of Newham was raised where two LIFT buildings serving 8% of the population were found to be using 33% of the premises budget.[108]

2.12 New plans for Practice-Based Commissioning are likely to exacerbate financial problems in the future. The initial costs of setting up the new system will be provided in advance by PCTs, who will also meet any overspends. Savings made will be the only available source of funding to meet new administrative and management costs, meaning that if savings are not made budgets will automatically be overspent.

The reasons for the deficits: the findings of the "turn-around" teams, whether these findings are right and whether the turn-around teams have provided value for money

3.1 The report from the Department of Health's finance director, incorporating the KPMG turnaround teams' initial analysis of NHS organisations with the worst financial problems, found that "the capability of the management was inadequate to deal with the challenges of their current financial position."[109] As stated above, UNISON believes it is too simplistic to lay the blame for financial problems solely at the door of local management. To some extent our position is supported by the third key conclusion of the auditors, which states that in some cases Strategic Health Authorities "were allowing unproductive behaviour between trusts and PCTs," which seems to be a tacit acknowledgement of some of the problems that have come about as a result of the new era of competition and a resulting lack of cooperation. Similarly, the report acknowledges that the categorisation of some trusts as needing "urgent intervention" does not necessarily reflect upon the quality of the management; for some organisations "the scale of the turnaround problems faced are such they would challenge the very best management."[110]

3.2 In terms of value for money, it is hard to justify the substantial turnaround expenditure at some trusts when hospital staff stand to lose their jobs. For example, Leeds Teaching Hospitals NHS Trust is paying advisers from Price Waterhouse Coopers £100,000 to help the Trust save money. Similarly, the Surrey & Sussex Healthcare NHS Trust is reportedly paying KPMG £700,000 to help reduce costs.

The reasons for the deficits: the relationship between the funding formula, the allocation of funds to trusts and the size of their deficits or surpluses

4.1 UNISON accepts that some of the larger deficits are occurring in more affluent areas of southern England, and it is possible that certain areas are under-funded. It should be noted, however, that the deficits are not restricted to these areas; trusts in the Midlands and the north of England are struggling to balance their books as well. The funding formula is designed to take into account factors such as the cost of living, age profiles, levels of deprivation and geographical variations in the cost of providing services. It is right that funding continue to be directed towards the areas of greatest need and the Department of Health is committed to ensuring that no area is more than 3.5% below its fair funding target. For the last three years and for the next two the NHS is receiving a 9% growth in funding each year, which is a significant amount of additional money even if some areas are benefiting more than others. UNISON's major concerns, as outlined above, are for areas where the extra money is not going towards boosting patient care or improving staff conditions but being absorbed by the private sector and leaving the NHS to pick up the debt.

The consequences of the deficits: the effect on care

5.1 A recent BMA survey suggested that 37% of medical directors were planning to reduce services due to financial difficulties[111] and the report of KPMG's experience with turnaround teams suggested as one its range of potential improvement opportunities for 2005-06 that there should be "capacity reductions" and "recruitment bans for back office functions."[112] UNISON does not agree with the contention of the NHS Confederation that fewer hospital beds will mean better care.[113] Smaller numbers of beds can lead to greater risks of cross-infection, at a time when clinical staff and cleaners in hospitals are doing their best to combat the rise of the MRSA super bug. The Healthcare Commission's recently released Survey of Inpatients 2005 reported that the proportion of patients that perceived their room or ward as "very clean" has fallen since 2002.[114]

5.2 The deficits have produced situations where patients are having to wait for operations when there are doctors and theatres free to carry out surgery. Some trusts have had to change their thresholds for treatment, meaning people with mild conditions will receive less care. Similarly, some operations are being delayed until the next financial year so as not to add an extra burden to debt-ridden hospitals. Some prominent recent examples of the effect on care include flagship services such as NHS Direct where, despite some centres expanding, 12 smaller call centres are closing and there is likely to be 400 fewer operators. Similarly, the commissioning of nurse-led NHS walk-in centres, one of the most popular recent Government initiatives singled out for praise in the Government's Let's Talk initiative, is likely to come under threat as PCTs look to tighten their belts.

5.3 There are some telling examples of the effect on care from specific trusts. At the Weston General Hospital Trust in Weston Super Mare, savings of £11 million are being made to remove a deficit and make other savings. Although a turnaround director has been appointed, UNISON considers the trust one of the most prudent in the south west. Problems have arisen not because of mismanagement but due to the transitional arrangements of PbR. In addition local PCTs withdrew 15% of elective admissions from the hospital, guaranteeing them instead to the new privately-operated treatment centre based 20 miles away in Shepton Mallet. The result of these twin pressures on the trust is that 60 beds have been closed, the equivalent of two wards, modern matrons and ward managers posts have been halved, and nurse posts are being reviewed.

5.4 The example of the University Hospital North Staffordshire (UHNS) NHS Trust is more well-known and one of those trusts where substantial management failings have been highlighted. Such shortcomings have been compounded, however, by the pressure of attempting (unsuccessfully) to secure a PFI deal and by a failure to come to terms with the effect on budgets of new policies to divert a proportion of NHS patients to ISTCs. The Audit Commission's Public Interest Report into problems at UHNS found that "the Trust failed to take account of the local PCTs' financial position and commissioning intentions which sought to reduce activity with the Trust."[115] These problems were confirmed by the announcement in May 2006 that UHNS had lost out on a £1.5 million contract to a private sector diagnostic and treatment centre based in Burton on Trent. With the NHS Confederation acknowledging that up to 550 jobs are likely to be lost, patients will be affected with beds being closed, home care visits reduced and cutbacks for a new unit dealing with strokes.

5.5 The impact of PbR on financial planning is amongst the major reasons for a combined deficit of £38 million across Gloucestershire. In terms of patient care, this means the loss of 240 hospital beds and a number of community hospitals are being closed, with a particular impact on mental health services and maternity care.

5.6 It is possible that in some of the examples outlined above trusts have been able to use the deficits as a reason to close down particular services. This is something which the charity Rethink has highlighted in relation to the perceived disproportionate impact of the deficits on mental health services.[116]

5.7 Training is also being affected which will have a detrimental impact on patient care in the longer-term. The number of training posts for nurses and occupational therapists has been cut and the continuation of Department of Health funding for NHS Learning Accounts, NVQs and Skills for Life Frameworks may come under threat. Furthermore, UNISON fears that the current lack of job security within some trusts—whether perceived or real—will have an adverse effect on the ability of the NHS to attract staff in future.

The consequences of the deficits: the number of job losses

6.1 The deficits within the health care system are already having a real impact on NHS staff. Although the exact number of job losses is hard to quantify and estimates have varied widely, the volatility within the service is clear and workers will lose their jobs in both clinical and non-clinical professions. UNISON accepts that not all the cuts are directly related to deficits, but feedback from UNISON branches confirms a picture of uncertainty and anxiety amongst workers in the NHS, with the likelihood of more redundancy announcements in the future.

6.2 The recent claim that the cuts will affect posts not people does not tell the whole story; real people are working in these posts and although some may find work elsewhere, some will not. Where cuts apply to temporary agency employees this will still have an impact on wards, where the remaining workers will find themselves increasingly stretched. One of the Healthcare Commission patient survey's recommended "areas for improvement" is around the fact that 40% of patients said there were not always enough nurses.[117] Claims that reductions in NHS posts are predominantly among administrative and clerical staff are similarly wide of the mark. Staff in administrative or other posts are still workers and provide an invaluable service to the NHS. The importance of the team in health care is at risk of being undermined: clinical staff will suffer the knock-on effects if porters, cleaners and administrative staff lose their jobs.

The consequences of the deficits: the effects of "top-slicing" in the current and future years

7.1 The recommendation that trusts "top slice" a small proportion of their budget to hold in contingency funds to guard against overspends in the future means in effect that trusts are having to start from the point of being under funded compared to their usual figures; savings will have to be made just to balance the budget. If the end result of top-slicing is that extra funding going into the NHS is used to fend off the prospect of financial deficits in the future, there is a danger of the service failing to live up to the expectations of patients and staff, which have been raised by the extra attention and expenditure the NHS has received.

The period over which balance should be achieved

8.1 It may be necessary for the Department of Health to reconsider the length of time permitted for trusts to clear their deficits. The report of the turnaround teams acknowledges that bringing financial order to trusts with deficits "will not be achieved overnight" and yet goes on to say that "each NHS organisation should plan for in-year financial balance and in most cases immediate recovery of 2005-06 overspends." The report accepts that in some "exceptional circumstances" the DoH may agree to recovering the overspend over more than one year.[118] UNISON believes that these exceptional circumstances will need to be extended more widely to allow trusts more time to come to terms with Government reforms and new ways of working. Insisting on a one-year turnaround is likely to produce a knee-jerk reaction that leads to a reduction in jobs and a reduction in services. Properly staffed hospitals and clinics run more cost-efficiently and are the best way to ensure the patient does not suffer. Equally, an inflexible timescale for reducing debt is likely to compromise the ability of trusts to fund the very welcome agreement to end the two-tier workforce in health, as secured between unions and the Government as part of the Warwick accord.

Additional information

9.1 UNISON is not opposed to reform, and we want to see the best quality health service possible, but trusts and PCTs need a chance to take stock and adapt to new systems which have not yet been able to bed down. We are calling on the Government to halt further expansion of the role of the private sector in the NHS until there has been an opportunity to discuss the consequences of recent reforms, and to review the role and regulation of markets in the NHS. Reforms that are brought in need to be pilot-tested first, following proper consultation with those responsible for delivering change, and should only be applied more widely once it has been demonstrated they will produce genuine improvements rather than contribute to financial instability.

9.2 UNISON would welcome the opportunity to give oral evidence to the Health Select Committee.

Karen Jennings

National Secretary (Health Care), UNISON

June 2006