Evidence submitted by Robert Lapraik (Def
10)
1. SUMMARY
1.1 The generally held perception is that
NHS Trusts are paid on an equal basis for each patient they treat
and that therefore their financial bottom line gives a fair indication
of their performance. Sadly, this is not the case. Over the last
few years there have been large variances from the norm payment
(national tariff) and in reality those furthest below the norm
are penalised the most in terms of their slow rate of movement
to tariff.
1.2 This short paper explains how an excellent
medium-sized acute Trust has been consistently under-paid with
the full knowledge and assent of the SHA, the DH and Ministers.
This under-payment led to an operating deficit and, as a result
of Resource Accounting and Budgeting, the apparent deficit rapidly
increased year on year to the point where financial recovery was
not possible. At significant cost, a turnaround team was called
in to tackle the Trust deficit although the issue lies predominantly
outside Trust control ie in the price being paid for each patient,
rather than inefficiency in the provider. The turnaround is likely
to be unsustainable and the adverse effects on service quality
substantial as the underlying issues of under-funded activity
and high demand from an elderly population remain unresolved.
2. INTRODUCTION
2.1 The Royal West Sussex NHS Trust (St
Richard's Hospital) is a 420 bed acute general hospital serving
the 212,000 people living in western West Sussex and East Hampshire.
Nearly 25% of the local population is over the age of 65 and therefore
the hospital caters for the needs of an unusually elderly population.
The Trust has a turnover of £100 million.
2.2 The Trust has an excellent balanced
scorecard of performance in cost efficiency1, clinical outcomes2,3,
patient4,5, and staff satisfaction6 and a strong reputation for
quality but has run at a deficit for the last five years. This
brief paper identifies the key reasons for the deficit. Each of
the key issues is supported by evidence in the references.
3. FINANCIAL
BACKGROUND
3.1 The nub of the issue is that, despite
being efficient, the Trust has been paid well below the national
tariff for each patient treated. Caroline Flint MP acknowledged
this issue in the debate7 in Westminster Hall on 6 July 2005,
where the minister stated, "hospitals such as St Richard's
have not been receiving the payment they deserve . . ."
3.2 Delays in implementing the tariff and
the slow transition from historically low prices have denied the
Trust up to £16 million per year. In 2004-05 the Trust was
paid at only 80% of tariff8. The Trust would have returned a surplus
across the last five years if it had been paid national tariff
for each patient.
3.3 Despite being challenged via the "arbitration
process", Surrey and Sussex SHA agreed the decision for PCTs
to pay the Trust substantially below tariff for the steadily rising
numbers of patients requiring treatment. The distance from national
tariff, reaching some £16 million per year, provides an objective
quantification of this historic "under-payment". This
explains how a hospital Trust can, at the same time, be both efficient
and in deficit.
4. ESCALATING
DEFICIT
4.1 The deficit created by under-payment
rapidly escalates under the NHS accounting system known as Resource
Accounting and Budgeting (RAB), whereby the deficit in one year
is removed from the Trust's income the following year9. Over a
5-year period (of consistent deficit) RAB triples the accumulated
deficit compared with normal accounting. This results in Trusts
quickly reaching an unrecoverable position.
5. IMPACT ON
LOCAL HEALTH
SERVICES
5.1 Owing to this systematic underpayment,
the "problem" was perceived to lie in the Trust. A turnaround
team, costing £0.5 million was sent into the Royal West Sussex
Trust, which was already operating at better than average efficiency10,
while the under-funded demand for acute care has not been addressed.
By focusing on an already efficient provider, the main effect
of turnaround intervention is likely to be a diminution in the
quality of service, morale and clinical effectiveness of the hospital.
Furthermore, this will not produce a sustainable health economy
as the underlying causes remain unresolved.
6. CONCLUSION
6.1 It is not widely understood that hospitals
have been paid vastly different prices across the country for
the treatment that they provide, some significantly above and
some significantly below the national benchmark (tariff). However,
even when tariff is being paid by PCTs, the historically low-priced
hospitals, such as the Royal West Sussex Trust, have not received
tariff owing to the DH cap on the rate at which the transition
to tariff prices can take place.
6.2 The deficits created by this under-payment
for each patient are not easily resolved by the Trust as treating
fewer patients simply reduces Trust income. In addition, the effect
of RAB is to escalate the accumulated deficit in a way that makes
financial recovery impossible. Finally, the impact of a turnaround
team, in these circumstances, is likely to be detrimental to the
hospital Trust and fail to resolve the underlying issue of under-funded
activity and high demand from an elderly population.
Robert Lapraik
Ex-Chief Executive, Royal West Sussex NHS Trust
1 June 2006
7. REFERENCES
1. Department of Health. (2005) Trust
Reference Cost Index.
2. CHKS. (2001, 2002, 2003, 2004, 2005,
2006) Top 40 Hospitals.
3. Dr Foster. (2005) Dr Foster Hospital
Guide—Top 3 Hospitals in Country.
4. Picker Institute. (2004) Highest
Patient Satisfaction in South East.
5. Cabinet Office. (1996 to 2005) Royal
West Sussex Trust Charter Mark for Excellence in Public Service.
6. Mori. (2005) National Health
Service Staff Survey.
7. Hansard. (2005) Debate
in Westminster Hall on 6 July 2005 "Royal West Sussex NHS
Trust" Column 88WH.
8. Audit Commission. (2005) Public
Interest Report on Royal West Sussex NHS Trust PricewaterhouseCoopers.
9. Hansard. (2006) Debate
in Westminster Hall on 14 March 2006 "NHS Finances".
10. Department of Health. (2006) Trust Reference
Cost Index.
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