Evidence submitted by Professor Calum
Paton, Keele University (Def 03)
My comments below are supported by the Non-Executive
Directors who were on the Board of the Trust with me, and by Mr
Dave Crowley, former Chief Executive of the Trust and previously
Director of Finance (at the Trust from 1998 to 2005).
1. DEFICITS OVERALL
There are both national and local reasons for
the NHS "deficit crisis". Equally, deficits affect a
variety of types of Trust—those which have had good reputations
and demonstrated good performance as well as those which have
not.
2. NATIONAL REASONS
The factors listed below apply to different
extents in different Trusts. Those Trusts in greatest deficit
may be victims of "many external (national) factors hitting",
internal/efficiency problems or both.
On the "supply side", there are five
main factors causing financial pressure: Agenda for Change, the
workforce and pay reform; the cost of the new consultant contract;
the cost of the new GP contract; the cost of continuing implementation
of the European Working Time Directive; and the cost of implementation
of the national "IM and T" strategy. The government
(and Department of Health) (DoH) failed to cost the employment
contracts correctly (I assume you will acquire the quantitative
data on this). Individual Trusts may also have pressure from other
factors, such as the cost of the Clinical Negligence Scheme for
Trusts.
On the "demand side", the target regime
has included meeting the government's access targets up to 2005
(pre-election, as it happens) in particular, as well as seeking
to achieve the Prime Minister's and Department of Health's ambitious
"2008 targets" by planning appropriately for the future.
Even with ambitious reconfiguration, these targets are expensive.
The "politics of the NHS"—or rather of governmental
decision-making—mean that central "commands" are
issued without proper account for their effects upon overall NHS
strategy and finance. In a nutshell, it's "targets one year;
finance the next . . ."
Furthermore some of the targets (such as 98%
compliance with the "four hour wait" target in A and
E have had a very high "opportunity cost" at the margin,
especially for hospitals facing high emergency activity as a result
of failure to tackle the causes of these in the wider (local)
health economy.
But there are key factors beyond this creating
financial pressures, which might be termed the "three Ps"
(four, if you add "pay", above):
Firstly, "PCTs and purchasing": "Shifting
the Balance of Power" (StBoP) (2001) created a highly expensive
and dysfunctional structure for "commissioning" (a euphemism—mostly
purchasing, or indeed financial panic at year-end, in practice).
It can reasonably be estimated that it cost c £1.5 billion
per annum in "management overhead" (even before its
dysfunctional effects had wider disadvantages eg failure to organise
and co-ordinate commissioning for secondary and tertiary services
at the right level to reflect clinical networks, natural catchment
areas for services et al).
The "new re-organisation", set in
train through Commissioning a Patient-Led NHS' (July, 2005)—one
of the reasons for Nigel Crisp's resignation—was intended
to rationalise some of this. It has been botched through local
political compromises (as evidenced by the outcome, announced
on 16 May 2006) in the context of the government's weakened position
in Parliament and generally.
Those Trusts (mostly hospitals) which faced
"too many too small" PCTs were most at risk. Additionally
there was simply not enough "quality management and leadership"
to go round when 100 health authorities were replaced with nearly
350 PCTs. Some areas of the country fared better (eg Birmingham,
where the PCTs were larger and more "fit for purpose").
Secondly, "private deals": some Trusts
faced expensive PFI deals (and expensive capital (eg "impairments")
costs in preparing for imminent PFIs. Additionally, central revenue
moneys were top-sliced in order to "pump prime" the
"new independent sector" (ie to entice new private providers).
Again, this is a national policy with varying local effects.
Thirdly, policy confusions: to the "commissioning"
issue above, add the costs of the "new market" (choice/Choose
and Book plus Payment by Results (PBR)); the costs of fragmentary
central "command and control" targets; the costs of
all the new institutions to regulate, inspect and ensure compliance;
and the costs of "managing local collaboration" (against
the grain of the incentives created by the above).
A reasonable estimate of the cost of all this
(including StBoP) is more than £3 billion ie three times
the national deficit. The King's Fund has recently estimated the
national deficit at £1.2 billion (up from £200 million
predicted before Christmas—suggesting both that the Strategic
Health Authorities and the DoH were "out to lunch" as
regards the true picture—see my earlier note to you on the
"kiss up, kick down" culture!).
3. LOCAL ISSUES
Just as the national factors "play differently"
in different localities, the local factors often (although not
always) have national associations.
Firstly, it is argued (eg by the PM) that "reform
is always painful" ie "no pain, no gain". The bad
news is that it is only from this Financial Year onwards (2006-07)
that "reform" (especially PBR) is really "kicking
in". Last year, many hospital Trusts were victims of the
more disreputable elements of the "old system" pre-PBR
(when local PCTs often "passed the buck" ie failed to
control activity for hospitals through effective primary and community
services, but then also failed to pay the hospital for what became
necessary admissions). This year, the financial "swings and
roundabouts" will presumably more whopping deficits, unless
national policy is amended on the hoof (as is already happening,
admittedly!)
Secondly, some local Trusts had concealed deficits
or had had received persistent year-on-year brokerage funds, often
"written off". The Secretary of State is partly right—some
"deficit Trusts" did. But others did not, but were "bought
low" through poor commissioning, buck-passing (see above)
et al. The Trust I chaired broke even legitimately for
six years, and only in the last of these was a limited amount
of "non-recurrent" money necessary. This was small beer
by reference to the total deficit.
Thirdly, it was argued by Ministers until recently—although
increasingly implausibly—that deficits were the exception
that proved the rule, with soundbites like "50% of the deficit
in 7% of Trusts". What about the other 50% (ie a superficially
plausible but meaningless soundbite). Perhaps more importantly,
deficits are "politically concentrated" with SHAs seeking
to minimise the number of organisations (PCTs, NHS Trusts and
Foundation Trusts) with big deficits (eg by allowing some PCTs
to "break even" or minimise deficit by underpaying the
hospital). Even post-PBR, 2006-07 onwards, PCTs will seek to limit
their outgoings through restrictive contracts.
Fourthly, the "turnaround" regime
is too stark (eg the "double whammy" whereby structural
deficit—for lots of the above reasons—has to paid
off in one year; indeed twice, as both cost-reduction and repayment
of the previous year's debt has to occur in 2006-07. This was
half-admitted by the Secretary of State on Panorama some
weeks ago, when she said she'd ask the Audit Commission to examine
it when under pressure during interview.
But perhaps more importantly, "turnaround"
is occurring in a fragmented way (because of the "old market"
ie "the purchaser/provider split", which was never abolished
but enhanced through StBoP, and also the "new market"
which sets PCTs (now in a confusing relationship with GP practices
as a result of Practice-Based Commissioning) against hospitals.
Crucially, each agency solves its own financial problems without
things being "joined up"—for example, the Trust
I chaired will be making cuts assuming enhanced community facilities
(eg to allow radical action on length of stay in hospital) whereas
PCTs are actually cutting those facilities!
Professor Calum Paton
Director of Centre for Health Planning and Management
Keele University
May 2006
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