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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1204-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE HEALTH COMMITTEE
Thursday 22 June 2006 MR BRIAN SHIPLEY, MR STEVE PHOENIX, MR JOHN McIVOR and MR KEITH FORD MR PHILIP DAVIDSON, MR KEVIN ELLIS, MR SEAN SULLIVAN and MR MARTYN EVERETT MR DAVID LAW, MR ANTONY SUMARA, MR SIMON PLEYDELL and MR ANDREW KENWORTHY Evidence heard in Public Questions 1-236
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Health Committee on Thursday 22 June 2006 Members present Mr Kevin Barron, in the Chair Mr David Amess Charlotte Atkins Jim Dowd Sandra Gidley Dr Doug Naysmith Mike Penning Dr Howard Stoate Dr Richard Taylor ________________ Witnesses: Mr Brian Shipley, Director of Finance, Southend University Hospital NHS Foundation Trust, Mr Steve Phoenix, Chief Executive, Adur, Arun and Worthing Teaching PCT, Mr John McIvor, Chief Executive, Rotherham PCT and Mr Keith Ford, Director of Finance, Avon, Gloucestershire and Wiltshire SHA, gave evidence. Q1 Chairman: Good morning. May I welcome you to what is our first session in the Health Committee's inquiry into NHS deficits? May I for the sake of the record ask you to introduce yourselves and the organisations you come from? Mr Shipley: I am Brian Shipley, Finance Director at Southend Hospital. Mr Phoenix: Steve Phoenix, Chief Executive, Adur, Arun and Worthing Primary Care Trust. Mr McIvor: John McIvor, Chief Executive of Rotherham Primary Care Trust. Mr Ford: Keith Ford, Finance Director of Avon, Gloucestershire and Wiltshire Strategic Health Authority. Q2 Chairman: Thank you very much. May I first of all just ask a question about the issue of regional trends to you Mr Ford? Why are health economies in surplus all in the north of the country? Mr Ford: I am not sure I know the answer to that question Chairman. Q3 Chairman: You do not know? Mr Ford: I could speculate, but I do not know. Q4 Chairman: No studies have been done as far as you are concerned? Mr Ford: No, I am not aware of studies that have looked at comparative reasons for a north/south divide. Obviously the resource allocation formula in capitation target studies gives relative targets north and south. In terms of the studies into organisations which are over- and under-spending they tend to look at PCTs and trusts and even in the South there are PCTs and trusts - one third of them in Avon, Gloucester and Wiltshire - which are in balance and break-even and one third of them are under 2% over-spent, there is not a pattern within a southern region. Q5 Chairman: It is just the SHA pattern that people are looking at. There are two PCTs in front of us, Mr Phoenix and Mr McIvor. Is the funding formula used to allocate resources to PCTs fair? Does it accurately reflect local needs and costs? Is the main reason you have done so well the fact that the funding formula favours your particular PCT? Mr McIvor: I do not think that it is that the funding formula particularly favours my PCT. We are below capitation still. From the funding formulas which I have seen over my years in the NHS it is as fair as anything else around., but it has not actually meant that we move into a surplus position because of excess funding in any way, shape or form. Mr Phoenix: The formula does not favour or disfavour us; we are over capitation, although in the past my part of the world has been judged to be under capitation. It is clear that small changes in the formula can quite significantly affect the way that resources are allocated: whether it is fair or not, I do not know. Q6 Chairman: May I ask Mr Shipley and Mr Ford why you think the largest acute trusts are more likely to be in deficit? Mr Shipley: Again that is a very good question. I have worked now in two acute trusts as finance director, both in completely different circumstances. Southend is in a part of the world where its relationships with its two local PCTs is very good, it comes from a situation with good financial management, but has a low asset base, so that is an advantage. My previous trust was Dartford and Gravesham which was a PFI hospital. I am not saying anything about PFI generally, but that did carry a high level of cost. You do get completely different circumstances which are unique to organisations, but I do not think the size of the hospital is relevant to the size of the deficit because, for example, Dartford had more financial difficulties than Southend does and was smaller. Mr Ford: I agree with Brian. I am not aware that there is a size relationship. In my part of the world in particular it is primary care trusts which are the biggest problem areas in terms of deficits. There are two large trusts in Bristol that had big financial problems in 2001-02 and 2002-03 and they dug themselves out of that and both delivered a surplus last year. It is not something I would correlate with the size of acute trusts. Q7 Chairman: How will the rationalisation of primary care trusts and strategic health authorities affect the ability of your health economy to resolve its financial difficulties? Mr Ford: It will make it worse in the short term. The turbulence associated with people changing boundaries, changing jobs, the loss of what is called corporate memory as you hand it over is bound to take people's eye off the ball in the short term. In the longer term, stronger PCTs with perhaps better expertise in contract setting, contract specification, contract management might recover their own positions better; unproven though. Q8 Chairman: Does anybody have any proof? Mr McIvor: I would agree with what Keith has just said. In the short term, it will cause a lot of turmoil in the system, I do think where small PCTs are coming together and they particularly face one larger community trust, it is going to be much better to have a large PCT rather than having perhaps three or four negotiating what they are going to negotiate first, so that will be beneficial. When it comes to the SHAs, a good strong performance management at that level is what we have been lacking and that is what we really do need now and that should be improved. Mr Phoenix: I agree with Keith. Although for me the issue is not so much about the structure of PCTs per se, it is the degree to which we shall be able effectively to implement aspects of the system reform agenda and particularly to engage GPs in practice-based commissioning, that is likely to be the tool which will significantly affect the way in which resources are deployed and that will be much more important than the size and geography and structure of PCTs. Mr Shipley: In my part of the world we shall not see a lot of change. Both our PCTs in South East Essex have been working very closely together for a long while and have had joint appointments. Clearly the role of the PCTs and the SHA will change, but I hope that our working relationship with the combined PCT will carry on improving. Q9 Mike Penning: May I take Mr Shipley up on a few things? You said that the size of the trust was not relevant to your efficiency, but you have massively downsized the size of your estate over the years; perhaps even slightly before your time when you sold off most of the Rochford Hospital and sold it for development and housing et cetera. My colleague is the MP for Southend West but I know the area very well myself. Did that have a significant effect on the fact that you are basically operating from a single site now as a kind of super hospital rather than the way you were operating before? Mr Shipley: You have to look at your asset base, you have to look at productivity; clearly if you operate off two sites, you have two estate costs, you have infrastructure costs, just physically moving people backwards and forwards, so estate rationalisation is a key issue. I was not at Southend when they moved off the Rochford site. If you go back into Southend's history, it has always managed its financial affairs. I should say it is easier to do that now all are on one site, but, as David probably knows, we have a number of issues at our hospital site that we need to manage for the future. I do think it is an advantage. Q10 Mike Penning: A massive disadvantage for the people living in Rochford or Rayleigh or Great Wakering, the areas where you closed the hospital. Mr Shipley: Yes, clearly and you have to have and we are going through the process now of agreeing a travel plan, because the hospital site is very congested and parking is difficult. We are looking at what other opportunities we have, maybe to move some of our outpatient services off site, but you have to manage your asset base. That is an important message and it gives you an opportunity, being all on one site, for better communication and better efficiency. Mr Amess: May I just say that while the decision was taking place about Rochford of course I was MP for Basildon where we were going through another programme, a so-called rationalisation and I stopped the closure of the A&E unit, I stopped the removal of the baby care unit, et cetera, but that was when I was MP for Basildon. I should simply say that the decision about Rochford has gone round full circle and now you have a traffic jam in the hospital site itself and everyone is squashed on the one site. What seemed a wonderful decision at the time, saving money and all the rest of it, in reality was not too clever. Q11 Dr Taylor: Turning to national pressures, as you have probably realised, we have you four gentlemen together because you seemed to have coped with the national pressures and we want to know really how you have done it. When you think of the reorganisations, we are on the 28th or 29th reorganisation. I think it was Neil Dixon who said that to produce Agenda for Change, consultants' contracts, GPs' contracts, the pharmacy contract all at the same time was total complete madness. How have you as successful organisations coped with all these changes? Mr Shipley: A good question. You have to manage your workforce; you have to have good relationships. So the consultants' contract in a way was perhaps an opportunity for consultants to feel that they ought to be paid what they are worth or what they were, but you have to have some control over their job diary and we clearly have that. We do pay a maximum of 12 what are called programme assists, so we do not pay as much to some of our consultants as other organisations that I am aware of. The other thing with Agenda for Change is that Southend was perhaps in a bit of a unique position because it had local terms and conditions prior to Agenda for Change and although we have implemented part of Agenda for Change in terms of the banding, now that we have achieved foundation status, we are going back to local terms and conditions again, because one of the inherent problems with Agenda for Change is built-in increments for staff who may not have received them before; they might have been on a spot point. You do have to look at your own individual circumstances and you have put a fair number of controls in place as well as have a look at flexibility, but it certainly added to our cost base. Q12 Dr Taylor: But you have tied the consultants' contract down to a maximum of 12, have you? Mr Shipley: A maximum of 12, yes. Mr Phoenix: I should say that we have coped with it by strong project and programme management. Q13 Dr Taylor: May I pick you up on that, because strong project and programme management is a lovely cliché. What does it mean? Mr Phoenix: For us it means having dedicated resources, properly trained, who understand the subject, with enough time to be able to handle whatever the issue is effectively. Q14 Dr Taylor: Have you sent them off on expensive courses to get them trained, like this marvellous course for improving your reputation? Mr Phoenix: No, but people have been trained in project management skills and I am not going to apologise for training staff to do their job well. The second thing is that you need sound and effective financial planning so that you are able to take proper account of the changes that are likely to come along. We also have to try to make use of the changes as they come up. For example, with Agenda for Change we have tried to manage that effectively, closely and tightly and I am not convinced that everybody has been able to do that for a variety of reasons. Q15 Dr Taylor: How have you managed the GPs' contract and the out-of-hours service particularly? Mr Phoenix: Some of the same principles apply, but what I should add is that we worked very closely in partnership with the GPs. Indeed the GPs on our executive committee led the implementation of the GPs' contract with strong guidance and support from managers and that worked very well indeed. Mr McIvor: Some similar things there as Steve, but firstly we have taken very much of a systematic approach to assessing the risks that we have and also understanding the context that the NHS has been operating in. If you go from our deficit time of about £6 million in 2002 through to the surplus we have created of about £4 million today, things like payment by results have come in during that time as you rightly say, Agenda for Change and so on, and that change in context and managing that risk has been really important. The systematic approach is that we have assessed risk, looked at the financial effects of it and tried to manage them. The examples will be things like prescribing. We have tried to work with and reduce some quite high-prescribing costs and we have incentivised the system to do that. PBR came in: the volatility around PBR is very, very high. A 1% variation in PBR for us is a £3.5 million shift in our budget and that is quite significant. We have tried to put a lot of resources, training and development into our team who manage the payment by results and our contracts with our acute hospitals, which in our area are all foundation trusts and that has made a significant difference to us as well. Lastly, we have tried to manage and improve our own productivity and reduce variation as much as possible, be it across services and even within individual departments. My very final point would be that we have worked very, very hard as a PCT with our GPs who control and are the gatekeepers to so many resources. The implementation of the GPs' contract has been critical to us to take GPs with us, to get them to help us to manage the development of alternative services which perhaps are cheaper and higher quality services as well. Q16 Dr Taylor: Any comments from the SHA on some of your organisations which have coped well with these and some which have not coped so well? Mr Ford: Yes; happy to do that. As you acknowledge, SHAs are a sort of conglomerate, in our case of 21 separate or legal organisations, PCTs and trusts. Sometimes I use the analogy of why an aircraft crashes: it is very rarely a single catastrophic incident, it is very often a combination of things which if they had happened on their own, would have meant the plane would have carried on, but, happening together, it comes down. If you take the position on pay awards that you have already alluded to, add to that in some cases an underlying deficit that goes back many years and has been half-heartedly tackled or not tackled, add to that where you start in different places, if you had three or four consultants in an accident department pushing hard for the 98% target, it may be a question of working them harder. If you have two consultants, you are into the step cost of avoiding a third, so where are you on the step card of costs? Add onto that this mixture of the complexity of payment by results and something even more complex called the purchaser of parity adjustment for primary care trusts and believe me you would not want to go there in a technical manner, but if you add that complexity together, for some organisations that is an almost lethal mixture of complexity, too much to cope with. Add to that the fact that in some places chief executives, finance directors leave, other people cannot be recruited, so they have an interim person who lasts six months, nine months on contract and, for some places, all added together, it is too much to cope with. Other places do not get it all added together or they have had a strong stable management team. That is my theory; I do not have evidence to back it up. Q17 Dr Taylor: Just going on from there, how have you coped with pressure from targets and things like that? Mr Shipley: One thing I should say is that our board operates in a way where it tries to address all the targets as being of equal significance. That is to say it does not put waiting list targets ahead of financial management or financial issues. Our relationship with the PCTs is also quite important and the historic funding for that and the trust has had a history of meeting all of its targets. It will clearly in-year have issues like we had last year at Southend where we had, at the beginning of the year, an increase in non-elective admissions which meant that we were behind our elective targets and in doing that, having to put on additional theatre lists, outpatient sessions or whatever we had to do, you actually have to look at the financial consequences of that. So it is actually about managing them as one issue or one set of issues rather than saying we need to hit this target, we need to spend that sum of money, forgetting about the financial consequence. Q18 Dr Taylor: Would the others agree with that sort of approach? Mr Phoenix: I should just add that we have tried to take the approach that targets are a way of trying to increase standards. One of the effects, for example, of the waiting-list target is that we have been able, over the life of the PCT, to reduce the inpatient waiting list by 35%. At the same time we have been reducing waiting times. We can wrap the term "target" around it and it feels pejorative, but actually we have been trying to take those targets locally and use them as a vehicle for driving up standards and that has been a good thing. Mr McIvor: There are targets and there are targets and it is about identifying which are the important targets to achieve and knowing which you are going to get hung for perhaps if you do not do it right. Q19 Dr Taylor: Do you feel you can pick those out? Mr McIvor: Perhaps I get it wrong too often as well, but there are some which are definitely more important than others. We all know that waiting times, we all know that financial balance sits right up there. We all know that smoking cessation will make one of the biggest differences to this country; having more people not smoking. We are definitely held to account for some of those targets on a much tighter basis and I suppose the trick is having the experience to know and the contacts and the networks et cetera to understand which are the most important out of the plethora of targets we have been issued with. Q20 Dr Taylor: Do you condone that approach? Mr Ford: We have not met other than outside this room just now. Clear unambiguous targets are helpful. The problem comes when targets are either unclear, ambiguous or there are so many of them, that you have to begin saying "Ah, but which are the important ones?". I am afraid two or three years ago finance somehow was articulated as an important target, but with the sort of underlying way of spreading the message that it was not quite as important as the others, or rather it was okay to have a recurrent underlying financial problem that you dealt with by a non-recurrent savings programme, freezing vacancies temporarily or backlog maintenance and that is when the targets are a problem. They are not a problem in and of themselves. I speak as an ex-hospital chief executive as well as a finance director. They are good when they are clear and you know what you are doing, what they are there for, but it is when there are too many and you get ambiguity. Q21 Dr Taylor: Finally, to Southend, a question which has just been handed to me by one of our experts. You say in your evidence that your planned surplus of £5.2 million in 2006-07 will largely be due to your gain from PBR. Mr Shipley: Absolutely; yes. Q22 Dr Taylor: How much did you gain from PBR in 2005-06 and what will be the gain in 2006-07? How do you see your current position of being under the national tariff helping to make you more productive in the future? Mr Shipley: There are three or four questions in there. The gain from PBR in the previous year was around £1 million. It was smaller simply because only elective activity was covered by PBR in 2005-06. The actual gain that the trust will make from PBR in 2006-07 is more than £5 million; we calculate it at about £8 million and we get, as a foundation trust in 2006-07, 75% of the potential gain, so there is more gain in the following year. We have taken two decisions: one is to accrue most of our PBR gain for future investment on the hospital site, so we have a ten-year strategy about spending over £100 million on the infrastructure. We have also recognised that there are some pressures in the system in the hospital and we need to spend some, even revenue, monies on things like backlog maintenance. It is a conscious decision. Part of the foundation trust application process which we have been through rather latterly is that you have to think further than the end of your nose and you have to have a strategic plan and that is basically our plan. Thank you for the question. Q23 Sandra Gidley: A very quick question. Going back to the targets, there seems to be a certain amount of vagueness about what was important and what was not. I come from the area served by Hampshire and Isle of Wight, which, as you will know, Sir Ian Carruthers came in and shook up significantly, but he made quite clear to all of the chief executives and chairmen of the trusts what the key targets were. He gave them a list and he told them not to worry too much about all the others, that these were the eight he wanted them to concentrate on. Are you saying that does not happen elsewhere, because it seems like quite a good idea to me? Mr McIvor: It does happen elsewhere. It is whether it is eight or six or five or two, and that is one thing. The other thing you need to understand is that we are also held to account by the Health Commission now who have a whole set of other targets and I do not want my residents to have a failing or identified as failing PCT against the Health Commission targets either. There is a set of Department of Health targets and the Health Commission will make a judgment on how we perform on other targets as well. It is sometimes quite a balancing act, but everybody in the country should know about the top two or three or four. There is no question about financial balance and no question about the waiting time targets; they sit there higher than anything else. Mr Shipley: Sometimes as well it is about emphasis and pressures even at board or executive levels and you get some sort of conflict between consultant and nursing colleagues who believe that they need to be this, that and the other. Sometimes finance has, in the past, not been necessarily right at the top of the agenda or has been seen to be the finance director's issue "You will solve the problem. You solved the problem last year by pulling a non-recurrent rabbit out of the hat, I am sure you have some money stacked away somewhere". That is about integrated management and governance at board and executive-team levels, all understanding the targets. Mr Ford: In the SHA where I am now, we have said financial balance is a prerequisite, so we have made it the single most important target. Three years ago, when I was running a hospital, what was measured? A&E performance was measured weekly and when it dipped, it was measured daily and I had a daily phone call. You respond, not just to what people say is important but how frequently and how hard they measure you on it and finance was measured monthly and the distinction between the recurrent and non-recurrent got blurred. Mr Phoenix: There are layers of targets. John has made the point that there are targets and targets and there are targets that are not targets which are called milestones or guidance. I was talking to colleagues outside about the newly released fitness-for-purpose assessment for new PCT organisations and I stopped counting the pages at about 500. Those are the questions that will be posed to new PCT organisations when they are created in October and there is not a single measure or a single question in those 500 plus pages which is not important, significant, right and all the rest of it, but wrestling with, teasing what is important out of all of that is going to be quite a challenge for new organisations. Q24 Chairman: We were told by the last chief executive of the NHS last year during another inquiry that target-setting was going to move to local target-setting in the next few years. Is there any sign that that is happening at this stage? I think that is a no. Mr Ford: To a degree, yes. The targets which have been set in the past have not gone away, but the new targets, apart from the 18-week maximum from GP to surgery, have not been added to to any great degree. Mr McIvor: It is probably also about not quite pick-and-mix but the important targets. There are targets that cover most areas and in Rotherham, no doubt about it, it is essential that we make rapid progress on most of the coronary heart disease targets. They might not be the most heavily monitored, but for local purposes they are some of the most precious and most important targets. Q25 Chairman: Is that where central would like you to move in terms of local target-setting within your health communities, on the basis of need and not national targets? Mr McIvor: Yes. Chairman: That is for another debate. Q26 Dr Naysmith: That is a good point at which to come in and change the emphasis slightly in that we have been talking about pressures coming nationally in terms of management and quality of management and I suspect all of you sitting there would agree with the Government when they say that good results tend to go along with good management. I suspect you would all say that, since you are all doing reasonably well in your organisations. Leaving aside the national stuff for a moment, there must be local factors which present strong challenges to your organisations. Are there any lessons to be learned from that? I am just going to start with Mr Ford who has already hinted at the fact that there were some very important challenges in particular in the North Bristol Trust in the Bristol area where we moved into a deficit of something like £44 million at one stage and now things seem to be doing a lot better. May I just make one other point about that, the strategic health authority at the time was receiving regular financial reports from North Bristol Trust, in theory at least, and did not seem to be picking up that there were problems there. We do not want to go into the details of NBT, but are there any lessons that can be learned from things like that? I shall start with Mr Ford, but I shall ask you all whether you have dealt with similar things in your areas and, if so, what has been the right way to do it? Mr Ford: As you are aware, I do not have the long-term background in the area I am now in that you do, having only been there for the last seven months, so I cannot really go back into the who-said-what-to-whom bit of history in the North Bristol Trust. I have access to the accounts, so I know the numbers for 2001-02 and 2002-03, but not what who-said-what-to-whom. As a general observation, no organisation starts in the same place as another organisation. It has a different inheritance of staffing structures, if it is a hospital the number of consultants, if it is a primary care trust the number of admissions per thousand population it is paying for. If it is a primary care trust, some provide hardly any services directly, some district nurses, some health visitors, peripatetic staff; others might run six, seven, eight, nine community hospitals. No-one starts in the same place with their assets, their workforce or the problems and issues which arise from the population. Each management coming in has to ask itself what the problems are that they are seeking to deal with and fine-tune their own solution to those problems. Sorry, I am sounding like a management textbook now, but it happens to be true. You have to arrive, take stock and decide what the most urgent thing to do is. Q27 Dr Naysmith: One of the problems was that two different hospitals were combined in one trust and no-one seemed to be able to cope with that properly at the time and the strategic health authority was not very helpful either. Would the situation be different now? Mr Ford: Mergers take time to get properly organised and they are very difficult things to do; people in the private sector would tell you that too. You have some turnaround directors giving evidence later in the session and it would be interesting perhaps to put that question to them. Yes, mergers generally speaking take time before you get the benefits out of them. Q28 Dr Naysmith: Are there any different lessons to be learned from this sort of situation than from any of the others? Mr McIvor: I would just build on that: mergers take time. As a PCT which was formed out of five organisations in 2002, it took a while to settle down and one of the gains we have had is consistency of senior management and middle management, not a high turnover, and a lot of experience. Mergers take time to bed down and it is not just the management, it is also about building up relationships with those people who control most of the use of resources; I go back to the comment about GPs. Those relationships are critical and in the local situation I have we are very fortunate in having a good relationship; we can work with GPs and community staff on alternatives to admissions. Under the context of PBR all my staff and everybody knows that every non-elective admission costs about £2,000. There is something that says that people make a judgment about how they then can access and undertake their professional practice, though that can only happen in an organisation that has been there for a while, has built those relationships and has a consistency of management and approach. Q29 Dr Naysmith: How would you cope with demand rising faster than the funding you were getting to satisfy that demand? That is another local thing, is it not? Mr McIvor: We do have demand in some areas which always will rise at a different rate and we cope by looking at the most efficient and effective way to meet that demand. We look at how we spend the £320 million and not just the £1 million or £2 million of pressure and we have made choices, which is why we are there as an organisation, perhaps not to invest as fast in something as we would in something else. The demand for new technology and some of the demands of the tertiary services are quite significant at the moment. Q30 Dr Naysmith: What would the difference be between good management and bad management of that kind of situation? Mr McIvor: The biggest difference might be taking a systematic, rational approach, looking at the evidence around effectiveness, looking at the evidence around cost and clinical effectiveness and then taking people with you on that decision, both the public but also, as equally importantly, the professionals who are part of it. Q31 Dr Naysmith: Mr Amess earlier was talking about putting two or three smaller units on one larger unit and I do not know anything about that situation at all but presumably the aim was to get the economies of scale from doing that and yet, he said all it did was create new problems that you had not really thought of at the start. I wonder whether either of the other two could comment. Mr Shipley: We have discussed the Rochford/Southend situation. You are right: you have a set of issues. One of the benefits that Southend has had is consistency or very little turnover of senior management. I am relatively new to the trust, but it has benefited from that consistency. One of the things I would say is that you have to deal with issues over a wider timescale and the NHS is not very good at this. We have been very narrowly focused on a particular financial year, taking decisions, whether locally or nationally, that impact upon this year and not thinking about the consequences in year two, three, four and five. One of the things I was alluding to locally is actually having a strategic plan - and I know you have to have a degree of flexibility in that - that is for a ten-year period. We certainly need to do something with our hospital site. Mr Phoenix: The way the system is developing, we need to look at issues of hospital and provider productivity and asset rationalisation and so on in a different way from the way we need to look at the way in which commissioners will work. The point that Brian was making earlier on about the assumptions of gain from practice-based commissioning and so on and needing to have a low asset base will make very little difference to the amount of care that the commissioner can commission. Commissioners, particularly with their GPs - and this emphasises the point that both John and I have made about partnership with general practitioners - are going to have to find ways of re-providing care in community and primary care settings at lower costs. If we do not, the kind of strategic aspirations that trusts like Brian's will have, will have the effect of putting huge pressure on PCT budgets that we shall be unable to sustain. We are going to need much more of a twin-track approach between commissioners and providers than we would have needed in the past and that is an important way that we are going to have to work. Q32 Dr Naysmith: One thing which is supposed to happen is that if you have a deficit in one year it is carried over and you get less money for the following year. That is going to happen in future, is it? Mr Ford: Yes, the system is that you have to break-even over a five-year period so your deficit is carried forward on your books and there is this resource accounting and budgeting adjustment where you lose the money out of your income base for the following year. You will find that is mentioned in the National Audit Office report on the 2004-05 accounts. I think the Secretary of State was asked to look into this. Q33 Dr Naysmith: Their report suggests that different strategic health authorities do different things theoretically using the same technique, is that right? Mr Ford: I have not done a study of other strategic health authorities. I thought we were applying the rules as they were supposed to be applied. Our auditors have not told us we are not. Q34 Dr Naysmith: According to the National Audit Office and the Audit Commission that is not the case. Mr Phoenix: There is also a different financial regime for primary care trusts, where primary care trusts are required to break-even annually, which puts a similar, but different pressure on PCTs to make sure they have an in-year balance. Q35 Jim Dowd: A general question. Are the financial management structures within the NHS adequate and effective? Mr Ford: Not universally. Again, like the answer I have given to other questions, it is too tempting to generalise and look at the 21 organisations in my patch. Q36 Jim Dowd: Where are they strong and where are they weak? Mr Ford: They are strong where a finance director is experienced in board management, which is different to and a step above accountancy, has a decent sub-structure which is handling the basics well enough, that he or she does not have to delve down into the basics and is doing good forecasting as well as financial control and saying "Don't do that". He is also forecasting ahead, is probably managing his or her board well, and I include the chief executive in that, making sure the chief executive has the right data and has their backbone stiffened when they need it. Q37 Jim Dowd: All the things you have mentioned are essentially about the qualities of the individuals concerned, they are not structural issues. So what you are saying is that there is nothing really wrong with the structure, it just depends whether you have people who know what they are doing or not. Mr Ford: Some structural things can get in the way. If you have an information technology system that is not helping, that can be in the way. Sometimes finance directors are given extra responsibilities which get in the way; they are given information technology, maybe a bit of corporate governance, in some cases maybe even estates management and once you widen their span of control beyond finance, sometimes that stretches the ability. Q38 Jim Dowd: So good management saves money and poor management wastes money. Mr Ford: That is an over-simplification of what I was trying to say. With hindsight, you can always post-hoc rationalise and say that if they delivered a balanced budget et cetera, that must have been good management and if they did not, that must have been bad management. It is often a combination of factors. Q39 Jim Dowd: I know you mentioned this earlier in some of the discussion on targets, but how well integrated are the financial and the clinical priorities within the health service? Mr Ford: It is the job of the chief executive to link them in any organisation. One of my colleagues pointed out that it is a danger if the finance director is told his job is to balance the books and produce a little bit out of his back pocket at year-end to make sure it comes right and that is not linked in. It is an equal and opposite danger if clinicians are told to deliver targets regardless of the money. The job of a good chief executive is to link those. Q40 Jim Dowd: Particularly in an environment over the past few years where unprecedented amounts of money have gone into the health service, is it not the case that a lot of difficult issues were simply sidelined as regards financial discipline because the money was flowing in and they could be pushed down the road and dealt with in a few years' time and now the few years are up? Mr Ford: It was the case that with the money flowing into the NHS at national level a number of targets were set, a number of policies were deemed to be a good thing, improved cancer waits, improved cardiac, rapid access chest pain clinics, A&E and so on and each of those policies was undoubtedly a good thing in itself, but not necessarily costed properly at national level. The consequences of that were felt at local level as those policies came on down and we all chased them individually. The cost of those was aggregated back up after the event nationally. Mr Phoenix: Keith's point is a very, very strong one. We, the system, should have done better at connecting the likely costs of national initiatives, national service frameworks, targets and so on into when the costs were likely to fall, programmed over time and trying to understand the implications and we did not do that effectively enough. I should just like to go back to an earlier point that Keith made and not disagree, but perhaps add to it. If we look forward, as opposed to looking back, about finance capability, we are going to have to have systems which are significantly more up to date than we have now. I am not saying that what we have now is not adequate to do the job. Q41 Jim Dowd: Does that equate to accurate as well as up to date? Mr Phoenix: If we are moving into much more of a market-based system, it is going to be important for clinicians, referring clinicians, hospital clinicians, chief executives to have information which is much closer to real time than we have at the moment. At the moment we have systems which are significantly off being useful for day-to-day operations, so that is the first thing. That is something we are going to have to move to. We also have issues about capacity and capability to manage that kind of system that we are going to have to gear up for as we move forward. The environment in which we are going to be working in the next five years is going to be significantly different from the preceding five, ten, 15 years and that is a big issue for us. It is a big issue for us in relation to making sure that clinicians are at the point of making rational decisions about treatment costs, alternatives and so on and in better places that decision making comes together, but that is going to have to be universal in the years ahead if the system is to work effectively. Q42 Jim Dowd: Are there characteristics by which we can identify these better places and therefore identify the not so good places? Mr Shipley: Could I just tell you about a process that we have just been through which was the foundation trust application process. That was very rigorous financially. It looked backwards at things that we had done over the last three or four years, it made us produce detailed five-year plans, it assessed our financial capabilities, it assessed our board capabilities and it did an awful lot of things. That has introduced some sort of rigour. You could say actually - and I know there are exceptions - that those who have got through that process are those people who are in better financial health though there is the odd exception. The NHS is beginning now to push that piece of diagnostics that is being done for organisations before they get ready and that needs to be more extensive because that does prepare the organisation. I made the point earlier about it being the finance director's responsibility sometimes. This does teach boards to look at the wider picture and the consequences of investment decisions. Q43 Jim Dowd: Just back on that question of the targets earlier. It was an over-statement, a generalisation. Nobody really thought that the target was an end in itself and did not carry a financial discipline with it surely? Is that what people were thinking, that just because the Department said you had to get four hours in A&E, it did not matter what the costs were? That cannot be right, clearly, can it be? Mr Ford: No, that is not what I said. I said that that was seen as a pre-eminent target; it was measured on a weekly then daily basis and if you were not getting near it, it became very important. Some of the financial disciplines that you would normally adopt such as making sure, if you were incurring recurring spending, appointing an extra consultant in accident and emergency, that you had the recurring income for, you perhaps funded from non-recurrent savings. You still are in your legal duty to break-even, but you had a problem for next year that you would have to deal with when you got there. You would look for a recurrent savings package next year, you would perhaps try to get a cheaper laundry contract next year or re-tender your portering service or find economies of scale on estates rationalisation. You would not be so ill-judged as to say "Well we'll just hit the target and spend the money" but you might do it from a source of funds that was not secure, in the knowledge that, as a manager, you would be able to find money next year as you looked for your next set of efficiency savings. Q44 Jim Dowd: Finally, and I know this is a generalisation, is the finance function across the NHS adequately resourced itself and are people and units encouraged to report bad financial use as soon as possible? Mr McIvor: From our point of view, yes it is. The amount of investment we put into the finance function is something that is our decision as a PCT and people are definitely encouraged to report financial problems as soon as they are identified. Some of the problem is that the time limit often around data transfer means that some of these problems are identified somewhat too late and we need to speed up data transfer in the NHS. Mr Phoenix: I should say the same thing but just make the point that the responsibility for good financial management does not rest with the finance department. The finance department have a part to play, but --- Q45 Jim Dowd: You are just the police, are you? Mr McIvor: Who are the police? Q46 Jim Dowd: You said the activity itself is nothing to do with you and you are just policing the financial arrangements. Mr McIvor: No, the point I am trying to make is that the responsibility for financial management does not sit with the finance function alone. I am not a finance director, I am a chief executive, but the finance director's responsibility, corporately, is to work with the whole organisation to ensure that financial management is the responsibility of all budget holders. I have had experience in the past where there is an assumption that the responsibility for financial management sits with the finance department and my experience has been that that is a recipe for disaster. The finance function has an absolutely crucial part to play but if the entire organisation does not see itself as being responsible for delivering on their financial responsibilities, however good the finance function is you will not have good financial management. Q47 Chairman: Would it be over-simplifying to say that national targets did not create these problems that it was something lower down than that? Everybody says national targets have created X and Y problems, national contracts have created X and Y problems for us and yet we are told that 70% of trusts have kept within budget. Mr McIvor: It is not quite fair to say that. Some of the national things have created local problems which we should then have managed our way through. The implementation of the new GMS contract cost us around about £600,000 more than had been calculated nationally. That was £600,000 we had to find elsewhere. The achievement of the final 2% on the A&E target was a very, very costly bit to achieve and that money had to be found from elsewhere. We cannot totally say it is local management; national targets have not perhaps been properly costed and the national contracts have not been costed as rigorously as perhaps they could have been. Q48 Chairman: It is a mixture of all these things. Mr McIvor: Yes; a mixture. Mr Phoenix: Earlier Keith made the point about different organisations in different circumstances and the impact of national targets being felt differentially depending on local circumstances. Certainly that is what I see as I look at some of my colleagues, that it is a consequence of the application of those pressures locally that can be the confounding factor. Q49 Mike Penning: Similar question. You all seem to be doing so brilliantly well, so if I picked you up, each individually, took you out of your trust where you are doing so well and dropped you into a trust with a £47 million deficit, everything would be rosy within 18 months. Is that the assumption we can make? Is it down to management? Is there no other reason why things are going wrong? Mr Phoenix: I do not think that is the case. Q50 Mike Penning: I still have not got to grips with why you are doing so brilliantly well. You are in surplus, but there will be chief executives coming here this afternoon, very similarly qualified, very similar amount of experience and they will be having major problems with huge deficits and you guys have not. Surely if we transferred you there, everything would be rosy there then? Mr McIvor: We have not said it is just management, but management does come into it, good management. We have also said things like length of time that organisations have been created for, cultural issues in the organisation and relationships. Q51 Mike Penning: Nothing to do with the spending formula? Nothing to do with the amount of money you get to treat your patients compared with what they get? Nothing to do with that at all? Mr McIvor: If you look across the country, there seems to be no correlation between the PCTs that are in deficit --- Q52 Mike Penning: That is really interesting because the House of Commons Library gave me a figure this morning for my PCT which is £960 per head and then if I go to Hackney it is £1,400 and if I go to Sedgefield it is £1,210. There is a massive difference. Are you just ignoring that? Mr McIvor: No, what I am saying is that there is a resource allocation formula which takes into account multiple things like deprivation, like the elderly, levels of morbidity and so on which presumably leads to those sorts of adjustments. Q53 Mike Penning: It works very well for your trust and not very well for others. I do not understand that at all. Mr McIvor: I am below capitation. If I had my capitation level --- Q54 Mike Penning: I am asking all of you gentlemen. Brian, you are above capitation level, are you not? You are doing fine. Mr Shipley: The two PCTs locally are mixed: one is slightly above and one is slightly below. Some of the important thing is about the good working relationship that we have with our PCTs. I think management is very important. It is not a panacea to all of the issues, but I have worked in other trusts where the degree of interest or collective interest in financial management has not been the same. We have identified as well this morning that maybe two or three years ago the balance was not quite right. My first impression of Southend, when I went there nine months ago, at both board and executive level, was how interested they were in financial issues and the financial strategy. Q55 Mike Penning: This does not make sense, to be fair. You have had trusts which have been amalgamated, whole new management systems brought in, year after year after year the same areas of the country are in deficit with new management, different trusts, different PCTs - PCTs are going to be abolished now because they are doing too well - and we move on, but you still come back to the fact that it is management and yet it is different people in different jobs, year after year, and it is the same areas which are in deficit. Mr Shipley: I did not say that management is the panacea to absolutely everything. All I am telling you from my experiences and having worked as finance director in three NHS organisations is that the emphasis placed on financial management at Southend is greater than the other two organisations that I worked at. That is my experience. Mr Phoenix: I should say that, in a way, if we knew the absolute answer to your question, you probably would not need this inquiry. Q56 Mike Penning: That is why I am asking the question, to be frank. Mr Phoenix: The pursuit of a single answer is not the issue. As you have rightly said, the places that are doing well are inevitably going to argue that they have strong management that has been around for a long time, good systems, et cetera, that is almost inevitable. We have also seen successful managers go into difficult, challenging circumstances and find it difficult to turn those organisations around. Equally we have seen good managers go into organisations and do very well. There is a whole raft of issues which are contingent on circumstance, history, structure, funding, a whole raft of things that go to make up the mix of why organisations have done either well or have done badly. It is actually quite difficult to pick through the thread of that. Q57 Mike Penning: It is just the fact that year after year, no matter how much you change the trusts, no matter how much you change the PCTs, amalgamate, wipe out the debts, the same areas come back with the same problems. It must be more than just management; it must be more than just attitudes within the organisations. It basically has to have something to do with pounds, shillings and pence coming through the system. Mr Phoenix: I would agree with you that it cannot simply be about management alone, however much that might be a factor, but there is a whole raft of other factors, one of which could well be to do with local allocations, local circumstances, local history and so on. Q58 Charlotte Atkins: Clearly financial management is very important to this whole process. I should like to put a question to the two chief executives, because it would be unfair to ask the directors of finance. Does the NHS just lack sufficient good financial managers in terms of the numbers of financial managers we need at whatever level, PCTs, trusts, SHAs, and is there just a lack of expertise there? We cannot rely, can we, on turnaround teams each time we have a problem? Mr Phoenix: The last point is true: we cannot rely on turnaround teams and we shall need to see how effective the turnaround process has been. We are still in the middle of it; we need to see whether it is the kind of intervention that would be helpful for the system. The distribution of finance directors is probably no different in the NHS from other large organisations. I suspect we have a distribution curve which has a small number of top quality finance directors, a small number of under-performing finance directors and the vast majority in the middle. That is probably true of chief executives and just about everybody else. If you go back to my earlier point about where the NHS is heading, it will require a different and improved sense of finance information systems; it will require much more real time financial information. We shall need much more financially savvy clinicians, doctors and nurses and we shall need to make sure that our finance staff at whatever level have a skill set which responds to that and that will be a challenge for the finance function as it will for other parts of management as well. Mr McIvor: I should agree with that. I am talking from a PCT perspective and we created 300 and something PCTs a few years ago from 100 health authorities and a few trusts as well and perhaps the finance function, just like the chief executive function and so on, has had to grow into some of those roles in many areas. The current reorganisations should ensure that the best people are appointed to the important jobs. There is no lack of those people around. There are now some very, very experienced finance directors around. Q59 Charlotte Atkins: So the Department of Health does not need to do anything else in terms of creating more financial management expertise apart from its present leadership scheme which already operates quite successfully? Mr McIvor: A lot is already done on the financial development front from taking new graduates into finance and working those people right through and supporting them right through to director stage. I know in the north of England there is a very well developed scheme and very well recognised scheme which has produced some excellent finance directors. Q60 Dr Stoate: My background is as an ordinary straightforward general practitioner and I am frankly used to straightforward no-nonsense replies, so I want to cut through some of the jargon which we have heard bucket loads of and frankly I have heard so much this morning, my head is still going around. When it stops going round I want to ask the first question, which is fairly straightforward. It is really to the three trust members here. What have you done to cut costs and improve efficiency? Just straightforward examples of what you have done to cut costs and improve efficiency. Mr Shipley: I shall give you one example and then I shall pass on. We started a piece of work last year looking at our sickness levels and focusing on those. There are obviously reasons for sickness, but actually looking at benchmark statistics. Q61 Dr Stoate: How have you done it? Let us get right to the nitty gritty. What have you done in order to reduce sickness? Mr Shipley: Two things. We introduced a system called Bradford scoring, which is a way of comparing the incidences of sickness. Is somebody who has five days off, one day every week, as significant as somebody --- Q62 Dr Stoate: What have you done about it? Mr Shipley: Interviewed staff, put staff through capability and disciplinary processes and that has had the impact of reducing our sickness levels to just above 3%. Q63 Dr Stoate: That is what I want to hear. What have you done Mr Phoenix? Mr Phoenix: May I take a slightly different example and that is about trying to reduce waiting times in our community services? We have done that across a range of services. One that springs to mind is our wheelchair service which had a waiting time of 18 months, now down to three for routine waits. We did that by training people in a technique called Lean Six Sigma, which is about reducing waste and reducing variation; a series of techniques largely drawn from the manufacturing industry. What we have been trying to focus people on is looking to improve the process that people go through as a way of reducing waiting time or waste and so on. That would be an example, if you were looking for something specific. Q64 Dr Stoate: Okay. Mr McIvor, what have you done? Mr McIvor: Three quick things. Under the old health action zone programme we introduced dynamic case managers, basically specialist nurses in heart failure, frail, elderly and COPD, airways disease, who kept sicker people out of hospital and cared for them closer to home. That has now become community matrons and we have 450 to 500 people being cared for in that way. We have introduced orthopaedic triage services whereby we have specialist physiotherapy, GPs with special interest in podiatry, seeing people and saving orthopaedic surgeons from having to see people. Thirdly we introduced GP dermatology for lumps and bumps. Q65 Dr Stoate: They are good examples, but how have you actually chosen which areas to target? You have given me examples of what you have done in your individual organisations. How have you chosen which bits you wanted to focus on? Where have you started from? Mr Phoenix: Some of it is a bit of a no-brainer really in that you look at where your problem is largest. Q66 Dr Stoate: Why is it then that you three have managed to sort these things out and other trusts up and down the country seem to have got themselves into a right mess about this? Mr Phoenix: If you spoke to most organisations, you would probably find examples of good practice like that up and down the place. Q67 Dr Stoate: Nevertheless, the overall picture is that you managed to get these things sorted and cut your costs and improve efficiency, yet other trusts have managed to spend millions of pounds and not done it. So again, is it coming down to choosing the right targets by accident? Is there some scientific process of how to get the right targets? Is it just pure luck? Mr McIvor: Take the dynamic case, the heart failure. Airways problems are well-known problems in our part of the world, so that was a real need, there was an enthusiasm to do it across the clinical fraternity in the hospital and in the community and there was a commitment from general practice to use the services and use new services differently. Q68 Dr Stoate: Can you each give me figures of the costs you have saved with these initiatives? Mr Shipley: The sickness initiative was aimed to save £300,000 in a full year. Q69 Dr Stoate: How much did you actually manage? Mr Shipley: We managed, I guess, not quite that, but sufficient. It is not a financial year process: it is a continual process. Q70 Dr Stoate: You hit your target near enough? Mr Shipley: Yes. Q71 Dr Stoate: Okay. What about you Mr Phoenix? Mr Phoenix: I do not have those figures to hand. Q72 Dr Stoate: You cannot say how much you saved, so you really do not know whether you saved that much. Mr Phoenix: I did not say that. What I said was that I did not have those figures to hand. Q73 Mike Penning: Can you send the Committee a note? Mr Phoenix: Of course. Mr McIvor: I cannot give you a specific figure. In gerontology it was around £200,000 to £250,000; on the orthopaedic triage, difficult to assess but probably getting on towards the £1 million plus; on the dynamic case manager and community matrons, it is an ever-increasing number of admissions which are not going to hospital. If you look at our rates compared with others, perhaps in the order of well over £1 million. Q74 Dr Stoate: So you are going to save millions with this. Mr McIvor: Do not forget, we are operating within a PBR regime as well, so the fact that admissions come out at full cost from the trust means those full costs can then be invested in the other services which are significantly cheaper which means we can then use the rest of the money on other things. Q75 Dr Stoate: So you would all agree that there are millions to be saved by these initiatives then? Mr Phoenix: Yes. Mr McIvor: By doing things differently. Mr Ford: A point about the context is of course that the Department of Health's agreement with the Treasury always contains an annual efficiency saving requirement. I have been knocking around for 20 years now and it has been floating around doing 1% to 1.5% up to 2.5%. Every trust and PCT in the country has to make at least 2.5% worth of cash releasing efficiency to stand still with its allocation base. Q76 Dr Stoate: Clearly some have not done that, which is why they are in a mess now. Mr Ford: That may be the case but every one has been pursuing a number of initiatives. Q77 Dr Stoate: What I am trying to get to is what the different characteristics are between those trusts who manage to do it and save these millions of pounds by not admitting people with heart failure and those trusts who do not seem to have managed that at all. Mr Ford: I would venture an opinion that it is partly where you start looking. Q78 Dr Stoate: That is exactly my point, where do you start looking? Mr Ford: I have not finished yet. Benchmarking: what is the scope, where are you on the wrong end of an average, where are you above average, where do you look? Then, what sort of programme management do you have to get it out, who owns that target, when are they going to deliver it, by what date, how many posts are going to come out as a result of it rather than a sort of vague "Let us take a couple of percent off your budget" and you have to make it, a line-by-line programme management approach to delivering a specific figure. Q79 Dr Stoate: That is helpful. I want to ask you another question Mr Ford. How come the SHAs have managed to save so much money compared with the forecast expenditure at month six? What have you done to get your figures looking so good? Mr Ford: I can only speak for my own SHA. We went through a rigorous programme and meeting with all the trusts, first of all to establish their proper forecast, what they actually thought would happen as opposed to the hope value in it or stripping out language like "That's unacceptable" which only encourages people to under-report their forecast, to get the forecast right and then for each of them to do a programme approach which said "What are you going to do in the next six months?" line by line. It turned the SHA from what was supposedly a strategic body with a light touch into quite a hands-on performance management body. Q80 Dr Stoate: One of our worries is that some of the saving SHAs have made might have damaged the training budget. Is there any truth in that? Mr Ford: There were no sacred cows at all, so it would not surprise me if some training officers felt hurt and bruised by this. Q81 Dr Stoate: I am not worried about the training officers; I am more worried about the training of NHS staff. Mr Ford: Well that is done through training officers. I am sure you will have evidence from almost anyone in the NHS that they have been unfairly treated and had to take savings. That is what happens if you have financial balance as a prerequisite. Q82 Dr Stoate: Can you each give me an example of what impact on patient care hitting these targets has had? Can you honestly say there has been no detriment to patient care with these initiatives that you have been pursuing to save some money? Mr Phoenix: I should say the opposite was the case, that where we have been pursuing targets that has been to the advantage of patients. The particular example I gave was of significantly reducing our wheelchair wait times. John gave you an example and we pursued very similar programmes. We are making sure that people are seen faster, closer to home. In the case of the community matrons' programme, we are trying to make sure that people do not get ill in the first place when we know that they have a pre-disposition to do that if their condition is not managed proactively. I should say the opposite is the case really. Q83 Dr Stoate: Do you agree as well Mr Shipley? Mr Shipley: In the example that I gave, high levels of sickness lead to the use of bank and agency staff so that is a cost saving in itself and having consistency of staffing for the patients, the same staff on the ward, has to be better than having a member of bank staff on a regular basis. Q84 Dr Stoate: What we are saying then is that they are all no-brainers, are they not? Mr Shipley: Yes, a lot of them are. Mr Phoenix: Yes. Mr McIvor: Yes. Q85 Dr Stoate: So why is it then that you have managed to achieve these things and others have not? It comes back to the same issue. Is it just line management, is it luck, or is there some other magic formula? Mr Phoenix: It is not luck; it is not a magic formula. It depends what you mean by management; we can have a debate on that. Working in my last three jobs, the relationships with clinicians, the relationships with those who have to undertake change is critical to this. Where you do not have those good relationships, it is much harder. If you take your fraternity, the general practice fraternity, the relationship with things like the MMC is critical to the implementation of some of the changes we want to see in the NHS and the implementation of the new GMS contract, how we tackle PMS in the future, the personal medical services contract, will all be critical to whether we can do these things easily or whether people will abreact against them and they will not be able to be implemented. Q86 Chairman: Could I ask a question about top-slicing? I have to declare an interest. The top-slicing that is currently taking place as a contingency against deficits will potentially affect patients. I have to declare an interest and say that Mr McIvor's primary care trust covers both my home and my constituency. Do you think that this top-slicing that is going to take place in this financial year is going to have an effect on patient care? Have you any idea, if this top-slicing is going to be repaid, as we are told by ministers, when that is likely to happen? Mr McIvor: We were prudent last year in building up a small reserve. A 1% variation in PBR is about £3.5 million for us, so we built up a reserve of about £5 million deliberately ahead of being told anything like that and I would suggest that was just prudent management. However, we are now losing £7 million as a result of a top-slice, plus £2 million on purchaser parity adjustment, which means we have a £9 million problem. If it were not for the fact that we had done so well in our resourcing and the NHS had had a very good settlement, we would be having to cut patient services or at the very least we are already not developing them as fast as we could do. There is no way I could sit here and say we have lost £9 million and that has had no effect on patient services. It has not meant that we have had to reduce, change or stop any services, but what it does mean is that we cannot develop them as fast as we should like to because that £9 million has to go elsewhere. We are assured that it will come back to us, but we do not know the timescale yet. Equally, the last set of guidance which came out said that the top-slice was negotiable and it also promised that it would come back. At least we found some solace in losing the money that we would eventually get it back and looking at the settlement for future years, perhaps to have it then might be a sensible time to spend it as well. Mr Phoenix: With a slightly bigger challenge in this year than John, the purchaser parity adjustment element for us affected us by £7 million and in total we have lost £16 million when you add the top-slice. Again, a bit like John's organisation, we had tried to create a degree of cushion for this year as we have done in previous years to allow for service developments and service improvements. We are now looking quite hard at how we can provide the care that is needed in cheaper ways, so that we are able to operate within balance. I have to say, a hit of £17 million in one year is a not inconsiderable challenge and we have plans and proposals that, at the moment, would get us to that point, but it is going to be extremely difficult to do. Q87 Chairman: When you say "in a cheaper way", is there any effect on quality of care or patient care? Mr Phoenix: The objective will be for us to provide the same quality of care in a less expensive setting. Inevitably that means in primary care, in community settings. It means trying to make sure that we are only sending to hospital, those patients who really need to be in hospital and that we can look after patients in the community or in primary care as well or better than they would be looked after in hospital. We do know that there are large numbers of patients who are treated in hospital when they could be treated as effectively in the community or in primary care and that is what we are working at, but £17 million is a lot of money to re-engineer in one year. Mr McIvor: One thing I meant to say as well was that we have three key roles, not just to provide services and commission services, but also to improve health and with our allocation last year there was a line that said "Choosing health: £1.7 million". It is unfortunate that perhaps those are the lines which we all have to look at first, so things like smoking, things like obesity, exercise, investment in some of the public health initiatives that will have the most long-term effect are ones which perhaps do not always get through and the ones that we cannot do this year because we have lost that money. Q88 Chairman: Are there any changes in your Trust in relation to expenditure on other areas like mental health this year? Mr Phoenix: Not in my organisation; not substantially. We are still trying to invest in new mental health services, although we are probably in aggregate spending more on mental health services than we ought to be. We are probably under-investing in mental health services for children and that will be a priority for us, but we have tried to protect mental health services as far as we can. Mr McIvor: We have plans to invest further in primary care mental health services and further into crisis resolution services, both of which we have already, but not to the extent we would wish to have. We cannot now take those plans forward until next year, assuming there is not going to be a top-slice next year. Mr Ford: I just wanted to pick up something you said earlier about lessons to be learned. There are some lessons to be learned and if there is to be a top-slice for 2007-08, we need to get it out in the public domain a lot earlier and, in particular, this thing called the purchaser parity adjustment, which came so very late. One thing that does make management incredibly difficult is that management is about forecasting, planning to do something then implementing it and if you push those processes so close to the start of the financial year, you give yourself much less chance to do it. As the architect of the top-slicing policy in my part of the world, from an average growth or uplift of 8.8% we top-slice 2.1%. It has gone as a loan to the seven organisations out of 21 that are in trouble and they are expecting to have to pay it back in 2007-08 on the policy as written. Q89 Dr Taylor: At the moment you are managing to break-even. Are you fairly confident, with all the problems, that by the end of this year you will still be breaking even? Mr Shipley: Actually, we have set ourselves a target of a £5 million surplus for this year which is part of our strategic plan. There always will be issues that will arise during the year that you had not forecast. It is very important that the message we get across to our organisation, now that we are a foundation trust, is that we need to achieve those targets to be able to re-invest so clinicians and managers have choices. If we do not achieve our financial balance, we shall not achieve our long-term goal, so it is about spreading that message. Q90 Dr Taylor: As a foundation trust, by definition, you have no long-term previous deficit. Mr Shipley: No. We should not have got through the process, if we had had underlying financial problems. Q91 Dr Taylor: And the other two? You have no previous long-term deficits that you have not coped with? Mr Phoenix: No. We have a principle that not breaking-even is not an option, so we are currently forecasting break-even. We are presently over-spending slightly but I expect us to break-even, though this will be the most difficult year that we have faced. Mr McIvor: The words "fairly confident" are where I would probably go with you on that one. Losing that £7 million to £9 million when we had about £1.3 million deficit the previous year and come out of it, will be hard. Q92 Dr Taylor: Now Mr Ford, you have a selection of organisations, some that are in surplus and some that are not. How confident are you that as an organisation as a whole, you will be able to be in balance at the end of this year? Mr Ford: I am not. I am advising the board at their meeting next Tuesday that I expect the organisations in AGW to turn out somewhere between £30 million and £60 million over-spent. Q93 Dr Taylor: You are one of the organisations whose surplus has dropped from six months ago to the end of term. Mr Ford: No, we were in deficit six months ago and it stayed. Q94 Dr Taylor: Not as a whole; your own expenditure. Mr Ford: Sorry, the head quarters. I was answering the question for the 20 trusts. Q95 Dr Taylor: You went from £18 million to £11 million, according to the figures that we have. Mr Ford: That sounds right. We lent some money out to some of the trusts as part of that. Q96 Dr Taylor: So that is where it went. You did say earlier, you implied, that education budgets had been unfairly hit, is that right? Mr Ford: I said there were no sacred cows and the people on the receiving end of the education budgets would probably whinge to you if given the opportunity. Q97 Mike Penning: What was the figure, £60 million? Mr Ford: Between £30 million and £60 million is the figure that will go to our board in public session next Tuesday. Chairman: May I thank you all very much indeed for coming along and starting this session in our deficits inquiry? I suspect, as we have run over time today - and apologies for that - that we are going to run over time in the following months as well. Thank you very much indeed for attending. Witnesses: Mr Philip Davidson, partner in Restructuring Advisory Group, KPMG, Mr Kevin Ellis, partner in PWC Business Recovery Services, Mr Sean Sullivan, Turnaround Director, Essex, Bedfordshire and Hertfordshire and Mr Martyn Everett, Director of Recovery, Kensington and Chelsea PCT, gave evidence Q98 Chairman: Gentlemen, may I welcome you to this first session of our inquiry into NHS deficits. May I first of all ask you to give your name and your position for the record please? Mr Everett: Martyn Everett. I am the Director of Recovery at Kensington and Chelsea PCT. Mr Sullivan: Good morning everybody. My name is Sean Sullivan, I am an independent Turnaround Director and I have been asked to assist Essex, Bedfordshire and Hertfordshire SHAs. Mr Ellis: Kevin Ellis. I am a partner in PWC. Mr Davidson: Philip Davidson. I am a partner in KPMG. Chairman: Thank you very much for coming along and apologies for this late start. If you have nothing to add to a previous answer to a question, I suppose we ought to say you do not really have to say anything, we shall take that as some sort of agreement. Mike Penning is going to open the questioning in this section. Q99 Mike Penning: I should first like to declare an interest because Mr Sullivan has been helping Hertfordshire, which is where my constituency is, in particular West Herts Hospital Trust. Is one of the main causes of the deficits in the NHS bodies that you have been working with all about financial management or is it about the way that it has been handled? What do you feel as professionals are the main causes of these deficits? Mr Everett: In Kensington and Chelsea part of the submission that I made to the Committee was PriceWaterhouseCoopers' public interest report on the PCT and what that makes clear is that there was a complete breakdown in financial control in Kensington and Chelsea and poor management to the extent that deficits were being run up that the primary care trust did not realise were happening. Basically action could not be taken or was not taken because they were not aware that they had a problem. The other area which came out of that was really the fact that the primary care trust provides a lot of services on behalf of other people in the health community and the trust was actually not re-charging those services out properly, which was creating an increase in the deficit in the trust. I suppose the last issue in terms of the reason for the deficit is that Kensington and Chelsea is quite unusual in that there is a large provider element to the PCT and there was a lot of excess capacity in the provider services which was not tackled. Mr Sullivan: Good question. Looking at it from the independent external point of view, as we have heard before, there is no one major reason. There seems to be a set of reasons. Let us take the trust that you mentioned at West Herts. That trust has been in deficit since 2000 when it was formed. Q100 Mike Penning: It was in deficit before that as well. Mr Sullivan: Yes, that is right. There have been three reorganisations there. It seems always to have been in some sort of deficit as far as I can see. The CEO there tells me about the M25 effect, but we prefer to call that the proximity-to-London effect, where he sees inflows of expenditures from PCTs that he would like to have going into London so they can look at UCL, Royal Free, Barnet and Chase Farm Hospital. They have had six FDs in six years, which is not an advantage; he was the third CEO when he was appointed 18 months ago. The duplication of services on multiple sites is a significant issue in that particular trust and it affects others as well. The near-London effect has another peculiarity in that staff costs are relatively high, though not as high as inside London, and therefore recruiting people for a salary is quite difficult. If you cannot fill the post, you have to look to your agency and bank staff to cover that post and that gives you an extra cost over a period. The combined set of these issues actually bring us to the point where they have the sort of deficits that we have experienced. Q101 Mike Penning: Interestingly, the CEO, who is sitting behind you, told me also one of the problems which I have brought up with them over the years is the funding formula, the way that funding is allocated. You did not bring that up at all. Mr Sullivan: I actually think that this organisation can come back to where it ought to be irrespective of the funding formula right now. Mr Ellis: One change that has happened more recently is that there is more transparency around individual trust's performance. The removal of brokerage, where geographically surplus and deficits were shared and individual trusts now are held personally accountable for the deficit, has caused some of these deficits to surface. In addition to that, you mentioned the funding formula, but the move from bulk tariff to national tariff has also meant that where some trusts had negotiated good deals for the local PCTs under the bulk contract, moving across to a national tariff has taken that advantage away and that again has added, in some of the cases I have seen, to surfacing deficits. Mr Davidson: My firm was involved in the baseline review of 96 organisations either side of Christmas and we have also worked with 13 organisations in helping to develop financial recovery plans and across that population of organisations. I can say with some confidence that there is not a single cause. It is not solely local issues which cause deficits, it is not solely management which causes or alleviates deficits and it is not solely systemic national policy issues which cause or alleviate deficits. We have found some themes across the organisations that we have looked at. We have found, at local levels, excess capacity and we have seen over-trading at local levels that has masked excess capacity, that is where organisations are running down waiting lists and that delays the realisation that there is excess capacity at local levels. We have seen, in a number of cases, cost improvement plans that are believed to be recurrent but actually have been non-recurrent and have delayed the realisation of problems. We have seen organisations which have not been able to cope with increased costs arising from, for example, Agenda for Change and we have seen organisations, many organisations, whose management have not put in place adequate processes and systems and high quality financial information to allow them to see all of these problems emerging quickly enough and therefore have not been able themselves to respond quickly enough. Q102 Mike Penning: Thank you very much indeed. May I just ask a very quick question? Mr Sullivan, here it says Essex, Bedfordshire and Hertfordshire Turnaround Director. Who employs you? Mr Sullivan: I am employed by the Department of Health. Q103 Mike Penning: Thank you very much; I thought you might be. Moving on to another question for KPMG and Mr Ellis, why do you think the trusts and PCTs in the South East are predominantly in trouble compared with the rest of the country? I know there are problems in some other parts of the country, but predominantly the Secretary of State has told us several times, it is the South East where the problem is. Is that the case and if so, why? Mr Ellis: From the work we have done in individual trusts, I cannot say I have seen that trend. I have not seen enough evidence to say it is specifically those trusts. The comments that Mr Sullivan made earlier are very relevant. Those within the outer London corridor probably have more pressures in terms of staff and retaining staff than areas in the wider geography of the UK. Q104 Mike Penning: If they are not particularly close to London? Mr Ellis: If they are particularly close to London. Q105 Mike Penning: If they are not particularly close to London and we can go into Cambridgeshire and Bedfordshire and further down into Sussex, why are they still having problems year in year out? Mr Ellis: It comes down to what Philip said earlier. Individual trusts do not always start from the same point. Some trusts have historic problems which go back years and therefore are often re-recurring unless they are dealt with. Q106 Mike Penning: But there must be historic problems in the North East? Mr Ellis: Yes, there are; there are trusts in the North East which have deficits as well. Mr Davidson: The basis of your question is sound because there is some evidence that there are greater deficits in the South and the South East than elsewhere. In our first phase of work, where we looked at 62 organisations, of the six highest deficits, four were in London or close to London, one was in the North East and one was in the Midlands. It is not possible to say why that is yet, because all of the organisations that we have looked at are in a process of significantly improving efficiency and addressing capacity issues. When you have reached the stage where organisations are running as effectively as they can, then you are in a better position to assess whether other pressures, national pressures or different forms of local pressure, are affecting organisations. Q107 Mike Penning: On that point, we have heard today already in other evidence, that year on year the same trusts are very often the ones that are having problems, et cetera. If we are coming to this pinch point where we shall start to know why, once they have done their efficiency reviews, what will that timescale be, because some of these trusts have probably had problems for 10 or 15 years? When are we going to see the light at the end of the tunnel as to why it is happening? Mr Davidson: The organisations we are working with are probably typical of those organisations turning around from significant deficits and the period of time that that is going to take is up to two years. Q108 Mike Penning: From when? Mr Davidson: From the point at which they began significant activity in effecting their turnaround. In a lot of cases that is around April this year. Q109 Mike Penning: So it is going to be two years from April this year. Mr Davidson: Turnaround will typically take up to two years. Over that period, it will become clearer whether organisations are simply dealing with local issues, management issues or whether they are actually having to deal with issues that are beyond their immediate control or their SHAs' immediate control. Q110 Mike Penning: It does seem from the evidence that we have seen that the larger trusts do tend to build up more significant deficits than the smaller trusts. Is that correct and if so, can you expand on why? Mr Everett: I can only comment on Kensington and Chelsea. In our position, our cumulative deficit is £26 million and our income is £250 million, but I have not done an analysis. Q111 Mike Penning: So if you were smaller, would you think it would be easier to control your deficits? Mr Everett: No, I think it would be better. If PCTs were bigger, it would be better from a financial perspective in terms of efficient operation. I think £25 million is too small for a PCT personally. Mr Sullivan: I should like to support that statement actually. Going back to your first question on larger trusts having larger deficits, the same percentage of a different turnover, if it is a larger turnover, is going to produce a larger amount. However, looking at the savings that I am dealing with, and you will be aware that I am looking at a number of organisations, over the whole patch they are remarkably similar. I am looking at savings of between 3% and 6% on the year and actually, looking down my list I have 4.36%, I have 3.24%, I have 4.29%, 5.3%; the percentages are very, very similar. We have actually quite a tight band of savings requirements in order to reach their control totals. It is a factor that the larger the turnover, the larger sum that 5% becomes. Q112 Mike Penning: A 3.6% saving on a small trust would have a massive effect on its ability to give care to the community that we are looking for, whereas on a very large trust, a 3.6% saving would be a drop in the ocean in some cases, would it not? Mr Sullivan: If it is a larger trust with a larger turnover, the ability is still the same to deliver that sort of percentage saving and we would be looking towards commissioning their own administration costs and how on-board the GPs were. I have to say that I see the same sorts of saving plans in trusts whether they are large or small and PCTs very, very similar. Mr Ellis: I would agree with that. We actually began work with some of the trusts in the cohort last year and St George's, which was one of the first large trusts to start a turnaround plan, has actually delivered £20 million worth of savings in-year to the end of 2005-06. It is quite encouraging that where there are large trusts which have actually taken action they have evidence that there are already savings improvements. Mr Davidson: Whilst Mr Sullivan correctly points out that the maths would seem to suggest that larger trusts would have potentially larger deficits, actually the evidence that I have available to me does not support that as being the case. We have seen a number of small trusts that have large deficits and a number of large trusts that have relatively modest deficits, but in the latter case there are sometimes entrenched issues that make the resolution of those deficits quite difficult. As an example, there is a hospital in the London area that has a cost base of £1 million and it has planned savings of £18 million. Planned savings of £18 million for a hospital that has a cost base of £400 million would probably be seen as pretty good in a single year. That particular correlation is difficult to draw. Q113 Mike Penning: One of the areas of growth in deficits in recent times is in the PCTs. Is there any knowledge of why that is happening? Mr Sullivan: I can only comment on the PCTs in my area and I see my concerns are usually with the smaller PCTs where there are several PCTs surrounding one trust provider and where they also commission services into the London area, where they are a minority commissioner and therefore do not have the weight of a larger percentage PCT commissioning services as the major supplier of funding. The smaller PCTs are probably more prone to build up a deficit. When they move to a larger group of PCTs, they are likely to able to afford greater commissioning skills, be able to concentrate their skills on where they are needed most. It is a tough call for a small PCT. Q114 Mike Penning: When the PCTs were formed in their present format, the Government said that it would take three years for the best possible outcome to start to come to fruition. Mr Sullivan: I could not comment on that. Q115 Mike Penning: How long do you think before these new PCTs, which are going to be much larger, county based, basically what we had before near enough, will start to produce the sort of savings and things that bring them out of deficit? Mr Sullivan: From my viewpoint, given the lessons that are being learned fairly sharply at the moment, I would expect those PCTs to perform to a higher level within the next year to 18 months. Some of these PCTs have very good individuals who have great skills in this area. Q116 Jim Dowd: This is principally for Mr Ellis and Mr Davidson. I asked the previous batch of witnesses what their experience of financial management structures within the NHS were as practitioners. As outsiders to the NHS, what is your assessment of the strength or otherwise of the financial arrangements? Mr Ellis: I have seen trusts with deficits, so we have probably seen an unfair sample across the whole NHS, but in most cases financial forecasting is very weak and therefore a number of trusts, faced with some of the national initiatives, found it hard to predict how that national initiative would affect them and their deficit and therefore probably took their time in taking action because they did not realise the negative effect that was coming their way. That is actually quite a key thing and in a turnaround process we find that trying to work with the clinicians and engage the clinicians and trying to de-mystify the finance function for the clinicians actually makes quite a big difference. If people understand what the size of the prize is and how their individual actions can contribute to making the savings, you get far more engagement. We are seeing in the turnaround situations that I have been involved in that there is probably less connectivity at the start of the process certainly between the clinicians and the finance functions. Q117 Jim Dowd: That is very much the second part of my question, but Mr Davidson, do you have anything to add to that? Mr Davidson: Yes, I can confirm, again looking at the baseline assessment that we did, the 96 organisations, that when we reported back to the Department we said very clearly that whilst it is dangerous to generalise, we did have a body of evidence that suggested that the quality of finance management, financial control and reporting was of a lower standard than we would have expected from similar sized, similar complexity organisations in the private sector. It has become increasingly apparent to us as we have worked with organisations that there has been significant investment in service development and patient care over years but less investment in financial management and financial systems, which leads to a position where, if, for example, an organisation puts in place a cost improvement plan, they are not always able to measure whether that plan is being effective, whether it is generating recurrent savings and whether it is a reliable plan. Consequently CIPs fail many times. I also agree with Mr Ellis. We have found that when clinicians are given better, more understandable financial information which demonstrates why a particular process is leading to significant cost, they are often able then to identify different ways of working which lead to better patient care and a reduction in cost, but that depends on the quality of financial information that they consider to be sufficiently reliable and that often is not available now. Q118 Jim Dowd: But your comparison is with similar organisations, or similar sized organisations outside the NHS, it is not between well-run and badly-run NHS organisations, is it? Mr Davidson: I did not have the benefit of visiting many or indeed any organisations that were generating surpluses, so my population is fairly limited. Q119 Jim Dowd: May I just say to Mr Sullivan and Mr Everett then on the question of competence and ability, that the Department maintains strongly that deficits, certainly continuing and repeated deficits, are largely the function of poor local management and some of the evidence we have heard this morning seems to support that. If that is the case, was the Department right in your view to introduce so many reforms, particularly amongst organisations that clearly were struggling to cope as it was? Mr Sullivan: The organisations which are not struggling are managing to deliver surpluses and are managing with the reforms. There is an analogy that if you want to get something done you should ask someone who is busy. The organisations I am looking at are in deficit, some of those organisations are led by people who are very capable and my experience from outside, my independent experience, tells me I am dealing with quite good managers with quite good strong management skills. However, they are in a difficult situation and in some instances we have quite awkward positions with PCTs and trusts that have had a history of deficits, a new management team has been put in and they still have a hard job. It is not necessarily just the management team itself. Some of it is historic build-up of deficit and the attitude towards that and it takes time for this to take effect. I should echo the previous statement that we are not talking about things happening in a matter of weeks and months, it is going to take a year or so for some of these things to work their way through. Mr Everett: I suppose I would say that whilst the number of initiatives is not helpful in terms of potential distraction, it is no excuse in terms of achieving a balanced budget. You can actually do both. It does make it more difficult, but I do not see why you cannot do both. Q120 Jim Dowd: Are you saying that there was a lack of clarity in some quarters as to their primary purpose to maintain financial balance? Mr Everett: In Kensington and Chelsea there was a complete financial breakdown in terms of the information that was being presented to the board. That has been rectified now, but for a long period of time the board was really flying blind without the information available to make decisions and there is still some way to go in terms of making sure that people at the front line actually have the information available to know how much things cost. The information that is going to the board now is reliable but there is not enough information going to the people that are actually doing the job so that they can understand how much things are costing. That is something that is in train to be put in place. Q121 Jim Dowd: Just generally to anyone and everyone, the deficits in the unaudited 2004-05 accounts significantly understated what the turnout actually was. Do you have any feeling as regards the 2005-06 position? Mr Everett: Certainly in our case we are expecting the 2005-06 position to be that the information that was presented to the auditors will be the information that actually ends up being the result of the audit. We had a very large difference the year before, £7.1 million, between the information that was provided and the final audited numbers, which was the reason for the public interest report. This year the audit is still taking place but the initial indication is that the numbers that are being presented will be accepted. Q122 Jim Dowd: May I just come back briefly to lack of clinical engagement and responsibility? In your estimation was that because of an unwillingness of the management to engage with clinicians or a belief which is more widespread amongst clinicians that their job is to deal with people and just send someone else the bill? Mr Ellis: The finances of the National Health Service are complex and if people do not overtly engage with people who are not in finance, the chances are that they do not actually get engaged with it at all. A good example was that I worked with the Southampton University Trust and one of the things we did there was actually come up with a kind of project management unit trying to get the deficit in-year down and we had that run by the CEO, that is to say a non-finance person. That way he was able to have conversations in layman's terms rather than finance terms with both the clinicians and the people leading the directorates. The medical director himself said at the board meeting that he was far more comfortable with that because he felt it was de-mystified, he felt he had as much chance of understanding the finance as the CEO, whereas if the finance guy was leading it, sometimes he felt that it would be just over-complicating it and it was not something he understood. Getting that level of engagement with the clinicians makes a huge difference. When you are trying to do a turnaround plan, you are completely reliant on those in the front line both coming up with the ideas and actually buying in and owning what you are trying to do and the success at Southampton last year in actually making quite significant savings largely came down to de-mystifying the finance and making everyone feel they are speaking the same language. Q123 Chairman: Obviously you report what you are finding at some stage to the health service. Are you reporting anything in terms of how these deficits have come about? Mr Sullivan, you were saying earlier that some of the trusts you have been looking at have been in deficit for many, many years now. Is that a part and parcel of your report into the centre? Mr Sullivan: Not exactly, but one of the things we are trying to do is establish exactly what the deficit is and where exactly it is. Is it £5.1 million, is it £5.2, £5.3 million whatever the actual sum is? We try to establish the real number, so when we start to look at the control total, we can actually nail that to the mast and say this is the number we want them to go for and to concentrate on and actually establish that it really is the right number. Q124 Chairman: We assume, from what we hear and what we hear in Parliament, that the real reason why you are going in there is to look at the current situation and how that can be improved and addressed. Obviously you are finding that some of these deficits have been around for many years in some trusts and I just wonder whether there is any historic perspective that you are given that may give us some lessons learned beyond what we hear around this table at this stage. Mr Davidson: When we carry out our baseline work, some of the quantitive and qualitative reporting to the Department related to the causes of deficits, for example, over-capacity in local areas. So some of those issues have been covered. Certainly the point of the base line was to establish a line after which improvements could be accurately measured. In the 13 organisations that we subsequently worked with, we do not directly report to the Department, but we arm the organisation with the ability to report. Q125 Sandra Gidley: I should like to move on to the recovery plans or the turnaround plans. We have had a copy of one from Kensington and Chelsea, so I am sure you will say yours is excellent, but I just wondered how the rest of the witnesses would assess the quality of the recovery plans generally, bearing in mind that it is okay having a plan but how effectively are the plans actually being implemented? Are there any particular barriers which are getting in the way of implementation? Mr Davidson: What we found when we looked at the recovery plans that were put in place for last financial year, which is what we reported on in the base line, was that in a number of organisations plans had been put together - and, by the way some plans had not been put together, Kensington and Chelsea being one of them at that time - that I would categorise as aspirational rather than deliverable. That is because the framework for measuring the success of any particular action had not been established properly, so nobody could tell whether it was actually working. The planning was not at a sufficiently detailed level such that individuals within the organisation knew what they had to do and how they were going to be measured and some of the very difficult decisions had not been made. In order to save cost, somewhere along the line somebody has to be paid less. Whether that is paying fewer people or whether it is paying less to suppliers, somebody had to be paid less. That decision is sometimes quite a difficult decision that was being avoided in a number of plans. Q126 Sandra Gidley: You seem to be saying that one of the big problems seems to be a lack of monitoring structures within trusts. Was that a common theme? Mr Davidson: In any turnaround, public sector or private sector, unless you can measure the deliverability of the actions that are being taken to effect the turnaround, then the likelihood of those actions being delivered is significantly reduced. Because of the quality of the financial reporting systems, it is difficult, in some organisations still and in a lot of organisations at that point, to measure the effective actions. Mr Ellis: I agree with what Philip says. A number of organisations had top-down plans where finance departments had allocated savings to various areas of the trust and then assumed those areas of the trust would actually implement those types of savings. Unsurprisingly enough, whenever that happens, it does not work. The whole point of the plans now is for them to be bottom-up. So in the work that was done at St George's, which was effectively done virtually a year ago now so that is one of the earlier turnaround plans, you can see some traction there. That was a bottom-up plan and the chief executive there had his top 100 clinicians sign up to that plan to say that they bought into it and agreed with it and were willing to implement it. That gained that degree of ownership which has made quite a big difference. Several trusts' plans now have that degree of ownership and everyone feels that it is their plan, it is not a plan that PWC has turned up, written for them and it then gathers dust on the shelf. It is very important that the trusts believe that is their turnaround plan and that nurses, clinicians and management have all been involved. That makes a huge difference. The successes of some of the ones which started last year, St George's delivering £21 million savings, East and North Herts £8.8 million savings against the plans that they set themselves, is a good example of that. In terms of your second question on barriers, there is a huge amount of energy going into it and there are some very good early signs of it but, as the other gentlemen have said, it will take time. There is a real need to keep the eye on the ball when the PCTs merge, because that is a level of complexity and there are obviously people issues there and bedding down issues there. In some cases six PCTs will be joining together with six independent plans and that is actually going to be a key point in the process for ensuring that this is actually delivered over the course of this year and next. Q127 Sandra Gidley: Is any work being done, to your knowledge, to follow up those plans? Mr Ellis: The fact that they have plans is a huge start. I know that the SHAs are monitoring that at present, but Sean knows more about that than I do. That is something on the horizon which is a big challenge. Mr Sullivan: There is no history of turnaround here. These people have not done this before and some of the plans I am looking at and have received and reviewed are in their sixth, seventh and eighth iteration. It is fair to say that the kind of standard we are looking at is far better than the first one. As we go through this process, the first interactions that I saw were purely financial "Here is a target. We need to get to it". The latest ones I am seeing now involve clinicians, GPs, the heads and chairmen of the PECs, pharmacists and a collection of people across the medical services of either the PCT or the trust and actually it has started to be quite impressive. What I am now starting to see is a much more realistic set of plans which have much smaller numbers associated with them and individuals can actually say "Yes, I can deliver £20,000 to £30,000 in doing so-and-so". As you start to build it up, you start to get a much more confident feel about that management team's ability to deliver that, as opposed to seeing the chief executive and the finance director in a sealed room and saying "Look, are you going to get there?". When you see the whites of the eyes of the actual people who are going to deliver this, one, two or three levels down, it gives you as Turnaround Director the feel that people really are managing the process and they are accountable for their expenditure. Q128 Sandra Gidley: Would you say there are any barriers or is it too early to say? Mr Sullivan: I guess there probably are. I guess time is a barrier. There is a time constraint here and the capacity of these management teams to do this who have not done it before. Some of them need capital to institute the changes they want to carry out and there is a capital cost and the recovery of that capital. You could probably say that their planning processes have not been at their best this year. I should say that the late agreement of service level agreements between PCTs and trusts is not helpful and there is no history to go on. There is no past performance here to say "Look, hindsight has told us this is what we need to do". They are actually learning this lesson live, so all of those things probably present a set of unique barriers in this situation. Mr Everett: In Kensington and Chelsea's case, we have come up with a very good recovery plan. It is widely owned by the PCT as a whole. It has been fully approved by the PCT board and by the strategic health authority. As part of the turnaround process we actually got people seconded to us from within the PCT. It was very much a multi-discipline team, led by me, with outside assistance from Deloittes, using their sector specialists, but also the internal team that was seconded to us. That helped us a lot in terms of the speed of development of the plan and in terms of the fact that we had people working on the team that knew the organisation well. Probably the most important thing was that we actually now have people within the organisation who have gone through the process of turnaround and contributed to it and they are now very much crusaders in terms of helping to make sure that the plan is actually implemented. That was a particularly good point of our approach and will very much help in terms of making sure that the plans are implemented. The plan is a good plan, but it is worthless if it is not implemented and we do not actually generate the savings. That is the critical thing and that is the phase we are at the moment: making sure that the plan is implemented. Q129 Sandra Gidley: We have actually been sent a copy of your plan and it was nice to see something practical rather than well-sounding management-speak. There were certain concerns, for example, certain initiatives, non-acute commissioning, renegotiating all mental health contracts, £1.5 million savings identified; we are forever hearing in this House how mental health services are under-funded anyway. You also chose HIV, learning disability, old people and voluntary sector budgets. It seems to me that you are picking off easy targets here. My question to you and maybe for others to pick up on is: are these financial pressures forcing decisions which actually are not in the wider interests of the health service or health economy? Mr Everett: Undoubtedly the fact that we have been top-sliced means that we are doing things that we would not have done otherwise, but the view is that we are maintaining core services and that whilst there will be some difficulty in the short term, getting the PCT back into surplus will mean that there is much more money to be invested into primary care. Q130 Sandra Gidley: You say you are maintaining core services, but it seems to me that you have chosen the services to cut where there will be the least flack from the public. People do not come to us and complain about access to sexual health services for example and there is not a strong mental health lobby. Have you picked off the easy targets? Mr Everett: No. All parts of the PCT have been looked at in detail and in the areas that you are talking about the Commission have been fully involved in the process and have identified the areas that we should look at. To take mental health as an example, our mental health expenditure over the past three years has gone up 30% to £9 million. In terms of looking at £1.5 million, when you put it in that context, we spend £40 million on mental health. In terms of the expenditure on mental health as a proportion per head of population, we are the tenth highest spender in the country. We are not looking at dismantling a mental health programme; we are looking at tinkering in areas where we think that efficiency savings can be made. Q131 Sandra Gidley: Those sorts of phrases always frighten me and frighten most of the public. Obviously the rest of you do not have any specific examples that you are working with solely, but have you noticed anything similar in other trusts you have been working with? Mr Ellis: There are some significant savings which can be made just by process improvement. In a number of trusts we have been involved in where they have made changes to length of stay, there has been no clinical change there, but if you actually change the rostering of the ward visits of doctors to earlier in the day and you change the prescriptions given to patients on discharge, those savings alone in, say, north-west London took one day off length of stay, which is the equivalent of about 90 beds and a saving of £3 million. There is no clinical impact in doing that, it is just doing things more efficiently. There are several examples like that, which is where a lot of the savings will come out. Q132 Sandra Gidley: That is the advantage of involving clinicians presumably. Mr Ellis: Yes, that is right. They are involved, they believe in it and there are several examples like that where clinicians and nurses say where the savings should be made and they work towards getting them in place. Mr Sullivan: A typical saving across the PCTs I am dealing with is in prescribing generic drugs as opposed to specific branded drugs which are cheaper now they are out of their patent or whatever protection mechanism they have. It still provides the same level of service at a lower cost and there is no reason why it should not be done for organisations which are in deficit or in surplus frankly. Mr Davidson: I can say that I have not observed in any of the organisations we have been working with a tendency to identify savings which are more publicity friendly. The complexity of identifying and implementing savings is such that organisations now have to go about it in a sufficiently detailed fashion that does not lend itself to that. Q133 Dr Taylor: On the same sort of topic, I am amazed that you are finding savings in the prescription of generics. I thought that was something which had been tackled ages ago and that most PCTs had already got plans so that mostly generics were used. Have you found that is not the case? Mr Sullivan: No, it is not. Mr Everett: No. In Kensington and Chelsea the prescribing team have done an excellent job. We have a £17.5 million prescribing budget and out of that we have identified £300,000 that we can do; it is a very small percentage and it is really just focusing on one area which is the prescribing of statins and whether we can do that in a more effective way. Q134 Dr Taylor: We have already been told that will save the whole National Health Service almost the whole amount we need to save. Mr Everett: In terms of the statistics, in terms of our prescribing costs per head of population, we are one of the lowest PCTs in that area. I am just giving you my example. I do not know about the wider health community. Q135 Dr Taylor: I did like Mr Sullivan's comments that if the savings are made lower down the organisation, they are then going to have the least impact on staff and on patients presumably. Mr Sullivan: They are going to get done, are they not? If you make the decision at the top of an organisation there is less chance of it getting done. Q136 Dr Taylor: We have had publicity all over the country about job losses. With your recovery plans, what are the job losses you are looking at? Mr Everett: In total we are looking to take roughly 100 positions out, of which 70 will be redundancies and 30 will be vacancies which were going to be recruited to which will not be now. Q137 Dr Taylor: So you are doing a relatively small number compared with some of the others. Mr Everett: We have about 800 people, so you are looking at 12% of the workforce. Q138 Dr Taylor: By not replacing vacancies can you be confident that you are not going to affect quality? Mr Everett: We have looked at basically redesigning the service. In our area we had teams working in the south and the north of the borough and projects being done in terms of how we can have unified teams working across the organisation to improve efficiency. Q139 Dr Taylor: The nursing home you are actually closing was not a private one, was it, it was one that you ran? Mr Everett: We use three main nursing homes: one is private, one we own and one we rent but manage. An independent study was done of the nursing homes in the area and the nursing home which is out for consultation for closure had the poorest rating in the independent review. Its capacity is something like 30 or 40 residents but was actually operating with only 13 residents in it. Not only was it extremely inefficient and costly, but, more importantly from a resident's perspective, it was the worst of the three homes that we had. Q140 Dr Taylor: Did you tell us that you had quite a high proportion of provider services compared with other PCTs? Mr Everett: Yes, we do; we are unusual. We run two nursing homes at the moment, although it will be one, subject to consultation. We also have the St Charles site where we have a palliative care unit, a minor injuries unit and an embedded facility. Q141 Dr Taylor: Is that one of the reasons for your high deficit? Mr Everett: It is; definitely. Looking at the St Charles site alone and looking at alternative provision, there are potential savings there which are not built into the basic plan of between £5 million and £7 million each year. The site is costing us something like £10 million a year to run and there is very little activity on the site which belongs to Kensington and Chelsea. Q142 Dr Taylor: So the encouraging message is that you can make most of these economies without actually affecting patients so much or quality of care. Mr Everett: That is right. An awful lot of the savings are efficiency and removing excess capacity. I do not want to mislead you: there are elements of the plan where we are cutting back on our support for voluntary organisations which, if it were not for the top-slice we probably would not do. If you were looking at the plan as a whole, a big element of it is removing excess capacity and improving efficiency. Q143 Dr Taylor: So you are getting rid of waste which should have been got rid of a long time ago. Mr Everett: Yes; that is right. Q144 Dr Taylor: Mr Sullivan, with your experience of a lot of groups, can you say the same? Mr Sullivan: Yes. For example, if you reduce the length of stay and you reduce the need to have X number of beds, then clearly you need fewer people to look after the large number of beds and you have a smaller number resulting so you need fewer people. Most organisations have a reasonable amount of churn of staff and therefore if you are going to reduce staff you can do it reasonably painlessly. Q145 Sandra Gidley: Are there trusts which, despite their recovery plans, will not recover because the financial deficit is too large to have any hope of turning it round in the timescales involved? If you believe that is the case, what options are there for those bodies? Mr Davidson: We believe, from the work that we did on the baseline exercise, that there are going to be situations where organisations, when run at their most efficient, may nevertheless not be able to reach a full turnaround position, recurring surplus or at least no deficit and paying off their accumulated deficit. There will be situations where that occurs and those situations may well be as a result of local conditions. Nevertheless, it might be appropriate at a local level or through a national decision for those organisations to continue in the shape and form and location that they are, in much the same way as a private group may look at its portfolio, decide that it wants a minimum level of return on assets from all of its subsidiaries but actually there are strategic reasons why a particular subsidiary can have a lower return because it has value in a particular location, servicing particular customers who could not otherwise be serviced. For example, an acute hospital in a relatively remote location, with a reducing population, with a substantial asset base which has been built up over the years, may not be able to reach financial balance, but there might be very good reasons why nationally or locally it is decided to keep that in place. Mr Ellis: One of the advantages with the exercise involving ourselves and other firms is that we have independently assessed the turnaround plan and have said effectively what we think is achievable. If the real situation is where you can only get the process improvement so far, then at least people can stop saying keep trying and say independently that we think that is as far as they can go. That is of some comfort to medical teams who felt historically beaten up consistently because they cannot get the efficiency levels of other trusts. Often when you bring in independent people, you can get all the stakeholders to understand what the achievability is of that trust. Mr Sullivan: As a turnaround director it is very important to realise what is actually deliverable. There is no point in hearing from somebody "Yes, I can deal with that" when clearly they cannot. If they have targets they really can deliver, have faith in the management team and do actually achieve the milestones which lead to that target or that control total, that is very helpful for them. If they continue to fall short, it is not very motivating for them. I am quite conscious of that with some of my organisations. I want them to get to that control total, I want them to achieve that and they will go on in the second year and third year to repay any deficit. If they fall at the first hurdle, that is not very helpful. Sandra Gidley: Thank you very much; that sounds positive and we shall wait and see. Q146 Dr Taylor: Are you optimistic that as a whole the NHS will get into balance by the end of this year? Mr Sullivan: I cannot comment about the NHS as a whole. Q147 Dr Taylor: The bits you see. Mr Sullivan: In the bits I see I am fairly confident in the management teams and that in the majority of cases what they say they can do they can do. I have a lot of confidence in some of the chief executives because I think they are excellent. Q148 Dr Taylor: What about the gentlemen from outside the NHS? Mr Ellis: There has been significant progress as seen from the achievements of some of the trusts last year. There are still some big challenges ahead, so I think it is too early really to say as a whole when they will get there. Q149 Dr Taylor: Do you think we shall remain with a mixture of those in surplus and those in deficit for quite some time? Mr Ellis: For the turnaround cases it will take two years. If "quite a long time" is two years, then yes, there will be trust in in-year deficit over the next two years. Q150 Dr Taylor: Do you have any view from the outside about the funding formula and whether that does tie in, whether you are above it or below it, with deficits? Mr Ellis: I can only talk about the trusts I have seen. In all the trusts I have seen there have always been opportunities to make savings and to do things more efficiently. From the whole health economy, focusing on the trusts with deficits, it will be a benefit to those. I cannot say that I know enough about the funding formula generally. Mr Davidson: I agree with the fundamental point. There is no single organisation with deficits that we have looked at that cannot make significant improvements in its deficits regardless of the national policies which are in place. Speaking personally, I am optimistic that over time the deficit nationally can be eliminated on the basis of what I have seen at the organisations we have worked with. Q151 Dr Taylor: Do you think we shall be okay by the time the PCTs which are top-sliced are going to have to be repaid? Mr Davidson: I would hesitate to put a specific timescale on it. Q152 Chairman: Did any of you learn any lessons from the NHS itself? It did have a record in some parts of the NHS of running cost improvement programmes and really turning round the National Health Service without having to have the intervention from the outside. Any lessons learned there or was it just a matter of going in and dealing with the 30% which cannot manage budgets? Mr Davidson: The non-financial targets and objectives which have been set within the NHS were in my view managed exceptionally well and to great effect. We could see lessons from the programme management which was involved in delivering that and it is that programme management which the part of the NHS which is now dealing with deficits has drawn some lessons from as well. Yes, there were some positives. Chairman: May I thank you very much indeed. Apologies again for the lateness of the hour but, as you can imagine, this inquiry is a bit like Topsy and we have yet to bring in the third session this morning. Thank you very much for your attendance. Witnesses: Mr David Law, Chief Executive, West Hertfordshire Hospitals NHS Trust, Mr Antony Sumara, Chief Executive, University Hospital of North Staffordshire NHS Trust, Mr Simon Pleydell, Chief Executive, South Tees Hospitals NHS Trust and Mr Andrew Kenworthy, Chief Executive, Kensington and Chelsea PCT, gave evidence. Q153 Chairman: May I welcome you all here today? I do apologise for the lateness of the hour; we are running terribly over time at the moment. May I ask you for the sake of the record to introduce yourselves and the organisations you are from? Mr Law: David Law, Chief Executive of West Hertfordshire Hospitals NHS Trust. Mr Sumara: Antony Sumara, Chief Executive of University Hospital of North Staffordshire. Mr Kenworthy: Andrew Kenworthy, Chief Executive of Kensington and Chelsea Primary Care Trust. Mr Pleydell: Simon Pleydell, Chief Executive of South Tees Hospitals NHS Trust. Chairman: Once again thank you very much for coming along. Sandra Gidley is going to start the questioning in this session. Q154 Sandra Gidley: Why are the health economies in deficit predominantly in the south and east of the country? Are you in a position to answer that question? Mr Law: There are several factors for us. We have a relatively healthy population which is why the capitation funding is lower than some other areas. What we see is higher than average expected presentation of patients, so, given the disease level, we take standardised mortality ratios as an indicator of disease in the community. In the area that Mike represents, it is 10% below the national average. We should expect to see a low presentation and actually we see quite a high presentation, around the national average. That drives some of it. Sean Sullivan referred to some of the geographical factors earlier: the pull of London hospitals, the impact of resources going into London and the impact of staff going into London. There are several factors for us. Mr Sumara: I am afraid I cannot answer that because I am from the north Midlands, so I am one of the exceptions I am afraid. Mr Kenworthy: I have worked in the north of England and also in central London. One of the things I should say about the south is the level of expectation of accessibility to hospital care is probably far higher than it is in the north. When I worked in County Durham our patients would travel 70 miles to get to their nearest specialist hospital. That level of expectation in London would not be acceptable from a patient perspective. Equally one of the factors, particularly for London, is the expensive nature of the facilities we have, particularly primary care facilities. There is a difference between some of the quality and the expanse and the ability of the primary care facilities, certainly in central London, due to the high cost relative to some of the primary care facilities we have had in the north of England. That means that perhaps in the north there is great scope for nurse-led clinics and for other services which keep people out of hospital as opposed to smaller primary care facilities which see them going to hospital. Mr Pleydell: I come from the north-east and Middlesbrough and County Durham and Tees Valley, the previous strategic health authority, always balanced its books so the issues I can share with you today are more institution-specific than about the whole healthcare economy. I shall do that when you want me to. Q155 Sandra Gidley: My second question, about which there seemed to be a little bit of contention earlier, is why do you think the largest acute trusts are more likely to be those in deficit? Mr Law: I do not think that is the case. If you look in the area where we are you could look to Addenbrookes, a very large institution with a very healthy financial position. For us the complexity of the organisation which has gone through three mergers in the last 12 years, runs services off four sites and has emergency services on two sites, is a significant factor. Mr Sumara: I do not think there is any evidence of that. Ours is a very large acute hospital and probably the one area where it might have an impact is that we run tertiary services which are high cost and do not tend to generate the sort of recompense you might expect. Particularly where we have a trauma service with helicopters coming in all the time with patients we do not tend to get what I consider the appropriate recompense for that work effectively through the tariffs. There are issues around the margin like that but there is no evidence that there is any difference between large hospital deficits and small hospitals. Q156 Sandra Gidley: May I just pick you up on the tertiary centre point for the moment. That is an argument which has been put to me by my local acute trust which is in deficit. Will those pressures mean that perverse decisions will be made around services offered? Mr Sumara: Not yet, because we have to go through a process. Q157 Sandra Gidley: Not yet? Mr Sumara: There are issues around where it becomes very expensive to provide a tertiary service when you are in an urban area and it might be better for one place to provide it rather than separate places without inconveniencing the patient. That is where I am getting to. Q158 Sandra Gidley: That one place is still going to receive a lower amount of money. Mr Sumara: Not necessarily, because they can reduce their costs as a result of aggregating them all on one site. If I could give you an example which is not a perfect example, in the West Midlands you have four cardiac centres which do coronary artery bypass grafts and actually you could probably manage the activity of those four centres in three. Unfortunately we had a brand new cardiac centre built in an area close to us which is currently only about one third full in terms of activity. That is a cost on the Health Service. That was not their fault, it was because life changes. The fact that people can now put stents in your veins rather than you having to go through an operation means that activity dropped dramatically. Nevertheless it is quite a big cost on the service. Eventually we shall get to the point of looking at what is the best option for cardiac surgery. I happen to have a hospital which provides very good, very efficient cardiac services, so I am not too bothered about losing it, but overall there is an issue about tertiary services and the best place to have them. Mr Pleydell: There is no doubt that the more specialist end does drive higher costs. If you talk to every university teaching hospital up and down the land they will say that to you and there is a balance and we have to look at PBR and how that is going to work because that is driven by average cost formulas which is a problem for us. In the institution where I work, if you take cardiac services, we are very efficient at surgery and more expensive on the interventional cardiology side. The two balance off and I am not that worried about it because it does balance. We are going to decide with our commissioners on a strategic basis where these services are most effectively and efficiently provided because there is a thing about numbers driving efficiency. The other thing I am sure your local chief executive will have said to you is that these institutions typically teach a lot of medical students, middle grade doctors, et cetera and that takes a lot of time. We are in the process at the moment of modernising medical careers, looking at run-through training for people to get to consultant grade faster and that is going to put a tax on those teaching institutions in terms of senior medical time. We are very wary about the added costs of those kinds of initiatives. Q159 Mike Penning: This is where I need to declare an interest as well because David Law is the chief executive of my hospital trust and the excellent Hemel Hempstead Hospital is one of the hospitals in his trust. Is the funding formula you are getting from central government fair? If it is not fair how much of an effect is that having on your deficit and the decisions you have to make on a day-to-day basis? Mr Law: An interesting article has just come recently on some research by Chris Hahn, which looks at the correlation between the deficits in PCTs and the characteristics of those PCTs. It is the more affluent and rural PCTs which have more of a problem. There probably is something which warrants some further investigation there. It is illuminating to have that piece of research. I am clear that the task for us is to manage within the resources available to us. We have to take measures which mean that we can deliver a good healthcare service within the budget available. Q160 Mike Penning: Would you have to make the types of cuts you are making in the proposals you have put forward now, if you had a fairer formula? The House of Commons Library gave me some figures this morning: on last year's figures you get £960 per head which is almost half of what you can get in some other PCTs. Mr Law: The income is clearly a factor. The fact that we have four sites against a lower level of income is a factor for us as well, which is why we are putting forward proposals for reconfiguration of services. Whether the formula is entirely fair or not is a whole debate in itself and I am not sufficiently familiar with all the details of the formula. The principles are absolutely right, that those areas with greater experience of disease receive more money is quite appropriate. Clearly Chris Hahn's work will generate some further questions about the exact nature of the formula. Mr Sumara: It is going to sound as though I am always the exception really. Stoke is a very deprived inner city area surrounded by two relatively affluent rural areas. The funding formulas, if you add them up and balance them out, because they are my four main PCTs, add up to very little distance from target so they are there or thereabouts in terms of what you might expect them to get as part of that formula. Interestingly, if you then look at the amount of money per head of population, they are between £1,400 and £1,600 per head which is considerably more than you are getting. Q161 Mike Penning: He would love that; he would be over the moon with that. Mr Sumara: Bear in mind that Stoke in particular has a very high deprivation score; however I am still in deficit. Having all the money has not meant that the hospital has benefited from that additional growth. Over the next two years those PCTs get considerable amounts of additional growth. Q162 Mike Penning: We heard earlier on from chief executives and finance directors that it is all to do with management. Does that mean you are a bad manager? You have all that money and you are in deficit. Mr Sumara: I do not have the money; it is those nasty PCT people who have it. Q163 Mike Penning: You know the place I am coming from. Mr Sumara: I am a bit like the corner shop; I just give them what they want. Q164 Mike Penning: You must not pass the buck, you must come clean. Mr Sumara: If you want an honest opinion, I think the money is there in terms of the system. I do think it is an issue of us making sure that we cut our cloth to fit. In the memorandum I produced for the Committee there are issues for our hospital in terms of the amount of money we spend as a hospital to do similar amounts of work any other hospital would do, that is our productivity measure. We are inefficient and unproductive in that sense and that is the area I need to tackle. Q165 Mike Penning: West Herts has a predicted rollover deficit of about £460 million for this year. Mr Law: The deficit is £28.3 million. Q166 Mike Penning: Yes, but when you roll over. Mr Law: £43 million accumulated deficit. Q167 Mike Penning: What is your accumulated deficit? Mr Sumara: It was £15 million last year plus whatever happens at the end of this year, which will be £22 million; that is the controlled total we have agreed. I have an underlying problem of £43 million, £17.5 million of which is about PCTs and taking out income and activity to address their deficit. Mr Kenworthy: The funding formula is a very complex piece of work and whichever formula we have had to date there has always been controversy about whether it adequately reflects diversity or rurality. That is perhaps a piece of work which could be undertaken, but it always is going to be a really problematic process. From my perspective though, the additional resources going into the health service, into both primary care trusts and to NHS organisations, means that we need to be focused on moving our former deficit position because having a deficit with the level of additional resources going into the NHS is unacceptable in this current environment. Mr Pleydell: We have a mix of PCTs very similar to Antony in terms of some inner urban PCTs in Middlesbrough which are gainers and we have Hamilton/Richmond which is 900 square miles of rural northern England which is a loser. If I am really candid, I think you can spend too much time thinking about the injustice of some of this. I know what my job is and my job is to balance the books of the organisation so I can deliver quality care and that is what I am there to do. I shall follow the machinations of the funding formula and if people and academics can do work on it, then that would be interesting. Ultimately I think I know where our problems have come from and we are sorting them out. Q168 Mike Penning: I hate to be rude, but I am not an academic, I am a member of the Committee who has asked you a question. Is the funding formula fair in your eyes? Mr Pleydell: I do not know how to make that answer to you in an honest way. Q169 Mike Penning: That is fine; okay. I should rather have that than go round in circles. Will the changes to the primary care trusts and amalgamations help or hinder the work you are trying to do to bring yourself back into balance? Mr Law: From our point of view it will help in the medium term. There will be some disruption in the short term but in West Hertfordshire we have had four PCTs which are relatively small. They have struggled with the commissioning agenda and it is welcome that they will be able to focus resource and skills on commissioning the services that the population needs. Q170 Mike Penning: But a regional strategic health authority, which is what you are going to have. Mr Law: A lot will depend on the performance management regime they put in place. Initial indications are that that will be a strong one, certainly in the sort of circumstances that we are in. They will probably give differential levels of attention to different organisations and on that basis I should expect probably to have more rather than less. Yes, they can function effectively as well. Mr Sumara: Same answer really. I am probably quite significantly worried in the short term that we are not going to have new PCTs, new boards and new chief executives in place until later on this year. One of your previous witnesses mentioned this thing about continuity and memory which disappear when you get management of change happening. In the long term I think the changes are positive, because you will get more expertise, you will get more robust organisations and so on. Mr Kenworthy: The focus for PCTs on the commissioning bodies will lead to significant improvements. PCTs have not managed their own community hospital services to the same level of rigour or efficiency as acute providers and the focus on commissioning and being very clear about what their role is will significantly help. I do not believe that size and structure of PCTs is something in itself which will bring significant benefits. As a relatively small primary care trust, we work with our colleagues to make sure that one organisation negotiates contracts with one acute provider and we are working across London to look at how we pool and provide shared services which would result in the same level of organisational efficiency as larger primary care trusts. There are different ways of achieving the same end. In terms of the larger strategic health authority, that will be really positive because it will bring with it a far more robust bottom-line approach to performance management regime. I also think the new strategic health authority has a really key role in terms of over-arching strategy for the health community so that it can actually make sure that primary care trusts are key trusts, mental health trusts, and not seeing themselves as fiefdoms but actually working in the interests of patients to design new pathways to cut across primary, secondary and tertiary care. Mr Pleydell: I can concur with all of my colleagues in terms of worrying about disruption. When you look at where patches are successful up and down the country a lot of that is based on good working relationships between acute trusts and primary care organisations. Some of that will be disrupted in the short term, some organisational memory may get lost and that is a concern. However, the objective of better strategic commissioning has to be welcomed by all hospital trusts because it is clear that we have not always benefited from that in the past. I want to know what the strategic views are of my local commissioners for the next three to five years and we have not always had that clarity. We cannot financially plan with the rigours of a foundation trust without understanding that. As far as bigger strategic health authorities are concerned, in the North East we have actually come back to the old northern region in terms of its boundaries and I have to say I welcome that because the North East has a collective identity. In terms of strategic planning where specialist services are going to be provided, I think that they will provide a real focus to plan and determine that over a strategic timescale, which has to be welcomed. Mr Law: May I add one other thing which is a distinct benefit coming out of the change process, which is that it is putting consultants and GPs much closer together in terms of their dialogue around the provision of services. We are seeing that very substantially in our area and that is to be welcomed. Patients want continuity of care when they go from primary care to secondary care and back and it is through that clinical dialogue that you can really enhance that continuity. Mike Penning: That has to be balanced with a loss of local accountability by getting rid of the PCTs which were designed to have local accountability for an infrastructure in a local area. That is in our previous report. Q171 Chairman: What have been the main local challenges which have contributed to the difficulties you have faced and how have you handled them? Mr Pleydell: Whenever you look at the diagnosis of the problems, there is always a combination of national and local environmental factors which in coming together produce the problems you have. If you look at my trust, in 2003 we did commission a new PFI building at the James Cook University Hospital, a £150 million development, and closed two other hospitals. In one week it was the equivalent of moving 1,100 household from those hospitals to the James Cook University Hospital site. We have to keep continuity of patient care and deliver against our financial targets and our performance targets whilst doing that. When you do a major issue like that, there is an opportunity cost and it is arguable that the financial controls were one of those opportunity costs in doing that. Similarly during the same period - this is prior to my arrival at the trust - we also amalgamated another hospital, the Friarage at North Allerton, into the trust. A merger is something which is a disruptive feature in any organisation's life and it contributed to what we now see, looking back, as a loss of real control over our financial position. The second element to that was a major growth, particularly in emergency activity. In 2004-05 and 2003-04 we saw an average of 8% growth in emergency activity and therefore, in order to do the elective target, we have to sub-contract a lot of our elective activity either into the private sector or ask consultants to do extra work at weekends or in the evenings. When I arrived in 2003, the annual bill for that was around £6 million. In terms of delivering those targets you can see people building up a head of cost which was over and above our normal unit cost for doing the work we needed to do. The final issue for us was that there was some debate and I left this, because I did not see we would be able to resolve it, about whether or not we were traditionally under-funded by our primary care commissioners. What has happened though with the advent of PBR is that in the first stage of PBR we gained £2 million and this year we have gained £11 million in terms of our overall position. When you put all those together, what you see is a picture of an organisation which was challenged in terms of its financial control over that period, which was struggling to meet the targets and incurring extra costs to do that and was having an internal debate and therefore not aligning itself with the true task, which was reducing its costs in terms of whether or not it was unfair about whether their position was under-funded or whether it was down to them. My task as the chief executive arriving in 2003 was to make sure that people recognised that our destiny was in our own hands. That is where we were. We started in 2005-06 with a £56 million problem, £26 million historic debt and £35 million recurring problem and we saved £35 million last year. Mr Kenworthy: When I came into post recently I came in on the back of a description of failure of both corporate and financial governance. The main priorities for me, certainly in the short term, have been establishing robust financial and corporate management systems. Also I think we need to be far more on top of matching changing needs in the health community and realigning our services far more quickly to those changing needs. For example, we had a community hospital which had a 135-bed capacity, which had services relating to 12 or 13 patients. The nursing home which is referred to in our consultation document has a 74% vacancy rate. To operate an astringent business environment we have to be able to tackle levels of efficiency whilst recognising that patients are choosing alternatives to those ways of provision. My major concern is actually that I am really proud of the services we provide. I am really proud of the fact that nobody in Kensington and Chelsea waits over six months for inpatient treatment; we achieve our cancer targets; waiting times for A&E are significantly lower; we have 100% access into primary care. These are things we should be celebrating in terms of our community, in terms of our health provision. I feel for our workforce, because the only thing our workforce see in terms of the excellent work they do on a day-to-day basis is a lot of coverage about the financial position. One of the things I really want to do is to get ourselves back to a position of financial stability so that we can begin to talk about the excellent provision we have in the NHS in Kensington and Chelsea rather than re-runs about how we are going to move to a more financially stable position. Mr Sumara: This is the second time I have been asked to go to help support a failing organisation. I remember one of your questions to previous witnesses was about the key themes for organisations in turnaround. You heard some of them, but they are exactly the same in the two organisations I have worked in. The one which has already been mentioned was about a failure of corporate governance. If anything, one of the things we could think about as a health service is how we support that non-executive side of boards to be better at the sort of corporate governance bit. That has been addressed, particularly through the foundation trust diagnostic stuff which was talked about earlier. It was the same in the other organisation I went to, it was the same in this one and the public interest report mentioned that. The second typical theme is what I call a strategic misfit. This is not an individual, but it is about relationships between the acute hospital and the PCTs, where actually the one organisation is talking about downsizing activity and the other organisation is going hell-for-leather to increase it. Both these organisations were exactly the same in that way: the acute trust was developing, the PCT was trying to think of a way to try to shrink them and there was not a good enough relationship between the two to resolve that issue. Certainly as part of that there is this thing about over-trading. Part of the reason that the hospital I am working at currently has a significant debt is because they were covering up previous debts by overtrading, in other words doing lots of activity which was there to meet waiting list targets or whatever as a one off and they are not there again. A third theme is this stuff around not having the rigour to address cost improvements in a way that are recurring. I think you have heard from the turnaround people that lots of people had cost improvement plans, quite often they were dealt with non-recurringly and in some cases they were not real plans at all. In those two organisations exactly the same thing happened: these things just popped out of the woodwork in the final year. There are the national issues which we talked about earlier and there is this issue about very clear, good rigour around financial control and systems. A theme which has come out is this stuff about whether it is management, financial control or whatever. That is certainly something which comes out strongly because in both those organisations there was not the sense that there was a grip of what was being spent and how much it cost and how you measure that, what your manpower figures are and what your productivity levels are and all that sort of thing. It was not transparent. The last thing I should say in terms of the local bit for us is that there are issues about split sites, there are issues about estates, about infrastructure. I have two hospitals separated by a fairly large road so you could not really call them split sites but one has the most appalling accommodation that I have seen in terms of the age, the functionality and so on and desperately needs a capital solution to enable the doctors, nurses and other people in there to do a better job. I do not know whether that is true of other organisations in failure, because certainly the one where I worked previously did not have that issue particularly but this one does. Those are the sorts of particular themes you think about when you go to those organisations but they are local, they are not national; they are things which we need to get a grip of, not things which have to be dealt with nationally. Mr Law: I shall reiterate some of the things my colleagues have put forward. I found myself needing to do two things: one was to stabilise an organisation and refocus on clinical performance and the other was to start to build capacity in the organisation, where there had been instability for very many years. In terms of stabilising, I came in at a time when there had been a breakdown in relationships with PCTs and the SHA. The internal relationships were not strong either; clinicians felt disengaged. There was a lot of work to do and we focused that on the delivery of services. We looked at our emergency care performance, we looked at our cancer management, we looked at our waiting times for patients and we are delivering on all those targets now. That seemed a basic thing which we needed to get right in the first instance. Whilst that was going on, I have been trying to build a platform to stabilise the organisation and move forward. There is only one executive director in post now who was there when I took up the role. We have a new chairman and we have three new non-executive directors. The organisation has been heavily criticised for its corporate governance arrangements which is why we are making some of those changes. The instability we have referred to during the course of the morning was a substantial feature of West Hertfordshire. There was also a history of deficit which went back 15 or more years and it had become the norm, so there was an attitude issue, working to get people to recognition that they need to deliver a number of things: one is quality of care, one is the performance standards required of the NHS and the other is good value for money. It is not a choice between those three, it is how you do all of those things. That is the message I seek to get across all the time for staff in the organisation: that it is not an either/or, it is the job and that is what makes it quite difficult at times. Q172 Chairman: One of you mentioned PFI as being potentially one of the reasons you are in that position, but have any of the other three of you had PFI projects in the trusts you represent? Mr Sumara: Hopefully my PFI is almost concluded so within the next few weeks I shall be delighted when colleagues round here and everybody else announce that Stoke is going to get its new hospital. Mr Law: We desperately need one. One of the consequences of financial problems over a long period is that you under-invest in the estate and the kit and that is the case in West Hertfordshire. That impacts on staff morale and confidence: if you cannot find a pump when you need one, if the anaesthetic machines are old and a bit liable to be temperamental, those things are debilitating for individuals and for the organisation and that is the situation we find ourselves in. We need investment in West Hertfordshire in order to deliver really good services. We have a business case going forward, but we are clear that financial balance is a prerequisite of being able to proceed with that. Q173 Chairman: It is a lack of PFI or a lack of capital. What you are saying is that investment is what is needed. Mr Law: Yes, a lack of capital is a really big problem. Q174 Chairman: What about the independent sector treatment centres? We hear a lot, but how do they impact on your financial plans? Mr Pleydell: We do not have one in our area. We have some private hospitals which compete with us for activity, but in terms of PCT commissioning this year, they have brought a lot of that back to us to help us in terms of our financial position. Mr Kenworthy: In terms of commissioning, the choices need to be determined predominantly by the patients. Q175 Chairman: It is the financial planning side we are interested in; whether it has a positive or a negative impact as far as your particular trusts are concerned. Mr Sumara: It potentially has a £1.5 million problem for me. Burton Hospital has an ISTC about to open. The PCTs have been - for want of a better phrase - encouraged to divert some of their activity to that hospital. The loss of income amounts to just over £1 million. Mr Law: We have a very substantial ISTC proposed on the Hemel site which will be run by Clinicentre. That creates substantial risks for the organisation. We shall lose around £15 million of income, we shall second our staff into the organisation and there are risks associated with that. We are negotiating sub-contracts at the moment for provision of services and there may be some loss of services and some further impact on us as an organisation. There are substantial risks. We are working hard to complete an affordability analysis with the commercial section of the Department and Clinicentre and the board will need to make a judgment based on affordability and the impact on the organisation. Q176 Chairman: Have you had discussions with the SHA in relation to the implications of that? Mr Law: We are starting to do that with the new SHA, Beds and Herts, on the basis of being able to accelerate the programme of change and obtain support and capital investment chosen to go with the private provider. We shall be talking that through with the new SHA. Q177 Mike Penning: There is a much larger knock-on effect on the money, in the particular hospital we are talking about, in that whole parts of the hospital exist at the moment which are run, and run very efficiently, which will be surplus to requirements if the ISTC goes ahead and thus would almost certainly be sold off for development. When you look at the £1.5 million effect on you, have you looked at the other knock-on effects or whether you have excess capacity elsewhere within your Trust? Mr Sumara: If I lose £1.5 million of income I have to take out the equivalent in cost, do I not? Whether I take it out of the area which is being disbanded or not we shall have to look at. The bottom line is that the more income I lose the more costs I have to take out. I cut my cloth to meet that. My only problem with ISTCs - and this might almost sound politically incorrect - is let us do it on a level playing field, patients' choice not contracts. I would quite like the contract Burton are getting for the activity they are getting in my hospital. Q178 Mike Penning: The burden is not just on the amount of money it is going to cost you, not only in part of the estate which will become surplus and sold off, but actually the knock-on effect. Say for instance the consultant does not turn up at the ISTC centre, that burden falls on you, you have to supply the diagnostics, et cetera, which actually increases the cost to you while there is an ISTC sitting there, completely independent, from the independent sector. Have you done an analysis of that cost or whether you could actually absorb that? Mr Law: That is what we are doing at the moment. We shall complete that by 31 July and shall then really appreciate the full impact. You are right that the turnaround times for things like diagnostics, the key performance indicators, exceed what we do currently, so essentially, unless we can change the process substantially to improve performance, there would be some costs to us as a consequence of that. Q179 Mike Penning: Just to reiterate, because we have not looked at this before, all the facilities you have, which the ISTC is coming to replace, will then become surplus to requirements on two different sites and are then lost to the NHS. Mr Law: We shall have some redundant estate. We have a good facility in St Albans with five theatres and beds and that will become redundant. Q180 Sandra Gidley: May I pick up on something Antony Sumara said? If PCTs are being encouraged to transfer activity to the ISTCs then you picked up on the point I was going to make which was about patient choice. What if patients do not choose to use the ISTCs? Who is going to win and are they not paid up front anyway? Mr Sumara: Ask the policy people that question, because I do not understand it either. Mr Law: There is a guaranteed income for the private sector. Q181 Sandra Gidley: Why should there be? Mr Law: That is the policy decision. Q182 Chairman: We are dealing with that in our inquiry and having our last session next Wednesday. Under normal circumstances it is expected that any deficit in one year will be deducted from income in the following year. We have been told that the NAO and the Audit Commission have suggested that some SHAs have applied different forms of resource accounting and budgeted in different ways. Has this applied to any of you in your particular SHA areas? Mr Sumara: It is what happens anyway. How you deal with it in each SHA is a different matter. It is something called a RAB adjustor - for the life of me I cannot remember what RAB stands for; Resource Allocation something. If I overspend by £10 million this year and I have a budget of £100 million, I start off with £90 million next year, which is almost like a double-whammy because I still have the £10 million problem. Q183 Chairman: I think it was called a double deficit. Mr Sumara: In our particular case, because we have this bank-type process, that money is being dealt with as a loan and therefore we do not lose it in that following year and we just pay the interest on that loan back to the health authority. There is less of an impact in that sense and that is quite useful. Q184 Chairman: Any other differences? Mr Law: Beds and Herts is covering the income for us, so we shall not have the income loss, otherwise we would have lost £28.3 million as well as having the financial problem. We refer to it as a double-whammy as well, but it creates quite a strong incentive to get out of financial problems. Mr Pleydell: It is the same position for us because the whole patch is balanced; therefore they are managing that through the patch rather than giving us that specific target. Mr Kenworthy: Our position is very much as described by Antony. Q185 Dr Taylor: We have talked a bit about national pressures, but which have been the main national pressures which have made difficulties for each of you? Mr Law: Two spring to mind immediately: the workforce contracts have created some additional costs for us and clearly we have to manage that, but it goes back to the lack of stability in the organisation. It is less easy in a less stable organisation to deal with those sorts of issues, hence we probably have more of a problem than some other areas. The level of costs in a number of other areas has been higher than the inflation allowance so the generic cost pressures have been quite significant for us as an organisation. Those would be a couple which I should draw out. Q186 Dr Taylor: The first group of people we talked to felt that they coped with them by training and managing the workforce much better. Is that fair? Some of them had training in project management. Mr Law: Tight management arrangements, tight financial controls play a significant part. Q187 Dr Taylor: In your Trust had you limited the consultant's contract? Mr Law: We have a maximum of 12; we have an average of under 12, 111/2 and have set the objective that we get back to 10 for our consultants. Mr Sumara: Exactly the same. The two biggest pressures for us of something like £4.5 million excess cost have been on the consultants' contract and Agenda for Change issues. I heard this earlier; we have done nothing less than others did. It is a maximum of 12 and ours is on average about 11.4 PAs. Part of the issue and the difference in terms of a higher cost is that proportionately we have a much higher ratio of consultants to activity than other organisations we have so that would be an extra cost. There are more of them so you pay them more and get more PAs. Q188 Dr Taylor: Is that something you are going to try to reduce if you have a greater ratio than other people? Mr Sumara: Partly; certainly we are trying to reduce a great proportion of people generally. The bottom line is that our doctors, but clinicians generally, are the people who produce the quality at the end of day and we want to try to maintain those levels at their highest point. They are our means of production, for want of a better phrase, so I am not minded to go out and sack half our consultants because that would not be the right thing to do for the future. Certainly reducing the number of PAs is important as part of that. Q189 Dr Taylor: What about the GP contract and out-of-hours? How have you coped with that? Mr Kenworthy: Certainly in terms of out-of-hours we have coped very effectively and we have managed to keep great continuity. The GP contract is a really positive thing because it clearly identifies and links activity in primary care to increased clinical outcomes and the linkage between resource and clinical outcomes is a really positive one. It has brought additional cost pressures onto the primary care trust. The other major driver is around the focus and quite appropriate focus upon improving access to all levels of service in the health service and I should include waiting times but also the cancer targets within that as being a major driver of additional cost pressures and expenditure for primary care trusts. Mr Pleydell: Workforce cost pressures were a significant issue for us. Somewhere in the region of £3 million was unfunded in terms of the cost of the consultant contract. We did not actually limit to 12. There is an interesting argument about numbers of PAs being a sign of efficiency. You can reduce your average numbers of PAs for your consultant body just by employing more consultants, which is not the most efficient way of taking things forward. In some very specialist services we have consultants who do more than 12 PAs. We are trying to reduce that at the moment for their work-life balance more than anything else. What we are really focusing on is the productivity of the clinical PAs which are within all consultants' job plans. We got ourselves externally reviewed by our auditors to check our efficiency there and we looked pretty good in terms of our overall clinical efficiency. That was a big issue for us. One of the things about the history of this is that it struck us at a time when we were trying to start to turn the organisation around and it was an extra cost which we then had to deal with which slowed our recovery down and that was a lesson we then had to learn from that. Q190 Dr Taylor: May I just clear up a confusion which I have - I do not know whether other people have - and that is the difference between the unaudited end-of-year deficits and the cumulative deficits. For instance South Tees, your end-of-year deficit is roughly £21 million. Mr Pleydell: Yes. Q191 Dr Taylor: You mentioned a cumulative deficit of £35 million. Mr Pleydell: We started at the beginning of 2005-06 with a £55 million problem: £21 million was inherited from the previous year; our recurring deficit was £35 million; we saved £25 million recurring and £10 million non-recurring to deal with that £35 million, so in essence we had taken out of the year the deficit that we had brought into it. Does that make any sense to you? Q192 Dr Taylor: You are losing me fast. Mr Pleydell: It is £21 million, but last year by April, on a month-on-month basis, the money coming into the trust equalled the money going out of the trust. We were on a monthly balance position, but what we had not addressed, which is why we are still a turnaround trust, the historic deficit which was £21 million which we brought into that year. Q193 Mike Penning: It comes off the following year. Mr Pleydell: Yes. It is the historic deficit. We are now in balance in terms of income and expenditure, with the exception of the historic deficit which is £21 million. Our target this year is to get an agreement with the primary care trust about how we in essence write off a one-off cost and get a one-off cost sorted out. These historic deficits are very critical to understanding a trust's overall financial position. Month-on-month I am now in balance. If I look at my budget statements for month two, we actually under-spent. Q194 Dr Taylor: I am only looking for two figures: your end-of-year £21 million. Mr Pleydell: This is the historic deficit. Q195 Dr Taylor: That is your total deficit at the moment. Mr Pleydell: Yes, it is the total deficit. Q196 Dr Taylor: You have no other deficit. Mr Pleydell: No and in terms of income and expenditure we are running on an even keel now. Q197 Dr Taylor: That is your total deficit. Mr Pleydell: Yes. Q198 Dr Taylor: Can I do each one of you with the same thing? Mr Kenworthy: £22 million. Mr Kenworthy: Our historic deficit is £26 million; we need to make £10 million this financial year in order to match income and expenditure but £7.6 million of that £21 million is related to the 3% top-slice. Mr Sumara: £15 million non-recurring and £43 million underlying recurring deficit. Q199 Dr Taylor: That is still there. Mr Sumara: We spend roughly £3.5 million a month more than we get in income. Q200 Dr Taylor: So £15 million at the end of this year but £43 million still to find somehow. Mr Sumara: The £15 million is non-recurring. I wish I were in Simon's position. If someone gave him £21 million his organisation would be balanced. If somebody gave me my £15 million, I would still have £43 million recurring deficit every single year unless I address that. Q201 Dr Taylor: That is the figure I was trying to get at. Mr Law: Our outturn last year was £28.3 million. Our accumulated position is £43 million. Q202 Dr Taylor: So you also have a £43 million accumulated, but you have got rid of yours, which is amazing. Mr Pleydell: Yes, through savings programmes last year. Q203 Dr Taylor: And yours is not that much. Mr Kenworthy: Relative to the size of organisation it is quite substantial. Q204 Mr Amess: Gentlemen, I have sat here very patiently for three hours 15 minutes listening to a combination of hard evidence and waffle. I was certainly concerned about the evidence from the Southend chap and he had had his fingers taped up because he was not allowed to say too much and what is going to happen to his surplus? Given that we move in an area where no-one is to blame for anything, least of all the Government, all I want to know from you four chaps is while you are sorting out this mess- because it is a mess - can you tell the Committee whether patient care, given normal demands - forget whether it is south, east, Midlands, all the rest of it - is in any way going to suffer? Mr Pleydell: Our obvious intention at board level is that should not happen. The question as the chief executive is how you make sure that does not happen. Clearly through your governance systems, your clinical governance systems, there are several indicators which you continuously look at. There are some obvious indicators like patient satisfaction surveys, what the staff say to you, all these things. Q205 Mr Amess: So your board's intention is that patients will not suffer. Mr Pleydell: Yes. Q206 Mr Amess: Kensington and Chelsea? Mr Kenworthy: We need to make £10.1 million savings this financial year. We are looking to ensure that the vast majority of that is increased productivity or better value for money. There will be a number of areas where we are reducing services and that will impact on patient care. Q207 Mr Amess: That is very honest. Mr Sumara: Our plan is that patient care does not suffer as a result of our plan. Mr Law: The same for us. In some areas we have sub-optimal services at the moment, a function of the distribution of services and under-investment. We think that in a number of areas we can improve the quality and consistency of care. Q208 Mike Penning: I cannot agree with what you have just said. You are going to lose around 750 jobs. You are going to sell off almost completely two hospital sites. You have an ISTC taking over facilities which you have admitted to this Committee you would like to keep and we need. You will have people transported for acute care something like 30 miles from St Albans all the way through Hemel Hempstead and through into Watford. The only reason you are doing this is because you are in such a huge deficit that you need the capital from the sale of the sites so they can be redeveloped. I am not blaming you personally; you know that. How can it be squared that clinical care is being put at the top of the excellence, when we have already heard earlier on from other people in this Committee that the most important target in the whole of the NHS is budget balance? We have heard that. You have massive cuts, enormous cuts, job losses, services being cut, people being transported all around the county. How is that benefiting the patients? Mr Law: Let me give a couple of examples of where the current distribution of services causes problems and the under-investment causes problems. We have trauma on both sites. About two months ago a piece of equipment called an image intensifier broke down at Hemel. The consequence of that was that we could not provide trauma care at Hemel. If we consolidate our trauma services we shall have two image intensifiers and we shall not have disruption to trauma services with patients and the ambulance trust not being entirely clear whether they can take people. Another example would be in cardiology. It is quite reasonable to expect that if you go to an acute hospital now there is a cardiac cath lab on site. We heard about angioplasties increasingly being a front-line treatment for heart attack. We have a cath lab on one site and not on the other, so we cannot provide the sort of consistency of quality that we need by distributing. What we shall not do is have cath labs on both sites; we do not have the capital or the revenue to support that. Q209 Mike Penning: I can tell this Committee where a lot of this loss has gone. You have a brand new birthing unit on the Hemel Hempstead site, a brand new cardiac unit, a brand new stroke unit, all of which are down to close, be knocked down and houses built there. How is that the best use of the taxpayers' money if you are going to knock those down and then pray and hope some kind of miracle happens and you get a new hospital somewhere else in the county if you balance your books? Surely it just does not stack up. Mr Law: We are not praying for a miracle. Q210 Mike Penning: You need one. Mr Law: We are working to ensure that we are in a position to support investment in West Hertfordshire. It is desperately needed. Q211 Mike Penning: Why knock down a perfectly good hospital? Mr Law: May I answer your question? Q212 Mike Penning: No, I do not want the waffle, I want a perfectly straight answer. Why are you knocking down a perfectly good hospital on the pretence that you may get one under private sector funding? Mr Law: Because we cannot deliver good quality services with the resources we have on two sites. Q213 Mike Penning: So you are going to knock down the hospital before you have built another one. Mr Law: We have looked at both Hemel and Watford as the place where we could consolidate services. We took that to overview and scrutiny and overview and scrutiny said we should concentrate the consultation on consolidating services at Watford. Q214 Mike Penning: So all the money which has been spent at Hemel Hempstead hospital will be thrown down the drain, which is why you are in so much trouble. Mr Law: It is not being thrown down the drain because it has provided patient care. Mike Penning: Are you going to put it on ramps and move it across to Watford then? Chairman: This goes out for public consultation at some stage. Q215 Charlotte Atkins: Antony Sumara, as my local chief executive, you would probably be very happy to be in a situation of knocking down your hospital buildings because that is one of the issues you faced when you arrived in December 2005 to sort out some of the problems. I see in your evidence you say "... some patient services will certainly change but patient safety will not be compromised". I know that there has been a lot of concern locally in North Staffordshire that not only patient safety but patient quality of care will be compromised. Certainly when you are looking at something like 500 job redundancies - and I know you are trying to reduce those - it does seem very difficult, a very big trick, to be able to turn that round without affecting patient care. How would you respond to local scepticism about whether you can do that? Are you just talking about patient safety or are you talking about the quality of local care? Mr Sumara: The first thing about patient care is that it is a bit of waffle really. What does "patient care" mean? In some cases we shall make improvements to patient care and I shall give you concrete examples. You will know that we have MAU on one of our sites and up the road we have an A&E department and we have 19,000 inter-hospital transfers. This is patients who turn up at our A&E department, someone assesses them and then they go down to our MAU department and they get re-assessed and put into a bed and whatever. That is just bizarre. What a waste of money. Somebody is saying they are going to impact on patient care there, which I am, but I am going to make it better, because I am going to move the MAU up to A&E and we are going to make sure those patients go through one process. That is going to save money. There are other examples where in our hospitals patients stay on average longer than most other hospitals in the whole country, regardless of whether they are in the South East, the North East or wherever. Our lengths of stay are some of the worst in the whole country. All I am saying is that if you can get those lengths of stay down to the average in the country - we are not even looking to be the best in the world but down to the average in the country - we can take out something like 187 beds. That to me does not say we are going to impact on the quality of patient care. What that says to me is that we are going to take out some of this productivity gap. If we benchmark our staffing levels per patient episode, per patient spell, per theatre spell, whatever, they are massively over. What we are trying to say is let us get them down to a level where other organisations seem to be able to manage high quality patient care. My only worry is that the speed at which we are being asked to do this, which for a turnaround organisation is two years, is quite a hard task. The expectations we have on primary care trusts to take over some of that admission avoidance and delayed discharge work, in terms of trying to get the Ambulance Service to work in a different way, will take time. That is my only worry. The classic worry for me is that we could end up making something like 200 nurses redundant either in October this year or early next year and then in 18 months' time the PCTs in our area will need to recruit nurses. What a bizarre system. Q216 Charlotte Atkins: When the Secretary of State visited our hospital, she spoke particularly about the functional relationships between the hospital, the PCTs, but also partly talking about the dysfunctional relationship between management and clinicians. I met some BMA representatives from your hospital and they told me that you are the first chief executive who has met to engage with them; rather than saying that he was leaving, actually talking to them. In your experience of the past management or what you have heard about past management, was part of the problem that the management did not engage with the clinicians, the PCTs and the Ambulance Service? Do you believe that by engaging you can actually do something about turning round the problem you have inherited? Mr Sumara: Yes. You have hit the nail on the head in terms of one of the other things I meant to mention. If you are going to draw out themes as to why organisations get into this sort of state, the levels of clinical engagement and openness are critical actually and relations with other organisations. The whole bit about whether the organisation is open, whether senior managers are visible out there in the organisation, whether they communicate with social services, whether they have effective relations with PCTs, are actually important in terms of making sure they are successful. In North Staffordshire none of that existed. There was clinical engagement, but it was relatively closed, it was a few. Decisions were made in very closed groups. You have heard it several times here. The way to get some of these problems sorted out is to get the clinicians involved in the decisions, get the PCTs to help support what you are doing, the GPs particularly, get them involved in what you are trying to do and there is a way out there. Q217 Charlotte Atkins: Having said that, you have very significant staff cuts and inevitably when you have staff cuts of the scale you are talking about, you will lose some of your best staff and hold onto some of the people you would quite like to shift. How will that affect your overall efficiency, given that you have a very, very tight timeframe to get this sorted out? Mr Sumara: It might happen, but these days, as part of our redundancy and vacancy management process, we have agreed with our trade unions and staff side that we can build a performance issue in there as one of the criteria. So we can judge redundancies based on whether that person is a productive member of the organisation, what the issues are around their performance and that is one of the criteria as to whether they are made redundant or not. I think that has been quite productive with the staff side getting that agreement so we can perhaps not do what you say and the better, more productive, more caring, more competent people leave, but perhaps use it to get rid of some of the people who are less so. Q218 Charlotte Atkins: Mr Law, you have an equally large recurring deficit. Would you tell us what the impact of your staff cuts will be on your efficiency as an organisation? Mr Law: We are looking to improve efficiency, although we are a reasonably good performer in terms of things like length of stay. We still know that we can improve in those areas. We have been working closely with clinical staff to reduce lengths of stay so we have set an objective for the organisation that we, against key performance indicators, are in the best 20% of performers across the country. The clinical staff are very on board with that. The efficiency needs to come first and then the reductions in staff come following those improvements in efficiency and performance. We have done a study of bed performance. We know that if we get to the best 20% of performers in the country we would need 91 fewer beds than we have currently. That is something which clinical staff are working on today. I know our orthopods are meeting today to go through the sorts of things they will need to do and also how to get good outcomes. We are doing a review which looks at clinical outcomes and how you ensure you get good outcomes whilst making changes. Q219 Mike Penning: May I just clarify something? The changes you are referring to are basically closing parts of one of your largest hospitals and those changes are about 750 jobs. Correct? Mr Law: The figure we have quoted is 520 associated with that. We lost a number of staff last year. In the light of commissioning changes and reductions in activity that the PCTs intend to manage, we shall see further reductions. Yes, it is around that figure. Q220 Mike Penning: Around 750. Mr Law: Yes. Q221 Chairman: I think you heard some of the earlier discussions we were having about the effectiveness of the financial management arrangements inside the NHS and whether individual organisations are encouraged to report financial problems early enough to be able to avoid some of the problems you have to deal with. There is also this question of how much difference it makes if you change senior management to look at issues around financial health. Do you have any strong views in this particular area? Mr Law: We have had a fairly damning report from our auditors around financial management which looked back in time. We have started to make changes. We have a paper going to our audit committee next week which will make investment in financial management in the organisation because we have recognised the weakness there. We do not have the information flowing regularly as we need. We do not have the controls in place. We have referred a number of times to six finance directors going through the organisation in six years. That does not lead to a stable well-developed finance department unfortunately. Mr Sumara: There is evidence in our public interest report that says exactly the same, that poor financial systems, poor financial reporting, poor financial management all contributed to the problem. Your second question is difficult. I am bound to say, because I am new, that new senior management are great and make a big difference, but I am not sure it is as easy as that. You heard elsewhere that there are complex issues around. It is more about leadership than management. Mr Kenworthy: We have a very specific issue and a difficulty in recruiting more junior levels of financial staff that provide the mainstay of finance departments. One of the major problems identified by the auditors is that our organisation is very heavily reliant on agency staff and that is predominantly an issue which is about the attractiveness of the salaries we can offer based in Kensington and Chelsea. The major area for me about financial management is making sure we have systems which give frontline staff and GPs information which enables them to understand the financial implications of their decisions. Once GPs and nurses understand the difference financially between being able to manage heart failure for patients using our specialist nurses in the community, who are more locally accessible, as opposed to admitting to hospital, you can see changes in clinical practice which are to the benefit of the patient. Mr Pleydell: We similarly had a public interest report from our auditors which criticised our financial reporting systems especially. There was a tendency to use non-recurring money to cover up recurring issues in the past, particularly in the early part of this decade. We did change our finance director and that was an important step for us in terms of our recovery. I would just echo what everybody has said here this morning that the real significant achievement of all of this is about aligning clinical staff to the things you need to achieve and if you get their support, and the staff side organisations, senior clinicians and professional staff throughout the organisation, you are then on the road to recovery. The board leadership is important, but it is the staff in the organisations that need to understand what it is that needs to be achieved. Most of them - and they have said this to me personally - do not like being in a financially difficult position because everybody talks about money and not the quality of care which is being delivered. They understand now that financial control is a prerequisite to being able to focus on the quality of care we provide. They have said that they want to take the difficult medicine quickly and get it over and done with and get themselves back on an even keel. Those members of staff are the critical audience that we need to engage. Q222 Chairman: Does the division of the NHS into provider and commissioning bodies encourage organisations to act in ways which may not be in the general interest of the wider health economy? Mr Kenworthy: In terms of commissioning, the most important move is towards practice-based commissioning. Basically the key element of that is getting clinicians to engage actively in that commissioning process. We have already heard about the importance of GP involvement, but not only GPs, nurses, pharmacists and other primary care professionals, in actively working with hospitals and with tertiary centres and with the voluntary sector to provide a range of options for treatment and to work on effective clinical pathways. Good examples are around diabetes where almost all diabetes care can be undertaken in the community and you need hospitals for very specialist care. Where we get good relationships between our frontline clinical staff and our hospital staff we are able to design pathways which cut across primary and secondary care, are more effective and also more resource efficient. Q223 Chairman: Is that the same in the acute sector? Mr Sumara: Personally I think splitting that relationship has been positive because, if you look at the evidence, we have shorter waiting times, better outcomes, all sorts of figures, because people have focused on populations and not hospitals and buildings and that has been the dramatic difference of having that split. Mr Law: You hear stories of gaming going on around the roles. Q224 Chairman: "Cooperativeness" would be the kind of word we pick up now and again. Do you think this is around? Mr Law: It is about the attitude you take to the wider responsibility beyond the organisation. There is an important role for chief executives. I have made it very clear that I would regard it as unethical if people pursued that sort of strategy. We have important work in the relationship with general practice and primary care and we need to do the best we can for patients. We have a common interest around patients and I expect people to behave that way. Mr Pleydell: I think too much is made of this. I have been chief executive for nine years now and I have never seen this actually play out in reality. The majority of clinician's values are such that they want to do what is best for patient care and not always be gaming, looking at what would derive more income for an organisation or whatever. I should say that when I was chief executive of a whole district trust which managed everything, including community care, mental health, learning disabilities, et cetera, I still felt that the acute sector dominated and it was difficult to make the priority investments. I actually think the purchaser/provider split has helped target investment in some of those areas which traditionally were what were called the Cinderella services. I believe it is a positive step forward. Q225 Mike Penning: I would ask you gentlemen to be brutally honest in answering the next question because we are going to talk about turnaround teams. How effective do you think the turnaround teams have been? Were they value for money? Could you have done the job equally well yourselves and spent the money better and more wisely? Mr Law: I think they have made a significant contribution for us. We delivered £4.5 million of savings last year; we have a programme of £15 million this year. We would have struggled, because of the issues around organisational capacity that we have talked about, to produce that without their input. There is a good rate of return on the investment we have made. They have brought a fresh perspective into the NHS and by and large have been enormously helpful. Q226 Mike Penning: But you had outside auditors in before the turnaround teams came in which were paid for out of your own funds. Could they not have done the job for you? Mr Law: We had PriceWaterhouseCoopers, paid for by the SHA, and that set the basis for us to bring in a turnaround director to the organisation who has really taken forward the areas of work which PWC identified in conjunction with the trust. Q227 Mike Penning: He is sitting behind you, so you can be honest. Mr Sumara: You said "brutally honest". Value for money they have saved me more money that they have cost, put simply, quite considerably more money, particularly on the procurement end of the business, the non-pay end. Going back to this thing about capacity, while you have the organisation in that sort of turmoil people needed additional support and expertise and they have been good at providing expertise which we did not have in the organisation in the short term. However, I do think they are a short-term support not a long-term support. Q228 Mike Penning: You could not have done it without them. Mr Sumara: Probably not, actually. The real evidence of whether they have made a big impact is not there yet; it might come later on downstream because some of the things they have been dealing with for us over the last few months will not come to material --- Q229 Mike Penning: You were saying a minute ago that you were hoping your PFI would go ahead pretty soon. Have they assisted you with that PFI? I understood that PFIs could not go ahead if you were in deficit and you are massively in deficit. Mr Sumara: No, as long as you have an agreed recovery plan in place which is actually signed off by your regional turnaround director and your health authority. Ours is working quite well. Q230 Mike Penning: David is making notes next to you. Mr Kenworthy: The turnaround director we appointed brings a level of expertise from other sectors, brings experience of turning organisations round in a different environment and brings a level of challenge and a level of drive to NHS organisations which is crucial in the turnaround process. The most important thing for me though is that the turnaround director led a team of people consisting of both managers and clinicians and worked carefully with them. Those skills are now transferred into the organisation and we have a really enthusiastic group of senior managers within the organisation who are absolutely committed to driving forward the turnaround plan. If you get people who have worked in the community for many years in an organisation or community pharmacists or hospital pharmacists, as is the case in Kensington and Chelsea, driving forward a lot of clinical changes and a lot of the changes to service we need, it comes across as having a genuine benefit for patients and also delivering far better patient care. They have been excellent value for money and there is a lot to learn in the NHS from a lot of the skills of our colleagues from the private sector. Q231 Mike Penning: So you could not have done without them. Mr Kenworthy: No. Mr Pleydell: We already had our own project structure set up, we had our own programme manager and it was all built in-house. We did spend some time with PWC brainstorming some of the approaches and had lots of links with St George's and other places about what they were doing, doing a lot of networking trying to make sure we were in line with best practice nationally. I think the health service should do more of that in terms of these processes. When we were visited by the turnaround team it was December and we were already achieving what we were achieving. They validated and gave us a good quality assurance that we were doing the things we had to do and they were content. Since then it has been a very light touch and they have basically left us alone to work through our historic issues with the PCT and the SHA. It has been a very light touch experience for us because we were already getting on with the job. You cannot spend the money we saved in a year from December onwards. We started in April. Mike Penning: Let us hope they send in some light billing. Q232 Chairman: Having these turnaround teams coming in and working alongside people who have been in the institutions, be it an acute trust or a primary trust, have they effectively brought on the workforce and have the workforce felt they have some local ownership on the project now as opposed to the recent past? Mr Kenworthy: The organisational capacity that we have, all the skills and enthusiasm we have now within the organisation for turnaround and the important link between achieving financial stability as a mechanism of improving quality of service have significantly improved as a result of the turnaround process. One of the major elements and one of the major strengths of our particular turnaround process was that engagement with the wider group of staff within the NHS and within our health community as a mechanism for driving that forward. I really do think we do have better ownership of the plan and we have better ownership of what we need to do in the future. It is a very, very challenging agenda. Q233 Chairman: Notwithstanding the reasons why turnaround teams were sent into trusts, do you think that this has been a good thing, a better way of spreading best practice? Mr Law: Our experience was that ideas were brought from other organisations so it did help; there was that cross-fertilisation which is always beneficial. For us there was an immediate short-term impact. It is down to us now to make sure that impact lasts and that we build on some of the benefits that they brought. Mr Sumara: Anybody parachuted in does not deliver ownership in the organisation, that is leadership, that is my job, that is the organisation's job; they do not do that. They do bring in bits of expertise and help in the short term in terms of supporting the organisation which has recognised it is in failure, which is quite helpful. At the very worst the turnaround team will tell you what you already know. In the middle point they will tell you what you know and actually put in systems to try to help to achieve what you know. If they are very good, they will add a bit of value and point out things you did not know and things they can help you prevent as well. I should say we are about in the middle. Q234 Chairman: Did they help you talk to your own people more easily and differently from the way you did in the past because of their presence? Mr Sumara: No, not for me. Q235 Chairman: They do not open doors for you to approach leading clinicians to suggest they operate differently from the way they have done in the past. Mr Sumara: They have access to advice which helps support you going in and doing that. They have no impact at all in that area as far as I am concerned. Q236 Chairman: Simon, you talked earlier about national best practice and then we have this local ownership. How does the NHS do this? How do we get local ownership of national best practice? Mr Pleydell: There are several organisations within the Department of Health which share best practice and clearly a director of finance needs to make sure that some of the principles of project management and recovery are disseminated. I have worked in the health service for 25 years, I know an awful lot of people and I think most chief executives worth their salt, when they have a problem, should be ringing round and finding out what best practice is. Sometimes though that has to be presented in a more structured way and I think the health service is working towards that. Chairman: May I thank you all very much indeed and once again apologise for the lateness of the hour. Thank you very much; it has been a very, very useful session for us. |