Examination of Witnesses (Questions 40-59)
NATIONAL HEALTH
SERVICE AND
DEPARTMENT OF
HEALTH
16 OCTOBER 2006
Q40 Mr Khan: What surplus would you
look for—0.3%, 1%?
Mr Nicholson: It must be realistic.
There would be nothing worse than just plucking a figure out of
the air.
Q41 Mr Khan: Let us look four years
forward. No, let us look three years forward—if the Conservatives
win, there will be £19 billion of cuts four years forward.
What would be a realistic figure for a healthy surplus three years
forward?
Mr Nicholson: It is not something
that I have considered.
Q42 Mr Khan: I am sorry, but, flippancy
aside, do you not think that you should be considering it?
Mr Nicholson: I agree.
Q43 Mr Khan: You are saying that
we should be looking for a surplus, that it is hoped to break
even within 18 months. Is that fair?
Mr Nicholson: We expect to break
even this year and have a surplus next year.
Q44 Mr Khan: What surplus do you
expect next year?
Mr Nicholson: Something in the
order of £250 million.
Q45 Mr Khan: What is that in terms
of percentage of overall spend?
Mr Nicholson: It is just over
0.3%.
Q46 Mr Khan: What about the year
after?
Mr Nicholson: Depending on how
we do next year, I would expect that 0.5% might be appropriate.
Q47 Mr Khan: Thank you for that.
One of the criticisms is that there has been huge monetary investment,
and one cannot argue about the investment. You started listing
the performance improvements—your list was much longer but
you were cut short by the Chairman. I accept that there have been
huge increases, but the argument and challenge that are made is
that the improvements have not been proportionate to the investment.
I am sure that you have heard that criticism. How does one assess
whether the improvement is proportionate to the money invested?
Mr Nicholson: One way to measure
that is in relation to whether you are delivering your objectives.
Most if not all the major objectives that we identified for ourselves
over the past few years have been delivered.
Mr Khan: May I stop you there? This is
on the same issue. I assume that you allude to targets. Some people
call them national strategies, but we call them targets.
Mr Nicholson: There are issues
around cancer, coronary heart disease, mortality, the number of
hospitals built and waiting times.
Q48 Mr Khan: So if you can tick all
those things, there is value for money.
Mr Nicholson: That is one aspect.
The second is productivity: whether we are getting more from every
pound that we spend than we have in the past. On some crude measures,
the story did not look so good, but you will be aware that the
Office for National Statistics took into account quality and the
shift to primary care and decided that the NHS improved its productivity
overall by about 1.6% over the past five years. We need to increase
that—I think that we can do better—but that is the
position.
Q49 Mr Khan: Following that through,
my trust has a budget deficit of £21 million. On the criteria
that you mentioned, it has saved thousands of lives through treatments
for cancer and other illnesses. More patients are going through
the hospitals than ever before and more lives are being saved,
but it has a huge deficit. My trust tells me that it has a better
financial regime and can see funding problems—there is more
transparency—but that it can no longer do what it did previously,
which was simply to lift from capital to revenue. Nor can it use
next year's money to subsidise this year's problems. Are you suggesting
that once my trust gets down to zero and then goes forward, it
will be giving value for money and the proportionate improvement
will be commensurate with the money invested?
Mr Nicholson: I am not saying
they are not giving us value for money now, because I suspect
they are. We are not saying to St George's, which is in deep difficulties,
as are a number of other organisations, "You have to balance
straight away." We are saying, "We need to work with
you to ensure that the plans for cash release in cost improvements
is on a deliverable timetable."
Q50 Mr Khan: One of their criticisms
is that they originally agreed to meet their nil deficit in three
years, but they were then told by the SHA one year into a three
year programme that the target was two rather than three years.
Their three year plan was brought forward by a year, which meant
that savings could turn into cuts. Instead of the previous position
in which they could guarantee that there would be no adverse clinical
consequences, there is now the potential for adverse clinical
consequences. What was the reason for bringing forward the time
scale?
Mr Nicholson: We will always try
to push organisations as far as we can. As you know, the NHS has
a long history of setting out reasons why issues cannot be dealt
with, and we were keen to drive that forward. There was a negotiation
about it.
Q51 Mr Khan: What happens if they
are not in nil deficit and still have a deficit next year?
Mr Nicholson: I am confident that
they will do it.
Mr Khan: So am I. What happens if they
do not?
Mr Nicholson: Well, we will have
to talk to them about it.
Mr Khan: Right. That sounds ominous.
Mr Nicholson: Sorry; I did not
mean to sound ominous. Either the planning was not right, there
is something that they have not done that they should have done
or circumstances changed in such a way to make it difficult for
them.
Q52 Mr Khan: How do you disperse
the information that you receive from your turnaround teams to
other trusts that could benefit from it?
Mr Nicholson: In a whole series
of ways. The finance directors, through the SHA, share that information;
a quarterly newsletter comes out from the national turnaround
office; and, in different parts of the country, there are what
are euphemistically described as "recovery clubs" for
organisations that get together to share good practice.
Q53 Mr Khan: Do you think St. George's
will be in a position to apply for foundation status by 2008?
Mr Nicholson: Yes.
Q54 Mr Khan: Okay. This is my final
question. In the report you talk about everyone in the business
understanding the importance of financial management. Is that
a fair summary?
Mr Nicholson: Yes.
Q55 Mr Khan: How are you going to
do that? How are the cleaners in the wards, the nurses and the
junior doctors going to understand the importance of financial
management?
Mr Nicholson: There are two ways
in which it works. First, it starts at the top with management
teams and the boards of organisations—all boards, medical
directors, nursing directors and all the rest of it—understanding
the consequences of what they are doing. We are doing a lot of
work on that. Secondly, the transparency helps a lot—it
is clear now for organisations. One thing that I have noticed
over the last six months going around NHS hospitals is that there
is a lot of understanding from clinical and other staff about
the implications of payment by results. I am sure you will not
be amazed at the number of experts there are in hospitals now
on how it all works. The level of understanding is growing significantly.
The other issue is at the micro level, where people ask, "What
are the financial consequences of decisions that I, as an individual,
take?" There is evidence that people are picking that up,
too. That is an important part of the message.
Mr Khan: Thank you. My time is up, but
thank you very much.
Q56 Sarah McCarthy-Fry: Portsmouth
Hospitals NHS Trust, which is in my constituency, is in financial
balance, but the strategic health authority requires it to come
up with another £7.35 million in order to bail out other
trusts in the county which have problems. Are there any safeguards
to ensure that the financial solvency of successful trusts, such
as mine, is not put in jeopardy by that requirement to bail out
poorly performing trusts?
Mr Nicholson: That is one of the
most difficult questions in relation to all of this, because in
lots of ways, some of our most successful and well-managed organisations
are having to take action to deliver money and to support other
organisations. If nothing else, it reinforces the importance of
what we are doing. In the circumstances of Portsmouth, I am dependent
on the strategic health authority making a sensible assessment
of what is possible. No doubt Sir Ian Carruthers and his team
will work with Mike Waterland and the team at Portsmouth to ensure
that. It would be false to put another organisation into financial
difficulty to support another one.
Q57 Sarah McCarthy-Fry: The NAO Report
says that it is concerned that strategic health authorities have
applied the regime differently across the country. Do you agree
that that is a concern?
Mr Nicholson: Yes; it is.
It certainly makes it extraordinarily difficult from a national
perspective to see where financial performance is improving and
not improving when different SHAs operate these sorts of things
differently. One of the things I have done in the past three or
four weeks is to ask Richard and the finance directors to make
sure that it is applied universally in exactly the same way across
the whole country.
Q58 Sarah McCarthy-Fry: You talk
about organisations creating surpluses in the future—in
other words, holding a reserve. In some ways, that is something
that the SHA in Hampshire is doing now—it is clawing money
in, which it is actually using to prop up other organisations,
but it could do that to create the reserve that you want. Do you
think that that is the role of the SHA, or should the trust create
its own operating reserve?
Mr Nicholson: It is up to
each organisation to create its own ability to have financial
flexibility. The SHAs do not create the reserves—the primary
care trusts do. Virtually the whole of the reserve is currently
being used to offset deficits. We want to get away from that and
use the reserve to give us the financial flexibility to do the
management of change and the transformation that we need.
Q59 Sarah McCarthy-Fry: What is the
role of the SHA, if it is not creating the reserve?
Mr Nicholson: The SHA is responsible
for setting the direction of the health service in its part of
the world and for ensuring that the organisations within it—the
PCTs and the NHS trusts—deliver.
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