Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 40-59)


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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