Examination of Witnesses (Questions 80-99)
NATIONAL HEALTH
SERVICE AND
DEPARTMENT OF
HEALTH
16 OCTOBER 2006
Q80 Greg Clark: Can you speak for
your predecessor on that?
Mr Nicholson: Yes. I am sure that
he would not have been involved in any of that either.
Q81 Greg Clark: Can we check and
clarify that for the record?
Mr Nicholson: Yes.
Q82 Greg Clark: Moving on to more
substantial points, can we turn to table 9, on page 19 of the
report? We see there that in 2004-05—the most recent financial
year reported on—the number of PCTs in deficit, to take
an example, almost doubled in a year, rising from 41 to 90. Did
you expect this deterioration in finances or was it a surprise?
Mr Nicholson: It was not planned.
Greg Clark: It was a surprise?
Mr Nicholson: It became clear
during the year that a number of PCTs were not going to hit their
targets, so in that sense it was not a surprise, but it was certainly
not planned.
Q83 Greg Clark: So you just realised
during the year, rather than before the beginning of year?
Mr Nicholson: Yes.
Q84 Greg Clark: Page 4, paragraph
8 of the Report says: "The reasons for the financial difficulties
. . . cannot be attributed solely to poor financial management".
In other words, there were other reasons. Can you outline some
of the other reasons for these deficits?
Mr Nicholson: I mentioned earlier
the GPs' contract, "Agenda for Change" and the consultants'
contract, all of which cost more than we had identified in the
original costings.
Q85 Greg Clark: Yes, these contracts
had been negotiated, yet the deficits that they produced were
a surprise to you. If they were negotiated, surely you knew what
they would cost the organisations.
Mr Nicholson: Absolutely—they
were negotiated nationally, but they were all implemented locally.
For instance, the consultant contract negotiations were essentially
local discussions between the management of the organisation and
an individual consultant or a group of consultants, to deal with,
for example, the number of PAs or the number of sessions that
they were doing.
Q86 Greg Clark: Why was it not possible
to foresee the impact of that and to fund it?
Mr Nicholson: On the other side,
I would say that most organisations managed to live within the
money that they had or found alternative ways of funding the cost.
Q87 Greg Clark: You say that, Mr
Nicholson, but 90 out of 130 PCTs were in deficit in 2004-05.
Mr Nicholson: Yes.
Q88 Greg Clark: So, most PCTs did
not manage to cope with those pressures.
Mr Nicholson: No, there are 303
PCTs.
Greg Clark: Sorry. Almost a third did
not manage.
Mr Nicholson: Yes.
Q89 Greg Clark: That is not a trivial
proportion. A lot of PCTs struggled to cope with something that
should have been predictable—the costs of new contracts.
Mr Nicholson: If you take on PCTs,
a major issue in relation to those contracts was the quality outcomes
framework. Nationally, we took the best advice that we had, and
our conclusion was that the average score for a GP would be about
750 points. In fact, it was more than 1,000 points in practice.[7]
Q90 Greg Clark: Whose fault is this?
You are the chief executive and we have the finance director here.
The cost of the GMS contract was £300 million more than anticipated
and the consequences are being visited on our constituencies,
in ward and bed closures. Who is responsible for that underestimate?
Mr Nicholson: The consequences
for most organisations—two thirds of organisations—were
good in the sense that they managed to deliver within the amount
of money that they had. The quality and outcomes framework is
a measure of quality of primary care, so—
Q91 Greg Clark: Do you not care about
the ones that could not deliver? You got it wrong to the tune
of £300 million. You did not fund them enough. Do you write
them off? Do you have no sympathy for them?
Mr Nicholson: It is their job
to live within the amount of resources—
Q92 Greg Clark: Even when you get
your sums wrong to the tune of £300 million?
Mr Nicholson: We also got some
other sums right—for example, on the benefits of changing
the amount that we spent on drugs.
Greg Clark: But you got them wrong to
the tune of £300 million, did you not? You gave organisations
£300 million less than they needed and told them to get on
with living with that.
Mr Nicholson: Yes, but that was
in the context of them getting between 8.2 and 10% worth of growth.
It seems perfectly reasonable for an organisation to manage its
affairs against that scale of growth.
Q93 Greg Clark: But £300 million—a
third of a billion pounds—seems quite a big mistake. None
the less, let us look to the future. Some of your answers indicated
that things are getting better. Is that right?
Mr Nicholson: I think that things
are getting better, yes. There is the potential that we can balance
the position across the NHS as a whole this year.
Q94 Greg Clark: Why, at paragraph
5.2 on page 63, do the auditors of 59% of NHS bodies report concern
about the financial standing of their organisation for the year
just ended? The figure has gone up.
Mr Nicholson: Because the environment
in which people are working is more difficult than it was last
year.
Q95 Greg Clark: You said that things
are getting better, but more auditors this year are concerned
about the financial standing of their organisations than they
were last year or the year before.
Mr Nicholson: That is to say that
the management challenges are greater; it is not to say—
Greg Clark: But you say things are getting
better.
Mr Nicholson: Of course, because
the management of the NHS are rising to that particular challenge.
Q96 Greg Clark: If an auditor expresses
concern about the financial standing of an organisation, is that
concern not a negative thing, which it is difficult to reconcile
with something getting better?
Mr Nicholson: I do not think that
at all. The bottom line in all this is whether we will deliver
our financial targets, and we are on plan to be able to do that.
It is going to be very tough for the NHS to live within its money
this year, but I am confident that it can, because people will
rise to the challenges that you have identified.
Q97 Greg Clark: But 59% of auditors
have their doubts. My concern is this, Mr Nicholson: this year,
we have had real-terms increases of 7.3% for the NHS—as
the report makes clear, it is the best-funded public service—but
deficits are impacting on service standards and auditors are expressing
concern. We cannot expect those funding increases to continue,
so if we are having difficulties now, how will your organisation
cope with the more stringent circumstances that we all expect?
Mr Nicholson: That is why it is
so critical to make those very tough and difficult decisions this
year, while we have the growth to enable us to do so.
Q98 Greg Clark: You find it difficult
to live within a 7.3% real-terms increase. If that figure fell
to match the rate of growth of the economy, could you reasonably
expect the NHS to cope without experiencing the problems that
we are currently seeing, or worse?
Mr Nicholson: I think that we
are going through a transitional period in terms of the way in
which health care is delivered and of the system that we use.
In those circumstances, there will undoubtedly be difficulties.
For most of my career, however, I have lived with significantly
less growth in the NHS than we have now, and it is possible for
the NHS to do what you say.
Q99 Greg Clark: Why are some bodies
resorting to fraud? Page 51 of the Report says that the appointed
auditors reported "evidence of inappropriate adjustments
and/or omissions" in 21% of NHS bodies' accounts. One in
five NHS bodies are fiddling the figures. Why is that?
Mr Douglas: I think that it would
be stretching it quite a lot to refer to that as fraud.
7 Note by witness: The average score per practice
was 959 points. Back
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