Examination of Witnesses (Questions 160-179)
NATIONAL HEALTH
SERVICE AND
DEPARTMENT OF
HEALTH
16 OCTOBER 2006
Q160 Mr Mitchell: Why would southern
trusts get into more holes than northern trusts?
Mr Douglas: There is not really
anything that correlates with deficits in certain parts of the
country. As I said before, people have raised all sorts of issues
about allocations and so on, but none of them work. I do not know
whether there are different management issues in the south, whether
it is more difficult to get and keep people at the appropriate
level in management and finance jobs, but there is nothing that
jumps out automatically.
Q161 Mr Mitchell: Once you are in
a hole, it is difficult to get out of it. Why are you now proposing
to reduce the income the following year for those in deficit?
Paragraph 3.10 of the Report states that "a number of Trusts
have expressed concerns to us that once financial balance has
been lost, the resultant cut in income under the RAB regime makes
recovery doubly difficult." That seems barmy.
Mr Douglas: The only way in which
that you can allow additional income and repayment for those who
have underspent is for it to come off those who have overspent
or you create a central buffer—a central reserve—to
handle it. It is the only way in which it can be done.
Q162 Mr Mitchell: So if they are
down, you will hit them? That is the system.
Mr Douglas: If people have got
into deficit, they have to recover that deficit. The double deficit
issue, as the Audit Commission report makes clear, is an important
timing issue so that, in the end, people are not hit twice. We
allow strategic health authorities to operate the RAB adjustment
differentially at a local level to give them a cushion.
Q163 Mr Mitchell: It seems an odd
way in which to carry on. You are trying to impose a framework
of financial discipline in nice boxes, but at the same time the
trusts are being deluged with policy initiatives and changes that
make it difficult to predict the situation and make it really
difficult to do it. A number of key policy changes are being implemented,
such as payment by results, practice-based commissioning, NHS
foundation trusts and whether they will happen or not, and the
rationalisation of primary care trusts and strategic health authorities.
You cannot have one thing or the other, can you? You cannot have
balance in the system and an endless series of initiatives thrown
down from the top.
Mr Nicholson: There is no doubt
at the moment that we are in a period of maximum risk for NHS
financial management in the sense that a major set of re-organisations
is going on in PCTs and SHAs. It is our job to manage that, but
most of the things that you have described should in the medium
term help the position, not hinder it. As someone who has spent
15 years of his career running hospitals, the most obvious is
being paid for what you do. It is something that people who have
run hospitals have said that they have wanted for a long time.
That is essentially what payment by result is. It is being paid
for what you do, and it seems a helpful way of being able to plan
and develop services in the future. Practice-based commissioning
gives GPs control over resources and the ability to move patients
through the system and to organise services around them.
Q164 Mr Mitchell: But it takes us
back to 1997—
Mr Nicholson: No. Practice-based
commissioning should help that, because it will enable clinicians
to be engaged directly in managerial, financial and service decisions
at that level. Those sort of things will help the position, not
hinder it.
Q165 Mr Mitchell: Let us hope that
that is true. However, in the medium term many of the patients
are dead.
Mr Nicholson: I do not accept
that the implementation of what I have just described will result
in patients dying.
Mr Mitchell: But in the medium term,
you are embarked on what amounts to a huge game of bluff. You
said, "We have to push them as far as we can."
Mr Nicholson: Yes.
Q166 Mr Mitchell: You are bluffing
them that there will be a sanction at the end, and they are bluffing
you by fiddling the figures—or by creative accounting—that
they are actually achieving the targets. It is a huge national
game of bluff. It sounds barmy at this particular time.
Mr Nicholson: I do not accept
that it is a game. Anyone who has worked in the NHS will know
that it is not a game. It is far too serious for that. It has
real consequences.
Q167 Mr Mitchell: If it were not
a game, surely they would have you by the stethoscope because
you would not put anyone in a situation in which they fire large
numbers of staff, close wards and in which there is a deteriorating
service. Members of Parliament would be clamouring around you
all the time. It is impossible politically to put a trust into
that situation, so it is a game of bluff.
Mr Nicholson: We are trying to
transform a system completely both in terms of the way in which
we deliver care and in the structure of care. For example, we
will increasingly be looking at treating people in the community—in
primary care—and at how certain elements of care need to
be centralised in regional centres. That will not happen by accident
or without significant difficult decisions having to be made.
We need to ensure that the financial regime is designed in such
a way as to reinforce that to make it happen. That is why payment
issues are so important.
Q168 Mr Mitchell: These are two separate
issues.
Mr Nicholson: No, they are not.
Mr Mitchell: It seems daft to combine
one set of pressures with another. The restructuring of the service
is causing all sorts of alarms about the closure of cottage hospitals—particularly
in Conservative constituencies, I see from this morning's The
Times—and emergency services. You cannot push that through
at the same time as you are trying to push through this financial
discipline because the two are separate issues, are they not?
Mr Nicholson: No, they are
not. They are exactly the same.
Q169 Mr Mitchell: Are you saying
that those trusts that are in deficit and in the worst financial
situation will have such structural changes pushed on them first?
Mr Nicholson: No. I am saying
that finance and good management are two sides of the same coin.
We need to do both of those things at the same time, and we need
to take services forward. The financial regime that we are talking
about exposes those issues very clearly, so that if a PCT decides
to avoid lots of medical admissions and to treat far more patients
in the community, it needs to have the financial discipline to
be able to do that. The reforms enable it to make that happen.
Q170 Mr Mitchell: That may be so,
but my point is different: what confidence will the public have
in structural changes, which are causing lots of fears locally
about the closure of cottage hospitals and various services, if
they are thought to be part of an economy measure—you may
say that they are producing greater efficiency—and if they
are concentrated on those trusts that are in most financial difficulty?
Mr Nicholson: What I am saying,
obviously not very well, is that the need to restructure care
is being driven by a whole set of issues—demography, technology
and so on.
Mr Mitchell: But it is a separate issue
from these deficits.
Mr Nicholson: That is what is
driving things. We need to ensure that we have a solid financial
basis in order to do all this. That is what we are trying to do.
Q171 Mr Mitchell: Why do them both
at the same time? Why not get a solid financial basis and then
go in for the structural changes, which in the long term may or
may not be necessary? If the two get muddied, it will produce
an impossible situation and an incredible public reaction.
Mr Nicholson: It is obviously
necessary to do both at the same time.
Q172 Mr Mitchell: Why?
Mr Nicholson: Because the expectations
of our patients, the expectations in relation to the introduction
of new drugs and new evidence about the safety of services all
mean that things need to be done as soon as we possibly can do
them.
Q173 Mr Mitchell: You can have every
guarantee that the doctors against closure party will be the largest
single party at the next election. In a year in which the financial
provision for the health service is better than ever, it seems
bad management to produce this atmosphere of crisis, cuts, restructuring
and chaos.
Mr Bacon: Say what you really think,
Austin.
Mr Nicholson: I do not accept
that.
Chairman: Mr Dunne will attempt to follow
that.
Q174 Mr Dunne: We have heard a lot
of talk of your confidence in the improvement in the current year,
Mr Nicholson. A number of Members have touched on that issue.
Can you explain how it is that you have such confidence? Let us
consider the context of Government initiatives and NICE decisions
that are emerging all the time, which impose additional cost obligations
on the trusts.
Mr Nicholson: I am sorry, I did
not mean to sound overconfident about balancing the position at
the moment. We are confident that we have the plans in place to
enable us to do that. We cannot exactly foresee the future and
the events that might be around the corner, but based on the best
evidence that we have, our series of plans and the evidence from
the quarter one results indicate that we should be able to live
within the total financial envelope available to us.
Q175 Mr Dunne: How good is the financial
forecasting?
Mr Nicholson: It is getting better.
Q176 Mr Dunne: It is clear from page
51, paragraph 4.28, that, until this last year, trust managers
had a perverse incentive to understate their deficits because
the star-rating system clearly rewarded them on the basis of unaudited
accounts, and that system is now behind you. What has been done
to improve the financial capacity of trusts and the skills of
the finance directors to undertake forecasting, because in the
past they have clearly been motivated to do so in a particular
way that no longer applies?
Mr Douglas: One of the issues
that you rightly raise is not just that of competence but the
question of the incentives in the system. Historically, for a
number of organisations, bidding up the deficit early in the year
was part of a negotiating strategy. Particularly as a trust, they
might forecast a large deficit in the hope that the trust would
get some support from the health authority and the PCT to cover
that deficit. That would be done to get additional income and
was part of the negotiating position in the NHS. The first thing
that we are trying to do is to change that culture. By removing
the support in the system of the movement of money, we are no
longer incentivising people to bid up problems. That is the first
thing. The payment-by-results system has the same effect, because
people are paid on the basis of what they do. In terms of skills
and capabilities, a range of training programmes are run through
our strategic health authority finance directives. Along with
the foundation trust regulator, we are introducing a new development
programme for finance directors to help us to up their game. The
most important skills aim, as the report makes clear, is that
we get financial skills right across the boards. We are working
with the NHS Appointments Commission on the training that we give
to whole boards, not just to the finance directors.
Q177 Mr Dunne: In the current year,
budgets were set based on a tariff that finance directors were
told about only after they had submitted their original budget.
That is not a particularly good example of best practice coming
from the centre. How can you be confident that the current budgets
will be remotely in line with what you expect?
Mr Douglas: First, I agree entirely
that it was not an example of best practice and it was not our
finest hour in the Department. In terms of whether the budgets
will be what people actually deliver, from the moment the tariff
was issued, we have worked through the strategic health authorities
with individual trusts and PCTs to try to verify their plans.
We have a continual dialogue with the SHAs, their performance
directors and their finance directors to ensure that the plans
stack up. Whether each and every organisation will deliver the
specific plans that we have agreed remains to be seen as we progress
through the year, but the information that we are receiving says
that the system as a whole will meet the overall targets that
we have set.
Mr Nicholson: The key issues in
terms of financial discipline for this year and whether plans
are taken out are twofold. First, there is the issue of whether
NHS trusts will manage to deliver the cash-releasing savings problems
that they have identified. The second issue is whether the numbers
of patients referred into secondary care by PCTs are of the kind
of numbers that were identified in the plans. Those are the two
issues that will make the big difference.
Q178 Mr Dunne: Both are very difficult
to predict in a period of transition.
Mr Nicholson: Very difficult.
The second is easier to predict, and we are monitoring closely
the delivery of the cash-releasing cost improvement programmes
in trusts. The first issue is more difficult to predict.
Q179 Mr Dunne: Mr Touhig touched
on the role of the NHS Appointments Commission. Given the change
that is going on—the reduction in the number of PCTs and
SHAs—what is being done to ensure that the chief executives
and the finance directors involved in the 18 failing trusts are
assessed for competence and what is the price of failure for those
particular trust managements?
Mr Nicholson: As far as the organisations
that are in the most difficult category are concerned, you will
find that a number of the chairs, and/or chief executives and
financial directors have changed. There has been a whole set of
management movements in that area already. We are now in the position
of supporting the new organisations to deliver those changes through
the sorts of things that Richard has been talking about.
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