Examination of Witnesses (Questions 140-154)
MR DAVID NICHOLSON CBE AND MR DAVID FLORY
21 JANUARY 2008
Q140 Mr Dunne: Could you characterise the quality of management and the changes in the quality of management that have happened under your watch and prior to your watch? Do you still think there is a long way to go?
Mr Nicholson: There is a long way to go. When you think about it during this period we have been trying to get all of our NHS trusts into a position where they can become foundation trusts which involve a significant improvement in the performance of management and organisation to deliver the changes. All of our organisations in the NHS have been going through that process; 83 have got through it so far and we want all organisations to be able to go through that so we have been working very hard to make that happen. We have gone from over 300 PCTs to 152 and we have taken every single PCT through what is described as a [odq]fitness for purpose[cdq] process which again is examining the quality of the management and processes that underpin the work that they do and seeing what we can put into place to make it better. We have been doing the same with the ambulance services and similarly with mental health organisations. Over the last 12 months we have had a consistent programme of improving the quality of management in the NHS which now needs to continue because it is obvious, is it not, that the better quality management we can deploy in the NHS the better services we will get for the patients, but we are on a journey and we are not at the end of it by any means yet.
Q141 Mr Dunne: Do financial controls play an important part in this re-education process in improving quality?
Mr Nicholson: A very important part. Part of the conversation that we have to have with the NHS it has been traditionally seen that the only way you can improve quality is by spending more money on something when in fact most of the rest of the economy and most of the rest of the world believe that you can improve quality and reduce costs at the same time and that is absolutely central to what we are trying to do in the NHS. As I described earlier, those organisations that provide the best quality, most patient satisfaction and best satisfaction are generally those that perform financially better as well.
Q142 Mr Dunne: Are you satisfied that the financial strategy of the NHS under your leadership is sufficiently robust to avoid knee jerk reactions to a sudden problem like the deficits which occurred?
Mr Nicholson: We are confident that, with the policy we have of delivering surplus on the one hand, but also being really very tough on organisations that had deficits on the other, we will deliver. The important thing is to give the NHS time to plan properly and that is why it is so important we get the allocations for year two and year three out as far as we can because when we do that we will be able to use the surpluses appropriately to plan services.
Q143 Mr Dunne: What happened when the NHS management introduced resource accounting and budgeting two years ago was that top-slicing came into effect with virtually no notice so it was very difficult for organisations to plan at the time. Not only was there a need to make good a deficit from the prior year, but they had to make good twice the deficit to fund the NHS back to the strategic health authority level and that must have been impossible to plan for and must have led to not just some service deterioration, which I know you have argued against, but I think we are all anecdotally aware of service deterioration that occurred at the time.
Mr Nicholson: One of the really important parts of delivering a service for the NHS over the next few years will be to give organisations the room to plan in the medium and long term because that is the best way of securing really good services for our patients, not to be responding to every crisis that we have.
Q144 Mr Dunne: Do you acknowledge that one of the consequences of the top-slicing regime was to introduce reconfiguration discussions into many parts of the country to look at cutting services as a means of achieving financial balance which, in retrospect, may not have been necessary?
Mr Nicholson: I do not think the top-slicing did that. I do believe that it was sometimes not done in a very timely way but it was absolutely necessary to deliver us balance in the short term. One of the things that we did was that we got Sir Ian Carruthers to look at the whole issue of service reconfiguration. I commissioned that in October of last year when we made it absolutely clear that the financial driver was not to be the main driver for service reconfiguration. I think we managed to get ourselves into a much better place. Quality in clinical services has to be the driver, not finance.
Q145 Keith Hill: When NHS trusts and PCTs send you their plans for the next financial year some of them expect to be in deficit. How do they attempt to explain or justify these deficit expectations and what do you do about it?
Mr Flory: We do not expect any of the plans to project a deficit for next year. At the halfway point of the current year there are 25 organisations who say that they will end this year in deficit. With the strategic health authorities there is very tough management action and processes in place to understand those and to make sure that those organisations that finish this year in deficit have a balance plan to begin next year. We are not expecting any plans to come in which would show a deficit.
Q146 Keith Hill: In the non-foundation centre what happens to the surpluses? The foundation trusts retain their surpluses, do they not?
Mr Nicholson: PCTs retain their surpluses as well.
Q147 Dr Pugh: May I turn briefly to the £777 million loans owing on 27 March 2007 to various trusts across the land. Am I right in assuming that these are internal loans owed to the NHS and therefore covered by top-slicing and the like?
Mr Nicholson: Yes.
Q148 Dr Pugh: None of them are external loans?
Mr Nicholson: No.
Q149 Dr Pugh: Am I right in assuming that they are charged at a rate of interest on these loans?
Mr Nicholson: Yes, between 4.5% and 5%.
Q150 Mr Bacon: Mr Nicholson, I tend to agree with you that having the percentage and the actual number that both would probably be a good thing which brings me back to my request for data. Do you think you could put in, in addition to the column that I asked for, a further column which is the percentage of the surplus or deficit as a proportion of the original planned expenditure that was supposed to take place?*
*Ev 16-31
Mr Nicholson: Yes.
Q151 Mr Bacon: You mentioned that if you, for example, were to achieve a 20% reduction in the time a patient spends in hospital that will enable you to reduce the number of beds. The Norfolk and Norwich University Hospital, which is right on the border of my constituency, as you know well, has already in effect reduced the number of beds by around 20% by the simple expedience of when it was built, compared with the older Norfolk and Norwich Hospital in the centre of Norwich which only had around 950 beds instead of 1150. The management, as far as I can see, is very highly regarded. The National Audit Office describes the finance director as one of the best contract managers they had ever met, and the chief executive from all accounts is highly regarded as well. I know him and I have a high opinion of him. Recently the hospital had to declare an incident because there were ten ambulances queuing up outside unable to get in because the hospital was full. This was not due to any particular emergency, winter flu or anything like that; it was general running rate. Are you giving my constituents and the Norfolk and Norwich University Hospital enough money?
Mr Nicholson: Yes.
Q152 Mr Bacon: In that case why are people having to queue up outside?
Mr Nicholson: There is a short answer and a long answer to that.
Q153 Chairman: Give the short answer.
Mr Nicholson: The Norfolk and Norwich Hospital gets its money through the tariff that is applicable to all hospitals in the NHS and we expect people to deliver those services within that tariff. If there are operational problems that relate to the way that the PCT, the ambulance service and the hospital work together then the chief executives involved need to get together to sort it out. It is a management issue, not a financial issue.
Q154 Chairman: That concludes our hearing, Mr Nicholson. It has been most interesting. It is being broadcast and I think a lot of this will make the heads of people hurt with all the facts and figures, but you should be congratulated for the £1 billion turnaround that you have achieved. It is only a pity that figure 3 tells us that the entire primary care trusts and the NHS trust sector is in deficit and the strategic health authorities are in surplus, but I will not invite you to give a very long answer unless you really want to sum up?
Mr Nicholson: There has been a significant change in the financial management of the NHS and it is important that we get that change because, as I said earlier, finances, patient satisfaction, quality of service, good management all go together and reflects an improvement in the management of the system. We have not completed that journey yet—we have more to do—but I am confident that the NHS management and clinicians working together can rise to that challenge in the future.
Chairman: Thank you very much.
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