Health CommitteeWritten evidence from the Audit Commission (PE 19)
The Audit Commission is a public corporation set up in 1983 to protect the public purse.
The Commission appoints auditors to councils, NHS bodies (excluding NHS Foundation trusts), police authorities and other local public services in England, and oversees their work. The auditors we appoint are either Audit Commission employees (our in-house Audit Practice) or one of the private audit firms. Our Audit Practice also audits NHS foundation trusts under separate arrangements.
We also help public bodies manage the financial challenges they face by providing authoritative, unbiased, evidence-based analysis and advice.
THE AUDIT COMMISSION’S RESPONSE
Summary
1. The Audit Commission welcomes the opportunity to respond to the Health Select Committee's continuing inquiry into public expenditure. Our submission draws on:
local audit work on NHS bodies' finances and cost improvement programmes, carried out by the Audit Commission's appointed auditors, and an analysis of the audited NHS accounts for the 2010–11 financial year; and
research into value for money in social care, including: an analysis of Personal Social Service Expenditure for 2006–07 to 2009–10; productivity analysis of services for older people and people with learning disabilities, from 2005–06 to 2009–10; and the Care Quality Commission's efficiency data.
2. The Commission has identified the following key points in response to the Committee's questions.
The Plans made by NHS Bodies to Deliver the Nicholson Challenge
NHS organisations are used to making and delivering annual efficiency plans. However, the efficiency savings required to meet the Nicholson Challenge will have to be delivered during a period of increasing financial pressure. NHS organisations will have to meet the efficiency challenge and continue to deliver high-quality services, without the funding growth of the recent past.
The Nicholson Challenge is to deliver recurrent efficiency savings of £20 billion by 2015. This means the NHS needs to save an average of £5 billion, or about 5% of its budget, every year to 2015. Every NHS organisation has put plans in place to deliver efficiency savings as part of the Quality, Innovation, Productivity and Prevention (QIPP) programme.
In 2010–11, NHS foundation trusts, NHS trusts and primary care trusts (PCTs) reported total savings of £4.3 billion, which is approximately 4% of total NHS expenditure. There may be some double counting between NHS organisations and some of the savings were non-recurrent.
Our research at a sample of NHS trusts and PCTs shows that plans for 2011–12 are more ambitious, particularly so in PCTs. Past levels of achievement against plan suggest that about 80% of planned savings will be achieved.
Some NHS organisations struggled to achieve planned efficiency savings in 2010–11 and it will require determined effort and strong leadership to make larger savings and continue to do so.
The Changes Proposed and Whether the NHS is Succeeding in Making Efficiency Gains rather than Cuts
Our research shows that in 2010–11 most of the savings came from increases in clinical productivity and efficiency. Savings were also made in the areas of pay and workforce.
Twenty-three% of the savings achieved were non-recurrent, for example temporary vacancy freezes. While all savings programmes will include non-recurrent measures, non-recurrent savings will not produce the service transformation expected through QIPP programmes.
The Impact on the Provision of Adult Social Care of the 2010 Spending Review Settlement and the Removal of Ring Fencing for Social Care Grants
The picture of the impact on adult social care in 2011–12 from the 2010 spending review is far from clear. This is because there is little up-to-date data available, other than some one-off survey data.
We plan to publish more material on council spending plans in later in the autumn and will forward that to the Committee when available.
The Ability of Local Authorities to Make the Necessary Efficiency Savings
Councils face challenges in improving value for money. To do this, they can consider how to reduce the costs of services and the efficiency of their processes, while preserving quality and focusing on outcomes.
Councils are already taking action that will improve value for money in adult social care in both the short and long term. However, while we identified some innovations, councils are, in the main, using tried and tested techniques to improve efficiency.
Transactional efficiencies will offer cash-releasing savings within this Spending Review period; while transformational efficiencies may result in better outcomes for people but are unlikely to yield material savings in the short term, and possibly in the longer term as well.
National data on spend, on patterns of services and on unit costs show a great deal of variation. Councils must ensure that they have the capacity and capability to gather and use high-quality data that will enable them to review, compare and challenge their costs and service quality.
The Use of the Additional £1 billion Funding for Social Care made available through the NHS Budget
We have little evidence on how councils are spending the additional £1 billion funding. This is because it is too early in the process.
We plan to publish a briefing on the health and social care interface in October. We will send the Committee a copy.
Progress on Making Efficiencies through the Integration of Health and Social Care Services
Department of Health guidance creates a strong expectation that integration will be an important way of achieving inefficiencies in the future. However, our analysis of adult social services efficiencies in 2009–10, and those planned for 2010–11, shows that integration and working more closely with the NHS was one of the least common ways of achieving savings.
There are opportunities for local authorities to make savings in their own services, as demonstrated by the significant variations in unit costs for day care and residential care. However, progress in achieving transformational change to more community based provision has so far been slow.
NHS bodies and local authorities have achieved short-term savings with more traditional ways of securing efficiencies but will need to increase the level of transformational change if they are to achieve all the necessary savings in the longer-term.
Our forthcoming briefing on value for money across the interface between health and social care will be relevant to this inquiry and will be sent to the Committee when published.
Progress on and Implications of Changing the Tariff Structure
Our work on the assurance of reference costs is relevant to this inquiry and we will send the Committee further information on the implications for changing the tariff, once our report is published.
3. The evidence provided in this submission draws on existing Audit Commission work. We have extracted the most relevant points for the Committee from our published reports on NHS finances and value for money in social care. The full reports, NHS financial year 2010–11: A summary of auditors' work and Improving value for money in adult social care are available to download from the Commission's website. www.audit-commission.gov.uk
Detailed Response
The plans made by NHS bodies to deliver the Nicholson Challenge
4. The Health Select Committee has consistently highlighted the Nicholson Challenge in its inquiries. To achieve it, the NHS needs to release £20 billion of savings by 2015, which equates to an average saving of £5 billion, or about 5% of budget, every year from 2011–12. These savings will need to be a combination of cash-releasing and productivity savings.
5. Savings can be recurrent, meaning the saving is permanent, such as staff cuts or changes to clinical procedures that allow more treatments to be carried out at the same cost. Alternatively, savings can be non-recurrent, meaning they are only a one-off saving within the financial year. An example would be through spending less than was budgeted on a project. The NHS is making both types of savings.
6. Auditors reviewed management and delivery of 2010–11 cost improvement plans (CIPs) and planned 2011–12 CIPs in the first half of 2011 at 97 PCTs (64%) and 54 NHS trusts (47%). Figure 1 shows the planned and actual savings achieved for the years 2009–10 to 2011–12 from our sample of PCTs and NHS trusts. The figures show that the NHS is planning, and achieving, ever greater levels of savings.
Figure 1
AUDITORS REPORT THAT PLANNED SAVINGS AND SAVINGS ACHIEVED ARE INCREASING YEAR-ON-YEAR
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7. Figure 1 shows that, at the NHS bodies in our sample, 2010–11 plans have been more ambitious than in 2009–10 but achievement against them had worsened. Plans for 2011–12 are again more ambitious, particularly in PCTs. However, past experience suggests they will not be fully achieved.
8. Figure 2 shows that in 2010–11, 19% of both NHS trust and PCT plans were not achieved. Overall, 23% of the savings achieved were non-recurrent (2009–10 figures are not available). This means that NHS bodies will need to find extra savings in 2011–12 to match the one-off savings made in 2010–11, to reach the target of £20 billion recurrent savings. However, not all the recurrent savings schemes will have been in place for the entire year. This means that recurrent savings made in 2010–11 may deliver greater savings in future years.
Figure 2
ACHIEVEMENT OF SAVINGS PLANS HAS WORSENED SINCE 2009–10
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9. NHS trusts are delivering more savings than PCTs when measured as a proportion of their gross expenditure. PCTs spend much more money than the NHS trust sector, so a 4% saving on PCTs' total gross operating costs in 2010–11 would have been £4.1 billion, compared with £1.1 billion of NHS trusts' combined gross operating expenditure. However, national tariff prices for healthcare determine a significant proportion of PCTs' expenditure. The tariff has in-built efficiency savings, which are not included in the PCT savings figures because they are counted in the savings made by NHS trusts delivering the healthcare. Department of Health guidance asks NHS bodies to ensure that planned savings are recorded consistently and the same savings are not double-counted by both PCTs and NHS trusts.
10. There is also geographical variation in the reported savings, with greater savings reported in the southern strategic health authority areas. This could be a reflection of general financial health, where health economies in the north have better financial positions and so have less need to make savings in 2010–11 to achieve financial balance.
11. Total efficiency savings reported by NHS trusts and PCTs in 2010–11 amounted to £3.1 billion. Monitor reported that FTs delivered savings of 3.9% of their operating costs, which equates to £1.2 billion. The total NHS efficiency savings reported is £4.3 billion—roughly 4% of total NHS expenditure. Also, some of the savings found were non-recurrent. If the proportions of non-recurrent and recurrent savings are the same as those in the sample of savings plans reviewed by auditors, the recurrent savings achieved in 2010–11 would be £3.3 billion.
The Changes Proposed and Whether the NHS is Succeeding in Making Efficiency gains rather than Cuts
12 Auditors recorded the main savings areas in 2010–11. These are summarised into themes, as shown in Figure 3.
Figure 3
THE MAIN SAVINGS AREAS IN 2010–11 WERE MADE IN CLINICAL REDESIGN AND WORKFORCE
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13. Most of the savings have been made through clinical productivity and efficiency, pay and workforce savings. The clinical productivity and efficiency category includes savings such as demand management, reduced length of stay, moving to day case surgery or outpatient treatments, bed closures and contract renegotiation. Pay and workforce includes reducing management costs, reducing overtime costs, vacancy freezes and decreases in the use of bank and agency staff, and changes to staff grade mix.
14. The planned savings areas in 2011–12 reported to auditors mainly focused on clinical productivity and making transformational savings. Auditors carried out the reviews where they judged the delivery of the CIP to be a local risk. Following their review, 46% of auditors reported concerns about the overall arrangements in place to deliver the CIP.
15. The main reasons for slippage in CIPs reported by auditors were delays in starting projects and over-optimistic savings plans, or schemes that did not produce any savings. Some auditors found slippage occurred because of poor governance and an inability to take corrective action. This was compounded by being unable to find substitute savings plans. However, for many of those organisations that did find substitute programmes, the savings were non-recurrent. The main slippage in specific programmes was in failing to reduce emergency admissions as expected, failure to manage demand and to reduce length of stay.
The impact on the Provision of Adult Social Care of the 2010 Spending Review Settlement and the Removal of Ring Fencing for Social Care Grants
16. The picture of the impact on adult social care in 2011–12 from the 2010 spending review is far from clear. Data from several surveys is available, which each give different results.
The Association of Directors of Adult Social Services survey suggests spending on adult social care has fallen by 6.8%.
Age UK found that spending on older people had fallen by 8.4%.
The Department for Communities and Local Government found the fall was less than 1%.
A CIPFA/BBC survey suggested a 2.6% fall but with significant regional variation.
17. We expect to publish further information in the autumn from our own analysis and auditors' work on local authority spending plans, including adult social care, and will send the Committee a copy when available.
The Ability of Local Authorities to make the Necessary Efficiency Savings in Social Care
18. There is significant variation in unit costs for providing residential care or day care for older people, and for people with a learning disability. For example, the average weekly spend per person on residential care for people with learning disabilities provided by councils varied from £262 to £11,282 in 2009–10. (Tables 1 and 2). The large differences in unit costs suggest the quality of the data may be variable. It also suggests that there is scope for some councils to review how much they are spending and how they compare to others.
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19. Councils are already taking action that will improve value for money in adult social care in both the short and long term. While we identified some innovations, such as Trafford's project to involve local people in retendering services, councils are, in the main, using tried and tested techniques to improve efficiency. Councils are making efficiencies in several areas—for example, preventative services—and have been doing so without raising eligibility criteria or increasing charges.
20. Transactional efficiencies, such as better procurement, will offer cash-releasing savings within this Spending Review period. Transformational efficiencies, such as personalisation, may result in better outcomes for people but are unlikely to yield material savings in the short term, and possibly in the longer term as well.
21. Councils face clear risks, such as demographic change, and strategic choices, like whether to outsource services, in deciding on their savings and service strategies. The policy imperative is to transform services to deliver better outcomes for users. But the pace of change is slow and is unlikely to deliver short-term, or even possibly long-term, savings. Indeed, they may require short-term investment. Focusing management time on transactional efficiencies may deliver savings but will not deliver all the efficiencies required.
The Use of the Additional £1 billion Funding for Social Care made available through the NHS Budget
22. It is too early for robust evidence on how the additional funding is being used. The experience and views of our local auditors is that areas with a strong history of partnership working are collaborating on how best to use the funding to benefit the whole system. Where relationships are less strong, it seems that agreeing shared priorities and allocating funding has been less smooth.
Progress on Making Efficiencies through the Integration of Health and Social Care Services
23. Analysis of adult social services efficiency savings in 2009–10 and 2010–11 showed that integration and working more closely with the NHS was one of the least common ways of achieving efficiencies. However, Figure 4 shows more councils plan to focus more on this area of partnership working in future.
Figure 4
COUNCIL EFFICIENCIES IN 2009–10 AND PLANNED EFFICIENCIES FOR 2010–11
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24. Analysis conducted for our forthcoming briefing on the NHS and social care interface suggests there is wide variation in performance on the measures that indicate joint working across the NHS and social care. For example, emergency admissions of people aged over 65 and admissions to care homes.
25. In addition, the evidence on the impact of partnership initiatives is not strong, as the recent work by the Nuffield Trust on the impact of a sample of Partnerships for Older People Projects initiatives shows.
26. We are currently working on a briefing on value for money in the health and social care interface and we will send the Committee a copy when it is published in October 2011.
Progress on and Implications of Changing the Tariff Structure
27. As part of our work in 2010–11 on Payment by Results assurance, auditors reviewed the accuracy of reference costs. This work is relevant to this inquiry and we will send the Committee further information on the implications for changing the tariff, once our report is published in September 2011.
September 2011