UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 651-ii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Health Committee

PUBLIC EXPENDITURE

Tuesday 13 november 2012

chris hopson, jim mackey, philippa slinger and tony spotswood

SIR DAVID NICHOLSON KCB CBE and DAVID FLORY CBE

Evidence heard in Public Questions 75 - 213

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Oral Evidence

Taken before the Health Committee

on Tuesday 13 November 2012

Members present:

Mr Stephen Dorrell (Chair)

Rosie Cooper

Andrew George

Barbara Keeley

Grahame M. Morris

David Tredinnick

Valerie Vaz

Dr Sarah Wollaston

________________

Examination of Witnesses

Witnesses: Chris Hopson, Chief Executive, Foundation Trust Network, Jim Mackey, Chief Executive, Northumbria Healthcare NHS Foundation Trust, Philippa Slinger, Chief Executive, Heatherwood and Wexham Park NHS Foundation Trust, and, Tony Spotswood, Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust, gave evidence.

Q75 Chair: Good morning. We are, unusually for us, starting slightly early but we have a fairly full day today. We are seeing Sir David Nicholson and he is due here at 10.15 so we are keen to be ready on time. Then we are seeing the Secretary of State later on today. So, in effect, you are having a word in our ear before the Chief Executive and the Secretary of State come before us. Could I ask you briefly to introduce yourselves and say where you come from?

Chris Hopson: I am Chris Hopson. I am the new Chief Executive of the Foundation Trust Network. As you know, we are the membership organisation for 220 NHS trusts and foundation trusts and we represent a mixture of community, acute, ambulance and mental health trusts representing around £70 billion of turnover with 630,000 staff. I have brought with me a range of different types of chief executive.

Q76 Chair: Could you tell us which type of chief executive you are?

Jim Mackey: I am Jim Mackey, Chief Executive of Northumbria Healthcare, which is an integrated care provider-the most northerly in England-mainly acute services with some community, psychiatry and adult social care as well, covering 2,500 square miles.

Philippa Slinger: I am Philippa Slinger, Chief Executive of Heatherwood and Wexham Park NHS acute foundation trust. We cover a population of about 450,000. We are a twosite hospital and are financially challenged.

Tony Spotswood: Good morning. I am Tony Spotswood. I am the Chief Executive of the Royal Bournemouth and Christchurch Hospitals. I have been there as Chief Executive for 13 years. We serve a population ranging between 350,000 up to a million for more specialised services. We are working through what will be the first FT to FT merger with Poole Hospital and are currently before the Office of Fair Trading who are reviewing our proposed merger.

Q77 Chair: Thank you very much. We would like to begin by reminding ourselves of the work the Committee has been doing since the beginning of this Parliament on what we have dubbed the Nicholson challenge: the requirement to continue to meet demands for care out of a broadly flat realterms budget. That has clearly had huge impact on the work of each trust and foundation trust in the Health Service. The claim is being made by the Department-and we shall be exploring it with both the Chief Executive and the Secretary of State later today-that the NHS is on course to deliver the Nicholson challenge, the efficiency savings required to meet demand out of a stable realterms budget. We would like to understand what that means at the level of the individual trust providing healthcare to patients on a daybyday basis. Perhaps I could ask you to-

Chris Hopson: In the supplementary evidence that we have provided, which I hope you have had a chance to look at, there is a survey we have done of all of our members. We got quite a good response rate. Broadly, the message it gives is that, at the moment, we are on course to achieve the challenge. We have shown that the vast majority of trusts will be meeting their costsaving targets this year. They will also be on course to meet their access targets and, as we showed in here specifically, the vast majority feel that it is not impacting on patient care and the quality of patient care. The issue going forward is how difficult it will be to continue that trajectory. I will ask my colleagues to give you a sense of what it looks like on the ground, so Jim-

Q78 Chair: As you do that, accepting that point, one of the questions that is regularly put to us is, "How much of this is repeatable?" Are there shortterm fixes that allow us to get through this year or are there serious service changes going on that allow us to meet demand on a longer term basis?

Jim Mackey: Most of us are focused on trying to look very long term and very sustainable in terms of service configuration and quality. In every year, there is always going to be a little bit of shortterm nonrecurrent stuff, but our underlying focus is on delivering longterm sustainable improvements. We are trying to look at quality and financial performance together: they are interlinked. We have a very clinically run organisation. We use our clinicians and management capacities to help drive those decisions. We are also trying to engage with our governors and members, so that we are looking at the right things and focused on the right areas.

Q79 Chair: In terms of your budget, is it stable or falling in real terms?

Jim Mackey: It is broadly stable.

Q80 Chair: Can you give us a couple of examples of how you are making longterm changes to meet rising demand, assuming demand is rising?

Jim Mackey: We are fundamentally reviewing our services on an ongoing basis and are working with our CCGs to look at how some of the pathways work. Most of our demand is around frail elderly people, so we are trying to work out how, together, we will get as upstream as possible, identify risk in a community context, support people at home and prevent an admission wherever possible. That is not all just healthcare. It is social care as well, family support and all those sorts of issues. It is one example of trying not to get there too late, trying to go as upstream as possible and build the system before somebody is institutionalised.

Tony Spotswood: Despite these efforts-over the last four years we have made £34 million of recurrent savings on a budget of £240 million and yet at the same time, we have seen since 200809 our emergency admissions rise by 25%, so I am now having to manage 6,000 more admissions than I was four years ago and that adds a further pressure. One of the things that we need to address going forward alongside some of the changes that I am making, both organisationally and service wise, is how we underpin and fund the provision of emergency care where emergency care is not flat-it is going up-and therefore there needs to be a safety net to effectively fund that.

Q81 Chair: Are there steps you are taking to temper the rise in emergency admissions?

Tony Spotswood: There are. We work on a daybyday basis with colleagues in primary care and in community service. We have noticed that the public at large often see the hospital as the default place, particularly out of hours and that, in itself, leads to more demand.

Q82 Chair: What about Wexham Park?

Philippa Slinger: Our situation is very similar to Jim and Tony’s, but in addition, because we are financially challenged, we have quite a lot of work around internal efficiency. At the moment, we benchmark as costing slightly more than other equivalent acute trusts would, so our challenge is the efficiency, plus what we need to do to get ourselves in shape. Quite a lot of our work is around looking at utilisation of activity such as our theatre efficiencies, "Do we make certain that we are using our theatre time properly?" or our outpatient booking systems, "Are we absolutely sure that we have our clinics right with the right numbers of followups and new appointments?", because we need to use the staff we have to their maximum productivity. We have that, along with the sort of things that Tony and Jim are talking about, which are the front door and back door because the demand management is twofold. It is about stopping people coming in, but it is also about making certain that people only stay as long as they need to stay because hospitals can be unhelpful for you if you stay longer than needed. It is both ends that you need to keep an eye on all the time.

Q83 Chair: I have one final question and then I will turn to Grahame Morris. This is only year 1 of what was originally talked about as a £15 billion to £20 billion challenge to 201415. What is increasingly clear-and indeed Sir David has himself said it does not come to an end in 2015-is that it is a way of life. Is this a pace of change that can be continued at the current rate?

Jim Mackey: People have probably done all of the easy stuff so it is going to get harder and harder as time goes on and we need to change the game a little. One of the things we have is a big patient experience programme. We are using that to engage with patients to help them identify for us where we are duplicating things-asking them the same things twice and duplicating tests-and trying to be a bit more surgical about where our improvements lie in the future.

Chris Hopson: It seems to us that there is a very deliberate attempt here-and we completely understand the rationale-in terms of looking at where to make the savings. There is a real sense that the financial risk lies much more strongly on the provider side than it does on the commissioner side. There are some very good reasons for that. It is the more stable part of the sector at the point when, for example, CCGs are in the process of creating a perfectly understandable desire to ensure that they start with a clean financial slate and the real sense, particularly on the acute side, that if you take the five, 10 or 15year view, you would want to pull the demand out of the acute side and effectively, therefore, you probably would, in an ideal world, over the next 15 years see less capacity in acute.

What concerns us-and it really came through, I think, in the evidence-and what we were very struck by, is the fact that every single trust bar one is reporting increased demand. There is a real concern about how we get this balance of risk right, particularly at a point when the demand is not just coming out-actually, it is increasing-and about ensuring that we do not load too much risk on the providers. At the moment-I think the figures are fairly well known-about 10% of providers are in or heading towards financial unsustainability. If the risk keeps being loaded on the provider sector, going forward, those numbers will escalate and they could escalate quite quickly. So there is a real, interesting issue for those who have the system leadership at the Department, the NHS Executive level-I know I am talking old structures rather than new structures, but there is a real issue-about how you get the right balance of financial risk between providers and the other categories of health organisation.

Q84 Chair: Can you clarify for us what you mean by "risk" in that context, because in a system where the budget is fixed in real terms, or growing very slowly in real terms but demand is going on rising-both of those seem to me to be givens: the requirement for system change to meet demand out of a flat budget is a requirement that has to be shared right through the system, isn’t it?

Chris Hopson: Yes, absolutely. Tony has already given you an example, which we are in the process of discussing with David Flory and colleagues, of the 30% marginal tariff on emergency admission. I think it is a very good example of where the Department and the NHS Executive have the perfectly understandable objective of trying to reduce emergency admissions and, therefore, using the tariff as a means of trying to incentivise that by saying they will only pay 30% marginal tariff on admissions above 200809 levels. Yet what has happened is, particularly in a large number of hospitals, the demand has risen very significantly. Tony, I think, has figures for his kind of trust, and he is £3.5 million down in terms of the amount of demand he has coming through the door, and how much it costs for him to provide that service and the amount that he is actually reimbursed. So there for me is a very good example of where the risk is clearly sitting on the provider side because the other 70% of the tariff that should be paid is sitting on the commissioner side. It is a very good example for us about-and we are talking to David Flory about this-how we could make an amendment to the tariff for 201314 to just shift the risk away.

Q85 Chair: We would be much further forward if we created a tariff that simply incentivised you to respond to rising A and E admissions, many of which you acknowledge are avoidable.

Tony Spotswood: The important fact is that we need to ensure that where emergency admissions are increasing, then there is sufficient money to ensure that those patients are appropriately cared for. For example, in my particular instance, over the 6,000 increase in emergency admissions since 200809, the actual marginal cost income associated with that is £500,000. When you add in the deduction of income in relation to the readmission policy, I have income that is about £3.3 million less than I had in 200809 to cater for 6,000 additional admissions. This pressure is in addition to the efficiency gain pressure. Therefore, in order to move forward and continue to deal with some of the efficiencies that we have to, we also-as Chris has indicated and the Department, in fairness, have recognised-need to ensure that the tariff is structured appropriately as a safety net for caring for frail, sick, elderly patients in hospital.

Chair: We could continue this dialogue, but Grahame Morris has a question.

Q86 Grahame M. Morris: I would like to take you back to your written submission and I want to challenge something that Chris Hopson said in his opening statement. In your evidence to the Committee, you said that the solution to sustained budgetary pressures faced by the NHS trusts is essentially two-pronged. One is in relation to reconfiguration and you suggest there is not support for that. I do not know whether that is political or institutional support and I wondered what your views were on how you should be supported. The second thing that caused a little alarm is in relation to flexibility of the work force, particularly over pay and terms and conditions of service.

In particular, Chris, if I could challenge what you said initially, that you had been able to deliver these Nicholson efficiency savings without any impact upon patient care, we have had written evidence from the trades unions who commissioned a significant survey-in fact this extract is from Unite the Union-and they say that pay cuts are only a shortterm solution to the Nicholson challenge. We have had evidence from the NHS Confederation indicating that in the acute sector, half the savings have actually come from the public sector pay restraint. They say that cutting staff’s terms and conditions on the assumption that it will automatically deliver the same service but cheaper is a fallacy and that the service has NHS staff overworked, stressed, with rock bottom morale and that this is affecting the quality of services and their ability to meet professional standards. How do you respond to that?

Chris Hopson: I will pick up both of those questions. In terms of quality of care, we specifically asked our members whether the savings that they were making had impacted on quality of care last year and in the current financial year. As I said, again we were very struck by the overwhelming majority-and I mean all but one or two were-basically saying that they do believe that the savings that they are realising are not impacting on quality of care. We can give you specific examples in terms of our colleagues here.

Q87 Grahame M. Morris: How do you come to that conclusion? Is this a question that you have asked the finance directors of the NHS trusts in membership or have they commissioned a survey? How do they assess quality of care? Are you talking about waiting times?

Chris Hopson: We asked people to make a simple summary judgment. We put a copy of the questionnaire on the back of the submission. The question simply was, I think, "Making a summary judgment, do you think that the savings you have made in 201112 have had an adverse impact on the quality of care?" So it was asking people to make a summary judgment. It is a question that, for example, the King’s Fund ask relatively regularly in their quarterly survey. That is the answer that came across. Tony, do you want to pick up specifically in relation to your side?

Tony Spotswood: Yes. I have a couple of comments. One, we know from patient feedback that patients are feeling that the quality of care is improving, when we look at our patient feedback year on year. In terms of boards assuring themselves that these savings to date have not damaged the quality of care, we have done an independent piece of work, for example, looking at nurse stuffing levels, benchmarking those against what would be accepted parameters, and, as a consequence, making some further investment in nurse staffing levels. We are constantly calibrating how the quality of care feels in relation to the need for efficiencies and transformation.

Much of the efficiency so far has come from transformation. It has not been about cutting services. For example, in my organisation over the last three years we have reduced our bed base by 240. We have treated more patients. How patients report the quality of care has improved and it is a better allround experience for patients. Into the future, the key is that is going to be much more difficult and requires more substantial, complex and structural changes, as Jim was indicating earlier.

Chris Hopson: It may also sound quite countercultural and counterintuitive, but I am very struck by the number of trusts that I talk to who say they have made very significant savings on the pay bill but have increased the number of nurses that they have employed. I was in the Chesterfield Royal Hospital for my first hospital visit as the new chief executive about two or three weeks ago and they have taken on 40 new nurses despite the fact that they have made very significant savings across their pay bill as a whole. What they have done-and again all my colleagues here have stories about this-is made much more efficient use of their pay bill, backoffice savings and a number of different areas, so please do not assume that a much lower pay bill equals fewer nurses or poor quality of care. We have three living demonstrations here of how making savings on the pay bill can give better quality of care.

Q88 Grahame M. Morris: I cannot leave that without challenging it, when today a survey carried out by the Royal College of Nursing-and it was extensively reported on the BBC, on national news-indicates that 24,000 nurse posts have gone, with 37,000 under threat. That seems to undermine your argument that individual trusts are recruiting.

Chris Hopson: Philippa, do you want to tell the story in terms of what you have done with your pay bill?

Philippa Slinger: Yes. About a year ago we were spending something in the region of £1.8 million a month on temporary and agency staff, which was completely unsustainable. That is now down to about £500,000 or £600,000 a month, and I have recruited 350 staff in the last year, including qualified nurses and midwives. The point is that it is actually about how you use your work force. I absolutely recognise that some trusts are reconfiguring posts within their trusts. Whether that means people is always the question you have to look at, because many of us have budgets built on very old-fashioned and historic establishments that do not reflect the skill mix that we actually need today and, when you reconfigure those, it looks like posts have gone. But whether or not that is people is another issue.

Making certain that you drive down agency and temporary staff numbers improves the quality of care, massively reduces costs and provides employment. Also, there is looking very creatively at career progression and the opportunities that there are for some of the nonmedical work force-looking at nurse consultant roles and nonmedical prescribing-so that you can begin to shift some of the work that perhaps medics are doing now that they do not need to do because there are very wellskilled nurses and physiotherapists and so on who can do it. So you begin to change the balance of the pay bill more than you are actually looking at posts. That might mean that you have four nursing posts that you are not going to recruit to because you are making nurse consultant posts. We need to be careful how those things sometimes are reported and considered, because my experience is that I am certainly not making any redundancies at all.

Q89 Grahame M. Morris: Without making redundancies, looking at the efficiencies in meeting the Nicholson challenge, the QIPP targets, or however we describe them, in my region, for example, the North Tees and Hartlepool NHS Foundation Trust has issued new contracts of employment with worse sickness terms on offer, at a net saving. So is it a fair assessment that it is actually the work force that is shouldering the burden of the QIPP challenge? You did not answer my question about how you are going to be supported by the Department or politically in terms of making the reconfiguration changes that are needed.

Philippa Slinger: As to the reconfiguration changes-again, it is a big word that describes a number of different things-in the context of my organisation, we are a twosite hospital. There has been a lot of discussion about whether that has a sustainable future and whether or not in fact services should be centralised on to one site. When one starts to discuss with the public issues over access and range of services, it always engenders a very strong debate. People feel very strongly about their local hospital. Sometimes their local hospital and what it does is very different from what they believe. So there is a need, I think generally, for there to be a discussion-particularly as we see more and more care happening in people’s homes-a more general debate about what happens in a district general hospital and what is the highest quality of care that can be offered. As we see more people at home it means that we need to see a greater specialisation in our acute trusts. Whether we can actually have all of those specialties in every hospital is a big question that we need to discuss.

Chair: I think virtually every member of the Committee wants to come in. Valerie has a very quick question.

Q90 Valerie Vaz: Are you saying the figure of 6,000 nurses is wrong, in which case could you challenge the RCN about it?

Philippa Slinger: I would not say it is wrong because I have not seen the survey. What I am saying is that it-

Q91 Valerie Vaz: Do you think it would be wrong, given they have put out a press release and have told everyone? Do you think they would really rely on-

Philippa Slinger: I would not say that the RCN were wrong at all.

Q92 Chair: Does the Foundation Trust Network have a view about the RCN survey?

Chris Hopson: To be honest, it has just come out this morning. We were not shared in on it so it is very difficult for us to comment. We can come back to you if you would like us to.

Q93 Barbara Keeley: My question is on the same point, so could we stick with it? We had a debate here last week about regional pay and I was speaking from the perspective of a Greater Manchester MP. I do not have the exact figures in front of me, but I quoted the loss of posts in nursing, midwifery and health visiting at Salford Royal, Royal Bolton, The Christie and Wrightington, amounting to hundreds. There are two things. One is I know that people have lost those jobs, hundreds of them, because a number of them are my constituents and I hear about these things. I am now seeing a consequent decline in the care offered to constituents who are patients, particularly for things like midwifery where, at the Salford Royal, we have lost maternity services. The consequences of the loss of those posts are being felt because people tell me in some detail that they are being rushed and being kept waiting. Pregnant women are not being dealt with in the same way that they had with earlier pregnancies.

So I just do not accept what you said. We cannot sit here and have you tell us that there are more nursing posts, when our actual experience as Members of Parliament-and in my neck of the woods-is that jobs are being lost in all the trusts around me and that is affecting my constituents. It is affecting them both as people who worked-but not any more-in the NHS, and in patient care. I really think, Chair, that we cannot leave to stand the statement that has been made, that one hospital is taking on more nurses. Many hospitals are cutting hundreds and hundreds of posts and nationally that means 6,000 posts.

Tony Spotswood: Can I help explain there? In my situation, for example, where we have reduced our bed base by 240, we will need fewer nurses because we have fewer beds. The key here is to ensure that the nurse to staff ratios are appropriate to the bed base that we have going forward. So there will be some change to the work force and if we look at our savings, the £34 million over four years, about 57% of those relate to pay. Some of those will relate to nursing. More broadly, it relates to other staff as well. But at the same time I think organisations need to be checking that the staff they have for their facilities is in proper balance. The truth often lies between the external perception of how it is working and-

Q94 Barbara Keeley: But 6,000 jobs nationally is 6,000 jobs. That is 6,000 who were nurses and are not now. What I am saying is that at the same time as understanding that hundreds of my constituents have lost their jobs in the NHS, as nurses or midwives in some cases, some of my other constituents are telling me that as to the care they are receiving as patients, when they attend hospital for appointments, they are finding that midwives are rushed, they are being kept waiting and that the care is not as good as the last time they were pregnant. The evidence of my own constituency absolutely gives the lie to what you said earlier and I don’t think we can accept the position where you say more nurse posts are being created. They are not.

Chris Hopson: It is very difficult for us to be able to comment on specific hospitals which are not represented around the table. I can give you the evidence that we have collected nationally and I can also-

Q95 Barbara Keeley: You can answer about the number of national posts. If you are sitting here and telling us that we have not lost 6,000 nurse posts nationally and that is some kind of "smoke and mirrors" trick with nursing staff ratios-

Chris Hopson: We are not saying that.

Q96 Barbara Keeley: I am glad you are not saying that.

Chris Hopson: What we are saying is that we have three different examples here.

Q97 Rosie Cooper: So you have picked three examples.

Chris Hopson: No, we haven’t. I am sorry, if I may say so, but I don’t think that is entirely fair. It really is not fair. Jim and Tony happen to be on my board, and we wanted you to see Philippa today because she is in a financially challenged trust. I did not ask the question, "Are you three trusts that happen to have employed more nurses?" Genuinely-

Q98 Barbara Keeley: If you came back with Salford Royal, Royal Bolton, Wrightington Hospital and The Christie, you would be reporting that they had cut posts, that we had lost hundreds of nursing posts. It does seem as if you have selected-

Chair: I am not sure we are going to illuminate that much further now.

Q99 Andrew George: I want to come on to the flexibilities that you have in terms of pay restraint, but, just in passing, following Tony’s comment about acuity and nurse to patient ratios, since you raised the issue-this is a thought to leave you with rather than to detain the Committee on a debating point-is it simply that if beds are being removed then, presumably, the acuity of patients goes up as that goes forward? Rather than answering questions about whether it is 6,000, 5,000 or some other figure, the issue should be patient safety at the end of the day and appropriate staffing levels, so trained nurse to patient ratio-

Tony Spotswood: Yes.

Andrew George: -for which the RCN has been calling for a very long time. Rather than ducking that one, that is possibly the issue which we need to be concentrating on. I make that comment in passing, not necessarily to detain us in terms of questioning.

Coming to the question of bearing down on costs, I noticed in paragraphs 20 to 27 of your supplementary evidence that you particularly emphasise that the biggest pressure is pay, and that clearly comes out. Given, as Barbara has said, that we are debating very keenly the politics as well as the practicalities of the potential threat-or the opportunity, depending on which way you see it-of regional pay, or various ways of bearing down on pay costs, I wanted to be very clear and, if I could, Chris, ask you first what freedoms you believe you have under present legislation to step outside the Agenda for Change arrangements and to use employment law, as I understand the 20 trusts in the south-west are looking at doing, to offer a different arrangement in terms of pay for all levels of staff? Do you understand that under legislation for foundation trusts you have greater freedoms to use those flexibilities to offer something outside the Agenda for Change agreement?

Chris Hopson: We were very struck by the results of another survey we did of our members about three or four months ago. You are always interested when you get a survey answer that comes back with every single trust agreeing, but what was interesting was the question that was asked was, "Do you want more flexibility than the current agreements allow?" Every single trust came back and said, "Yes, we do want more flexibility." The issue is that there are differing views among our members about what is the best way of achieving that. As it happens, I have three chief executives here, all of whom are strongly committed to using the national agreement and negotiating a national agreement to achieve that flexibility.

As the Committee probably knows, we are in the process of announcing, or have just announced-I am not quite sure which-where we are in terms of a step forward in that. Equally, if you measure the benefit that that will give most trusts, to be frank it is a relatively small step forward. It is an important one and one that it is appropriate to acknowledge, but there are a number of trusts which feel that, taking a three or fouryear view, they are going to need to go substantially further, which is why you have seen a number of different trusts-and obviously being a south-west MP you will know the south-west consortia are-looking at how they might band together and how they then might use alternative ways of gaining that flexibility.

Q100 Andrew George: That is using existing flexibilities. Your question is, "Would you like more flexibilities?" Are they aware of the flexibilities that they have at present, which clearly the 20 trusts in the south-west believe that they have, otherwise they would not be spending so much money and effort looking at how to exploit those flexibilities now?

Chris Hopson: There are a number of different ways that you might go about this. You have already talked about the fact that one trust is looking at the idea effectively of making its work force redundant and coming back with a new set of terms and conditions. The south-west is still at relatively early days. It seems to me that it is saying NHS trusts would like to have the opportunity that virtually every other employer has had over the last two or three years of having a dialogue with its work force about how to ensure improvement in the quality of service and also balance that off against work force costs. One of the things I find slightly frustrating is that there is a natural assumption that that debate will end up in something that necessarily harms the work force. There are plenty of employers over the last three years who have had a debate with their work force and said, "We are willing to trade off, for example, an employment guarantee going forward, for a change to terms and conditions." So I think it is important not to prejudge what the results of those conversations might be.

Q101 Andrew George: But my question is really a legal one. I am asking you about the legislation as it applies to foundation trusts. As the Department has explained it to me, I understand that existing legislation provides for freedoms for foundation trusts to negotiate outside Agenda for Change, to use employment law to renegotiate with their staff a different set of conditions outwith Agenda for Change. That is a freedom which currently exists and they can exploit if they choose.

Chris Hopson: As I understand it, it does not just apply to foundation trusts. It applies to all trusts.

Q102 Chair: So when they ask for more flexibilities, what do they have in mind?

Chris Hopson: I will give you three or four examples. The kind of things we have been talking about are, first of all, I think there is an issue-and again this really goes back to North Tees and Hartlepool-a real concern about the way the current sick pay arrangements work in terms of-

Q103 Chair: I am sorry, but it is a very precise question. If the legal status already allows them the same freedom as any other employer within the terms of employment law, what more flexibility do they want?

Chris Hopson: They want the ability to have discussions separate from the national agreement to basically talk to their staff about different terms and conditions.

Q104 Chair: The advice is that they have that freedom.

Chris Hopson: Yes and therefore they are in the process of gathering together to see how they exercise that freedom. Tony, you are probably better placed than I to answer. Do you want to give your perspective?

Tony Spotswood: We have been part of the south-west pay consortium. We very recently have taken the decision to come out. We have taken that decision because it is proving a significant distraction for staff in relation to the merger that we are going forward with at this particular time. It is that balance between what you can engineer locally through local discussion and negotiation that would give you greater flexibility and would ensure reward is appropriate and what needs to be done nationally, including the trades unions who are very much of the view that that discussion needs to take place nationally rather than locally, which takes you almost in a circle round to actually trying to manoeuvre some of the change through national rather than local negotiations.

Q105 Rosie Cooper: Thank you. I was anxious to come in earlier and I will ask you a question, but perhaps I will start by addressing Philippa. Do you not count nurse consultants as nurses? Are consultants not doctors? As somebody who chaired a foundation trust, I found that a really strange differentiation.

Philippa Slinger: Yes, of course I do. Again, it depends on what you are counting in terms of your establishment. If you are changing one set of posts to another post, it may be that what you would report is that you have X number of those posts going and, what you might not have said, transferred into those number of posts over there.

Q106 Rosie Cooper: A nurse is a nurse, whether a nurse consultant or not.

Philippa Slinger: Absolutely, yes, of course.

Q107 Rosie Cooper: What we do in these debates is start pirouetting on the head of a pin. The truth is that we ought to be much clearer and absolutely say to people what we really mean and stop ducking and diving and saying that everything is wonderful when it is not. I heard the earlier comments that the panel have made. The Department of Health thinks that while making savings, key quality and access standards have been maintained and improved by the NHS. The NHS Confederation, chief executives generally and finance directors are "concerned that the impact would worsen over the next year with patient experience, waiting times and availability of drugs and treatments cited as the most likely aspects of care to be affected." I just heard one of you say-in fact it was Mr Spotswood-that your patients are getting everything. The truth is that they are not getting all their knee, hip and varicose veins operations. Your commissioners are doing different things. So it is all very easy and blasé and we are getting lots of nice words, but the reality being felt out there by the people who are paying everybody’s wages is that they do not feel they are getting the same sort of care.

Take, for example, Liverpool Women’s NHS Foundation Trust, the hospital I chaired. I read in the newspaper the other day that they closed their doors to pregnant mums. When I was there, I absolutely went bananas if it happened, because it was the easy option. I am sure it happened while I was there, but if it did it was once or twice. It was something I just would not tolerate. Now there it is in the newspapers and the FT network and everyone says "Care is just as good. Everything is fine." It is not fine. It is genuinely frustrating to hear you say, for example, Mr Spotswood, that the number of beds is going down and they are staffed appropriately, yet earlier on you were talking about the pressure on A and E, the pressure on you getting the tariff to match the kind of work you are doing. Something is giving somewhere.

How do you, the panel, explain the difference between what chief executives generally are saying, that there is real pressure and that there is very likely to be a serious gap in care provision, and what you are sitting here telling us and the Department of Health are saying, that it is all fine, "We are making these savings. It is cool"?

Chair: Can I interject? We have 11 minutes-Sir David Nicholson is sitting behind-and there are a number of other themes we want to cover.

Tony Spotswood: Very briefly, there is a clear distinction between how it is on the ground at the moment-what I have reflected back is how it is within my organisation-and some of the challenges that present going forwards, which I think require more profound change than we have gone through to date. Often, what is being reflected back to you in some of the commentaries is a concern about the challenges that lie ahead rather than the impact of the changes that you are seeing now, and some of the transformational work that is being implemented all over the country. And the position that is outlined around good consumer-or good patient-feedback is, from my perspective, absolutely accurate.

Jim Mackey: To add to that, I think we are mixing lots of things up. There is variation across the NHS first of all. We cannot give you a uniform answer for every institution. We can talk for our own trusts and we are doing that honestly today. Also if you ask people "Where are you now?" most will say they are doing well because most organisations will be measuring quality, patient satisfaction, clinical outcomes and financial performance. The evidence for most institutions is that that is at least stable or improving. But, absolutely, if you say, "How will you be doing next year or the year after?" we are all a bit worried about that. You would be worried if we were not worried. We need to be cautious and worried.

Q108 Rosie Cooper: Absolutely. I am conscious of what the Chairman said, but there is a real big debate in here and also a bit of clarity is needed. The truth is that going to the foundation hospitals-the NHS hospitals-there is real demoralisation in what they see as the number of posts being reduced, the amount of work that they are required to do and the fact that that is impacting on patient care. I hear what you are saying, but the truth is that those knees, varicose veins and whatever operations are not being commissioned. The real truth is not just from the anecdotal stuff. Patients sitting in your respective areas will be making a judgment while they listen to this. Do they really think they are getting absolutely everything they need? Will your staff be saying-they will not be saying it to you, but I get it, that staff don’t want to be in that mix-

Jim Mackey: Just quickly, our evidence is that our staff satisfaction has dramatically improved over the last five years. We are now among the best performers in staff satisfaction. We walk around and talk to staff quite a lot and have various means of engaging with them. We do hear things where they are not happy and we act upon them. But on patient satisfaction, our core patient satisfaction levels are around 90% and we measure that across all our wards and outpatients. In any setting, 90% satisfaction is absolutely fantastic.

Rosie Cooper: As a chair who used to chase the staff round the hospital to make sure they filled in the forms, you know, it speaks for itself.

Chair: I suspect we are unlikely to get to total agreement on this. Sarah, before we draw this panel to a close, we need to talk about the integration issue.

Q109 Dr Wollaston: Can I reflect back that you have been critical of the tariff system and particularly the effect that has in not paying you when people are readmitted? How much of that is due to inappropriate early discharge and how much is due to factors outside your control? In what way could we redesign the tariff to make it drive proper integration so that the payments go over the system as a whole?

Chris Hopson: I will ask the others to pick up the detail, but at a macro level our sense is that there is work to be done on the tariff to ensure genuinely and consistently that the prices that are set in the tariff reflect cost. I completely understand why people would want to use the tariff to incentivise particular behaviour. I can see the logic for that. My argument would be, "Please be very careful about doing that when the evidence shows that it is not working satisfactorily." The obvious example we have quoted to you is the emergency admissions. We have a rather better story to tell on emergency readmissions where what we have now done-

Q110 Dr Wollaston: It has been effective. It has driven down emergency readmissions.

Chris Hopson: It has been effective. Now a clinically based audit takes place of emergency readmissions. Whereas before hospitals were simply not being paid for any readmissions, we now go back over the readmissions, both the provider and the commissioner, and work out what happened in each case. Was it due to the provider’s fault or was it due to factors beyond the provider’s control? What we therefore now have is a system where the provider is being paid for those emergency readmissions that are not their fault. That is where I think we need to go. But I think we all accept that there is a lot still to do.

Q111 Dr Wollaston: So that is now happening. Can you give the Committee an idea of the balance between that, how much of them are factors beyond your control?

Tony Spotswood: It is moving in the right direction. I don’t think it has got there yet. The key is that the policy started with penalising trusts where patients were readmitted. Say, for example, where I had an ophthalmic patient readmitted with a heart attack and the hospital was previously penalised and not paid for treating them, that was clearly inappropriate. Through some of the audit work that Chris has referenced, it is improving. I don’t think it has got to where it needs to be, with hospitals being appropriately paid for the patients that are readmitted where the reason for the readmission does not lie with that organisation, so we still have some way to go. It needs to be set right, and clearly the Department are listening to us around that.

In addition to that, there are opportunities, as you were saying, for example, with "year of care" tariffs. For some of this my sense is that it has to be piloted so that we can get the gremlins out of the way early and then look at where it applies and for what conditions going forwards. I would like to see us being more imaginative around best practice tariffs for sevenday care, for example. If we look at increased mortality at weekends we ought to be incentivising organisations through the tariff by meeting some of those costs, of actually addressing sevenday working and trying to balance that off with other pressures. It is not easy, but we need to be heading in that direction. "We are making some progress but there is further progress to be made", would be my perspective.

Chris Hopson: We have done the piece of research in terms of what that audit showed. If you would like a copy, we can send you one. It is quite an interesting piece of work. I cannot remember the exact figure off the top of my head, but the way the tariff was structured made the assumption that all emergency readmissions within a fixed period were a hospital’s fault and it now turns out that, I think, it was at least 50:50, if not slightly more, on the nonhospital side. But we will send you the evidence.

Q112 Dr Wollaston: So it is about 50:50, but where it is due to inappropriate early discharge, do you feel there has been some improvement and having this system has forced you to examine what you are doing?

Chris Hopson: It is a bit patchy, but in the places where that clinical audit process has worked really effectively, yes, absolutely there has. A classic example again-and I know this will be of interest to you, given your background-is that it enabled us to start identifying which doctors’ practices were effectively referring patients to emergency without perhaps the justification being in place. So we have almost got to that kind of granular level and people talk about it in a quite powerful way, about how that has begun to start to change behaviour.

Q113 Dr Wollaston: Is that something you are publishing, if you like, to name and shame those practices, because we do know there is a lot of variability, and that might drive it?

Philippa Slinger: Most systems will have some form of wholesystem structure where the chief executives of the acute, the community trust, the director of social care and CCGs will come together to talk about issues in the system. Issues around readmissions, discharge pathways, the mix between community and inpatient service are generally dealt with in those settings. In our trust, the audit for readmissions has shown that around 19% were attributable purely to us. We use that information to take that to-in our system it is called-the integrated care board and then we talk about, "What about the others? What can we do about nursing home admissions? What can we do about palliative care? What can we do about intermediate care and rapid access to packages of care?" Most systems have those sorts of structures set up for those things to be discussed.

Q114 Dr Wollaston: Are they discussed internally? They are not published so that the public can see which have the variability in practice.

Chris Hopson: They are not at this point.

Philippa Slinger: Certainly that would be a CCG matter. If the CCGs wanted to take it that way, they could.

Q115 Dr Wollaston: So you share the data with the CCG.

Philippa Slinger: Yes, absolutely.

Q116 Dr Wollaston: But it is up to them whether it is published.

Chris Hopson: It is data that is jointly created between the CCG and the acute provider.

Q117 Chair: There is a focus on those statistics, isn’t there? You may say that only 20% of the cases are your fault, there is a further percentage attributable to failings in the trust, but the further question is how many of those would be avoidable if there were different structures in place? How many of them are actually still a waste of money and poor care because the changes have not been made to support proper discharge procedures?

Philippa Slinger: That is absolutely key, particularly around longterm conditions and people who might be managed better in the community if we were able to catch them before they became acutely ill in that condition.

Q118 Chair: Do you have a view about the answer? If 20% clearly should not have been discharged, how many could have been discharged if there had been a proper procedure in place, how many of the remaining 80%?

Philippa Slinger: Or do you mean would not have come in as an admission?

Q119 Chair: Just focusing on readmissions for a second, of the remaining 80%, how many are avoidable readmissions if there were proper procedures?

Philippa Slinger: It is probably about another 40% to 45% of those if we had sufficient strength of community service around longterm condition management, which will come over the next 12 months or so, and probably may not-

Q120 Chair: Did you say, "Will come over the next 12 months"?

Philippa Slinger: Yes. Certainly in my area there is investment in community services, particularly around longterm conditions, to try to ensure that a more focused case management approach happens so that people do not become acutely unwell.

Q121 Chair: It is a startling statistic that you can halve avoidable readmissions in 12 months, if it is true.

Philippa Slinger: That is the hope.

Tony Spotswood: I would say the figures for us are far less and it may be variable in patches across the country. I have among the highest density of people aged over 85. Often we have frail elderly patients, with lots of comorbidities, living alone and they will come into hospital because, sadly, they get poorly and need to be treated. It is not often as a consequence of the hospital doing things wrong that they need to come back in again. There is still, though, the need to integrate better some of the community, primary and hospital care services. That is one of the big challenges for us going forwards. That will help reduce readmissions, but I do not sense that that is a dramatic issue affecting readmissions for us.

Q122 Dr Wollaston: In what way could the tariff be changed, in your view, to drive that change? Should it be the whole year of care, or what would you say?

Tony Spotswood: It could be the whole year of care. I think you have to distinguish between whether the hospital and community care are being provided by one, two or three providers and that is why you need to trial it in order to actually reduce some of the seams between patients moving from one organisation to another. The more you can get truly integrated care, the better. Where care is fragmented in the sense that you have two or three different organisations potentially playing a role, the tariff then tends to become clumsy in ensuring that each is paid appropriately for the care that is being provided. So my sense would be that it really needs to be applied in the right circumstances.

Q123 Chair: This is a conversation which could continue for quite a lot longer, but thank you very much for the evidence you have given us. We need to move on.

Chris Hopson: Thank you for the opportunity to give evidence today. If you want to hear what it is like at the front line on a regular basis, we are very happy to come and share experiences on other inquiries that you have.

Chair: Thank you very much.

Examination of Witnesses

Witnesses: Sir David Nicholson KCB CBE, NHS Chief Executive and Chief Executive, NHS Commissioning Board Authority, and David Flory CBE, Deputy NHS Chief Executive and Director General of NHS Finance, Performance and Operations, Department of Health, gave evidence.

Q124 Chair: Good morning. I normally ask witnesses to introduce themselves. I am not sure it is necessary, in truth, with either Sir David or Mr Flory, but you are both very welcome back to the Committee. This is an important inquiry, reviewing where we have got to in what we-perhaps unhelpfully to you, Sir David-dub the Nicholson challenge. It is very much at the centre of the Committee’s work and what we think is important in the delivery of care in the circumstances in which we live.

I would like to begin, if I may, by picking up the number of £5.8 billion, which is the achieved savings recorded in the first year of the Nicholson challenge. We asked Mike Farrar, when he came here, how he thought these were made up, the Department’s published numbers that show by trust, by category of health institution, where the £5.8 billion arises. What we do not have is any very clear sense of the methodology that lies behind the calculation of this number and what the £5.8 billion is actually measuring. Could we start by trying to understand that a bit more clearly?

Sir David Nicholson: Yes. I am sure David will talk about some of the detail, but when you explained to the previous people the nature of the challenge, that was a really helpful way of doing it in the sense that what we did was, calculated what we thought the demand would be in the future and then said, "Okay, in order to sustain the service within that increased demand, what would you need to do?" Some of those things are about taking that demand away. So that can add, in a sense, to a total amount of savings made, but, as they say in the jargon, it is a counterfactual thing. For example, we made some assessments about how pay had gone up over the past and built that into our demand calculations, so when we had the pay freeze that gave us an element of savings within that. It is not just about cash delivered. It is also about demand reduced. In that sense, the way it is calculated is quite complex. We set up a group of processes that the PCTs ran. The PCTs themselves have signed off those and the NAO are about to publish a report on QIPP. We think that the £5.8 billion is a reasonable assessment of both the demand savings we made and the real cash savings that we made.

Q125 Chair: Picking up one element of it which you have raised, the contribution made to £5.8 billion as a result of pay not going up as fast as might otherwise have been expected, how much of the £5.8 billion is attributable to that?

Sir David Nicholson: £850 million.

Q126 Chair: So virtually £5 billion is unrelated to pay.

Sir David Nicholson: No. There are other savings that we have made in relation to pay. For example, there is the general productivity and efficiency savings that some of our colleagues talked about. An element of that is pay. There are the significant reductions we have had on agency spend in the system and the reductions in sickness absence. All of those things attach to pay. We have also had a reduction in pay drift, the expected pay drift that you might get in a system, which again has all added to a figure which is probably £1.5 billion altogether.

Q127 Chair: So £850 million is simply pay rates not going up as fast as they previously would have done.

Sir David Nicholson: Yes, that is right.

Q128 Chair: And another £650 million is attributable to slower grade drift. Is that what I heard?

David Flory: The £850 million is essentially the avoidance of what we had assumed would otherwise have been a 2% pay award. So that is £850 million. On top of that, the evidence of reduction in agency spend is somewhere in the order of £240 million in 201112. Reduced expenditure due to reduced levels of sickness among staff is £160 million. Then, the number that we do not have such a precise analysis of, but we can see evidence of coming through in a number of local plans, is the point Sir David makes about managing a reduced rate of increase in pay drift which we have seen each year. So we make an assumption about what we think that will be and it all comes back in the way that Sir David describes.

Q129 Chair: Rather than going through every one of the numbers till we get to a total of £5.8 billion, based on the fact that you can quote these numbers of £850 million down to numbers of £160 million attributable to the changes in sickness, it would be very helpful to see how those different elements sum to £5.8 billion in order to get a sense of what the £5.8 billion represents in terms of changes or absence of change in healthcare delivery.

Sir David Nicholson: For those figures where we have a really good topdown assessment, that is relatively straightforward to do. The issue we have constantly struggled with is the bottomup bit. What we did right at the beginning was said that we are not trying to create some master plan which identified every change that every organisation was trying to do and how much it would save and then build all of that into the centre. That would be the wrong thing to do in terms of the way they save. So we can give you really good figures about the central stuff. It is more difficult for us to give you the detail that you want, but we can give you an assessment of what we think happened locally.

Chair: A final point on this is-and I would grateful if you can give us what you can-against the thought process that if you have summed figures to £5.8 billion, there must be a methodology behind it. It is not a random number.

Sir David Nicholson: Yes.

Chair: So understanding how that number is made up is important.

Sir David Nicholson: Fine.

Q130 Barbara Keeley: I want to say something about the notion of quick wins that is probably part of that. The NHS Confederation says that the savings are mostly quick wins in that. You have been through the detail of the staffing side of it. In terms of efficiency savings and whether it is efficient to have these quick wins, my local PCT, for instance, as part of its first efficiency savings, closed two walkin centres, one in an underdoctored area and, secondly, ended a pilot of active case management. We have just heard an example where analysis shows that 80% of readmissions could be avoided if outside factors are looked at. Philippa Slinger was talking about strengthening the case management of people with longterm conditions. Can you comment on that? It seems to me-taking my local example-that it would be unfortunate if this pressure for quick wins actually destroyed something which was in the end going to be a better saving in the trust eventually.

Sir David Nicholson: The term quick wins-and I am not going to pirouette on the end of a pin here, I hope-has different meanings to different people. If by quick wins you mean things that we can do quickly which improve productivity and support improving service to patients, that is a good thing and I would support it. If you are saying that they are making shortterm cuts in order to balance the books, it is short sighted and will not deliver the medium and longterm savings that we need.

Barbara Keeley: Indeed, and that was obvious.

Sir David Nicholson: If we see that happening, we intervene to try to stop or alter it.

Q131 Barbara Keeley: Nobody appeared to intervene to stop it in my local area. That has to be taken with the fact that these things are happening in other organisations too. Because of local government costs, for instance, the whole picture in social care means that other organisations had to cut. Our local Age Concern used to run an active case management service for people with longterm conditions. If the PCT stops doing something and the voluntary sector stops doing something, all of a sudden the trusts will be finding that people have to stay in. So the whole picture of readmissions that we have just heard about will develop as it is. Where is the sense in cuts happening in one part of the system which are hurting other parts of the system, as we have just heard?

Sir David Nicholson: The whole basis of the approach that we have taken-Quality, Innovation, Productivity and Prevention-is for people to work together across systems. There is little point in doing what you describe. I do not know the particular case that you describe, but what we do know is that there are quite a lot of integrated care pilots that have proved not to be effective. So people have set up case management and it has not worked. It seems to me pointless to carry on doing something if it actually does not work.

Q132 Barbara Keeley: My constituents found it very effective indeed and complained when it stopped. I only heard that it had stopped through my constituents complaining that this support had suddenly vanished. Perhaps it is the case that you should be looking at trying to make sure things like this do not happen and that there are positive steps to institute new programmes, new pilots, of active case management because that certainly ties in with what we just heard from the other panel.

Sir David Nicholson: Indeed, we are.

Q133 Chair: I was struck by what you said. Nobody is in favour of pursuing things that do not work, but as to integrated case management, if the opposite of integrated case management is disintegrated case management, we can surely start from the proposition that that does not deliver what we want.

Sir David Nicholson: Yes, but one of the things that was shown really clearly in the work that was done in London around all of this is that you have to do the whole thing. If you do a bit of it, you simply will not deliver change. They identify the patient registry, the risk stratification, the individual case management, the multidisciplinary working and the pooled budget. You have to do all of those things together to get the benefit. There are cases where people, in a sense, go for a quick win and say "case management is the thing to do" and they set up a part of it without going through the detail and complexity of building and organising a proper integrated service. In the pilots that we have had, we can see that has happened.

Q134 Rosie Cooper: May I quickly come in there? David, I very much appreciate what you have just said but, for me, there is a disconnect. You just said to Barbara that if you see somebody going to do something silly, be it a quick win, or however it is described or not, you would step in to intervene. But in six months’ time-or three months, whenever it is-you are going to have CCGs perhaps intending do all these different things. If they are wrong, are you going to intervene? How do you know?

Sir David Nicholson: The point I was making was that it was described as a shortterm cut to service which would have a deleterious effect on patients and the system as a whole. Of course, if we know about these things we can intervene and raise the issue, talk to people, explain it and put the incentives in the right place to make it happen. We can do all of those things. We are not going to sit there and watch the wrong things happening. I am not anyway.

Q135 Rosie Cooper: For example, Barbara has talked about the closure of a health centre. In my patch, we have a real serious conflict of interest where a doctor is on the board of West Lancashire Health Centre, which is delivering care at Ormskirk Hospital 8am to 8pm, but was also the lead member of the CCG. They were actually looking around to see what they could find. This was not appropriate, had nothing to do with them and was a very serious conflict of interest. I have taken it to Janet SooChung and the doctor has now resigned, but the truth is that there are all these people now, with a lot of what they consider to be power, horizon scanning to make the decisions that will possibly bring to them a shortterm quick win, whatever it is, whatever financial or-as they would see it-system incentive. You cannot look at them all, so how are you going to make sure that these mistakes are not replicated?

Sir David Nicholson: The first thing I would say is that at the moment we are going through a process of authorisation for all CCGs. All clinical commissioning groups are having to set out what they are doing, what their plans are for the future, how they are going to improve service and integrate care and how they are going to develop their services for people with longterm conditions. We are reviewing all of those as we are going along. We have 211 and we are well on to doing that. That shows that the CCGs are, in my experience, in terms of the way we have set the NHS up in the past, uniquely skilled at doing this. The fact that they are led by general practitioners, and therefore the clinicians are involved in the kind of service redesign that you need to do those sorts of things, means they are uniquely placed to do it. I am incredibly impressed by the way that they are doing it, and that is going on all round the country. By the end of February this year, we will have done all 211 and have a complete picture across the country. We will then be asking all of the CCGs to put together their plans for the next two or three years. Out of that planning system, we will be able to identify who is doing great things and connect those people together. So I don’t recognise the picture that you described there.

Rosie Cooper: Very quickly, I will draw this to a conclusion by saying that the West Lancashire CCG is obviously a subcommittee of the remnants of the PCT subcommittee. They never go there, do not meet and, when you ask, Janet and company do not have any of the minutes. They were looking at the use of Skelmserdale walkin centre, one of the areas of my constituency, which is, you could say, underdoctored but heavily deprived. The only reason I found out about that is because I asked for the minutes and I went through them. That is not good enough.

Chair: That requires further examination at local level.

Q136 Grahame M. Morris: I want a little more detail about your initial points as to how the £5.8 billion is made up and whether that is kind of a oneoff or is a recurrent structural change. I am sure David Flory will know this table, which was submitted as evidence, inside out, and it is quoted in a number of departmental documents. It gives the breakdown by region and category in terms of the QIPP challenge. What proportion of the £5.8 billion comes from asset sales of land and property, for example? I cannot see that, unless I am missing something in the table?

David Flory: It is a very small proportion. I do not know the precise number, but all of our analysis tells us that over 90% of the savings that are being made, and which we account for in tables such as the one that you have referenced, are recurring savings. They are changes to the system. Clearly, a land sale would not be that. There is a oneoff cash benefit and in most, but not all, cases there is a profit on sale that would be credited to the accounts of the organisation in that one year only. But once it has gone, it has gone. So we recognise that there are a number of oneoff nonrecurring items that are part of the £5.8 billion.

Q137 Grahame M. Morris: Do you have an estimate?

David Flory: My estimate would be somewhere in the order of 7% or 8% in total.

Q138 Grahame M. Morris: Could I go a little further? Our previous witness, Chris Hopson, told us that the acute sector employ 630,000 staff and account for £70 billion of NHS spend. What proportion-it is on the theme of the implications of the end of the pay freeze in 2013-of the NHS budget is staff remuneration: salaries and wages?

David Flory: It is about 70%.

Q139 Grahame M. Morris: What is your assessment, after 2013, of the impact of the end of the public sector pay freeze on the ability of the organisations to meet their Nicholson and QIPP challenges?

David Flory: I think that the pay freeze has contributed £850 million in 201112 and we would expect, clearly, in the second year of the freeze the same number. Factoring in beyond that, there is the 1% potential increase in pay. So the level of saving on pay will be less than we have seen in the first two years but still a level of saving below what the sort of previous level of pay award would have been.

Grahame M. Morris: It is recurrent.

David Flory: Yes.

Q140 Grahame M. Morris: I think you were at the back of the room in the previous evidence session and you may have heard the line of questioning on the implications of the NHS trusts’ view on the need for flexible working. I wondered what your views were on that in relation to meeting the Nicholson challenge and the pressures to change terms and conditions. We had a discussion about the south-west consortia and about the North Tees and Hartlepool Trust in my region. Do you see that as part of the way forward? Do you agree with the NHS FTs in that?

David Flory: I think the conclusion that the discussion came to with the previous witnesses was the right one. Flexibilities both for NHS foundation trusts and NHS trusts are there. A lot of trusts are thinking through how they can more creatively, if you like, in discussions with trades unions, take forward those discussions locally. But I also observe that there aren’t hundreds of organisations all rushing off just to do their own thing and work it out, that they want to work together on this and I think that they will continue to do so. The formal position is that the flexibilities are there to be exploited.

Q141 Grahame M. Morris: Forgive me if I challenge that for a moment because in response to my colleague Barbara Keeley a few moments ago you suggested that if there was a shortterm solution put forward to close a particular unit or service the Department would step in and stop that happening. It did not happen in my colleague’s case, but what is the Department’s view of unilateral action by an FT in reducing terms and conditions of service? Would you intervene and advise them against that course of action or would you support those moves towards regional pay, local variations?

David Flory: In terms of the pay flexibilities-and the group of trusts working together in the south-west was referred to in the previous discussion-we are waiting to see what ideas they come through with and develop. But our focus is absolutely on quality and sustainability of services. It is the extent to which these sorts of arrangements would impact upon access to and quality of service that would concern us. But the trusts who are exploring these options are not doing it in the context of cut of service. They are doing it in a way in which they can more creatively manage their pay bill while continuing to provide and improve services for patients.

Q142 Grahame M. Morris: I have absolutely no doubt that the intentions of the management of the trusts concerned are honourable, but, nevertheless, would you accept the results of the work force survey which says that a longterm pay freeze and undermining of terms and conditions of service has a demoralising impact upon the work force in the NHS, the nurses and the staff who deliver the service at the front line and that that inevitably has an adverse impact upon the quality of care?

David Flory: Yes, there is all the evidence there and again I observed the reference in the previous discussion from the chief executive from Northumbria who is absolutely focused on staff satisfaction levels. Happy staff equals better morale, equals better care. There is plenty of evidence of the correlation between those things. It is a very fine balance and there are difficult decisions to make. We do not easily go into a period of pay freeze. It is a necessity of the economic environment that there has been, and continued pay restraint, I believe, is also consistent with the financial challenges that we face. But moving away from the freeze after two years to begin to be able to make some increases for some staff I think recognises the very point that you have made.

Q143 Barbara Keeley: It is interesting to note, if I can make this point, that Tony Spotswood said that they have withdrawn from the consortium because it would have affected staff morale, that they had other challenges and did not want the staff to be distracted by that. It is an interesting reflection on the impact it is having, and certainly was having, that he had to do that.

David Flory: Yes.

Sir David Nicholson: But the reality here is that, the bigger the pay increase, the fewer members of staff we are going to have. There is a direct connection between the two. These are really tough decisions that people on the ground have to make because we live within a total resource envelope. We cannot break that resource envelope.

Q144 Grahame M. Morris: Before you move off that point, it was reported in the HSJ that the Department of Health handed back £3 billion over a twoyear period to the Treasury. Why didn’t we invest that in either more staff or reconfiguring the service in such a way that we could deliver a better and more efficient patientcentred service?

David Flory: We have to get behind the number. A large part of the number that you have referenced was underspent capital moneys associated with particular programmes in the Department that had not progressed or not progressed at the speed that had been anticipated. Of course, capital moneys in that sense are oneoff by their very nature and therefore can only be spent once and could not support ongoing investment in staffing. So I think the headline is a very powerful one of money going back from the Department. If you look at the National Health Service expenditures and surplus for PCTs in the last year, between them, on a budget getting towards £100 billion, in year the net underspend was £200 million. Bearing in mind that every organisation is required to meet the statutory duty of not overspending, that is a remarkable demonstration of the way in which the NHS is spending all the money made available to it. Of course, the small underspends accumulate over a period of time. They do not get taken away. They get left in the NHS and can be drawn down in future years.

Q145 Valerie Vaz: I am sorry, but I have to intervene. You have not answered the question of why did it go back to the Treasury and isn’t there something called "budget exchange"? You have just said there is not enough money to pay staff and you have to choose between increased pay or more staff. Why did you give it back and who gave it back? Whose decision was it to give it back?

David Flory: It is partly rules based and partly a determination between the Department and the Treasury and some money was included in the budget exchange and was able to be carried forward to be spent in future years. But essentially the money was oneoff in nature. It is not an inbuilt underspend in the system.

Valerie Vaz: Whose decision was it to give it back?

Q146 Rosie Cooper: Mr Flory, why was £316 million carried over in the previous financial year? How much did we carry over, if anything? We cannot have done because we paid it back and I understand that, but what is the difference between that £316 million the year before and paying the Treasury back? Are you saying that most of that money was due to sale of property, when earlier on you said that was only 7% or 8% of the total of your previous figures? So is there a problem there?

David Flory: No. I don’t think there is. I think we are at risk of conflating different issues. When we refer to money that is available to be invested in the NHS and in staff, we can see that the yearonyear underspend by PCTs in commissioning service is very small in the context of the budget.

Q147 Chair: Can we break these numbers down? Are we saying that the underspend by PCTs commissioning service is £200 million, not £3 billion?

David Flory: In 201112, inyear underspend was £200 million.

Q148 Chair: Can that be carried forward?

David Flory: Yes.

Q149 Chair: So that is available to be spent this year.

David Flory: That is an opening balance in the NHS at the start of the next year.

Q150 Chair: So it is not handed back.

David Flory: No.

Q151 Chair: There is then the underspend last year on capital budget, which was how much?

David Flory: The capital budget was a large part of the £3 billion that Members have referenced in terms of the return to Treasury.

Q152 Chair: The next question is whether that can be carried forward.

David Flory: There is an element of that which is carried forward in accordance with Treasury rules and budget exchange.

Q153 Chair: Are you challenging the proposition that last year the Health Service on capital and revenue together underspent its allocated budget by £3 billion?

David Flory: Not all of that money which resulted in the underspend was allocated to local NHS organisations. That is the point. The main part of the capital underspend was on national programmes and was an underspend on that programme, for example on the "Connecting for Health" programme.

Q154 Chair: It was £400 million, I think, from memory, on the "Connecting for Health". Is that available to be spent this year?

David Flory: No, not all of that £3 billion is available to be spent this year.

Chair: It would be very helpful to the Committee, if I may suggest it, to have, both for 201011 and 201112, what was the announced budget, what was the actual spend, capital and revenue and how much of the underspend of the announced capital and revenue budgets was available to be carried forward and effectively, therefore, the underspend in 201011 increased the budget allocation in 201112 by the amount of the overspend.

Andrew George: Could we also add to that Valerie’s question, which is who made the decision? Was it the clawback by the Treasury as is suggested in the HSJ or was it a ministerial decision to hand this money back because they were applying a certain rule? That would be helpful if you are providing that information.

Q155 Dr Wollaston: It doesn’t alter the fact that this is an allocation of money that is set aside for the NHS and has not been spent and that there are very many costs which are oneoff costs involved in transformational change. At the moment we are seeing that the Department of Health has said that these transformational changes are going to happen towards the end of the period of the spending review. Would it not have been better to have used that money, which could have achieved so much, within transforming NHS services at this stage?

Sir David Nicholson: Within the PCT allocations we identified that each PCT should reserve 2% of its budget for spending on that kind of oneoff thing.

Dr Wollaston: Indeed.

Sir David Nicholson: So we have already identified that within the budgets identified for the PCTs and that is where they have been spending it. My judgment on that is that if there was transformational change required, there was money in the system to enable to us do that.

Q156 Dr Wollaston: Do you think much more could have been achieved if we had had an extra £1 billion instead of that going back to the Treasury? Could it not have been used to actually effect some more of these system changes? Can I ask for your view, Sir David, on that?

Sir David Nicholson: My experience is that putting money into the system at short notice on a oneoff basis invariably ends in the poor utilisation of that resource. People need time and space to plan and organise to make it happen.

Q157 Dr Wollaston: So you don’t want typewriters in March. But to have had that money within the system to allow for longer-term system planning, would you have preferred to have seen that NHS money stay within the NHS and rolled over for the future?

Sir David Nicholson: Clearly, I would prefer to have more money to spend on the NHS. We could do more with it.

Q158 David Tredinnick: Are there not contingency plans there to make sure that money is normally never returned to the Treasury so that you have some fallback position? You have just said that money can be poorly spent if it is done at short notice but surely that says you have not got any mediumterm plan and you must have a plan there in place so that when you get information that there is spare cash around you can say, "We have been working on that for six months. Here is the project."

Sir David Nicholson: Yes, but most of those ideas involve the appointment of staff and you cannot literally switch staff on and off in that kind of way. Our experience is that, as you say, those kinds of schemes rarely give value for money.

Chair: We are in danger of getting bogged down on this. We have asked for a note setting out what the position is on underspends. Can this be very brief, otherwise we are going to run out of time, Barbara?

Barbara Keeley: We touched on transformational change and I don’t know how much we are going to go into that-

Chair: That is where we are coming on to.

Q159 Barbara Keeley: We seem to be moving about, but while we are talking about value for money, I wanted to raise with you, Sir David, an example of a new post, the post of "Head of NHS Brand-Offer to the Public", which was advertised recently. That post was to come up with a "brand strategy for the NHS as a publiclyfunded, free at the point of delivery service". It seems to me, in the context that we have been talking about this morning of pay freeze and, earlier, cuts to nursing, that this is the sort of thing that the public see red about. The NHS is not a brand. The NHS is a service. It is a substantially important service in this country. Why on earth create a post at nearly £100,000 a year plus other posts to go with it-because it is "head of" and not just a oneoff post-to promote and offer to the public something which they value and which has one of the highest satisfaction ratings in the world? Why on earth do ridiculous things like that?

Sir David Nicholson: I would say that happened in the context of a substantial reduction in the amount of money we are spending on administration and management of the system as a whole. We have lost over 10,000 posts over the last-this is in the SHAs and PCTs and the Department-18 months or so. So the idea that we are frivolously spending more money on things than we did in the past is not right.

Q160 Barbara Keeley: But it will still be regarded as frivolous. The comments I have seen regard that as frivolous.

Sir David Nicholson: I understand that. The point of the post is that in the future the NHS will be much broader than just those organisations that we traditionally would have described as the NHS. So the NHS is, in a sense, where NHS patients are treated. That is quite a different definition of the NHS for what traditionally in the 1950s or 1960s might be seen as the NHS.

Q161 Barbara Keeley: Is it because of privatisation? Because of privatisation you need to have somebody to tell these new parts of the new NHS-

Sir David Nicholson: What is very important, wherever those patients are treated, is that those organisations understand what it means to be part of the NHS, understand the culture and the values of the NHS, as it is, that they treat their patients accordingly and have that kind of impact on what they do. It is very important in those circumstances and it is not new for people to be treated outside the NHS with NHS money. We have been doing this for many years in mental health services and more recently in elective services with the development of-whatever those things are called, I have forgotten-the independent sector treatment centres, all of those things. It is not a new thing, but it is really important to us, I think, and to patients to know that these organisations sign up to those values and principles. It is important for the organisation that I am responsible for to have someone, and a function, responsible for ensuring that that happens.

Q162 Barbara Keeley: You will accept that the NHS is not a brand, that we still can regard it as a service and that we are not reducing it to a brand.

Sir David Nicholson: It is absolutely a service. If it was anything else, it was rather unfortunately titled. I agree with that.

Q163 Barbara Keeley: Has there been an appointment? Do we have a head of NHS brand now?

Sir David Nicholson: We have appointed, yes, someone from within the NHS, as it happens.

Q164 Barbara Keeley: So we need to remind the privatised parts of the NHS what service they are part of.

Sir David Nicholson: It is not just the private sector. We do a lot of work with the independent sector as well. It is absolutely important that people understand the values and principles that we expect an organisation to show when they are providing services to the NHS, yes, it is.

Q165 Barbara Keeley: By "the independent sector", do you mean hospices and so on?

Sir David Nicholson: Yes.

Barbara Keeley: And they did not know that their services were not part of the NHS?

Q166 Chair: Will it include, for example, branding the private-sectorprovided pharmacy service which has always been an NHS service provided in the private sector?

Sir David Nicholson: You used the word "branding". People normally mean sticking on the NHS lozenge. Indeed, there is a lot of sticking on of the NHS lozenge going on at the moment from people who have little or nothing to do with us at all. So policing that, making sure that people only use that NHS lozenge when they sign up to the principles, is an important part of what we are trying to do.

Q167 Barbara Keeley: Do you think that is good value for money, having a head of NHS brand and whatever-

Sir David Nicholson: The principle of what I have just described is really important to patients and to the service.

Barbara Keeley: I doubt that my constituents would agree with you.

Chair: Can we move on from this? Barbara has raised it and we have Sir David’s answer.

Q168 Valerie Vaz: Can you give us the name of the person who has been given the job?

Sir David Nicholson: It is Nicola Plumb.

Q169 Andrew George: I want to come back to the issue of pay and pay bargaining, but, just in passing, since we are dealing with the principles-not the branding-of the NHS, presumably one of those principles is that the NHS and those within it put patients before profit. Is that a principle?

Sir David Nicholson: I don’t know whether it is described quite in that way, but I would say that part of taking the NHS money is to put patients first, yes.

Q170 Andrew George: When we are dealing with the issue of pay flexibility-you heard the discussion earlier-I just want to be clear, leaving aside the rights and the wrongs of the ethics of the issue, in terms of the practicalities of how you achieve efficiency savings going forward, first of all, given that we have a pay freeze at the moment, it is a question of the ability to achieve further recurring savings on the basis of national pay bargaining, so do you think that national pay bargaining is useful in the process of being able to contain the cost pressures with regard to pay and staffing?

Sir David Nicholson: Yes.

Q171 Andrew George: Do you think that the flexibilities that are available to foundation trusts, and now, I have learned today, indeed all NHS trusts have those flexibilities, allow them-

Sir David Nicholson: They do.

Andrew George: -to stand outside Agenda for Change and to use employment law-

Sir David Nicholson: Yes.

Andrew George: -and to negotiate their own arrangements locally?

Sir David Nicholson: They do.

Q172 Andrew George: Do you think that that also has a benefit or do you think that might have a destabilising effect in terms of bearing down on those cost pressures?

Sir David Nicholson: I would say it depends. In a sense it is up to local organisations to work that out. Where an organisation requires particular levels of flexibility from its work force to provide a service in a particular way which is not supported by the national arrangements, I can perfectly understand why people might want to do that. Where people are focusing on those areas that may appear out of step with the local economy and local organisations, I can perfectly see how people might want to tackle all of those things. In a sense, it is a matter for them, but there is no sense that I get in the NHS that there is a widespread move away from the national arrangements. In fact, I would say it is the opposite.

Q173 Andrew George: Finally, in terms of the NHS as it is going forward, given that NHS trusts and foundation trusts, as they will all be going forward, will increasingly find themselves under pressure from independent providers who will not necessarily be part of any national pay bargaining or affected by that, do you think that that is likely to drive foundation trusts in the direction of at least achieving or being pressurised by that competition into local pay settlements to reflect those local conditions?

Sir David Nicholson: Again, it depends. It is quite difficult to be absolutely definitive about that. But the principle we are adopting is that competition is on the basis of quality, not price. So where we have a tariff, where we have a national price system, you can see where that would work. There are areas where that is not part of the arrangements-there may be tendering arrangements and all the rest of it-but again NHS commissioners do not have to take the lowest price tender. My guess on all of this is that we will see some marginal changes but nothing dramatic.

Q174 David Tredinnick: If I may, I would like to probe a little on where QIPP savings were made in 201112. Sir David, according to your figures, £2.8 billion of the £5.8 billion-that is fractionally under half-were made in the acute sector while £0.4 billion, 7%, were found from the primary sector. Is the secondary sector carrying too much of the burden?

Sir David Nicholson: Undoubtedly the secondary care sector is carrying a substantial amount of the burden. In relation to our general approach to services-trying to keep service close to home, more services provided on an outpatient and daycase basis rather than as inpatients and the centralisation and specialisation of services-for all of those things you would expect the secondary care sector to take a significant part of the burden of savings. We would think that that would continue in the future.

In terms of primary care, essentially what has happened over the last three or four years is that the payments through the primary care contracts have been broadly stable whereas the work we have expected them to do has gone up. So while they have not taken the cash release, they have taken a burden of increased activity and all the rest of it. Having said that, that is quite difficult to measure and in a sense is one of the reasons that the Government are pursuing the GP contract this year, in a way, to get more for the money that we currently have. In a sense, it is an acknowledgment that we need to get better outcomes from the money we are spending on primary care than we perhaps have done in the first year. That is why we are going for the changes in the GP contract that we are.

David Tredinnick: Nevertheless, primary care has contributed a lot less. I put it to you that that is not a satisfactory balance.

Q175 Chair: Presumably, as we look for sustainable reconfiguration, moving forward towards the end of this Parliament and into the next, we have to be looking for changes in the relationship between primary care, community health, social care and a different model of the delivery of that part of health and care as well as a different model of acute care as well.

Sir David Nicholson: We do.

Chair: I guess that is a question to which we want to return, but, before we do, Valerie wants to ask a question.

Q176 Valerie Vaz: I have a few questions arising out of something that you said. Can I congratulate you? I don’t know how many health secretaries you have seen off; which number are you on now?

Sir David Nicholson: It is five, I think.

Q177 Valerie Vaz: Wow. And you are still there. That is wonderful.

Sir David Nicholson: Don’t say it like that. They are all marvellous in their own way.

Q178 Valerie Vaz: Absolutely. Can I just take you back to your answer on the PCTs? Could you give me a rough kind of snapshot? I know you will not be able to do individual ones, but you said that 10,000 jobs had been lost from the PCTs. Roughly how many? Is that 60% to 70% of each PCT and will the Commissioning Board local area teams be much reduced compared to the PCTs?

Sir David Nicholson: Yes. If you take the total number of staff that work in both the PCTs, the SHAs and, in a sense, the NHS-facing part of the Department, when we started down this road there were 45,000 people working in those organisations. At the end of the process, there will be 32,000. So that is the trajectory of change that we have. What became clear when the Secretary of State announced the abolition of SHAs and PCTs is that we could not sustain during that period the current configuration of 152 PCTs and 10 SHAs. So over the period the way we have put resilience into the system is to reduce the number of PCTs to 50 clusters, as you know, and to have four strategic health authority clusters as well. That is going on at the moment and we are at that kind of phase now where the recruitment on the new system, the CCGs and the Commissioning Board and public health, is going apace but we need to run the old system as well. People are taking, essentially, two jobs. People are running both. For example, my local area team directors are now both running the daytoday PCT clusters but also setting up the new local area teams.

Q179 Valerie Vaz: That is where you are making your savings: people are doing two jobs. Carry on.

Sir David Nicholson: We are improving productivity. I am doing it and we are all doing it. There is only a limited time you can do this, I have to say, but nevertheless that is what is happening. If you think about the functions that the NHS Commissioning Board is taking on, there were in 2010 some 10,000 people doing those jobs. In the new world there will be just over 4,000. So we have taken a 50% reduction in those functions for the function of the Commissioning Board. For the clinical commissioning groups, they have taken a reduction of a third on the amount that we were spending on PCTs.

Q180 Valerie Vaz: So the local area boards will have sufficient people in place to support the contracts and manage the contracts, will they?

Sir David Nicholson: The contracts will predominantly be held by the clinical commissioning groups and they will have a series of commissioning support organisations, shared services, who will do the contracting on their behalf. We think that is the most costeffective way of doing it, yes.

Q181 Valerie Vaz: Roughly, compared to the PCTs, how many would be in the local area teams?

Sir David Nicholson: They are not the same as the PCTs because they do not-

Q182 Valerie Vaz: I know, but it is a kind of overlap, isn’t it?

Sir David Nicholson: No, it is not. It is completely different because the CCGs are doing most of the work that the PCTs do.

Q183 Valerie Vaz: So what is the purpose of local area teams then?

Sir David Nicholson: They do two things. They do the direct commissioning of some services, so the Commissioning Board is responsible for commissioning primary care, because the CCGs can’t commission themselves in that sense, and 10 of them commission specialised services. So they do direct commissioning. Across the NHS as a whole, that is about £20 billion’s worth of work that they directly commission. Then they oversee the clinical commissioning groups. In a sense, they hold the commissioning groups to account.

Q184 Valerie Vaz: It is a kind of overlap.

Sir David Nicholson: There are 27 local area teams in the country and they employ, depending on how they do things, between about 70 and 100 staff.

Q185 Valerie Vaz: Okay. To turn to the Local Audit Bill-and poor old Richard Douglas came before the Public Accounts Committee-the NHS do not appear to have put a framework in place for auditing all the health bodies because now that the Audit Commission has been abolished, there are 268 health bodies they audit. What is the position now? We were at the prelegislative stage, but nothing has come in place as to who is going to be auditing value for money.

David Flory: The very gap that you highlight is being filled. We are progressing that work and I am sure that Richard Douglas-

Q186 Valerie Vaz: That should have come to the Committee, shouldn’t it?

David Flory: Richard Douglas will be able to update on that following his-

Q187 Valerie Vaz: No, he couldn’t. He was sent there instead of the person who was supposed to be dealing with it. I am asking you, do you know what the position is in terms of auditing all these health bodies?

David Flory: The audit process is important for audited bodies and for others throughout the system in order to assure and inform about value for money. There is no lack of priority, no lack of urgency in us ensuring that adequate arrangements get put in place.

Q188 Valerie Vaz: No, but do you know about the Local Audit Bill?

David Flory: I know about the Bill of course, but I don’t know on the detail.

Q189 Valerie Vaz: You know that each individual health body is entitled to audit at a local level?

David Flory: Yes, I do.

Q190 Valerie Vaz: So how are you going to get all that information, how are you going to capture best practice, value for money?

David Flory: We will do that in the way that albeit in a-

Q191 Valerie Vaz: No, I am asking what state of readiness you are in in terms of the Local Audit Bill.

David Flory: We are working on getting ready.

Q192 Valerie Vaz: But we are at the pre-legislative scrutiny stage and you still have not done it. Can you tell us why?

David Flory: We are catching up quickly.

Q193 Valerie Vaz: But can you tell us why?

David Flory: I don’t think it is quite as simple as that, if I may say so. We are continuing to work through this with existing auditing bodies and others across Britain to make sure that we have appropriate arrangements in place.

Q194 Valerie Vaz: Who is responsible for it at the Department?

David Flory: It is the Department’s responsibility.

Valerie Vaz: But who is it particularly? Is it Sir David? Who is responsible? Someone must be coming up with-

Q195 Chair: When you say it is the Department’s responsibility, are you drawing a contrast between the Commissioning Board, the NHS and the Department?

David Flory: Yes, I am.

Valerie Vaz: You are.

David Flory: My colleague has reminded me that this process which you have identified that was not evident has now been prepared and is ready to go to the Home Affairs Committee very soon.

Chair: Richard Douglas is going to be here this afternoon.

Q196 Valerie Vaz: Can I turn to something else then? Sir David, you have been quoted as saying the NHS, with the commissioning groups, etcetera, creates much more difficulty for politicians to arbitrarily get involved in the daytoday operations of the NHS. Could you explain that?

Sir David Nicholson: It was one of the benefits of the whole of the Bill and the Act that it would take out daytoday political involvement in the running of the National Health Service. That is what it does.

Q197 Valerie Vaz: So you did definitely say that-

Sir David Nicholson: Yes.

Valerie Vaz: -that you do not want political accountability in the NHS?

Sir David Nicholson: No, I absolutely want political accountability. The Secretary of State is accountable and he or she will hold the Commissioning Board accountable for the delivery of the mandate, which is going to be set out I think later today in a transparent way that never happened in the NHS before. It makes it very difficult for an individual Secretary of State to intervene directly in organisations out there in the system.

Chair: If I may say so, that is going back into the Act and we are here to talk about public-

Q198 Valerie Vaz: I wasn’t doing that. I don’t get a chance to see Sir David at all. Unlike you, I don’t go to the Department of Health. Maybe I should go to the Department of Health.

I have just one more thing. This is about public expenditure because it is NHS money and we have now heard that there are GPs who are becoming millionaires. Where NHS money has gone into local, for example, GPs and then they become limited companies and they have been taken over by another company to run an outofhours service, is there any way for the NHS to claw back some of the money that has been spent in that way?

Sir David Nicholson: Only if it has been done illegally or ultra vires, or whatever. In the examples that you give, I have not seen the evidence which suggests that that has happened.

Valerie Vaz: Shall I send it to you?

Sir David Nicholson: Yes.

Q199 Dr Wollaston: Could I return to the subject of service redesign and transformation? The comment has been made that it has been shifted towards the end of the review process to allow the local structures to take place. Could you perhaps update the Committee on the progress of transformational change and service redesign? Where are we in that process? Are you satisfied that progress has been made?

Sir David Nicholson: You describe service-and you didn’t say reconfiguration, did you?

Q200 Dr Wollaston: I mean the whole of service redesign happening-

Sir David Nicholson: But it is a category which involves hugely different things. As to service redesign there is not a part of the country where clinical commissioning groups are not actively working on service redesign as we speak and there is lots and lots of evidence to show around all the country where they are currently working away at improving the relationships with social care and trying to get better services for frail elderly. All of those things are going on and most of them never touch the kind of media or the world that we inhabit, but there is a fantastic amount of it going on.

Q201 Dr Wollaston: So that is good progress.

Sir David Nicholson: It is really good progress going on.

Q202 Dr Wollaston: But where are we on the really major stuff like structural reconfiguration in the acute sector?

Sir David Nicholson: That has implications for the acute sector as well because it shifts the way in which services are going. There is a lot of that going off. There are some big service changes going on predominantly in those places which are under most pressure in the system at the moment. If you think about northwest London-in fact London generally-you will see more service reconfiguration activity going on than probably anywhere else in the country. Indeed, in their QIPP plans, when London originally did it, they heralded that that would be the case, supporting the work that was done when Ara Darzi was involved. Northwest London had a massively ambitious scheme led by the CCGs with £170 million or £180 million to be invested in primary and community services and the closure of 700 hospital beds. So there is a major scheme of reconfiguration across the country, which is out to consultation at the moment, or it may just-

David Flory: The consultation is closed now.

Sir David Nicholson: It has just closed, so we are reviewing it. That was a big set of changes. Similarly, there was a slightly different set of arrangements around South London Healthcare NHS Trust. There are big changes proposed in relation to South London Healthcare NHS Trust. We are expecting at some stage in the future, though not just yet, a set of proposals around changes for southwest London. So London is having a big set of changes.

We also have the development of changes across Manchester and Leicester. Probably most big cities are thinking about how they are going to change their services. So you can see there is activity across the country and people are trying to grapple with how we are making our health service sustainable in the medium term. That work is going on. There is a significant amount of work happening across the system.

Q203 Dr Wollaston: It was immensely difficult under the old system to achieve major service reconfigurations. Are you satisfied it is going to be easier as a result of the Act and do you feel there is meaningful and constructive local engagement?

Sir David Nicholson: First of all, it is never easy. These are difficult decisions with people who have connections with organisations who are deeply committed to their local health services, so it is never easy. Even the smallest changes are never easy in health, as you know.

The system as it is set up helps service change in two big ways. One way is the development of Health and Wellbeing Boards, so bringing together health and local government to think about what their health strategy is and what they are trying do. It is a really important forum for people doing it, to get way from the idea that "The NHS goes over here, dreams up some clever set of ideas and then the local authority, through the overview and scrutiny committee, object to it." It seems to me that that is an outdated way of operating. Working through the Health and Wellbeing Boards is a really strong way of connecting with local government, connecting with the population and making change happen.

The second way the system helps is with the involvement of clinicians in making change happen. You know as well as I do that the public are much more likely to accept a set of changes that are promoted and supported by local clinicians. The development of clinical commissioning groups and indeed the work around the foundation trusts movement, getting more clinicians involved in management, make that much more straightforward. So I think we are equipped to make service change in a way we have not been in the past.

Dr Wollaston: Thank you.

Q204 Andrew George: I want to move on to social care in a moment but, before I do so, just for my benefit, can I ask this? With all this talk-quite rightly, I think-of integration of service and service redesign, and so on, what appears to be going on at the same time is that, as the independent and the private sectors are moving in and undertaking a larger proportion of planned activity, we seem to be getting more disintegration, particularly in the secondary sector. I understand the intention of service redesign is to, if you like, concentrate resources on fewer hospitals, but we seem to be getting more hospitals rather than fewer. The new and more active hospitals seem to be doing all the easy work, leaving the NHS trusts doing all the difficult comorbidity stuff, the increase in emergencies coming in and so on. I do not quite see how this intention for service redesign is happening on the ground. It seems to be becoming more fragmented really.

Sir David Nicholson: It is happening on the ground. You can see it happening. The question is: are the tools that we are using helping or hindering that process? It is true to say that we are learning how to do this as we go along. For example, as to the use of contractual mechanisms which give you a prime contractor who then works with other organisations behind the scenes to make that happen, you can see that happening as part of this process developing.

An important part of the approach to integration is not about structure. Today, a third of our acute hospitals run community services. So over the last two or three years there has been a structural integration, in a sense, of secondary and community services, but I would not say that we have had a commensurate improvement in the way services are integrated. We are searching at the moment for a formulation of integration that everyone can sign up to and work through. I do not think we have quite got it yet-I am sure it will come up this afternoon as well-but there are some good indications around, from the experience that we have, about what is more likely to work.

A critical part of this is not the structure or the contract. It is patient information, where that information is held, who has access to it and how you can move that information through the system. It is the identification of the patient groups that would particularly benefit from the kind of changes that we need, so-"risk stratification" is the way it is put-where are the people who are most at risk of having problems that we can intervene with early? It is about getting the multidisciplinary team together. There are probably seven or eight things you need to do and then you need to enable it. The enablers are the contract and all the rest of it. I do not think we have quite landed it. We have hovered around it for a while and I think the work that this Committee does says, and certainly the views of our current set of Ministers is, that we need to nail it. We absolutely need to put this in the right place because it has huge benefits both for patients and also for the use of resources.

Q205 Andrew George: The point I am making is simply that because of the tariff structure and-though I think everyone agrees with at least the principle of-patient choice, the private sector appears to be creaming off all the easy stuff and that is resulting in, if you like, the core hospitals having significant challenges going forward.

Sir David Nicholson: I would be interested to see the evidence. I have heard this said and whenever we have investigated it, all right, we have found some cases where it has been wrong and we have dealt with that particularly. In the work that we have done with commissioners we have made it very clear that contracts that result in cherry picking-as I think you are describing-are not acceptable. They have to take a broad range of services when they take an elective contract with us, but, on the other side, it is right, isn’t it, that our acute hospitals focus on those things that they can do really well? So it is the complex cases, the people who are very sick, that require the total resources of a particular acute hospital to help and support them, rather than those who perhaps can go in as a day case or whatever.

Q206 Andrew George: So we will keep a watching brief on that one going forward, and when the private sector has any complex cases they usually place them back in the NHS trusts. Given that the Government have passported a lot of money into social care and the general trend, as we heard from our witnesses earlier, which will continue the mantra that we need to have fewer unnecessary hospital admissions-earlier discharge out into the community-we need to front-load both primary care and then social care as well. Will that process of making sure that our local authorities, the social care, are adequately resourced continue? In other words, will the money that has been passported in the past continue and will it need to grow?

Sir David Nicholson: Yes. Certainly David and I in the conversations we had around all this were very clear at the beginning of the spending review that an adequately resourced social care system was vital for our patients and our service. That is why over last year we passported over £600 million into social care. We think that has been a very constructive way of doing it and the taxpayers got good value for money. It has been reinvested in reenablement, and all the rest of it, by and large, which we think is good. We propose to continue to do that throughout the rest of the spending review. It rises to about £1 billion-

David Flory: Yes, by 201415 it is £1 billion.

Sir David Nicholson: After then, I think, there is a whole set of questions about sustainability of social care which I am sure you will talk to the Secretary of State about.

Q207 Andrew George: As to the potential integration of clinical commissioning groups and local authorities’ social services, will you enable integration more easily than appears to be the case now?

Sir David Nicholson: It is important that we do. The Health and Wellbeing Boards, as a forum to bring everyone together to do that, are really important. If we find that there are obstacles to transferring resources across the system, we will take action as a Commissioning Board to enable that to happen. We are keen to support that because we think it is absolutely the future. Everything else fails if we do not get that bit of it absolutely right.

Q208 Chair: I have been struck by two things you have said in this bit of the evidence session. First, the favourable light you have shone on the concept of a prime contractor and, secondly, the things you have said more than once about the importance of the Health and Wellbeing Board having a crosssector view and the ability to marshal resources from health, social care and indeed from other parts of local authorities as well. Would it be overinterpreting your remarks to suggest that you see the role of the Health and Wellbeing Board potentially growing as one potential manager of a prime contract?

Sir David Nicholson: That is interesting. I have just heard what you said. I was about to answer a question I thought you had asked when I realised it was a different question. I had not thought that far ahead. One of the issues I often get asked is, "Who is in charge?" In a sense, it is slightly the wrong question because we are all in charge of our bit of it but we are accountable to each other. That is what the Health and Wellbeing Board does. It creates that level of accountability. If those organisations wanted to create some overarching body or vehicle in order to support integration, that would be a great thing and we would see how we could help and support that to happen.

Q209 David Tredinnick: Both the Local Government Association and the NHS Confederation have argued that integrating care is the best way to use resources to maximum effect. Mike Farrar of the NHS Confederation says that he thinks it should be "a care service with a medical adjunct rather than a medical service with a care adjunct." Do you think that there is going to be greater scope out there for a wider range of services, like making more use of herbal medicine, acupuncture, bringing homoeopathic medicine in, more as it is on the continent? Do you see greater scope for an increase in the range of services available?

Sir David Nicholson: There are two things I would say about that. One is that we will be locally led. We genuinely believe that local organisations need to look at the health needs of their population and work out how best to resolve them. The other thing we would say is that if they are going to use resources, they need to show the evidence. Where there is the evidence, or whatever it is, then that is fine.

Chair: We have one minute for Barbara and then we must let Sir David go, as we promised to finish by 11.30 am.

Q210 Barbara Keeley: I think we would all support the extra funding in social care but it was not all spent on re-ablement because an awful lot of areas had to keep the money to keep the status quo. I think re-ablement is very important, but-

Sir David Nicholson: It was 18% of it, I think.

Q211 Barbara Keeley: In our report, we talked about the need to rebalance the entire expenditure on services for older people across the NHS, social care and housing, which you have just touched on with us. Do you agree now? You were talking earlier about integration and information but it keeps coming back to this question of the budget: if the budget is available to be spent right across the piece, who holds it? Is that rebalancing now something that you would support? From your last answers it sounded as if you would.

Sir David Nicholson: Yes, I would absolutely support that rebalance.

Q212 Barbara Keeley: But where can the budget be held?

Sir David Nicholson: There are things we can get over, so there is more pooling of budget and we are absolutely in favour of it. Where it becomes difficult is that our offer to the population is different from that of local government. Our offer is universal, free at the point of use and theirs is not. We get into real difficulties, I think, when we get into that kind of area. So, from the NHS perspective, we have to be careful that we do not by accident introduce charging and things like that into the NHS system.

Barbara Keeley: It is complex.

Sir David Nicholson: Yes, but we want to do that very much.

Q213 Chair: Sir David and Mr Flory, thank you very much. I have one footnote. Mr Flory, you said that the audit arrangements were going to be clarified to the Home Affairs Committee, and the Clerk and I were not sure what you meant. I think you mean the PAC.

David Flory: No. To go through that, the Member said, in terms of the legislative process, to get clearance of what is proposed to put into the legislative process through the Home Affairs Committee.

Chair: It is the Cabinet, okay, not the House of Commons. Thank you very much indeed. Thank you.

Prepared 19th November 2012