Health and Sport Committee

Meeting date: Tuesday, May 1, 2012

Official Report 578KB pdf

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NHS Boards Budget Scrutiny

Item 2 is oral evidence on national health service boards’ budgets. For this item we are joined by our budget adviser, Dr Andrew Walker—welcome, Andrew. I also welcome Laura Ace, who is director of finance, NHS Lanarkshire; Marion Fordham, who is director of finance, NHS Western Isles; and Craig Marriott, who is director of finance, NHS Dumfries and Galloway. I also welcome Paul James, who is executive director and director of finance, NHS Greater Glasgow and Clyde. Thank you for your attendance.

I want to understand a bit more about the distinction between earmarked and non-recurring funding and then move on to ask about planned savings. Of course, those issues were covered in the questionnaire that was issued to boards and you have provided comprehensive information on them to the committee.

First, I noticed that the supplementary written evidence from NHS Lanarkshire said that

“The vast majority of non recurring funding is for earmarked or ringfenced purposes.”

Can the witnesses quickly clarify whether that is the case for all health boards?

Yes.

It is probably worth emphasising that in Dumfries and Galloway’s non-recurring funding—that funding sits slightly to the side in terms of earmarked funding—we have a large element that relates specifically to an impairment revaluation. We are in the process of looking to build a new hospital. As part of the move to the new hospital, a revaluation of the old facility has to take place, and as part of that we have an impairment review. Against that, we are funded at a central level through annually managed expenditure and some of that is specifically within the non-recurring funding of £20 million.

The level of earmarked funding was around 12 per cent of the allocation that is provided by the Scottish Government. Do you consider that to be a constraint on local decision making?

We recognise that policy makers want the money to be directed to the area where the objective is in order to achieve it, so we are used to working with earmarked funding.

We welcome a recent move to bundle related allocations in a category, so that money can be moved between the specific headings, but the headings are all broadly in the same area.

As finance directors, what we welcome most is advance certainty. Rather than earmarked funding being a restriction, knowing well in advance what funding we will receive helps for the best planning.

So certainty is as important as flexibility?

Yes. We are used to working with this level of earmarked funding and flexibilities have been introduced under related headings, which we welcome.

Earmarked funding for Glasgow is broadly in line with other boards, but I agree with Laura Ace that earmarked funding is to achieve certain objectives that are set for us. That is absolutely fine.

The points about flexibility and certainty are valid. It is helpful to us in achieving our targets to have some ability to move funding within larger bundles, which is what has been happening, and also to make sure that we know a bit more about the future funding envelopes that we will face. We are in the business of providing health infrastructure, which is not always easy to change over just one year. Longer-term funding figures are helpful to us.

Will you say a little about what appears from the written evidence that the committee has received to be a higher level of non-recurring funds for some boards? We are told that NHS Lanarkshire, NHS Dumfries and Galloway and NHS Fife all have a higher level of non-recurring funds.

I submitted a clarification about how a particular recurring allocation had been classified in NHS Lanarkshire. Once that is taken out, Lanarkshire does not have a high level of non-recurring funds. Such funding is mostly for project-specific initiatives. The committee’s concern was that boards were using non-recurring funding for recurring purposes, but that is not the case in our financial plan. We will make good use of any non-recurring money, but we demonstrate recurring financial balance through our plans.

I emphasise the impairment issue in Dumfries and Galloway that I mentioned at the start and I support Laura Ace’s position. When we do our financial plans, we are clear that we use non-recurring resources for non-recurring purposes and recurring investment for recurring purposes. We all set that out clearly in our financial plans.

It is clear that this subject is setting the heather on fire, so I will move on to planned savings. When we asked boards to list their top three areas for savings, we received evidence that about 40 per cent of savings would be from prescribing budgets, 40 per cent would be from support services and 20 per cent would be from improved efficiency through the redesign of front-line services. Will you help the committee by telling us by what process health boards choose what spending will be reduced to make necessary savings?

I can say what happens in NHS Western Isles. We identify the total gap, then allocate that pro rata to expenditure budgets and ask senior budget holders to identify how they will make the savings. We prefer not to impose the nature of savings on the front line; we expect people to come forward with proposals.

We work on an iterative process. When simple arithmetic is done with the numbers, it does not always work out exactly but, when areas can identify additional savings, that will mitigate the situation in struggling areas. That is how we operate.

We have been looking for a number of years at how we deliver efficiencies. We in Dumfries and Galloway have looked at the operational aspect of how we divvy savings among budget headings. We now try to look across care pathways and different services. We might start by looking at some of our corporate areas and our non-front-line areas in trying to deliver savings. We would then work back down through directorates.

We are getting slightly better at the process, but we have probably targeted the operational aspect much more until now. We are moving into the strategic and tactical stuff, which will involve much bigger service changes over a longer timeframe.

The two answers that have been given are right. When our directorates make proposals, we always try to ensure prioritisation of the quality of healthcare first and of support costs last. Such a process always applies and our managers around the organisation understand that when they make proposals for inclusion in the financial plan. We are clear that, when we make choices, they are geared towards health priorities. That qualifies what has just been said.

I will respond to that after hearing from NHS Lanarkshire.

We expect to develop an efficiency plan for certain elements every year. Procurement efficiencies and prescribing efficiencies have a process for generating savings. We will have worked out the size of the gap, so we will know what else we are looking for.

We tend to work more from the bottom up. The directorates and divisions come up with the efficiency proposals that they think could be managed. We work through and risk assess those proposals and look at any potential impact on quality or quantity. We refine the proposals into a list that is feasible to deliver, which we put in the financial plan.

10:45

How do we make sure that within the areas that have been identified—prescribing, support services, and efficiency through the redesign of front-line services—there is not an impact on patient care? Mr James made the point about ensuring that the quality of care is protected and that support services are earmarked before cuts take place in quality.

We get feedback from the managers who make the proposals on whether there are impacts on services and we assess that feedback at the time. Different people have different views as to what service design is—whether it is efficiency, service design, or productivity. We should discuss briefly the suggested categorisation of some of the savings, although I am not sure that that is a helpful line of inquiry. In principle, we make sure that we focus people’s savings and proposals on areas that will not adversely impact service, and if possible on enhancing service.

I will ask the question in a slightly different way. Through the Scottish Medicines Consortium, we have in Scotland a robust, well established and internationally respected process for subjecting new medicines to clinical and cost effectiveness appraisal. Is that robust and evidence-based process deployed by boards when they consider areas other than prescribing?

I will start on the Scottish Medicines Consortium.

I do not want to talk about the SMC—that is understood. I want to talk about your process.

The SMC’s process is the most robust I have seen in routine use, but it is very well supported. When boards come to look at smaller issues, they do not have the same level of resource and advice from the various parties. Quite often, boards attempt to work to the same principles, but not to anything like the same extent. We ask basic questions about the impact on quantity and quality of service and on our ability to achieve national targets, as well as what the public perception might be. If, as we screen those questions, they fling up answers, we do further work. However, the Scottish Medicines Consortium’s process is beyond the capacity of most boards for every service proposal.

I am reassured by your answer, in terms of the process at the local board level. Is that process similarly robust in the other health boards?

It again comes down to the quantum and the materiality. Projects that will deliver savings of £10,000 to £15,000 might not have the same degree of rigour, although there is still the same expectation to work with general managers to make sure that there is no impact on quality. Proposals that will deliver savings of £1 million have rigid financial and service plans put in place to monitor the process and deliver the expected service outcome.

Some of the projects are highly technical and dynamic and have both a front door and a back door relationship, for example in an acute hospital there is a link between acute and primary care. Projects become very complex.

I support what Craig Marriott said. The level at which you evaluate a proposal for a financial plan depends on its materiality and how importantly it affects service, so there is no single answer.

I am looking for more detail, similar to what Laura Ace provided us with, on what your process is at a health board level.

We understand that you are dealing with a big efficiency saving, a cut, whatever—how we describe an efficiency measure or efficiency cut is an issue on its own, with which you may want to help us later, given that you have been making efficiencies for a long time and still need to make more, because we are into the cuts agenda.

The other issue that we would like to understand, perhaps with a practical example, is how priorities are decided. Are priorities decided purely on the health outcome, on least resistance, or on easier targets? Can you give us some day-to-day examples, or an experience, of how a priority is chosen and how that efficiency is achieved in that area, as against areas A, B and C? What are the factors that come into play?

There is no simple formula. The proposals in our financial plan are put forward by our managers. There is an understanding that we have to meet quality targets as well as health improvement, efficiency, access and treatment targets, and we would not be particularly content with any proposal that people said would adversely impact on quality.

We submit a portfolio of savings proposals to our board, and it is the board that evaluates, assesses, and, at the end of the day, approves our financial plan. Conversations about the priorities relating to the quality of healthcare and any service impact take place at that level. There is no way that a savings proposal would be approved that had not passed through the board.

You have described corporate governance and not necessarily the practicalities that would enlighten us as to the type of debate on and rigour around such decisions and the plans that go to the board. We understand that the board sign off the plans.

In NHS Dumfries and Galloway, our approach—to build on what Laura Ace said—is that there are fundamental elements within the efficiency programme every year. There are always drug switches that we will expect to pick up as part of prescribing, and there are always procurement savings issues that we are trying to tackle.

We carry out innovation work throughout the year. We run a number of workshops with our service team, where we attempt blue-sky thinking across the various horizons in relation to what happens elsewhere and how we can learn from others. On the back of that, we try to distil down to what we think our efficiency programme will be for the next year. The challenge is to look beyond that one year horizon to three and five years, which is sometimes where the more difficult projects are.

One of the projects that we are trying to progress this year is about out-patients. We are working with general practitioners to ensure that we have appropriate out-patient referrals from GP practices. In no way does that work cut across emergency referrals, which go straight into the system. The project is about how to build in an element of review to ensure that referrals are appropriate and that the acute clinicians are working in a clear manner with the GP practices so that GPs understand the processes and some of the other areas that could perhaps be treated differently. When you look at the evidence and across the various research that has been done, a 20 per cent reduction in out-patient referrals could be made, and for NHS Dumfries and Galloway that could equate to as much as £1 million. You will understand that there are many steps in the process that relate to releasing that, and, in some ways, the issue might be about just a capacity release.

The approach that we take in relation to efficiencies is to look at innovation and creativity, and some of the productivity issues, and to try to build up that approach throughout the year. I am sure that other colleagues do something similar that builds on some of the baseline efficiencies that we know that we will be trying to take out as part of our annual cycle.

What tasks are your managers set to come up with proposals and plans? Are the managers just working in silos? Have they been set a target of efficiencies to meet within the health board, or are you saying to each area that it needs to reduce the money it spends by 5 per cent in each of a number of categories? How does that work with your broader approach to working with others if people are being asked to cut within their silos?

We try to take that broad approach. Yes, there may be a gap at the end of the process and that may turn into a need for a 1 per cent efficiency target across different directorates. We are trying to build up cross-cutting themes so that efficiencies are made in a broader context rather than getting just the slice effect that you would have in individual directorates. You asked about general managers. NHS Dumfries and Galloway is a relatively small board, so we can bring everyone together. It is not a case of people working in silos and passing problems among one another—that does not help the financial position.

You described a process whereby plans come up from the directorates and go to the board. What remit have you, as directors of finance, given to the directors of the services that your boards provide? What efficiency savings have you asked them to make?

You will appreciate that NHS Greater Glasgow and Clyde has the largest budget of all the health boards in Scotland. It is important that we try to put together a plan at the time when the other boards are doing so. We introduced quite a lengthy process this year. Shortly after the budget statement that John Swinney made, we had our first crack at what we thought the financial challenge would be. We called the senior managers into a room and discussed with them how the financial challenge might be disaggregated to different divisions within our board—along the lines that Marion Fordham described. The managers, having taken on those indicative challenges—

Did you present the same challenge to each directorate? Did you ask each one to find 5 per cent, or did you talk about an overall cut?

At the time, I put before the board an indicative challenge of £50 million—

What did the cut turn out to be?

The figure that we put in our response to the committee is £58 million—

Slightly less, then.

Slightly more. It went from £50 million to £58 million.

Sorry, yes.

Indicative targets were given to managers within the board, who went away to work on them—I do not like the word “silo”, but managers went to work in their management units on producing savings for which they would be responsible. They came back, and we had fairly good consolidation of the early figures in November, which we assessed as a management team.

Any concept of silo working is incorrect, because at that point we were discussing and assessing the various proposals that had come forward. We rejected some and asked for further savings in certain areas. An iterative process went on throughout the year; that is what has brought us to where we are.

There were different targets in each area, rather than an overall target.

That is correct.

Do other boards follow a similar process? What targets did you impose?

There is a similar process, but I did not impose any targets on the operating division; directors came up with the ideas, in a room in which all directors were speaking to one another. One director might offer to lead on an issue right across Lanarkshire, if it had a common theme across the area. I am thinking about areas such as administrative support or skill mix in allied health professionals.

Directors were unaware of what was expected of them and were simply volunteering and saying, “I’ll give 10”, “I’ll give 20” and so on. It was a bit of an auction.

Directors knew what the board had to achieve. We had had the discussions about procurement and prescribing. Some schemes take longer to put in place, so I was able to say, “Here are all the things that we started this year or last year, savings for which we will start seeing next year.” Directors knew what the residual gap was and they all put forward ideas, each of which was subject to the questions that I mentioned. Ideas were filtered; some were rejected because the approach would have had too much of an impact. If we still had a gap, we got back round the table.

I have not had to allocate targets to the directors; they have all behaved corporately. We handed out a specific target only to the corporate areas. During the three years since 2009 we have taken 27 per cent out of our corporate functions, by giving them a percentage each year. They take that away and come back to us with plans.

Is it a similar story in other boards?

I tried to describe the process earlier. NHS Western Isles is a small board and therefore operates on a much smaller scale than other boards do. We try to be fair at the outset in providing people with targets that are a direct proportion of the total savings target. There is an implicit understanding that the savings that people identify will in no way affect targets or quality. The board would not entertain savings that were not put forward on that premise.

Does anyone else want to comment?

I will come in on that point, if Jim Eadie is finished on it.

I am, although I have a further question.

11:00

I am trying to understand the issue on a practical basis. I have had the good fortune of being a general practitioner running my own unit as well as a hospital consultant and so subject to more management control. I found the experiences and the differences between them interesting. In effect, whatever the boards told the managers, we were told at the bottom line, “Take 3 per cent out of your budget this year, please.” I do not know what is happening with communication down the line.

My question is on a slightly different issue. How much of the advice that boards give to managers in determining how to approach savings is based on an analysis of variation from the Scottish average or agreed areas? I will give three examples. One is on the use of day procedures in hospital rather than in-patient procedures, in which there is massive variation between boards. I will not mention the names, but one board in my region, Mid Scotland and Fife, has excellent hospital day procedures and has reached the target on almost all 19 procedures, whereas a neighbouring board has failed miserably to do that, although we know that there are substantial savings from doing that. A second example is theatre utilisation. Audit Scotland produced a report on that nine or 10 years ago, but there is still massive variation. The third example is the SPARRA—Scottish patients at risk of readmission and admission—data.

Do you get good advice from the Government through the joint improvement teams and in other ways that, if your boards are demonstrated to be inefficient compared with other boards in certain areas, you should concentrate on those areas initially to make savings?

We are aware of the need to move to day cases and out-patients and away from in-patients where possible. That is part of our acute division’s strategy, as is the improvement of theatre utilisation. You will appreciate that, as the largest board in Scotland, we dictate to an extent the Scottish average in many cases, so it is not always useful for us to compare ourselves with other boards. We try to compare ourselves with benchmarks from outwith Scotland as well as within it. We are continuing to extend that process. For example, our bed modelling is based on hospitals outside Scotland. We will continue to look at that. We are conscious of the importance of benchmarking in driving improvements in efficiency and we are absolutely aware of the points that you make about day cases and theatre utilisation.

Do you publish information on that? If I was interested in what your board is benchmarking itself against, could I find out?

I genuinely do not know whether that information is published, but I am sure that we could provide you with information on what we have been doing so far and where we are going. That is work in progress, so I do not want to pretend that it is the finished article at this stage.

No, but it would still be helpful to the committee.

We are always interested in that type of information to see whether it points us to something that we have not considered. Part of our iterative process is a stocktake against the national productivity and efficiency programme to ensure that we have covered everything that has been identified. Also, if there has been any obvious or recent benchmarking, we ensure that we pick up on the recommendations for that. Our divisions tend to pick up on those issues naturally. We do not often find that a piece of national work is completely missing from our plans—we usually find that we are working on it.

In Scotland, we work collaboratively to an extent. If there is good evidence of positive progress in one board, people often go and visit it. The issue with benchmarking is how we take the money out of the back end. That is sometimes about capacity release and sometimes about cost avoidance. When we talk about efficiencies, it is really just about trying to get to the cash, which can be a bit more difficult.

I have a couple of quick questions before we leave the issue of planned savings. First, is there a clear and established process of horizon scanning for the managed introduction of new medicines in your boards? Secondly, what proportion of the 40 per cent projected savings from prescribing is a result of medicines coming off patent in the next three years? If you need to write to the committee on that because you do not have all the information to hand, that is fine.

We provided the committee with a figure for prescribing savings of £17.4 million, which included an estimate of the savings from drugs coming off patent that amounted to around £8.4 million.

Your first question was whether there is an established process for horizon scanning and thinking about the implications of new drugs. I do not think that there is a more detailed process in our board than the one for drugs and prescribing. We have a number of committees that look at the advent of new drugs, assess the recommendations of the SMC, consider the expected uptake of each major new drug and try to evaluate what the impact of that will be on our financial plans. Every four to six weeks, I have a meeting with our prescribing management finance group, during which we consider exactly those issues, virtually on a drug-by-drug basis, for both primary care and acute services. The process by which we try to forecast the impact of new drugs on our financial plans is extremely complex. We are very aware of that issue because there is also a sophisticated process for ensuring that we try to optimise our drugs spend. We ensure that we have clinical advisers working with our GPs so that they can all share knowledge of what the right and most cost-effective drug is. As you will understand, that is a clinical decision and is absolutely not something in which I interfere.

The proportions that Paul James gave for savings from drugs coming off patent and savings from the switch from branded to generic drugs are probably similar in most boards. Our prescribing savings come to £2 million, £1 million of which comes from the switch from branded to generic.

NHS Western Isles has been a little bit more circumspect about anticipating the savings from drugs coming off patent, just because there is always a time lag for GPs switching to generic drugs from drugs that they have been using. From our point of view, in terms of the 2012-13 budget, we have assumed that it will account for about 10 per cent of our total prescribing savings. I can give you definite figures in writing after the committee.

My answer will be similar to those of Glasgow and Dumfries. Because some of the high-cost drugs will first come in in the tertiary services, we in the west collaborate to do shared horizon scanning for the new cancer drugs, which means that we can take advantage of the views of the experts at the Beatson oncology centre.

And how much of the 40 per cent projected savings is attributable to medicines coming off patent?

For us, it is probably slightly higher than 50 per cent—it is probably around 60 per cent.

Prescribing was high among the risk factors associated with the budgets that have been set, but I do not want to concentrate on that. I want to focus on an issue that has arisen from recent disclosures and affects me locally but which did not appear on any of the risk registers: the backlog in maintenance across the estate in some health boards. The press reports and publicity suggest that the number of facilities involved is so large that there will be a £1 billion repair bill for the NHS estate. You now have an opportunity to debunk this story of the £1 billion price tag or at least give us an idea of the real though undefined risk that, as the NHS Greater Glasgow and Clyde documents suggest, is hidden in that £1 billion repair bill.

I am afraid that I do not have any particular answer to the £1 billion price tag question. Am I right in thinking that that is the national figure?

Yes.

In that case, I am not quite sure what your question is.

As you have pointed out often this morning, you are the largest health board in the country and therefore take up a large part of that £1 billion. The maintenance bill for the Inverclyde royal hospital alone is something like £26 million. In some of the information that you have provided to me, you have referred to a real but undefined risk that presumably could impact on patient care and outcomes and access to the hospital. What is the figure for covering that risk?

Clearly, we have to ensure that we keep our estate in good condition—I do not think that anyone will say otherwise. Therefore, we must ensure that, in our capital plans, we give priority to the estates that we need to invest in.

I believe that you are referring to the property and asset management strategy papers that are published. As I do not have those documents with me, I am a bit exposed with regard to giving you answers about the specific maintenance requirements on specific sites, but I assure you that we prioritise our service redesigns in order to reduce those costs.

I am simply registering surprise at the fact that this substantial amount of money is not on any of the risk registers and that the risk to service delivery or your budget has not been set out. Surely if something serious happened, the money would need to be found.

The reason why the risk has not been mentioned in the financial plan is that we have as far as we can built it into the plan. Lanarkshire has risk assessed its entire estate, particularly Monklands hospital, which makes up the bulk of our maintenance backlog, and we have put in place a risk-based programme to ensure that we tackle that first. We have been putting in £5 million over the past few years and, indeed, have allocated £6.6 million in this year’s capital plan.

We also keep an eye on our other premises. Our programme of community health centre development has taken away some of our worst premises and the others are prioritised according to risk, with those that have health and safety issues or which might impact on business continuity receiving funding first. Going back to the issue of non-recurring funding, I point out that, if there happens to be a windfall or if some one-off move turns out better than I thought it might, we will look at the prioritised list during the year and say, “Let’s get ahead with the next five”. We are mindful of the issue and it is covered in our monthly financial planning.

With regard to change funds, I was interested in Mr Marriott’s earlier comments about working with GPs. Nevertheless, I am sure that you will have seen from the evidence that we have received that, although the change funds represent a significant amount, they are not that significant to the large budget holders. We have had repeated representations from the third, voluntary and independent sectors that they do not think that they will be able to access it as much or be treated as equal partners in the allocation process. I believe that Richard Simpson wishes to pursue that matter.

11:15

I do. The change fund constitutes a finite amount of money over three years and there is no guarantee that that will continue, although the same was true of the waiting times money and it was eventually merged into your budget as the targets that were designed to be achieved were achieved. I am not clear about the position with the change fund.

Is the change fund being used to do things that might produce savings a lot further down the line? For example, are you funding stuff in community care that will eventually mean that your acute side is relieved of a certain amount of pressure? If that is the case, I do not understand why the third sector, which is of critical importance in delivering social care in the community that could prevent admissions, has been given a very small amount of money in year 1. I hope that it will get more in years 2 and 3.

Will you give us a flavour of how you are using the change fund? I do not know whether other members of the committee would agree with me, but I have a suspicion that the change fund is being used, in part, to fill gaps that have arisen because of the tightness of budgets, which is not the purpose of the change fund.

When we responded to the committee’s survey, our change fund plans were not complete, but you will appreciate that a large number of initiatives are put forward for NHS Greater Glasgow and Clyde. I think that it would be a mistake to say that they are all about savings or service improvement, or that one particular objective applies to all of them. The moneys are used for a variety of objectives, and a variety of initiatives has been developed by individual community health partnerships for those purposes.

From my perspective, the change fund is very much a catalyst for change. As you rightly point out, the change fund money is not the full core funding for the areas that we are talking about. It is designed to achieve change. The question is whether the change that it is designed to achieve will be achieved in the short term or the long term. We are looking at change being achieved in the longer term so, when we talk about savings being achieved in the acute division as a result of change, it is not easy to predict when that change will result in cash-releasing savings being made. I would be quite concerned if the assumption were that the change fund was being used to fill gaps. It feels to me as though the change fund has a longer-term focus; it is a catalyst. It is about giving people the ability to invest in certain areas in which they think that it is possible to shift the balance of care.

In the Western Isles, the issue with the third sector organisations is that, locally, they are very small outfits. We need to assist them in increasing their capacity so that they can handle step changes in what they do. There is no doubt that what they do is extremely helpful but, at the moment, they could not handle significant increases in funding and make the changes that we want in the short term. It is very much a longer-term game.

To go back to what Mr James said, in none of the financial responses that we have received do boards employ the potential savings in the long term, because it is considered that they may be overtaken by other events. I think that I am right in saying that that message has come across very clearly.

That is slightly disappointing. I will give an example from my experience. A long time ago, I was involved with surgeons in developing a vasectomy service. I submitted a plan to our local board that demonstrated that, if it got rid of what was then a 10-month waiting list for a vasectomy, it would save X number of births for a start and the total savings by year 7 or 8 would be substantial, even though there would be no savings in year 1. That was pooh-poohed—it was never accepted.

Have we got the change fund working in a way that will in due course produce a major shift in resource to the primary sector?

It is early days to say whether we have the answer to your question. That is not to say that the change fund is failing. We just do not know yet. It was introduced only last year. We must keep going and try to achieve the savings. We are redesigning services generally at the same time, as part of our financial plan. The change fund is not the core funding area. We are redesigning services within the core funding area all the time, cognisant of the change fund initiatives. It is hard to link one with the other, but I would not rule it out.

It is worth building on that point. In Dumfries and Galloway, we keep on trying to capture the change. How do we know what change is taking place? There are well-trodden techniques for measuring the baseline, understanding the change, targeting it and monitoring against that. We try to do that and to bring rigour to that.

The other issue for us is that demography might pick up some of the capacity that we release back into the system. In the longer term, we will be talking not about money going out but about building capacity, whether that is building capacity in the current way in which services are provided or building capacity by changing those services. Given the demographics that are coming, and the way in which services are run for older people, we all recognise that we will have to change the current configuration.

I would like to say that, for us, it will be about releasing efficiencies but, in reality, it might be a combination of efficiencies and capacity.

I suppose that the intention of the change fund is to create momentum for a different way of thinking. Correct me if I am wrong, but you seem to consider the change fund an insignificant amount within your budgets as a whole. Does it catch your attention? I know that it has caught the attention of the third sector, which sees it as an opportunity to change its culture, but I am not getting any sense that the health boards are enthused by it or that it is high on their agenda. Ms Ace will confound that.

It is very high on our agenda. The forecast for demographic growth is a 22 per cent increase in the number of over-65s in the next 10 years. If we simply carried on providing care in the same way, we would have to open hundreds of extra hospital beds. We know that we have to change, shift the models and promote the idea of people living independently in their own homes.

Although the change fund might be a small proportion of our total spend, it is still a significant amount. For Lanarkshire, it is more than £8 million. We see it as a catalyst—it is our one chance of getting enough money to allow us to make changes and it is very important to get those changes right. We are engaging multiple partners, and there has been a lot of capacity building in the first year.

In addition to that, because we know that money is scarce, we want to ensure that when we have an idea for a new service, that service will deliver what we want it to, so we test the service before we permanently crystallise the money for it. It is a combination of multiple partners and long-term planning. It is less than a year since the change fund money was released, but we are treating it seriously. We see it as something that we have to do to be able to cope in future.

We have heard that there are capacity issues for the third sector and the independent sector. However, there is criticism that local government and health boards are still retaining in excess of 90 per cent of the change fund. That may be because we are only a year into the fund, and the judgment that people have made is that it could be rolled out. Anyone else on that?

Absolutely. We are working closely with our third sector colleagues. In some ways, the third sector is not geared up to thinking about large sums of money and how we create real change. It is moving away from the delivery aspects. When we get into years 2 and 3, more will start to be invested in the third sector.

I have another concern in this area. When I was a minister in another sector, we tried to build up our third sector organisations, but the trouble was that they were on year-to-year funding. They ended up saying, “How can we plan?” You have asked for some certainty about how you can plan your financial future, but a finance director of a third sector organisation is living from year to year. Many of them issue redundancy notices every Christmas because they do not know what their funding will be from April.

We introduce a change fund, with novelty and so on, and we invite the third sector to participate, which we are all keen on. However, how on earth can we do that if we are telling the third sector, “Of course, it’s only for one year, two years or, at the most, three years. We don’t know where it will go after that”? How do you develop a real partnership with the third sector that gives it the same certainty in its planning that you are asking for in yours?

The premise that we are working on is that this is the future shape of services. Previously, we may have done more short-term initiatives that were funded for one year. However, we know that we must plan for the future and that is what we are working on.

If the organisations are successful and meet the outcomes that you set, you will undertake to mainstream the funding in due course, so that they do not have to live from hand to mouth.

That is the premise that we are working on.

I mean mainstream on a reasonable basis, because no one is permanent these days.

All heads are nodding.

Laura Ace is right. At the end of the day, if we find that a particular initiative or scheme meets our health priorities and is therefore worth mainstreaming, we mainstream it.

Can you give us examples in writing of anything that you have mainstreamed with a voluntary organisation? It can be something that you plan to mainstream if an organisation meets the outcomes or something that you have succeeded in mainstreaming from previous initiatives. Such examples would be helpful for our report because they would give some certainty or hope to the third sector.

You all nodded enthusiastically when the long-term future of the third sector was referred to, but when you write to us, can you tell us in percentage terms how you are using the change fund to support capacity building with your partners in the third sector? That information would be interesting.

The discussion about the change fund and years 1 to 3 is similar to the discussion on preventative spend. The committee is keen to understand something from you on that issue. You look for a long-term gain when you shift to preventative spending, but how do you build that into your financial planning? I quote our adviser, who has probably put it better than I can:

“Would boards like to include financial savings from preventative spending in financial plans and, if so, what is required to achieve this?”

Who is first? Mr Marriott will start.

I will kick off and hopefully my colleagues will help.

By the very nature of preventative spend, the timeframe for recovery or generating the efficiency might be slightly outwith the timeframe for our financial plans, which are for one to five years, and we recognise that some of the preventative spend issues might impact within that timeframe.

In Dumfries and Galloway, we will build on the preventative work that we have been doing and on the availability of the change fund money. It is new money and, given the current tight financial position, we have a responsibility to ensure that we recognise where change has taken place and to be clear about the outputs that we expect—whether they are financial or service-related—and how we will monitor that. That timeframe was perhaps not part of our rigour in relation to preventative spend previously, so that will be the real challenge for us. Therefore, I would expect my board to bring forward some of the deadlines and targets in relation to change fund moneys—if we classify the change fund as being preventative spend—to within the one to five-year timeframe. Given its nature, we will have to look at much shorter timeframes than we did before.

On preventative spend being a long game and the issues that arise in trying to realise the resulting savings in a tangible form, we introduced near-patient testing and anticipatory care for heart failure more than five years ago and can point to statistics now that say that, as a result, we have reduced the associated bed days by 60 per cent. However, we still have a hospital with beds in it, so until we have a bigger service change that affects how the hospital is utilised, we will not realise the associated savings in a tangible way.

11:30

I would look at each case, on a case-by-case basis. Some of the change fund proposals are necessary if money is to shift within a timeframe.

I was struck by the example in Audit Scotland’s report, “Cardiology services”, which noted that, in the decade from 2000, the rate of new cases of coronary heart disease has gone down by a third. That is a tremendous success story for the preventative approach. However, over roughly the same period, the national spend on cardiology services has gone up from £80 million to £143 million, because people with heart disease are living longer and new treatments are appearing all the time. The preventative approach has helped us to cope with demand and to fund advances in technology, but no money has come out of the area—indeed, we are still investing in it.

You have given an example of money being saved and then reinvested in more advanced technology, and Ms Fordham gave an example of money being saved without the board being able to release beds. The clear intention for the long term is to move care from acute settings to the community, so the logical next step is to consider how we do that. How do we move the financial savings that preventative spend has realised from the acute sector to the community?

I suppose that because we operate on a bigger scale, we have been able to make savings and release beds, but we simply have not been able to do that in cardiology. As we see in the media every week, if the SMC deems new and improved drugs to be cost effective and if new treatments become available—transcatheter aortic valve implantation is the most recent example—the public has every expectation that we will fund them.

There is a tension in that regard. We cannot just stand still, take the savings and put them into the community, because people expect us to do the things that we are spending money on. It is not that the acute sector is sucking money in; the sector is responding to policy initiatives, expectations and demand.

I very much welcome the transfer of responsibilities for prisoner healthcare from the Scottish Prison Service to the NHS, which was long overdue. Has adequate funding been transferred to boards? The Parliament has recently debated women prisoners, who might well be dispersed and no longer all concentrated in the NHS Forth Valley area—my health board area. On a more general point, addressing offenders’ health issues, particularly alcohol and drug addiction and mental health problems, is pertinent to the Government’s strategy of trying to reduce the load on the prison service.

Negotiations on the transfer seemed to take quite a long time. Was the result satisfactory? I understand that the money was mainstreamed this year. Was that appropriate or should some ring fencing have continued, so that any shortfall in relation to the treatment and management of prisoners’ health issues could be identified?

At the point of transfer, the money was certainly enough to run the services. The process by which we got the money was fair. As you rightly suggest, there could be an increase in demand if there are greater aspirations for prisoner healthcare in future, and now that the service has transferred such an increase in demand and expectations would fall on the health service. We will deal with that in our planning for the future.

Laura Ace put it very well. We are affected by the transfer and an increase in demand will of course place pressures on us, across our system. However, the process was fairly fair and, as far as I am aware, there is no reason to believe that the funding is either inadequate or excessive.

That is helpful, thank you.

Are adequate structures in place to deal with equality issues? The written responses that we received from the boards seem to indicate that there is slight concern about whether impact assessments are consistent across boards and whether equality issues are being mainstreamed in an effective way. The agenda for change has been dealt with, but I am not clear about whether equality issues in relation to pay structures and in general have been appropriately tackled yet. Is that a concern for you?

We pick up on that matter in every decision that comes before the board. We have openly discussed our efficiency programmes today, but sitting down to do equality impact assessments of our efficiency programmes has become normal in our business. That is a common question around our board table.

I see that everyone else is nodding.

I have a final, tiny question. At the beginning of the austerity period, I followed a debate in the British Medical Journal about what we can disinvest in. You have talked about redesign, which is fine and that is partly about disinvestment. Four or five operative procedures were specifically listed then. An interesting report by the director of public health in the Western Isles for the public health group indicated that four or five procedures really should not be carried out except in exceptional circumstances. The savings were not massive—we are not talking about tens of millions of pounds—but it nevertheless seemed to me that, as a principle, disinvesting in inappropriate or ineffective treatments should be considered. There is the general area of surgical procedures, but there is also the whole area of homeopathy, and there is the question whether it really is evidence based. I do not want to open too big a can of worms on that, but do you have significant disinvestment programmes that are based on the low or absent effectiveness of treatments?

We do assess the procedures, but you will appreciate that, as a finance director, I am not qualified to say which ones are or are not of clinical merit. However, conversations about them take place.

We have invested time in making difficult pathway decisions. It is about picking up that point, and homeopathy is being considered. We are certainly tackling that issue in Dumfries and Galloway.

I very much support the principle of spending our money on things that are effective and for which there is good evidence that they work. Obviously, there can be a great deal of attachment to services that have been provided for a while and the right public engagement is necessary to take those services forward—things do not work simply because of the evidence.

It would be good if you had any examples of specific disinvestment programmes that you have agreed with your clinicians and any illustrations of the barriers that there are to disinvesting, although the evidence indicates that you should be disinvesting—I refer to what Laura Ace said. It is clear that the public still like homeopathy, even if a lot of the scientific evidence on it is somewhat debatable.

That is a different debate. There is an evidence base for homeopathy.

We will probably debate the matter over lunch; we do not need to bother our panel with it. That was just a bit of indiscipline.

We have covered many issues that were reflected in our questionnaire, but one that we have not covered—

We have not covered pay.

Thank you, Richard. That saves me from mentioning it.

Pay is the biggest item in NHS spending. To what extent is the overall pay bill under the boards’ control? What can your boards do to ensure that overall restraint is balanced against fairness to different groups of workers? We often read in our papers that managers are getting big bonuses. What percentage of bonuses in performance-related pay schemes or other schemes in your boards is paid to managers or anyone else?

That is easy: at the moment, it is 0 per cent. There has been a national pay freeze, apart from—

Could you repeat that?

Yes—it is 0 per cent at the moment. There has been national pay restraint in recognition of the economic conditions. The positions that we are all reporting just now would look significantly worse if pay restraint had not been operating in the background.

The lower paid, who earn under £21,000, get an element of rise but, beyond that, inflationary rises—and for senior managers, the element that is counted as PRP—have been frozen for just now.

I will be interested to hear what the others have to say. You are saying that pay is frozen—0 per cent rises—but is it not a fact that managers are still getting some form of bonus?

No.

So the newspapers are wrong.

Do you mean with regard to the current year? It is 0 per cent. The senior manager scales are frozen.

You are not getting my meaning. They are still—

There is no rise. Senior managers—

Sorry—they are not getting a rise, but are they still getting a bonus?

No. The bit that is characterised as a bonus is just part of what other staff get as a normal rise, except that for senior managers it is related to performance. Other staff progress incrementally up their pay scale, but senior managers can progress only if they demonstrate that they have met all their objectives.

I submitted a freedom of information request on that. If the information that I have from all the boards is wrong, that is interesting. It says that, last year, 487 managers got performance-related pay. That is not to say anything about it being increased or decreased—clearly some of that pay would be contractual and could not be varied, but it was nevertheless performance-related pay. There were 250 consultants who got an additional bonus last year—they were new consultants getting bonus points, rather than merit awards—and 630 consultants got additional bonus points last year.

That is the information that I was given in response to my FOI request. There were 1,800 consultants involved in getting bonus points, so only half of them did not get an increase last year, while half of them did. I have raised that in Parliament as a matter of concern.

I was giving the answer for the current financial year; your FOI request would be for the previous year. The amount will be set out in pay circulars: from memory, it was 0.5 per cent from October for last year, but that information can be verified by NHS pay circulars. My answer did not refer to the consultants’ discretionary awards.

I am sure that the two sources of information are absolutely reconcilable; I was replying for the current year. The information is a matter of record—it is all governed by national circulars, so it is easy to determine what the figure is.

We regularly have to respond to FOI requests on that, so it is a well-trodden path. We can all nod to Laura Ace’s response.

I see that there are no other questions, so I thank you all for your time and for the evidence that you have provided this morning. I will suspend the meeting briefly while we change witnesses.

11:43 Meeting suspended.

11:46 On resuming—

I welcome our second panel of witnesses, both of whom are from NHS Scotland. Derek Feeley is the director-general of health and social care, and John Matheson is the director of health finance and information.

Jackson Carlaw will ask the first question.

Good morning. Gosh, I have to say that, in business, probably the most thrilling exchanges were when we had the accountants in, because, however fundamentally important the subject material might be, it can sometimes be a bit dry as we seek to get below its surface.

We received some fairly comprehensive responses from our colleagues just a moment ago, although I do not want to use shorthand and simply say, “Do you agree? Discuss”, because I note that you joined us fairly late in the meeting.

I am interested in the area of risk, which I will couple with preventative spending and the change fund, as those issues seem to go together and were linked in the evidence that we just heard. To what extent do you think that an appreciation of risk, and the expected demographic changes, ultimately fails to find its head in the preparation of immediate financial planning? To what extent is preventative spending not appreciated in terms of financial modelling because it will not produce a dividend at an early date? Our previous witnesses told us that the change fund has not been in place long enough to judge its efficacy, but to what extent do you think that it provides a model that might assist in that happening?

Your question covered a range of issues. I am sure that you will remind me if any of them escape my mind.

We expect risk to be a fundamental part of boards’ planning. We were fortunate enough to be able to listen in the ante-room to the evidence that you were given by the directors of finance, and I associate myself with those remarks.

From my perspective, the additional colour that I would offer is that a clear strategic context for doing the work that the directors of finance described is set out in our quality strategy, which also includes a consideration of risk. We would expect risk to be picked up in the development of proposals. You heard evidence from the directors of finance about how that is done through the divisional command structures and by the boards through the audit and risk committees, which identify any risks that accrue.

The dividend from preventative spending depends on your definition of preventative spending. It is important that we do not forget that we have been doing preventative spending for quite a long time. The initiatives that we have introduced on smoking and the initiatives that the committee discussed around alcohol are about preventative spending. We have seen some returns on what we have done on smoking rather more quickly than we anticipated. There is a dividend.

There is quite a strong evidence base on some of the things that we are doing on early years, for example the family-nurse partnership. There is a strong evidence base that indicates that there is a return on such investment in due course. It takes a few years, but there is a return. We would expect that to be built into longer-term planning.

The directors of finance are right to say that it is early days on the change funds and that we are finding our feet. We are gradually establishing how the funds can best add value, but their real benefit will emerge as we move towards health and social care integration, because that is the change for which the change funds are designed. People will start to see how they can prepare the ground for health and social care integration by using their change funds appropriately. The change funds will be part of a much more significant investment in due course.

I return to your point on smoking, because that is an instructive example. When the modelling took place on the dividend that would accrue from changes in the approach to smoking, over what sort of timescale did you imagine that the dividend from preventative spending would accrue? What has been the practical experience of the benefit that you say has come earlier? Is it typical to be able to identify the benefit that has accrued from a preventative measure? Alternatively, is some of the advantage of preventative spend in other fields subjective rather than easily proven from a budgetary perspective?

It is hard to give you a fixed timeframe within which you will get a return on the investment, because it varies depending on the intervention. Some will accrue benefits more quickly than others, so we need to keep an open mind. We should be guided by the evidence, so we should prioritise the interventions for which there is already a strong evidence base, but at the same time we should not rule out initiatives when we think that there is a benefit. Otherwise, we will continue to lag behind others rather than set the pace.

Scotland can rightly be proud that some of the things that the Scottish Parliament has done have been genuinely groundbreaking. If we had waited for the evidence, would we have done those things? There is a balance to strike between doing what the evidence tells you is right and sometimes following your gut and persevering when you believe that something is the right thing to do. So long as we build that into our assessment of risk, we are on sound territory.

I am trying to understand which trumpet plays the loudest. Obviously, the NHS is a public service. However, a lot of businesspeople will no doubt have a scheme brought before them by an individual who is promoting an idea that they believe might make a material contribution to the business over a long period of time. Some people will say, “I have a profit and loss line that I have to achieve at the end of the year, so although it is nice to hear from you and that is a very interesting concept, this year the bottom line is the priority.”

A public service is not a business, but you work quite closely to the same need to be within budgets. Does the trumpet that says, “We can see that this will make a material difference over time,” have equal weight with the trumpet that says, “We have a figure that we have to achieve now”? As much as we might like a case that is demonstrable over time, does the system in which we operate not for whatever reason allow it to be trumpeted more loudly?

I will give Derek Feeley a break by responding—he might want to come in afterwards. When I talk about financial performance nowadays, I talk deliberately about quality-driven financial performance. The quality strategy that Derek Feeley mentioned is at the heart of how we deliver our financial outturn.

You are right about the temptation to have a short-term focus to financial performance, but I look at financial performance over three to five years. That is why it is useful to have the three-year spending review position clarified, so that we can give boards and other parts of the NHS certainty about the uplifts that they will get.

My colleagues who gave evidence earlier referred to another factor in risk management. I have been keen to promote the concept of bundling. Rather than micromanaging health boards and giving them allocations at a reasonably small level, allocations are bundled in themes. That gives boards the ability to use money flexibly and creatively and the assurance that money is not just a one-off—although it is earmarked in the bundle, it is not earmarked at a micro level.

Boards still have to deliver on their alcohol brief interventions, for example, so targets will not go away, but the aim is to move away from an input focus to an outcome and output focus. I am not particularly interested in whether NHS Highland appoints a part-time alcohol nurse; I am interested in whether it delivers on the target. I would trust the board to judge how to do that.

NHS Scotland is a £12 billion organisation. My final point on risk is that, in the split between recurrent and non-recurrent funding, there will always be some non-recurrent flexibility. Ideally, it should be used for non-recurrent purposes, but it can also be used as a source of investment, to allow initiatives such as those to which Jackson Carlaw referred to progress.

I will respond to the second set of issues that Jackson Carlaw raised. We have to balance the books—that is an entirely proper requirement on us. I am sure that the committee would have something to say about it if we did not do that, as would your colleagues in the Public Audit Committee.

What trumpet plays loudest? It is whatever will lead to people in Scotland living longer and healthier lives, within our financial envelope. Some of that is about investing in prevention and some of it is about investing in good-quality healthcare. Both those aspects can contribute to people living longer and healthier lives. As people who are interested in achieving that end, the challenge for us is in getting the right balance between investment in prevention and investment in good healthcare within a generous but predetermined financial envelope.

I think that I follow that. To many of us, it seems that the NHS’s current model will be financially unsustainable in the long run and even in the medium run if the preventative spend actions on the huge issues that face us—such as obesity, early years care of young people and addictions that lead to mental health issues—do not succeed. For the NHS’s long-term future to be secure, the preventative element must achieve its objectives.

I will consider what you have said, but I worry about the extent to which the appreciation of that ultimately triumphs in the debate over funding in the three to five-year model that you are talking about.

12:00

Let me give you an illustration of how we try to achieve that balance, which might help you. This is a really important point. A significant proportion of our HEAT targets—the things that we are asking boards to prioritise—concern public health measures and include alcohol brief interventions and smoking cessation. Even dementia registration is included, which I think is a preventative measure because the sooner that we can get people on the dementia register, the sooner we can get their care started. It is a secondary prevention, if you like, but it is still prevention. Even in what people characterise as our most obvious and blatant performance management of boards, we are trying to strike the right balance between prevention and care. It is an on-going challenge, and if the committee has ideas about how we can strike that balance better, we would be happy to have that debate with you.

I noticed in many of the written responses that we have received that a number of boards are keen to introduce abdominal aortic aneurism screening. We have set a requirement for the screening of men over a certain age, and some people think that, where there is a family incidence, there might be merit in an earlier screening. I am struck, however, by the variable commitment to that. Everybody seems to appreciate that such screening would be a valuable and worthwhile preventative action, but not every board seems to be in a position to translate that into something that it can do.

Every board will carry out AAA screening. A few have not yet identified the financial means to do it, but they will need to do it because every board needs to carry out AAA screening.

We have been looking at preventative early intervention mainly in care, and we see a real practical difficulty in finding the finance to drive some of the initiatives. You mentioned alcohol and smoking interventions as being among the big ones. Were those interventions successful because there was not the same demand on shared budgets at that time as there is now? There is a broad consensus that that could affect outcomes. Even this morning, we are getting evidence of a lack of confidence among those who are delivering the service. We have heard of good initiatives that have reduced hospital bed usage—we still have the hospital, but the occupancy rate is down. Heart initiatives have been successful but the costs have been felt somewhere else. It seems to me that a lack of confidence is preventing us from getting on with the agenda and making the changes. As you say, we have been involved in this for 10 years, and the lack of progress frustrates everyone. I do not know whether the change funds, although providing a significant start, are sufficient to change the culture and incentivise the process.

There are two points to make. First, if you had wanted evidence from the really strong advocates of preventative spend, a set of finance directors were probably not the ideal witnesses.

But you accept that they are key.

They are—absolutely. John Matheson talked about his personal drive to connect quality and efficiency in financial investment.

Government is sufficiently confident about the change fund to invest significant sums of money in change for older people over the three-year period. The key will come as we start to prepare the ground for health and social care integration, because the change fund can facilitate the capacity building and redesign that will be needed if integration is to be a big success, which can happen in advance of legislation to integrate health and social care. There is huge potential.

We are still finding our way. An issue that emerged in the committee’s questioning of the previous panel was how we share the learning. We still have quite a lot to do to ensure that the good practice that we are starting to see locally around anticipatory care, hospital at home and so on happens reliably across the country. We can use the change fund to do that. The initiative for 2012-13 whereby 20 per cent of the change fund resources will go to carers will help us to learn how to do that better. I acknowledge that it is a work in progress, but I think that we are heading in the right direction.

Mr Matheson talked about quality and about outcomes, as opposed to inputs, and Mr Feeley talked about the HEAT targets. You are impelling health boards and empowering them to spend preventively. Can you ask boards to provide their financial information in a way that makes much clearer to the general public what is happening on preventative spend and the long-term transfer from acute to community? We hear from you and from boards that preventative spend and the transfer from acute to community are the way to go, but boards do not seem to be able to make clear in their financial statements that that is what they are doing. Can the information be better presented?

I defer to the expert on financial presentation.

Let me make two comments. First, we are not starting from point zero on preventative spend. Derek Feeley mentioned the family-nurse partnerships; there are also initiatives such as healthy start, on infant nutrition, and childsmile. We are investing in excess of £100 million in those very narrow areas of focus.

It is a pity that Dr Walker has left the meeting, because I am about to move into health economics—with a degree of trepidation. In one modelling area, we are looking at the resource that we spend in particular programmes—coronary heart disease is a good example. We look at the totality of the spend and the added value of spend at various points, and—to pick up on Ms McLeod’s point—we consider the impact on healthy life expectancy of moving some of that resource from the illness side to the preventative side. In the CHD example, that might involve looking at further investment in statins or in more proactive early screening for AAA. We are looking at cancer, as well as at CHD, in that modelling work.

We have also used the integrated resource framework, which is a tool that boards have been using with local authority partners to enable them better to understand the impact of spend on health and social care. The IRF is starting to generate useful information, so people can ask, “If I invest in X, what will the benefits be?”

The short answer to Fiona McLeod’s question is that we will see whether we can pull together for the committee some of the evidence on what has been done, which would at least give you a starting point for considering where you might want us to take things in due course.

The problem relates not just to health expenditure but to social care, housing, employment and a multitude of factors. We will perhaps start with health, with a view to broadening the approach beyond that.

I appreciate that and thank you for doing it, but I am thinking about the sort of example that was given to us from the Western Isles, where there has been a great initiative that has reduced heart disease rates. However, the beds are still there. Can you imagine the outcry if the board said that it was going to get rid of the beds? The issue is how information is presented to members and to the public so that everybody understands that investment in preventative spend in the long term leads to longer life and healthier lifestyles for people, but different health service delivery.

Part of the challenge is to engage with the public in a way that focuses more on outcomes and outputs than on physical locations and the number of hospitals, beds and staff. We need to focus on what we are delivering for the £12 billion, rather than on the resource manifestations and how we are structured.

I have come across an example of what I think might be your preventative spend. I notice that NHS Education for Scotland has to make lower savings than the other special boards. Is that an example of preventative spend, because educating the workforce is a good place to invest?

The efficiency savings that the territorial boards deliver—in their financial plans, they anticipate that those will be about 3 per cent in 2012-13—are totally retained within the territorial board areas. We have taken a differential approach to the special boards that are not directly patient facing. That therefore excludes the Golden Jubilee hospital and Carstairs state hospital and focuses on NHS National Services Scotland and the non-training element in NES. We have taken away the savings from the special boards and reinvested them in some of the developments that are detailed in the spending review. The special boards have opportunities for savings in the way in which they support the delivery of quality clinical care. For example, national procurement in NSS has delivered savings of £74 million in the past four years, which has been reinvested.

The question touches on the benefits of NHS Scotland having a shared service approach to training issues, staff and legal services. Rather than have a legal department in each health board, we have a single legal department for the whole service in NSS. We are considering simple things such as how to share backroom services between the special boards. For example, some of the special boards are co-located in an office building to the west of Edinburgh, which has provided benefits as a result of more integrated facility provision, communications and information technology and the sharing of finance staff. The reduction in backroom services is enabling further investment to be released through efficiencies. That investment stays in the health budget and is reinvested in front-line care.

Earlier, Mr Feeley talked about preparing the ground for health and social care integration through using the change fund effectively. He talked about the role that the fund can play in incentivising the shift that needs to take place from the current provision in hospitals to community-based services. We have talked about capacity rebuilding and redesign of services, but the truth is that that is a huge challenge because so much expenditure is caught up in the acute sector. There is significant investment in unplanned emergency admissions to hospital among the over-65s. We all understand the commitment and determination in the Government and the health service at last to tackle the issue, but how do we actually make it happen and measure success over time? What milestones should we expect to see on the road to success?

12:15

In talking to health boards and local government about health and social care integration, we have been discussing a set of national outcomes to apply consistently across every health and social care partnership. We are nearly through the process of agreeing the outcomes. I can share a draft of them with the committee, if you would find that useful.

Yes—that would be useful.

Are you finding agreement across the NHS about what the objectives should be and what we are trying to achieve?

We seek agreement between health boards and local authorities about what health and social care integration will deliver for them. This is the first time that we have been in a position to agree a common set of outcomes that will apply across Scotland, and we are very close to doing it. We are happy to receive comments from the committee on that.

We are starting to make progress on emergency admissions. After a period in which they were on an upward trajectory, they have over the past year or two come down—certainly in the case of emergency admissions of over-75s, which is our HEAT target. That is happening because boards and their local partners have been putting in place arrangements to prevent admissions. Through case management, it is to an extent possible to say who is at risk of hospital admission and to ensure that there are support services for such people at home or close to home that will prevent admission. We have worked with the Long Term Conditions Alliance Scotland on a supported self-management initiative that ensures that people are better able to manage their conditions at home, which means that they are less likely to have a bad reaction to their long-term condition and require admission to hospital.

Marion Fordham said that although we can create the services in the community—she used the example of cardiac services—we are still paying for the hospital bed. How can we release funding from acute care into the community?

For the past 10 years, there has been a slow and gradual decline in bed numbers. My sense is that local communities are perfectly comfortable with that, as long as we have open engagement with them about the fact that it is happening in order to enable people to live longer at home. Understandably, they are less keen on hospitals simply being shut. Those are two different things, of course, and the former approach involves a gradual and managed running down of the number of beds because we have been able to turn off the tap on emergency admissions, reduce the length of stays and do more day-case procedures, all of which are—to go back to John Matheson’s earlier point—about good-quality and more efficient healthcare and enabling a gradual transition to community services. We need to keep moving forward in a gradual, managed and clinically appropriate way.

That is the difficult thing. We are all guilty of doing what you talk about. However, I am sure that Mr Matheson, who talked about good outcomes and the financial principle of good delivery and good value, would accept that it is possible to realise substantial savings and improved outcomes by closing hospitals.

I totally agree with that. The challenge for us is to have a robust business case that will engender significant sign-up to it and public engagement with it, in terms of the additional investment in community facilities. The end result will be a repositioning of some hospital services, which is part of the overarching thrust of shifting the balance of care.

There might, flowing from that, be a parallel business case that is concerned with additional day-case activity, which might enable beds to be used differently. We need to look at the issue innovatively and ask whether there might, rather than closing beds, be another use for the beds that is consistent with the overall clinical strategy of the NHS body.

Has your department done any work with NHS boards to identify how, by closing hospitals, you can get better outcomes and greater financial benefit?

There are no significant proposals to close hospitals at the moment. Boards are much more inclined to take the route that I described to Mr Eadie, which involves thinking about how they use their whole provision in their hospitals—how to use hospitals differently, even if that means fewer acute beds. If boards propose hospital closures, there are well-established processes that they must follow, including engagement with their communities and clinicians. They would need to think about how any such proposal would improve the quality of healthcare for their population.

So, our hospitals are safe. I can go back to Greenock and tell people that.

You can—unless you have news for me.

I am happy with that, Mr Feeley.

If there were any proposal to close your local hospital, it would have to accord with the process that I have just set out.

When the director of health and social care and the director of health, finance and information for NHS Scotland are in the room, it would be remiss of me to pass up the chance to ask a question that, I am sure, everyone would want to ask you. Our health service is second to none and we spend more than £12 billion a year on it. It does a massive number of things in a wide range of areas, and we are not suggesting that any hospitals should be shut.

What involvement do you have with boards to direct their spending better when you read in your newspaper that their hospitals do not have blankets or that some people did not get their operations in time? I agree that we must constantly review what we are doing and that there is a shift towards people staying in their homes longer and not needing to be admitted to hospital. However, does it anger you, as it angers me, that we continually read in our papers that one of the best health services in the world is continually letting ordinary people down?

It does, and I will come back to that, if you will bear with me.

It is important to make it clear how well the NHS is performing. In the year just gone by, we met our 18-week referral-to-treatment target and waiting times are as short as they have ever been. Now, 97 per cent of patients wait less than 12 weeks for their first out-patient consultation, which is a huge improvement on where the organisation used to be. We have also met our cancer targets.

In the census in January 2012, delayed discharges were at their lowest-ever level. There has also been a huge reduction in the incidence of hospital-acquired infections and we have a patient safety programme that is the envy of the world; we have people coming from all over the world to look at how we are keeping patients safe in hospitals. There is a very positive message, which I am proud to be able to tell, about what the people who work in the NHS go out to do every day.

Does the other stuff annoy me? Yes, it does. Through our patient safety programme and other initiatives, we are desperately trying to make care more reliable. I am the first to acknowledge that our saying that we get those things right 99.9 per cent of the time is of little consolation to the people who are in the 0.1 per cent. We are constantly striving to improve and we are improving. An emerging body of international evidence puts Scotland right at the forefront of healthcare improvement, but there will always be more to do.

I agree, and I associate myself with the remarks that you have made. Successive Governments have progressed with a programme—particularly on patient safety—for the general development of collaborative and co-operative services. The programme does not have competition at its heart: that approach is fundamental to the ethos of the health service here. The two major political parties are in complete agreement on that.

I will ask you about two areas. First, is information on variation that is being provided to individual boards adequate? Variation is where many improvements could occur. When a new service, such as the one that Jackson Carlaw mentioned, is being introduced, there will obviously be variation, but much more fundamental variations are occurring. With the previous panel of witnesses, I mentioned theatre utilisation.

One board—I am carefully not mentioning which one—is so far behind the neighbouring board on day cases that the situation is ridiculous. Consequently, that board has far more orthopaedic surgeons, for example, than the neighbouring one. There are clear savings to be made there. How are you tackling that variation, first in terms of the information provision and secondly in terms of asking how long is “long enough”, before the 70 per cent target that was set for the 19 day-case procedures is reached? That target was set, perhaps, 10 years ago.

There is a strong evidence base on that day-case basket.

To support the work on efficiency and productivity, we have set up an overarching steering group and we have divided the work on efficiency and productivity into a handful of strands including prevention—we have talked a bit about that—acute flow, out-patients, prescribing, procurement and shared services. They are things that the committee would expect us to consider.

We pull together the people who lead those work strands—they are all led at chief executive level and jointly with a director in the Scottish Government—in an efficiency and productivity steering group, which is where we do horizon scanning and information sharing about who is doing what well and how we can more reliably make it happen.

In the Government, we have also established a quality and efficiency support team, whose job is to assist boards with information sharing. We have also done a number of pieces of benchmarking, including on theatres, in which we examined variation.

We are getting more adept at providing information services to boards, although we could do more and do better. I will go a step further and suggest that we need to go beyond the boards to the clinicians with the information about variation. I am sure that, as a general practitioner by trade, Dr Simpson would recognise that.

When I talk about these matters, I always show as an example a slide that shows the variation in referral to acute care by general practice in one particular community health partnership. I could have taken any CHP, to be honest. There is something like a threefold variation. I am not saying that either end of the spectrum is right or wrong, but we need to be able to explain why there is such variation, so that is the kind of material on which we should work. I agree that we should be benchmarking and sharing information with boards, but we should also get the clinical information to the people who make the decisions—that is, the clinicians.

I will add a couple of points to what Derek Feeley just said.

Staff engagement is critical; there is a staff representative on each of the efficiency and productivity groups that Derek mentioned. Staff engagement through the local staff partnership forum is also absolutely critical because efficiency programmes and initiatives are developed at local NHS board level. The staff engagement structure across NHS Scotland was recently independently reviewed by the University of Nottingham and was recognised as being excellent.

The biggest area of spend in NHS Scotland after staffing is prescribing, on which we spend just over £1 billion. Between 70 per cent and 80 per cent of that £1 billion is spent on repeat prescriptions. Effective management of repeat prescriptions—how they are dealt with and monitored—is increasing efficiency and, in some cases, reducing harm. Compliance with the formulary and the interface between primary and secondary care are other areas in which we are doing extremely positive work.

On variations in the lengths of stays, to bring NHS Scotland’s performance up to the upper quartile of performance in Scotland would realise between £45 million and £50 million of savings at marginal rates. It is about sharing best practice. A number of pilot initiatives are taking place in NHS Scotland. The challenge, which we are delivering against, is to embed those pilots in routine practice.

12:30

That is helpful. I certainly appreciate what Mr Feeley said about variations. In 1992, I did a study on referrals to orthopaedics in Forth Valley NHS Board’s area and found an 18-times variation, which was narrowed down to around a six-times variation if some of the part-time practitioners who mainly dealt with women’s issues were excluded. The top people who referred often had great expertise in orthopaedics, so that was not necessarily bad. It is about understanding that and providing meaningful data. I hope that the integrated resource framework will do that for managers and help with that.

We have heard about a lot of the successes and initiatives, which are all very welcome, but there has been one huge failure in the United Kingdom, and Scotland is no different from the rest of the country in that respect. We have not really made any significant advance in health inequalities, despite the efforts of successive Administrations to tackle them. The work of the NHS Scotland resource allocation committee and, previously, the Arbuthnott formula were supposed to be partly related to deprivation and health inequalities, but whatever that committee has done does not seem to have flowed through to tackling health inequalities. What work are you doing on that? How does it fit into the budgeting and financial process?

I am thinking particularly about the work of the GPs at the deep end steering group. In Scotland, we are fortunate that everybody has a general practitioner; that is not the case in England. There is equity of provision across Scotland, but not equality of provision, because provision does not match the variation and complexity of needs in deprived communities. The message that I get from the deep end group is that we have failed to provide to our most deprived communities the resources that would give them time to deal with the complex problems that exist, and we have failed to make the investment in social capital assets to which the chief medical officer refers. What is your strategy on health inequalities and how are you holding boards to account in the financial process?

I will let John Matheson talk about the detail of the NRAC formula and how it reflects inequalities.

The strategy works at a number of levels. Our policies are equalities proofed. As we develop policies and strategies, we ensure that a sense of their impact on both equalities and inequalities is taken into account. A range of policy initiatives, including the equally well initiative, are designed to have an impact on that. I am sure that Dr Simpson is well aware of those initiatives, so I will not rehearse them. Many of our big public health initiatives and some of the stuff that we are trying to do around early years are designed to have an impact.

Health inequalities is one of the complex problems for which I wish I had a silver bullet that I could offer to the committee, but I do not. The answer to the question is to do everything. We should continually strive to do what we can, whenever we can, to close the gap. I sense that what will be required to make a difference is an accumulation of individual interventions that will build the asset base that Harry Burns talks about, give people confidence and enable cross-fertilisation of ideas from other sectors, including the third sector, into the health sector, and from the health sector into other sectors. There is no one solution, but a multiplicity of solutions, and the brave thing to do is to persist.

By and large, we are doing most of the right things. I do not see how a new policy direction would resolve the issue. We must keep on doing the things that we have been doing for a number of years in a better and more sustained way. We must also address the point that Jackson Carlaw and others raised about balance, and we must ensure that we value prevention as much as the downstream care input.

I have a couple of general comments on the NRAC. The policy direction is to move towards NRAC parity in a managed way. As part of the spending review outcome, I have tried to increase the pace of that movement.

A couple of years ago, the amount of money that was set aside for the movement towards NRAC parity was £13 million. In the current year, that amount has increased to £32 million, and there are plans to set aside £42 million in each of the next two years of the spending review. That should expedite the move towards parity.

The NRAC formula is dynamic. There is an overarching group called the technical accounting group for resource allocations, which is currently considering how the formula deals with remote and rural areas issues and how it reflects mental health and learning disabilities. I would be happy to bring the output from those deliberations to the committee, if that would be of interest.

That would be of great interest.

In the original Arbuthnott formula and in the first iteration of the NRAC formula, the primary care data were thought to be not adequate to allow us to comment on primary care. Despite the redistribution, it remains the case—as far as I can judge—that there is no redistribution within primary care towards areas of deprivation. I understand that there are special programmes within the equally well set-up, but within the fundamental core of general medical services there has, in my view, been an abject failure to shift resources towards deprived communities—such as the 100 general practices in the deep end group—in order to achieve greater equality rather than merely equity.

We have not been able to do that at formula base level, so we have relied on special programmes, enhanced schemes and deep-end type initiatives; I accept that. Now that we have better data, we could and should return to the formula—not least because the nature of general practice in Scotland is becoming increasingly different from the nature of general practice elsewhere in the UK.

I could not agree more.

There are no more questions. I express the committee’s appreciation for your attendance this morning and for the evidence that you have provided. Thank you very much.

12:39 Meeting continued in private until 12:44.