Health Committee, 27 Apr 2004

Meeting date: Tuesday, April 27, 2004

Official Report 337KB pdf

---

Budget Process 2005-06

If you are sitting comfortably, we will begin agenda item 2, which is the budget process. I welcome our panel of witnesses from the Scottish Executive Health Department—Peter Collings, director of performance, management and finance, David Palmer, director of finance and Julie Wilson from analytical services.

It is hard to believe how quickly budget scrutiny sessions come round; it does not seem that it is a year since we last did a similar exercise. One of the points that I want to make is that in both 2002 and 2003 the Health Committee reviewed the budget and made recommendations. During the years in which I have been on the committee, we have always made recommendations. However, as far as we can tell, the majority of those recommendations have not been acted upon. Indeed, our budget adviser informs us that no more than perhaps two or three of the 17 recommendations have been addressed. For the benefit of the committee, will you explain what processes are in place to consider the recommendations that subject committees make about the spending of the various Executive departments? What processes does the Scottish Executive Health Department have for considering and acting on our recommendations and for feeding back to us the progress that has been made?

Within the Parliament's budget process, committee recommendations can operate in one of two ways. Formally, the Health Committee's recommendations on the budget process are recommendations to the Finance Committee for inclusion or otherwise in that committee's overall report on the budget. Following on from that, the Finance Committee's recommendations formally go to the Minister for Finance and Public Services, Andy Kerr, and there is a process in place for responding to them.

As far as I can make out—I was not in the Health Department at the time—there has been some inconsistency in how we have handled committee recommendations in previous years. In 2002, we were asked to give a formal written response to the Health and Community Care Committee and we did so. I think that we received no such request in 2003, so we gave no formal written response then—although we did, of course, consider the recommendations. Whether or not the Health Department makes a formal written response to the committee, the process that we have involves discussing the recommendations with the minister and deciding what to do with them.

At the end of last week, and in advance of the minister's appearance next week, the clerk wrote to the minister to seek information on what had been done about the committee's previous recommendations. We intend to reply to that request this week.

I understand what you are saying, but one of our frustrations has been that we have not always received sufficient information to allow us to track specific items of expenditure from the top down and to do our job of scrutinising the department's expenditure. I am trying to express our frustration about having to ask the same questions year after year. When the minister gives evidence next week, I hope that he will be in a position to inform us about the processes that the department is implementing. Is that a reasonable hope?

We discussed the need for such information in a session that we had a few months ago. Following on from that, and following on from discussions between the convener and officials at Victoria Quay, we have made some amendments to the information that we collect. We will provide the committee with a summary of that information once it is available. We have plans to make further changes. We are trying to respond to the requests for information that the committee has made.

I fully expect the committee to make further recommendations as part of the current stage of the budget process. I cannot expect people to respond to questions to which they do not know the answer, but can we be given a guaranteed timescale within which we will get a response to the issues that we raise in our report? For example, would one month be a reasonable timescale within which to get a response?

Asking for a response within one month is entirely reasonable, but the degree to which that response will be satisfactory will depend on the questions that are asked and on our ability to answer them. I have no problem with that idea. The only thing that will need to be sorted out with the clerks is which responses should come directly to us and which should be routed via the Finance Committee. Subject to that caveat, of course we will be happy to respond.

There appears to be evidence that the Health Department is very poor at responding to requests for information. Do you know of any internal performance monitoring that would allow you to confirm or refute that statement? If there are no performance data, would you introduce such a system? By when would it be in place? It is about getting information from the Health Department. I am not accusing you personally, just the department.

We have an internal performance measurement system for parliamentary questions and for ministerial correspondence. Those systems show that on time limits, the Health Department is consistently one of the best, or the best, performer in the Executive. We have not instituted a system for requests for information from the Health Committee. If that is what the committee is asking for, I am happy to take the idea away and see what we can do about it.

Many questions on health issues receive the response that the information is not held centrally. What is being done about that? If someone wants some information, they have to track it themselves by writing to health boards and giving them a time at which they want the information to be available. What is happening about drawing in information from the health boards and holding it centrally so that members of the Parliament who ask questions can get national answers?

During the next 12 months, we plan to do a major review of NHS statistics to see whether we need to update what information we collect to reflect what people need to know about the NHS as it is now. Over the years, systems have evolved and many things have been added on, but there has not been a fundamental rethink. We intend to do that during the next 12 months, so we hope that that will help with the statistical questions that members might have. During that review, we will obviously consider requests for information from Parliament, and our ability to answer those requests.

Members raised this issue when we had our informal session with the committee in January. Has the committee had a chance to think about the types of information that it wants us to look into? In some instances, the specific information that is requested by a parliamentary question, for example, might not be available centrally but there might be some information available that would fit with the general idea or the type of question that was seeking the information. The committee's adviser was going to do some further work on the nature of the questions that you want to put to us so that we could see from that how much of the existing data could be used as a proxy, or to give a broader idea, even if we could not give the specific information because it is not held centrally. That might be a quicker way of getting at the information that the committee needs.

Apart from the fact that we can take up that issue in our report to the Finance Committee, we will return to it after we have been out on the road with our inquiry. The three groups that are going out will get an idea of the facts that we do not have and the information that we need across Scotland. That information will be mapped out across the NHS boards so that we can see what resources are out there.

We are now in the budget process and considering either the movement of money or the allocation of new money that is coming into the system through the comprehensive spending review. From a statistical point of view, I presume that ministers have access to trend analysis data that allows them to perceive whether, for example, there is more asthma than there was or the incidence of diabetes is decreasing. The ministers must have that information. Many parliamentary questions are about changes in trends and trend analysis, and I thought that the information and statistics division and the Health Department ran those figures so that they could brief ministers. Is that not the case?

Julie Wilson might want to expand on that, but we have comprehensive data on questions about hospital procedures, and those data hold up well compared with other countries. Although we have made many efforts to fill it in, the information that we have about the general health of the population and what is going on in primary care is much more limited.

My impression is that many of the questions that we do not have answers for are in those areas, and although we would like to improve what we get at the hospital end, we do not have massive gaps. Data are coming in on new developments, some of which have been published. For example, the role of nurses has expanded, but we were not catching some of the things that nurses are doing that had previously been done by doctors. Most of the gaps are in general practice and in the general health of the population.

That is right. A lot of chronic disease management, for example the management of asthma, takes place in primary care. The information and statistics division of the NHS in Scotland—ISD—recently developed continuous morbidity recording, which examines the conditions that people present with in a nationally representative sample of GP practices. Conditions are coded in a hierarchical structure, like the hospital data set. I do not know if asthma is a good example. You could get some elements around respiratory problems, but not the complete detail of what you were looking for. If you asked for information on asthma, and it was contained within the coding that we have, you would have been given it in the answer. We are doing work with the ISD to improve the clinical coding data sets. The issue might have been one of the specifics that you were looking at, which is why I thought that it would be more beneficial to the committee to work with you on the issues that you are concerned about, look into them, and see what we can do.

Members feel great frustration when they look at rising incidences of different diseases in different health board areas, because we need to know what the trends are before we start to question the level of service and the need for supplementary funding. I know that you heard that in the previous parliamentary session from other committees. Are you tackling that issue?

Yes. We are trying to expand the data sets, particularly around primary care and the new ways of service delivery. We are working on, for example, clinical dictionaries to enhance recording. A number of developments are in place to address the issues. There is also the strategic review of what we collect, which Peter Collings mentioned. However, if you want particular issues to be looked into quickly, I would be happy to take them away.

It will be useful for the committee if the clerks examine the questions that parliamentarians cannot get answers to and the data that we are unable to track, and put together a paper that we can put to our budget adviser. We could discuss that, and either put it to the minister or discuss it again with the members of the Executive team who are here. We all have examples in our head, but we want to draw them together into a paper. It would be useful for parliamentarians. Is that agreed?

Members indicated agreement.

When we met the witnesses earlier in the year they gave us an example of one recommendation that we had made, which was to increase the mental illness specific grant. It was useful feedback from this committee that led to that helpful thing being done. What kind of suggestions are helpful in that regard? We can tell you what information we would like to see—I know that we are working on that—but what do you think would be helpful suggestions for us to make?

I return to the annual evaluation report, for which I cannot take any credit. It is the first AER that I have not been responsible for producing. Are the priorities that we have set the right ones? Do we have the right targets or should we have different ones? Is there scope for efficiency savings that we have not spotted? Are there priorities that we are not addressing? Those sorts of questions are particularly helpful. For example, we found that we were not adequately addressing mental illness.

I am sure that we will find many helpful suggestions in that lot.

It might be helpful if you can tell us a bit more about the process in the Health Department for pulling together your element of the budget. We particularly want to know what information helps you decide on the allocation of money to different programmes. How do you decide how money will be best spent and how do you allocate the money within the budget?

A point to bear in mind is that as well as being about how effectively money can be spent in different places, such decisions are fundamentally political. For example, the need to meet commitments that the partnership agreement set out is basic to our planning, because ministers have said that those are priorities. Therefore, we must establish the best way of meeting those commitments. For the rest of it, I should point out—I know that this is frustrating for the committee—that most of the money that we give to the NHS is given as large, general allocations. We do not take decisions centrally on many of the things that you are talking about. We allocate money to health boards and they make decisions that take account of local circumstances.

When particular studies evaluate something new, we sometimes put out ring-fenced money. That is often done on the basis of evidence from the chief medical officer and others. An example of how the NHS spends resources is the Scottish medicines consortium, which is the committee that makes mandatory recommendations about new drugs for the NHS. That is done by analysing the benefits and cost of a new drug compared with existing ones. That is an example of the general approach. However, in practice, much decision making is done at health board level or lower to meet local demands.

I appreciate all that, but the minister must obviously look to you to provide data to enable him to make decisions. We appreciate that, with limited resources, there is a limit to how flexibly the money can be used, particularly on staffing issues. However, there is obviously some flexibility about priorities. Given the lack of information on outcomes, we have struggled to get a sense of how decisions are made about priorities. For example, if a Health Department target is not on course, would information about that be given or would there be a discussion on whether to allocate more money to help meet the target? Or is it not an issue of resources at all? I am trying to get a feel for the money and the outcomes and their interrelation. Can you see the money directly impacting on the targets? If so, how do you measure that?

We can do some of that occasionally when targets are specific ones in which we can directly intervene.

We monitor what is happening on smoking, and one of the interventions is health education through advertising and so on, the effectiveness of which is measured. If we are not meeting the target, the ministers will need to decide whether that is because the present set of interventions is not adequate, and we will provide evidence on how effective those seem to be. Is it that they are being effective but that we need to do more and, therefore, put more resources in? That is the sort of discussion that takes place.

The other targets—for example, waiting targets—are, by and large, for boards to deliver. We have set the standard and have said when they are to reach it by. We have regular conversations with them about how they are doing. They provide us, at individual board level, with a profile of what they expect to happen to waiting targets over the months leading up to, for example, 31 December last year and where they expect performance to be each month. If they are not reaching the standard, we have a conversation with them about what needs to be done to determine whether what is needed is more resources or changes to things. We have that sort of conversation around some of the other targets that boards are responsible for.

What we have found out, looking at the budget this time and previously, is that there is very little flexibility in the budget and no debate about the contractual rights of consultants, junior doctors and staff. When the health board meets the person, the only flexibility is those targets that you have just described. It is the targets that drift because there is no contractual right for patients to insist on those targets' being met. As a consequence, are patients not always going to be the losers in that type of debate?

That seems to be based on the suggestion that the money that is being put into, for example, pay and some of the new contracts, is not being put in for a purpose. It is being put in for a range of purposes, one of which is to facilitate changes to try to improve services to patients. Modernising the terms and conditions of people who are employed in the NHS—changing general practitioner contracts to introduce quality measures into the system—is being done with patients in mind.

Can you explain to me, in that case, when patients should expect an outcome that will be to their benefit from the recent consultant contracts and the reduction of junior doctors' hours? What year? 2005? 2006? 2007? When?

On the consultants contract, the immediate benefit—

Mr Collings, I am sorry to interrupt you, but I am having difficulty in hearing you over the noise of a fan. Could you please speak into the microphone?

My apologies.

Vacancies in some specialties in some parts of the country are hard to fill. If we were not maintaining consultants at levels that are competitive with those in other parts of the United Kingdom and internationally, we would not be successful in filling vacancies. The immediate benefit for patients is that, by keeping consultants' pay in line with that in the rest of the UK, we are competitive in the labour market. The other changes are, I agree, longer term. They are about discussions that are going on now about job planning for consultants and whether changing how they are doing the job—how they use their time—could benefit patients. We will have to see how that goes and whether there are benefits for patients out of that. We are monitoring those benefits to see how long they take to emerge.

So, you are telling the committee that we have paid this money out to stand still; that you do not know when patients will get the longer-term benefits; and that consultants who have already been paid for this year have not committed to any changes in their contract.

Different consultants in different boards are at various places in the job-planning process. The ideal was to have it completed by 31 March but my understanding is that that target has not been met everywhere. In many cases, there is a draft job plan for the consultant but it has not been finally signed off yet.

Would it be useful for the committee to get a proper update on the progress that has been made in relation to the consultant contract?

Our witnesses are nodding agreement, so that is another one for the out-tray.

In response to Shona Robison a few minutes ago, Mr Collings, you talked about the fact that ministers obviously have a pot of money that has been held back to add resource where input might be needed to reach unmet targets. For the sake of clarity, can you tell us exactly how much that pot is?

At the moment, the Health Department does not have a reserve. Therefore, if we want to move extra resources into one area of health spending, we have to find savings in others. If we find that we have a problem in a particular area, we have to look around the rest of the budget to see whether we can make savings elsewhere. The process of doing that is one of the reasons why the health budget is tending to come out extremely close to being fully spent. Indeed, at one stage last year, there was a risk of there being an overspend. We reallocate money to meet priorities and to deal with particular problems as they arise.

I appreciate that it is days since the end of the financial year and that this is not a good time to ask how much is left in the kitty for end-year flexibility. However, at the beginning of the year, is there a deliberate attempt to set aside a sum of money that you can use during the year to ensure that there does not have to be a reduction in other areas and that resource is available to support target achievement?

There is. However, because of a range of pressures, we do not have that resource for 2004-05. We are trying to manage the budget at the moment.

On resources and meeting targets, I have a question about waiting time targets, which you mentioned. In answer to David Davidson, you have just confirmed that you are not carrying a reserve to ensure that targets are met. That means that, if the nine month waiting-time target is not met, there is no reserve with which to address the issue.

The minister informs us that nobody is waiting more than nine months for their operation but, on Monday, I received a letter from Grampian NHS Board telling me that one of my constituents will have to wait 15 months for their operation but they do not come under the waiting time target.

I understand that the Executive is saying that, if our constituents have to wait longer than nine months for an operation in their health board area, they will be given the operation elsewhere—in Scotland or even abroad—or privately. Your statistics inform the minister that everybody is achieving the nine-month target, but Grampian NHS Board—I will not name the individual, as that would be invidious—tells me that one of my constituents will have to wait 15 months for their operation because the necessary consultant will not be available until then.

You are telling us that you do not hold a reserve to ensure that the targets are met and the minister is telling us that we do not need to address the issue because everybody is meeting the target, yet I have a letter from Grampian NHS Board saying that the target is not being met. What is going wrong?

I have two points to make. First, on waiting, one of the reasons why we met the target was that in the run-up to the end of December, when there were backlogs in particular specialties in certain places, we moved some resources within the Health Department budget to ensure that extra procedures were carried out. That involved only a small amount of the overall budget, but that is the sort of thing that we do when there is an issue with a target.

Secondly, I cannot comment on the specific case, except to say that the nine-month target applies to patients with a guarantee, and there are various categories. For example, if the patient is not fit to have the procedure for some reason, or—

Let us discount that one. Keep going.

If the patient has been offered—

We can discount that as well. Keep going. What are the other categories?

I pass over to my expert colleague.

If a patient is waiting for a specific consultant, it is possible that they are awaiting highly specialised treatment.

They are.

Under those circumstances, the board may have applied an availability status code to that patient, saying that they are awaiting highly specialised treatment.

I am sorry, but there is a darned fan whirring away and I am trying to follow what you are saying over the rather extraneous sounds around me.

It sounds as if the patient about whom Mike Rumbles is concerned is awaiting highly specialised treatment. In such circumstances, it might be considered preferable for the patient to wait a little longer to have a particular consultant operate on them.

That is certainly not the patient's wish in this case, so that cannot be the reason, can it?

I do not know the particulars of the case.

If I may pursue this point, convener—

You are making a fair point, Mike. Most of us have in our in-trays cases of people who are being told that there is a waiting time target, which they expect to be obtempered, but who find when they try to put it into practice that nothing like that is happening in their NHS board. Just about every member here will have something in their in-tray like that, and what Mike Rumbles and I are trying to get at is what the targets are worth. When you say that a waiting time is guaranteed, what is that worth when people on the ground are not getting their treatments? How are those targets reached? Is the matter one of personnel; if the consultants are not there, it simply cannot be done? I think that the question is about what the guarantees are worth.

I have one constructive question to add. Correct me if I am wrong, but I understood that the guarantee of waiting times was there so that a patient would not have to wait more than nine months. The convener said that there must be many such cases, but I know of one person who has been waiting for 15 months. It is not the case that that individual does not want an operation. He does. I understood that the Executive was saying to Parliament, and through Parliament to the people of Scotland, that if people had to wait longer than nine months, the guarantee provided for them to have treatment elsewhere in Scotland, to have treatment as a priority from other resources being added to the local health board or to have private treatment for which the Executive would pay.

None of the caveats that you have mentioned so far applies in the case that I am concerned about. Given that, is it your understanding that those patients are therefore entitled to treatment and that it is Grampian NHS board—

I think that we have got all that on the record. Now that those questions are on record, I think that you will agree that it is for the minister to answer them.

Please feel free to say something, Mr Collings, but I am happy to leave political decisions to the minister.

As we have been trying to explain, there are definitions under which the guarantee does or does not apply. Those definitions are written down and are publicly available. In the judgment of Grampian NHS Board, the patient concerned will come under one of the availability status codes. It is hard for us to guess which one, but the sensible thing for any members with concerns about a particular constituent to do is to write to the minister with those concerns. We can then investigate what has happened with regard to that individual and come back to the member.

I think that we have all done things like that, but I would like to find out from you or from the minister the categories under which the guarantee applies, so that we can have that information for the next meeting. Members can then raise general issues on that basis.

I caution the committee about the time. I have no objection to taking time over this matter, but we should bear in mind the agenda that lies ahead. I would ask that we all ask shorter, crisper questions, so that we can move along.

If we see new treatments or innovations of proven efficacy coming from elsewhere in Europe and other parts of the world, to what extent do we make provision in the Scottish budget to ensure that those new treatments come to Scotland and that we have at least three or four centres where those treatments can be provided?

That very much depends on the treatment that you are talking about. As the committee knows, we have a systematic procedure for evaluating drugs. If, following that procedure, the conclusion is that the drug should be used, it will be made available in Scotland.

For other sorts of procedure, things are done on a case-by-case basis. We become aware of what is happening in a certain country and we have to take a view on whether it is something of national significance for Scotland. If it applies to relatively few patients, it could be treated as a national service, which we will fund nationally through the Common Services Agency. On the other hand, it might be something for boards to do, or it could be for the profession to spread best practice. A request could be made to us for capital funding to provide specialised equipment. In that case, we would consider the business case for funding that within our capital budget. It depends on the particular circumstances.

We are all aware that NHS boards are under pressure, not least from the working time directive, the new GP contracts and so on. Last week, our financial adviser went through details for Greater Glasgow NHS Board. Much as we are in favour of doctors being paid a decent sum of money for the job that they do, it appears that the wages bill for doctors is putting extreme pressures on Greater Glasgow NHS Board and the other NHS boards, which are having to take cost-cutting measures to meet the bill. Do you work out the costs of proposals before you decide to implement them? How do you decide whether NHS boards have enough money to cope and whether they have the resources?

It appeared that Greater Glasgow NHS Board had an overspend of nearly £60 million and that it was having to make cuts over the next two years, probably amounting to up to £37 million in the first year, with the rest being made in the following year. That meant that although some patients might get a benefit, there might be cuts for other patients. That is giving something with one hand and taking it away with the other. Do you make provision for such big proposals?

Some of the proposals for Greater Glasgow NHS Board are about ensuring that there is space in its budget for the developments that it considers necessary for the next two years. The board's proposals for savings are intended partly to meet a range of pressures and partly to find space for service developments.

On your final question, of course we cost any major proposals before we take action on them. For example, we found the consultants contract extremely difficult to introduce. I have to say that I feel that I am slightly going over the same ground as I went over this morning with the Audit Committee; indeed, I have had the pleasure of spending the whole day in this committee room.

To find out the proposed contract's impact on consultants' pay, we applied a UK-developed model to a UK sample. As we received information from boards about how they intended to apply the contract, it became clear that it would be considerably more expensive than the initial estimates. Boards wanted to buy four hours' work per week per consultant more than our model had assumed. As a result, the actual costs were substantially higher than our estimates. However, it is certainly our practice to make such estimates, and we have learned some lessons from what happened with the consultants contract. For example, we are working very closely with various elements of the NHS on the upcoming agenda for change proposals to try to model them with real local data.

Thank you for that response. However, some consultants have said that in negotiating their contracts they have lost sessions instead of gaining hours. For example, some of them are now working 10 instead of 11 sessions, which can have a knock-on effect on waiting times, waiting lists, out-patients and all the rest of it. Again it appears that you are saying one thing, but the position is different in practice. Moreover, if the health boards were expecting to receive enough money to cover the introduction of the new contracts, why did they hold back from giving you the information about what they intended to do?

The job plans are not settled, so there is room for further movement. At the moment, we expect that the average number of four-hour sessions will be 11.4 per consultant, although some consultants will have 10 sessions and others will have more. Of course, that 11.4 figure is not very far beneath the 12 sessions that would get us up to the 48-hour level set by the working time directive. However, given that some consultants will choose to work fewer sessions, the average number of sessions should certainly not reach that figure.

We provided the boards with information about what the contract was looking like as the process continued. As I have said, we had done some work with a UK-developed model instead of a local Scottish model. However, we and the boards did not carry out modelling with local information at an early enough stage. We should hold our hands up in that respect, because we are more responsible for that situation than the boards are. That said, the responsibility is a joint one.

I want to follow up Jean Turner's question by asking about the pressure on NHS boards. Obviously, the introduction of consultants contracts represents a huge additional pressure. From my understanding—and as you have just said—the unexpected expenditure that they will incur is not so much their fault. As far as the committee is concerned, other elements in the Primary Medical Services (Scotland) Act 2004 and the National Health Service Reform (Scotland) Bill might also have additional financial implications for boards, even though the financial memorandums said that no costs were associated with those pieces of legislation.

From the committee's point of view, it would be very useful for us to see real information and real data about NHS board expenditure. We hear, as does the public, about a global figure that sounds as if X amount of an increase is going to NHS boards when, in fact, after committed expenditure and additional pressures are taken into account, the amount of money can be quite small.

It would be useful if the committee was able to get data that were produced in a form that made it easy for us to say, "Once all the committed expenditure and additional burdens have been removed, X health board will get such-and-such per cent of extra money." Would it be easy to do that or would it lead to disagreement? I am sure that there would be disagreement between the department and the boards about the additional expenditure, but at least we could see the data in a transparent way that would allow us to make much more informed judgments about the situation on the ground. At the moment, the data are not clear. On the one hand, the minister tells us about the additional money and, on the other hand, our local health boards tell us about the extra pressures. It would be helpful for the committee to have much more transparent information.

We could certainly provide something that would give a national view of the pressures. Indeed, the Auditor General has done some of that work already. A section of his "Overview of the NHS in Scotland" report sets out and quantifies some of the cost pressures on the NHS, and I gave evidence to the Audit Committee this morning on the NHS overview. However, the committee would have to rely on the boards and not the Executive for a translation of how the figures affect the circumstances of each board. There will be cost pressures or, indeed, savings in individual board areas that will not be national issues. The committee could only get the local side of the picture by looking at those figures.

I am happy to say that we could do something for the committee at the national level. However, as I said, the committee would need to ask individual boards for information about their local areas.

I understand that almost £50 million or slightly less than that is available for the cost of the consultants contract throughout Scotland. I am aware that the question is really one for the minister next week, but is there any chance that NHS boards will be helped out with the additional expenditure?

Given that the issue came up at the Audit Committee meeting this morning, I want to correct the record. The figure is slightly more and not slightly less than £50 million. As the member said, the question whether health boards will be helped out is primarily one for the minister. Usually the money that we have is given out as general allocations and we expect boards to manage within those allocations. We are talking to the NHS about how boards can manage their costs and how we can help them with that.

I think that the question is a matter for the minister.

Absolutely.

Do you have a question at the moment, Duncan?

No.

Thank you.

In the first session of the Parliament, the Finance Committee, the Audit Committee and the Health and Community Care Committee agreed that some boards were carrying structural deficits that rolled on from year to year. Although some action was taken at the end of that period, how many boards will go into the new 2004-05 financial year carrying forward a deficit? What criteria does the department have in place to review the recovery plans, which must be agreed by the minister?

As the member will be aware, we will not have a firm position until we have the audited accounts, which we do not have yet. On the most recent returns from boards, of the 15 main health boards, three report that they will have significant deficits at the end of 2003-04, five report that they will have significant surpluses and seven boards are too close to call, in the sense that their deficits or surpluses are so small when compared with their overall spend that they could move either way at the audited outturn.

Where recovery plans exist, against what criteria are they reviewed? Obviously, recovery plans must be agreed by the minister, but I presume that the department uses a set of criteria to judge whether a board's recovery plan is realistic. For example, a proposed course of action that would reduce clinical outcomes might not be realistic. Will you explain that to us?

We have a process of escalating intervention. For boards in which we have identified a problem, we meet them at least monthly to discuss their position and to review how they are progressing against the recovery plan.

There are two sides to our evaluation of recovery plans. First, we consider the impact that the plan will have on services. The first action that the board ought to take is to examine what it can do about the costs of non-clinical services, which are not direct services to the patient. We expect that to be the first thing in a recovery plan. Secondly, we expect boards to examine what the risks are. The reason for a board's getting into a difficult financial situation is often because previous plans made insufficient allowance for various risks that might have an impact on the board. We are particularly interested in that aspect.

With the board, we must reach a view on how quickly it is feasible for the board to achieve recovery without that having an unacceptable impact on clinical services. That is a matter of judgment that requires the circumstances of the individual board to be taken into account.

If a board decides not to increase or even to reduce certain clinical activity or to have a go at its drugs budget—those are often things that keep people out of hospital, so a balance must be struck—what position would the department take on such a move? It is alleged that some boards could plan for cutbacks simply by saying that they will not fill posts. By its nature, that means that there would be no capacity to provide further treatment.

On drugs budgets, we expect all boards to comply with ministers' policies, especially our policies on postcode prescribing. In general, cutting the drugs budget would not be a way forward. However, we would expect boards to review the effectiveness of their prescribing and to consider whether, for example, sufficient use is being made of generic drugs.

We deal with other proposed changes on a case-by-case basis. If a major service change is proposed, we expect that to be done primarily for clinical rather than for financial reasons. Major service changes are normally subject to public consultation and must normally come to the minister for approval.

What would happen if a board decided that it would not fill posts that arise in the activities that it carries out?

We would want the board to have evaluated the impact of any such proposal and we would discuss with the board whether or not that impact was acceptable. If the posts were unfilled for a good reason, such as because the activity could be carried out in other ways, that would be different from a straight cutback in activity.

I want to probe some of those questions a bit further.

The fact that three health boards are reporting significant deficits is fairly straightforward. Five boards have significant surpluses and I would be interested to know which ones they are. However, I will leave that aside. Seven boards are too close to call. Were all of them, or most of them, heading for a deficit until they had to cut services in order to be on budget? If you do not have that information, can you get it for us?

The boards were in varying situations through the year. Some of them had budgets that looked okay for pretty much all the year. Others were affected by things such as the court judgment that part-time workers had to receive backpay for public holidays, which threw their budgets out of balance part-way through the year. A range of work was done to sort that out. Boards took action to manage their budgets and we gave extra funds to some boards in March, based on the normal distribution formula. That has helped the financial positions of boards that had been forecasting deficits.

Would it be fair to say that all, or nearly all, of the seven would have had a deficit if they had not had to cut services or redesign them, or however it is termed?

Boards have had to find ways of making savings. In some cases, those savings will have been not in direct patient-contact services at all but in administration or procurement, for example.

Can you give us more detail on where savings have been made so that we can see the national picture?

I would not have that level of detail about boards that are living within their means.

Why not? Surely, if they have managed to stay on budget, but only by doing X, Y and Z, you should know what X, Y and Z were—especially as they might have impacted on some of the national targets.

When we have serious concerns about boards, we become heavily involved and look at their plans to sort things out. However, when boards have found, during the year, that spend has got out of line with the budget, and are then—as is quite common—going through a process of bringing spend back into line, we would not normally become heavily involved. It would be for the local board to manage that process.

I am not trying to be difficult. I am not asking the Scottish Executive Health Department to intervene and become heavily involved. All I am saying is that you should really have a picture of what is happening locally, especially if money is being shifted away from patient care. Such things impact on other things that the department is trying to do. If you have that level of information, it would be useful for the committee.

I do not have the sort of detail that you are asking about. However, when we discuss financial situations with boards, we ask whether any issues are threatening the meeting of performance targets. We have already discussed waiting times, which was the main target and was especially relevant during the financial year that has just finished, because of the key date. We were given assurances that boards were not taking action that impacted on waiting times.

I wonder whether we might put the same question to the minister as well.

My question is in the same vein. I am intrigued about the five boards that have surpluses. If those surpluses are significant, is there any specific reason for that? Some boards have deficits and some have surpluses; is any analysis done of the reasons for that before you decide on allocations for future years? Much of the funding is earmarked for wages and other commitments, but I wonder whether the reasons for surpluses are analysed. Given the response to Shona Robison's question, the answer will probably be no, but I find it intriguing that five health boards can close their books at the end of the financial year with a surplus.

The normal process is to expect public bodies to stay within their budgets. If they are set a target to stay within, the chances are that they will slightly undershoot their expenditure.

As for future allocations, we do not want to introduce perverse incentives. We do not want to return to the time of strict annuality, when all wards were painted in February and March whether or not they needed to be. Therefore, although we ask for the information, we do not think it appropriate to reduce boards' funding simply because they have managed their finances effectively.

My background is in local government, so I understand what you say about what used to happen. Were any of the surpluses significant? How significant would a surplus have to be before you started to ask questions?

Most of the surpluses were small; they were between 1 and 2 per cent of the budget.

Boards can have their own recovery plans that they get on with. Do they always consult you on those plans, or do they consult you only when they are in a financial crisis?

Boards are required to consult us only when they have specific financial problems, but as a matter of course, they often talk to us about financial arrangements and what they plan to do.

However, they are not required to do that. If the boards talk to you before having a formal discussion on a recovery plan, they do not need to have the same consideration for the impact on patients. As Shona Robison said, if a board asked the minister to agree to a recovery plan, one of the minister's criteria would be the impact on patients, as a result of which he might not agree to a plan. If a board produced a plan in-house, patients might be affected without there being an impact on the board.

If a board were planning to do something that had a major impact on patients, we would expect that board to tell us about it before doing it.

That relates to a major impact. If a board's current performance on waiting times was better than the minimum guarantee and a recovery plan lengthened that waiting time to match the minimum guarantee, would that be acceptable?

We expect boards to work towards reducing the figure from nine months to six months, so at the moment, the action that you describe would be unacceptable, as we expect progress in the opposite direction.

That may be another issue for the minister. I am aware of an impact on waiting times up to the minimum guarantee. Given what you said, I am surprised that boards can get away with that.

The committee must deliberate on the programmes that it would like to prioritise for additional funding. To do that, we need to know whether the money that is available is being used wisely. What data do you have with which to judge efficiency under each budget heading? Can you divide your answer into data for NHS boards and for other parts of NHS Scotland, such as the Scottish Ambulance Service and NHS Education for Scotland?

I will kick off, but I hope that Julie Wilson will help me out. In a costs book, we have a good deal of data about the costs of specialties and activity in specialties down to individual hospital level. We are kicking off a major exercise to perform more benchmarking than we do at present, which will involve benchmarking within Scotland and benchmarking Scottish performance against that of other countries. We have a lot of work in hand to improve matters.

We had an informal session with the committee's adviser in March on the type of information that might be useful to the committee. We have looked out all the information that was requested at that meeting. We can share with the committee an analysis of expenditure by care programme. For example, if the committee wants to get into more detail rather than just the figures for hospital and community services, we can break down the figures into acute services, maternity services, care of the elderly, mental illness services and so on. We can also link those figures into activity to try to get an idea of efficiency trends over time.

One issue that we are trying to resolve is that many of the more modern methods of service delivery such as nurse-led clinics and out-patient services with a procedure are not captured by the historic activity trends. We have been working with the ISD on a major programme of data development and we started publishing material in February.

A range of activities is under way, including a review of the statistics that are included in what we publish and, within that, a more detailed review of financial information that aims to get a better handle on the value-for-money and efficiency questions in which the committee is interested. That will include further work on the costs book and on the performance template—which I explained and for which I looked out data—to try to improve our, and the committee's, understanding of that material. That work will feed into the benchmarking exercise, which will allow us to get a better handle on relative efficiencies and value for money. We would be happy to share all that information with the committee as the work progresses.

I am keen to meet early on with the committee's adviser. We have offered him the opportunity to feed into the performance template review and to work with us on the efficiency and value-for-money agenda. If the committee wants to do so in time for the next budget round, it would be good to start work on that now. The committee might want to have a follow-up meeting shortly with Andrew Walker on those issues.

That would be helpful, convener.

The committee and the budget adviser could discuss that at a pre-meeting. I am sure that some people understand the finances better than I do—my head birls sometimes when I look at figures. All lawyers are the same, although they will not like me for saying that.

The committee is interested in the prioritisation of future additional resources. In considering how additional moneys from the comprehensive spending review might be allocated, one option is to give money directly to health boards by allocation and—to use the minister's words—to leave that to local management decisions. The other option is to ring fence money for specific purposes, which could be ministerially set targets. Although that is a matter of policy, we are interested in the mechanism. How does your department view the balance of those options in the prioritisation of new moneys? How much influence does performance outcome measurement have when those decisions are made?

I am not 100 per cent sure that I understand the question, but I will try to give an answer. It is entirely for ministers to decide whether we put out additional money as part of the general allocation or as ring-fenced money. Either option is open to us.

In general, money is ring fenced for one of two reasons. First, there could be a view that it is a particular national priority to do something about an issue in relation to which, therefore, the amount of local discretion should probably be limited. Secondly, if something is new and ministers actively want it to be taken up within the NHS but there are doubts about whether that would happen if it went through the health board process, we may either fund some pilot schemes or ring fence money nationally for a time-limited period to get it off the ground. Those are the circumstances in which we tend to think about ring fencing money. If it is something that we just see as part of business as usual for boards, we normally prefer not to ring fence the money.

Do any consultations with boards take place while the minister is making up his mind whether to allocate money directly or to ring fence it?

We are trying to move to a no-surprises relationship with the NHS. The minister meets the chairs of NHS boards every month and we meet the chief executives every month. Usually, unless there are specific reasons not to do so, we will discuss any such issue with the boards ahead of taking action.

Is that a yes?

Yes. We would normally consult the boards, although one cannot guarantee that that would always happen. If something appears in an election manifesto, the process is different, but if the normal process is followed, we have a no-surprises relationship and expect to discuss matters with the health boards.

Perhaps this question is a bit light hearted, but does that mean that the boards get sight in advance of some of the press releases that announce new initiatives?

We normally talk to the boards less about the press releases and more about the substance of the initiatives. There might be circumstances in which we would show the boards a draft simply because the press release is about an initiative that they want to know how to handle locally when it comes out nationally. Usually, however, it is the substance rather than the handling of new initiatives that we share with the boards.

How do you measure the effectiveness of the money that is allocated to health boards under the Arbuthnott formula?

Fundamentally, that translates into a question of how effective health boards are.

No. My question is very specific. Your job description says that you are the director of performance management. I am asking you how you measure the effectiveness of the extra money that is allocated to health boards under the Arbuthnott formula. I am asking about the effectiveness of the money allocation.

We try to measure how effectively the boards are delivering for patients, as that is the purpose for which the money is allocated. We have a range of indicators about the performance of the boards, all of which directly or indirectly link back to the organisations that are delivering for patients.

So, you are saying that there is no specific measure of the effectiveness of the additional money that is allocated to health boards through the Arbuthnott formula. That is specifically what I wanted to know. Correct me if I am wrong, but I thought that that money was being given to the health boards specifically to address issues of social deprivation, rurality, and so on. How do you measure whether that social deprivation is being addressed?

We recently published information on performance in local areas, which looks at health inequalities in particular. The Arbuthnott formula is about allocating the total amount of money that is available for general allocations to health boards. The formula uses various indicators, some of which are deprivation indicators, but we do not allocate a certain amount of money for deprivation. We have recently put up money specifically for that because there was concern about unmet need, and we have put up money for pilots on unmet need. We then make up figures for the overall performance of boards, including performance on health inequalities.

If I may, I will pursue the point once more because I am still not clear on the answer. I will put the question differently. Are you saying that when the money is allocated, you do not assess the effectiveness of that money? You assess the effectiveness of the board in its general role, but there is no analysis of the effectiveness of using money in a particular way. That is what I am asking.

A board's function is to use that money to provide services for patients, and we assess its effectiveness in doing that. We do not label pound notes and say that they are for particular purposes.

I understand. You are talking about a general top-up of money.

I took the money to be part of the formula and not a top-up. As I understand it, there is no special pot for characteristics such as deprivation; they are included in the formula and separate information cannot be teased out. Is that what you are saying?

May I explain? I helped to develop the Arbuthnott formula.

The aim of the Arbuthnott formula was to fund the differential needs of boards according to the founding aim of the NHS, which was equality of access for those in equal need. We start with a population driver, which we then adjust for the age-sex profile of the local residents. We make further adjustment for differential levels of deprivation, because there is evidence that areas of higher deprivation have more need. The figures are then adjusted further for the excess costs of service delivery as a result of remoteness. The aim is to try to divide up the finite pot of money by using the characteristics of the boards that best meet patient needs. Thereafter, the performance assessment framework takes a range of indicators of how well the boards are doing in delivering patient care for their local residents. That is how we complete the picture.

Arbuthnott is not about additional funding. Extra funding can be redistributed using the Arbuthnott formula because it is the mainstay formula for the general allocation. However, the aim is to allocate the money on the basis of equality of access for those in equal need and then to performance manage the boards' delivery thereafter.

You are talking about equality of access for those in equal need. You just said that you consider issues such as sex.

I will give you an example. The constituency profiles have just been published. In my constituency of West Aberdeenshire and Kincardine, people live for longer than is the case almost anywhere else. However, you are saying that if they live longer, they will need to have access to the NHS and its services for longer. From what you have said, I would imagine that the Arbuthnott formula would contain a factor that would address that need, but that does not seem to be the case.

It is, but in Grampian's case, that factor is probably counterbalanced by the relative affluence of the residents. The formula is really a balancing act. Each of the 15 boards has a different profile in terms of the youth of its population, deprivation and the excess costs of remoteness. In Grampian, any age profile would be counterbalanced by its relative affluence compared with other parts of the country.

You were involved in the development of the Arbuthnott formula, so the arguments that you have heard will not be new to you. Some boards still believe that the formula does not take account of all the relevant factors; Argyll and Clyde NHS Board, for example, has issues with deprivation and the fact that it is a rural area. Some of us believe that the formula does not fully benefit the people whom it was intended to benefit: those who are deprived and who suffer poor health. What opportunity do boards, MSPs and others have to raise such concerns and would they be acted upon?

Perhaps I could come in at this point.

I am so glad. I was longing to hear your voice.

My boss is doing so well.

That is why I was being tactful.

The Arbuthnott group came up with the formula that we use to distribute resources. The formula is updated every year to take account of changes, mainly in factors relating to population, age and sex—the kind of factors that Julie Wilson mentioned—and it produces a target, which I try to achieve through the distribution of resources. Every year I try to move boards gently, to avoid turbulence, towards their target position. For example, at the moment NHS Greater Glasgow is £30 million over its target, so I could not resolve that overnight; that would have to be done steadily. The formula is in place and we are working on it at the moment.

When the Arbuthnott group finished, we set up a group called the standing committee on resource allocation, which considered specific issues around unmet need in particular. Issues relating to the acts, funding and primary care were on its agenda, but it did not touch them. The group has reported and its findings are freely available on "Scotland's health on the web". That phase of the work finished a few months ago. At the moment, I am considering how we revise the formula to update it and take account of any late information that is available and factors that we can build in. When a group has been set up to consider that—I have not spoken to the minister about this yet, so he does not know—

He does now.

Yes. We will set up a group with a remit to consider the formula. The way that I operate, which is how the previous standing committee operated, means that we will be open with the committee and the public and we will take on board your views. It might take us a few months, but we will set up the group later this year and you will all have a chance to put across your views and feed in your comments.

I am sure that we will take that opportunity.

I am sure that you will hear from us.

Has the Arbuthnott formula been applied to the general medical services contract, which covers general practitioners' services?

No. The Arbuthnott formula is not being applied strictly to the new GMS contract. The principles within it are being applied, but there is a separate Scotland-based formula that has to take account of the national negotiations on the contract.

Does that mean that the formula is creeping in slowly?

What do you mean by that?

Will the general principles of Arbuthnott be applied over time to the new GMS contract?

The general principles of the formula will be applied in relation to equality of access for those in equal need, which Julie Wilson expanded on, but there is a significant amount of phasing in to be done. Within the GMS contract, the formula is being applied at practice level rather than at board level.

Over what period will that be completed? Nobody really knows what will happen with the changes or how they will pan out. I appreciate your openness in saying that the new arrangement is coming through, but will you tell us how long it will take to deliver it?

The present contract sets a floor to prevent practices losing out from the new arrangement, and that will be maintained throughout the period of the contract. I do not know whether there has been any discussion of what will happen with phasing in beyond that. At the moment there is a minimum practice income guarantee, which is a no-losers provision in the contract.

There is obviously a subtle change in that the health board, rather than the minister, is now accountable for one half of the contract. If the Arbuthnott formula is applied, does that mean that some health boards will win and some will lose out from the total application at board level in the way that some services will be rolled out under GMS?

They will not lose out financially, in the sense that the GMS funding that is being distributed is in essence ring fenced from the rest of the budget.

That is very helpful. Thank you.

That concludes this evidence-taking session. Thank you all very much. It is unfortunate that we have been in a hot room with bad acoustics. I suspend the meeting until 5 past 4.

Meeting suspended.

On resuming—