We move on to item 3, which is a briefing from the Auditor General for Scotland on his report "Overview of the financial performance of the NHS in Scotland 2003/04". Members will recall that we received a brief introduction to the report from the Auditor General at our last meeting, because the report had been published in that week, but that time constraints were such that there was not a great deal of opportunity for discussion. The item is on our agenda again so that we can consider additional matters that the Auditor General or a member of his team might want to bring to the attention of the committee and so that members can ask questions.
Thank you very much. At the previous meeting, I took the opportunity to give the committee a brief introduction to the report and I endeavoured to answer the questions that were posed. I promised that we would come back to a subsequent meeting with further information on one or two matters that came up. We are now in a position to do that. Of course, we are also happy to endeavour to answer any questions that committee members might have in addition to those that were posed when we last met.
Certainly.
At the previous meeting, Margaret Jamieson asked a question about the monitoring of ring-fenced money. We have gone back to our auditors of the health boards and the Health Department to check on that. The auditors of the health boards tell us that there are varying degrees of accountability on ring-fenced money and that the Health Department monitors some of it, but not all of it. The department's auditor tells us that that depends on which policy branch within the department is responsible for allocating the ring-fenced money. In essence, it monitors some but not all of the money.
Thank you. Members may now ask any questions that they have about the briefing or the published report.
I have two questions. The first one is about the revaluation of property. The report states that the boards experienced significant difficulties last year because of delays in the revaluation process and that there was a change in the methodology for calculating capital charges. Can you explain in more detail what the likely impact of that is? Is that cash that the boards will have to pay back to the centre and so which is taken straight out of the system at the start of the financial year? If you answer that question first, I will follow up with a second question shortly.
This is not my "Mastermind" subject, but I will try to answer the question and Angela Cullen can pick up afterwards.
My second question is about the estimated costs of the pay modernisation initiatives. At the end of the day, you could not publish a copy of the boards' estimates of those costs. Will you go into more detail about the differences between the Health Department and the boards on where the problems lay?
I think that I mentioned that, on 21 December, I wrote a letter to the acting accountable officer of the department, Ian Gordon, to ask whether he could help with our understanding of the extent of the differences between the boards' estimates and the department's estimates and the reasons for them. I have not yet had an answer to that letter, but as soon as I have it, I will make it available to the committee.
Did you get estimates from all the boards?
There were two problems. One was that not all the boards were able to provide us with estimates. The second concern was that the boards might not have been providing us with figures on a common basis. We were unable to get behind that to produce a reasonably robust figure for the whole of Scotland in which we had confidence.
Which boards could not provide information?
We did not get figures on the general medical services contract from, I think, Greater Glasgow NHS Board and Lanarkshire NHS Board. As those are two of the bigger boards, their figures affect the national one.
Was it just for the costs of that one contract that those boards could not give you an estimate?
Sorry, it is hard to remember back, but I think that all the boards were able to give us the figures for the consultant contract.
What explanation was given for the boards' inability to give an estimate of the figure?
They were still working on the figures. I presume that they were using the formula that the Health Department had given them and were working on their local figures. They are still working on them.
So you will get the figures at some stage.
Yes.
I am concerned about shaky rather than robust financing and about some of the assumptions that have been made about non-recurring funding and high levels of savings. I have a question about the funding gaps for 2004-05, which are proposed for seven boards and which will total £162 million. I note that Lanarkshire NHS Board's situation is similar to that of Argyll and Clyde NHS Board in that there was an overspend in 2003-04 and there will be a funding gap in 2004-05. If the boards start out that way, the chances are that the gap will get worse rather than better. How big a problem is that and is it likely to be tightly controlled or not?
It might be more appropriate to put that question to the Health Department's accountable officer, if the committee is going to take evidence from the department at a future meeting. That is very much an in-year issue with an element of projection to the end of the financial year. The people from the department are best placed to give an answer to that.
You have rightly flagged up a potential major problem.
The report shows that the rising cost of drugs once again accounts for a substantial part of the spend and will absorb a substantial amount of the increased resources that are going to the health service. That is not by any means the first time that you have made that observation, but I note that in this report you say little about it, other than to make the observation. Will you elaborate on whether the situation has improved or deteriorated relative to previous increases in the cost of drugs? Such costs cause pressure points elsewhere, so can you compare how Scotland fares with other parts of the United Kingdom or with other health systems in the world? How does the position in the current report relate to other reports that you have done, such as your work on general practitioner prescribing costs? Have the recommendations that you made on that issue been taken on board and are they having an impact on the size of that part of national health service spend?
The last time we reported on GP-prescribed drugs was in 2002, which was a follow-up to the report that we published in 1999. We found that most health boards had made considerable progress on improving the cost-effectiveness and quality of their prescribing. The problem was that, at the same time, not only the cost of drugs but the range of available drugs and of things that could be treated with new drugs increased, so that in spite of boards' efforts to contain costs through better efficiency, the overall cost of prescriptions was increasing, and often for good reasons.
In your report, you present a case study of Greater Glasgow NHS Board, the opening paragraph of which states:
The board identified a funding gap of £59 million, but through work that it plans to do, savings that it plans to make, other initiatives and the receipt of other non-recurring money from the Health Department, it expects to reduce the deficit to £4.2 million by the end of the year.
So it was identified at the beginning of the financial year.
Yes. The £59 million is a gap, but the board has identified around £54 million of money that it will get from elsewhere to reduce the deficit to £4.2 million.
Do you believe that that is achievable?
You are putting me on the spot. The figures are for the year 2004-05. The auditors have not done sufficient work to comment at this time.
I am sure that members of the committee will appreciate that it is not our role to second-guess management.
I just asked for an opinion.
The board has laid out the information in the financial plan.
I seek clarification on pension costs, which you mention in your summary report. I could be wrong, but I do not recall you placing quite so much emphasis on pension costs in the past. Will you elaborate on that, with particular reference to the debate in the press over the past day or two about proposed changes to NHS pension arrangements and how those might or might not impact on the NHS in Scotland?
It is not an area that we have examined in detail, but since it is very much an issue for the health service—as it is for all public bodies—we thought it right to put in a paragraph or two on that issue around page 21. You will see that the estimate of the additional cost to NHS bodies of the increase in employers' contributions is at least £226 million. As we understand it, that is the amount that would apply to the whole of Scotland, and it is a real cost to the NHS in Scotland. Our general understanding is that the department will make money available to health boards to cover that cost, but it is definitely an extra burden on the NHS going forward.
The figures are estimates—a look at the future. How confident are you that the basis of those estimates is accurate? Are you satisfied that the fundamentals on which they are based—such as cost data, performance information and information systems throughout NHS Scotland—are sufficiently robust to allow us to have confidence in them?
We obtained the in-year figures and projected figures from auditors, but they are board figures and they are not audited. There is always a caveat with regard to in-year figures and projections, but to have an understanding of the health service's overall financial position, we require to report on what is happening in the current year and what the service's forward plans look like.
Are the individual NHS boards' estimates and management information absolutely robust throughout the country?
I could not give the committee that guarantee. There are examples in the report of areas in which we feel that there are real risks, not least the one about which we talked: the different perceptions of the actual cost of the GMS contract. There are also differences between the views of the Health Department and of the health boards on the impact of the emerging financial burdens.
That concludes committee members' questions on the briefing. I remind the committee that we will have the opportunity to discuss our concerns and our reaction to the report under item 7.