“Overview of the National Health Service in Scotland 2001/02”
We move to agenda item 3. We will receive a briefing from the Auditor General for Scotland on his report entitled, "Overview of the National Health Service in Scotland 2001/02", which is the third annual overview report produced by the Auditor General on the NHS in Scotland. The report gives an overview of the main issues arising from the previous year's audit of national health service trusts and health boards and the audit work undertaken since previous overview reports. I invite the Auditor General to address the committee.
Mr Robert Black (Auditor General for Scotland):
In the overview report, I say that the financial year 2001-02 is the first year for which it has been possible to produce financial statements on an accruals basis in the form of consolidated Scottish Executive resource accounts. Those include the income and expenditure of health authorities in Scotland. The audit of the consolidated accounts was completed just before Christmas.
In the report, which is included in the committee papers for today, I have provided supplementary information on the consolidated outturn of the NHS in Scotland for the financial year 2001-02. For the NHS as a whole, the net expenditure within the departmental expenditure limit amounted to £6.051 billion, against a budget of £6.056 billion. That means that the expenditure was within 1 per cent of the budget, which is a satisfactory position. There is more information on the consolidated outturn in the report, which features a table setting out some of the important numbers.
In general, the overall financial stewardship in the health service continues to be of a good standard, with auditors reporting improvements in the preparation of many accounts, quite often as a result of management having followed through some of the suggestions that auditors and the committee have made in previous years.
There were no qualifications to the core opinion, which is the true and fair opinion provided by auditors on the accounts of individual NHS bodies. However, there continues to be uncertainty over the regularity of primary care expenditure and income, as a result of which the auditors' opinions on regularity were qualified in respect of the accounts of primary care trusts and health boards. Responsibility for those payments rests with the Common Services Agency.
I am pleased to report that, in general, financial performance against financial targets improved in 2001-02, with only three trusts failing to achieve the main financial target, which is to break even. Those three trusts were Argyll and Clyde Acute Hospitals NHS Trust, which had a deficit of £1.7 million, Grampian University Hospitals NHS Trust, which had a deficit of £5.2 million, and Lanarkshire Acute Hospitals NHS Trust, which had a deficit of £6.3 million. I emphasise that, in all three cases, the deficit is small in relation to the total budget and that Lanarkshire Acute Hospitals NHS Trust's deficit was a result of a change in accounting treatment. That compares with deficits in eight trusts in the previous year. The overall net surplus for trusts was £18.6 million, compared with a net deficit of almost £32 million in 2000-01.
It is fairly clear that the Scottish Executive's injection of an additional £90 million in September 2000 assisted a number of trusts in achieving the break-even target. Without the injection of that money, it is possible that another 12 trusts would have had some difficulty, if not considerable difficulty, in achieving the break-even target. The £90 million was important for that reason.
I emphasise that a small deficit in an individual NHS trust in any one year is not necessarily unacceptable. The deficit might simply be an indication that the health system in that trust is working at its capacity. However, recurrent and cumulative deficits in a trust would be a matter of concern because they would indicate a persistent gap between the level of service that the trust delivers and the resources that are available to support that level of service. Deficits that build up over some years must be removed—the greater the cumulative deficit, the greater the adverse impact on service levels that is involved, ultimately, in balancing the books.
There is a risk that a reliance on one-off injections of funds over a number of years might mask an underlying financial position that is not improving or which is getting worse, although the books may balance in any given year. That point relates to the audit of the accounts for 2001-02. The indication from auditors is that a number of NHS bodies will face financial difficulties in 2002-03 and are likely to continue to rely on one-off income or in-year savings if they are to break even. The auditors of three trusts have expressed concerns in that regard, but it will not be possible to give a definitive report on the position for some months. At this point, it appears that the financial pressures are particularly significant for Lothian University Hospitals NHS Trust, Argyll and Clyde Acute Hospitals NHS Trust and Grampian University Hospitals NHS Trust.
Significant extra funding is to be made available for the NHS in Scotland in 2003-04 and 2005-06. As we understand the situation, the extra resources are intended to provide significant improvements in health services. At the same time, NHS bodies will continue to face the pressures of rising costs in relation to drugs, staff, new medical treatments, the aging population and other factors that the committee has considered in the past. As those factors will continue to prevail, there is no guarantee that health bodies will find it easier to balance their books in the future.
Within the structure of the new unified health boards, the health department is introducing a revised performance assessment framework, which will be critical in holding to account those who run local NHS systems. If we are to assess whether value for money is achieved from the extra resources, it will be important to ensure that the performance assessment framework is developed sufficiently to allow the additional health care improvements that arise from the extra funding to be identified explicitly.
In previous years, I have expressed concerns about the primary care payment systems in the NHS in Scotland and the Audit Committee has also ventilated those concerns. I remind the committee that, in 2001-02, the Common Services Agency's practitioner services division processed some 76 million transactions, with a value of £1.336 billion, which is more than 20 per cent of health service spending in Scotland as a whole.
It is understandable and correct that the Audit Committee should take an interest in the matter. I am pleased to report that the Common Services Agency, supported by recommendations from the auditor and the committee's findings, continues to make progress in strengthening its control environment. However, there is further scope for improvement.
I am also pleased to report that the CSA has made significant efforts to develop a robust framework for payment verification covering both patient charges and payments to contractors. Progress continues to be made, and there is now a fraud investigation unit, which continues its work in pursuing both contractors and patients who may have made inappropriate claims. It is important that progress continues to be made in those areas if we are to avoid a situation in which auditors are likely to qualify their opinion on regularity grounds in relation to primary care trusts in 2002-03—that is still a distinct possibility.
Finally, I should mention NHS Tayside, in which the Audit Committee has taken a particular interest in previous years. The auditor reported that, in 2001-02, health bodies in Tayside were taking the action that they said they would. NHS Tayside improved its accountability arrangements and financial planning and monitoring. However, the auditor's opinion is that challenging issues still face Tayside University Hospitals NHS Trust, and NHS Tayside as a whole, before it can achieve the break-even target in the current financial year.
As always, my colleagues and I will be happy to answer any questions.
I thank the Auditor General for that detailed speech. I remind members that we will deal with his report in detail under agenda item 6, so questions should be general.
I get the impression that, overall, the health authorities' systems have produced accurate budgeting. However, you have sounded a warning that, without continuing subsidy, the situation will be one of continuing deficit. Is it fair to say that there has been progress, but a careful eye should be kept on the overall picture?
That is fair in the sense that, as the report makes clear, there continue to be many pressures on the finances of NHS bodies. I suspect that that will continue to be the case, particularly if we expect the NHS to run at its maximum capacity. Generally speaking, the health service manages its finances well, and the occasional deficit in individual bodies should be viewed in that context.
I would like to address the Auditor General's comments on NHS Tayside, and the fact that it is in what might be called in Scottish legal terms a "not proven" situation. You say that it still faces challenging circumstances, but to what extent has it taken sufficient action? Will it have to take more action before it can turn the situation around?
The audit report for the last financial year was positive about the action that NHS Tayside has taken. It is too early to say whether the action being taken in the current year will be sufficient. I must await the audit report, which I will not receive for some months. I apologise that I cannot help the committee with further information, but I do not have the evidence.
To what extent has non-recurring income been used?
I am not entirely sure. That is another issue on which I do not think we will have clarity until the end of the financial year. Often, information on non-recurring income is submitted during the last few months of the financial year, so that issue is yet to be resolved.
Keith Raffan has flagged up an issue—non-recurring income—that has concerned the committee.
Does the Auditor General feel that there is still an element of structural deficit in the funding of the various trusts and boards?
There are clearly pressures in the health service. I am not entirely sure that the phrase "structural deficit" is appropriate, because it implies that there is some rigidity that cannot be managed, and that gives the wrong impression.
It is not unreasonable to say that local NHS bodies will spend whatever money they are given. There is pressure to run the system flat out, which means that it is difficult for NHS managers to ensure that they reach targets and break even—the budget for an acute trust could be more than £300 million a year. That is a challenging task.
I want to pick up on the point about unified boards, and about how the new system will potentially enable trusts to be more accountable. I hope that with the monitoring that is going on and the new resources that are going in we will be able to get a feel for how the pressures are being managed. You make the point that substantial extra resources are going into the system, yet at the same time the existing system is managing those pressures. The new structure will be critical. Monitoring how the new boards work will be quite a task.
I suspect that boards, and trusts in particular, are having to make short-term, difficult decisions to ensure that they break even, and they may be delivering savings that are not necessarily sustainable in the long term. Therefore, it is important to monitor what happens to the new money to ascertain the extent to which it is going in to meet pressures that are building up in what might be called the base budget, and the extent to which the money is being devoted to improving levels of NHS service across the country as a whole.
It is also important that we continue to maintain the ability within the unified health boards to report through the audit process on what is going on at trust level—we have discussed that with the health department. We may be moving towards a unified system of planning and delivery, but we must know what is happening in large teaching trusts and primary care trusts to be fully informed about where the resources are being used.
In fact, one of the committee's recommendations was that there should be the greatest clarity within the new structure, so that the way in which funds and resources are applied can be seen.
I think that the Auditor General has covered the point that I was going to make, which was about being able to identify the improvements that have been made as a result of the extra money, rather than it disappearing into balancing the books. He mentioned the Scottish Executive revised performance assessment framework. What stage is that at?
It is at an advanced stage. I am not entirely sure whether it is in operation yet. I think that it is being introduced as we speak.
If there are no further questions, I thank Audit Scotland for all its past, present and future work. We will return to this item in detail under item 6 on the agenda.