We move on to agenda item 3, which is consideration of the national health service financial performance overview. We are pleased to have with us for our evidence session today Dr Kevin Woods, who is the head of the Scottish Executive Health Department and chief executive of NHS Scotland; Dr Peter Collings, who is head of performance management and finance; Mrs Jill Alexander, who is head of the analytical services division; and Mr Mike Palmer, who is assistant director of the workforce and policy division. We are grateful to you all for coming today.
As members of the committee know, I was appointed very recently. I will do my best to answer your questions today, but I am pleased that my colleagues are with me because they will probably know more about some of the detail than I do.
Indeed.
I was also concerned that there appear to be some differences in the costing of pay modernisation, which is a major policy theme at the moment. However, I believe that those apparent differences have narrowed following further work after the publication of the report.
Thank you very much. I invite Andrew Welsh to open the committee's questioning.
The financial overview report identifies that the department and boards have different estimates for pay modernisation. How did you work with the boards to calculate the estimated costs of pay modernisation agreements?
I understand that, in general, the department develops a model that it shares with boards. The boards then work with the model and, through dialogue, agreement is reached on the estimated cost.
Reinforcing Dr Woods's comments, I should point out that our overall approach commences with a macroeconomic model of the all-Scotland costs. The model also takes in the United Kingdom context, because the major strands of pay modernisation are UK-wide.
You have said that the process involved introducing a model, having a dialogue and reaching an agreement. However, was there any joint agreement on how the estimates would be built up?
Yes. For example, with agenda for change, we tested out the data from the Glasgow costing exercise in a series of workshops that we held with NHS Scotland finance directors, to ensure that what we were doing with our sampling was sense-checked with them and that they were comfortable with it. We feel that we and NHS Scotland have reached a good consensus on how the costs come together.
You might have reached consensus, but you certainly did not have agreement. After all, there are different estimates for pay modernisation. What were the major points of disagreement?
I do not know whether you are referring to the new figures for the general medical services contract, but I am aware that, in that respect, there have been some discrepancies between some of the figures that Audit Scotland collected from boards and the figures that we collected from boards. The first thing that I would say about that is that the figures that we built up for our general medical services cost estimates were directly collated from boards. They come from the monitoring returns that we get from boards, so that information is absolutely anchored in what boards are telling us the costs are for them on the ground. We have had a look at the Audit Scotland figures and shared our figures with Audit Scotland. We hope and expect that we will be able to reconcile those two sets of figures once we have bottomed out the methodologies and assumptions that lie behind them. Clearly, we need to do that to get to the bottom of the discrepancy.
You will accept that there have been differences and subsequent reductions of some £79 million, so there remain differences between the figures.
I am not sure what the £79 million figure refers to.
The GMS contract increased by £18 million, from £64 million in August 2004 to £82 million in December 2004. The latter figure was subsequently reduced to £79 million in the department's response to the Auditor General's letter. There still seems to be a fundamental disagreement over the figures, but you say that there is now agreement and consensus. Is that true?
In terms of the costings that we are doing and whether they line up with what the boards are telling us the contract is costing them on the ground, we are confident that our figures are anchored in exactly what they are telling us and that we are reflecting as fairly as the data allow us to—and the data come in on a daily basis—what the situation is for them on the ground. I know that there are a number of different figures on the table. They refer to different aspects of the contract and they vary subject to the assumptions that are made around them and what exactly they cover. Often, we are not comparing apples with apples, but comparing apples with pears, so it is difficult for us to take one figure in a particular form and at a particular time and be able to reconcile it back to another without having a look at the methodology and assumptions behind the figures.
How much confidence do you have in the robustness of the figures? You have talked about extrapolations from samples to produce what you call the best costing model in the UK, but you seem to be referring to extrapolations of samples. How much confidence do you have in the pay modernisation figures that you provided to Audit Scotland for the overview report?
Clearly, that depends on the stage that we are at in the implementation of each of the pay modernisation strands. For example, we will not know what the precise costs of agenda for change are until we have done more than 130,000 job evaluations over the course of the next year or so. Clearly, therefore, we must work on sampling, on pilot sites, on projections and on the software package feedback that the boards give us about the dry-run exercises that they do, until we have actually implemented the new contract across all 130,000 staff.
You sound as if you are still dealing with quite a number of unknowns. Have you carried out any sensitivity analysis for variations in the estimates? For example, there was a significant rise in the cost of the consultant contract from the original estimates.
Yes. For example, with the consultant contract costs, we have broken down the various elements and examined what the variation would be, subject to changes in those elements. To give an example, some of the costs on the consultant contract are driven by the amount of on-call activity that consultants do. If they are in a high on-call band, the costs are driven up materially by quite a few percentage points. If they are in a middle band the costs are less, and if they are in a low band the costs are even less.
What impact will the cost of pay modernisation have on other areas of national health service spend and service delivery? From the information that you now have, will the increases in NHS boards' funding be sufficient to meet the costs of pay modernisation?
The overall annual uplift to boards more than covers the total additional costs of the pay modernisation strands. We do not see the pay modernisation strands as solely costs, as we see a cost benefit coming back from those strands. Although it is clear that there will be financial pressure from pay modernisation—particularly in the initial stages—that is accounted for first by the record increase in the overall allocation.
You are leading on to the answer to my next question. Have the new contracts been sufficiently tailored to reflect the needs and practices of the NHS in Scotland?
Yes. None of the contracts that we have agreed—although they are all either within a UK framework or are UK contracts—is absolutely unvaried from the contracts that are being delivered in England, for example. That is because we were clear that we needed responsiveness to Scottish circumstances.
On pay modernisation we have one or two supplementaries.
Good morning. Dr Woods, I feel duty bound to welcome you back to NHS Scotland and I wish you well in the challenges that lie ahead.
Yes. I can give you updates for those figures. For the consultant contract, the latest figure that we have is £31 million. That is the total additional cost, including pay inflation. For agenda for change, the latest figure that we have is still within the £130 million to £160 million range that is given in the table. However, as I explained before, because we have to evaluate the jobs of 130,000 staff, that is still a projection and finalisation of the figure is some way off.
A range of £30 million is a considerable margin. Are you able to give us any indication of where, within that range, you think that the final figure will be?
Yes. It will come in at the upper end of that range.
And the figure for the GMS contract?
The figure for the GMS contract is now £85 million.
Some of those revisions represent substantial increases on the estimates that are given in the financial overview report. What are the implications of those increases for what were already considerable cost pressures on the service? Do you anticipate further significant increases in the figures as the work that you have described progresses?
I will address each revision in turn. The latest figure for the consultant contract, which I have just given you, is pretty much going to be the final figure. The figure of £22 million, which we gave you last year, was based on work in progress on job plans that have been signed off with consultants. It has taken longer than we would have hoped or expected to get all the job plans signed off. We are now much further down that track, and the higher figure reflects the impact of the further job plans that have been signed off since then.
Thank you. We may return to wider questions on financial pressures later. However, I have a question about the impact of the costs of pay modernisation on the service. The question specifically relates to two additional releases of resource to boards last year. First, £30 million was released last March to aid cost pressures in the area; then a further £70 million was released last June. Where did those resources come from? When the minister announced the £70 million on 15 June, he specifically indicated that it had come from savings that had been identified in central budgets. What were those savings? What has been the impact of those extra resources going out to aid the cost of pay modernisation and no longer being available to the department?
I think that Dr Collings is best placed to answer that one.
The £30 million arose from a review of how we were doing on a range of budgets as the year end approached. Partly through budgets that were undershooting without action and partly through budgets on which we felt that we could reduce expenditure towards the year end, we were able to release £30 million. We thought that it was important to do that, given the financial pressures on health boards at that time. The £70 million was found from budgets right across the department, but the biggest single element was £30 million that we had deliberately left uncommitted, given the likely pressures. The remainder was spread across a range of budgets.
I am grateful for that information.
I am happy to provide that in writing, because a lot of small amounts add up to the total, rather than a few big ones that I could tell you about today.
That would be fine—thank you.
I have just a couple of points of clarification. First, Neil Campbell informed us at an evidence session that the impact of the consultant contract would result in a change from the initial 2003-04 budget figure that your department allocated to boards of about a 7 per cent uplift. However, by the time that the process was completed, the figure ended up being 25 per cent, which was a huge cost to boards right across the country. Indeed, if I remember correctly, NHS Lothian said in evidence that it represented a £4 million hit in one year. How did you get your estimate of the cost of that deal so wrong?
The original cost model that was used for the consultant contract made some assumptions around consultant activity and how that activity would be played out in the job-planning exercise that was done for the contract. It made an assumption that consultants would end up working an average of around 11 programmed activities a week and that savings would be recycled back from on-call activity and various other elements, such as payment of fees. With hindsight, we realise that the costing was low. Certainly, the estimate undershot what the eventual costs were.
Are you saying that you did not know how many hours each consultant was working for the NHS in Scotland?
No. We knew how many hours each consultant was working for the NHS in Scotland, but the way in which consultants' activities were managed was not the way in which they are managed under the new contract, which schedules in each element of activity, from the clinical care duties that they perform to the clinical audit or continuing professional development that they need to do. That activity was not as highly managed previously, when there were six fixed sessions of clinical activity that was to be done by the consultant and agreed with the manager and five unfixed sessions, which were less proactively managed because they did not directly involve clinical activity. The new consultant contract has introduced a system that allows the whole of the activity to be managed across all the various elements of the consultant's job each week. We have moved from an incomplete database of activity to one that will be absolutely comprehensive and that we can use as a management tool to increase efficiency and effectiveness.
Will you detail the benefits of the contract in terms of activity and efficiency?
Okay. I see the benefits going in three areas: staff—the consultants—patients and service. On the benefit for consultants, there was recognition from the outset that consultants had traditionally worked more hours than they were paid for. Many consultants have worked over the European working time directive limits and those additional hours were not recognised in their contracts. The general consensus was that it was important to recognise the contribution of consultants; some of the extra investment was made in order to do that. A benefit is gained because consultants' hours are being managed more effectively, which means that consultants are not being overworked and their alertness and quality are increased. In turn, the benefit for consultants increases the quality of care that patients receive. We should not lose sight of that.
You have cut to the heart of the contract, which is the increase in committed time to the NHS from 21 to 30 hours a week. Why could your department not tell us how many consultants worked fewer than 30 hours a week before the new contract was introduced? Indeed, Neil Campbell said that, in the Argyll and Clyde NHS Board area, it was fewer than a handful.
As I said earlier, the department does not collect—or we have not collected—individual consultant activity data. That would be something that—
But surely that is the sort of basic building block that you need if you are going to assess the impact of the contract and evaluate the costs and the impact on the service in terms of performance and productivity. Why on earth did your department not gather that information?
What I am saying is that we would expect employers to have that kind of management information. At the outset of the talks on the consultant contract, sampling work was undertaken on consultant activity. Those samples were used.
Surely your department—not the boards—was negotiating the contract as employer, so it was incumbent on you to have that information before entering into negotiations.
As I said, survey work was undertaken before the talks. That took a sample of consultant activity. Data on consultant activity were collected and we entered into talks on that basis.
You talked about how you are evaluating the cost of the GMS contract and working through that with boards. How is extra funding distributed? In an urban situation, the out-of-hours part of the contract could be cost neutral, because of the benefits of undertaking out-of-hours services through co-operatives, for example. However, the cost will be disproportionate in rural areas, where such a model cannot work. Is money distributed according to the Arbuthnott formula or are individual board allocations based on rurality and the number of general practitioners in remote and rural areas?
Most of the money for the new GMS contract is distributed through a variant of the Arbuthnott formula that is called the Scottish allocation formula for GMS. That is similar to Arbuthnott in that it factors in remote and rural needs and extra costs highly. More money is distributed to rural and remote boards in recognition of their extra costs.
Good morning. Mr Palmer, in response to Susan Deacon, you outlined increases to the estimates for pay modernisation—for the consultant contract, agenda for change and GMS. Your answer to George Lyon's last question started to go into how responsibility for those increases will be negotiated between the Health Department and health boards. Will you say a little about whether that will apply to health boards across the board? Were each health board's figures a little bit out, or will particular health boards have problems in financing the increase that is being identified?
Peter Collings might want to say one or two words about the overall approach to allocating funding to boards. Our approach is to provide almost all our funding to boards in general allocations and not to earmark or ring fence money for initiatives. Money is allocated to boards broadly on an Arbuthnott needs-allocation formula. Boards then manage pressures within their overall uplifts. The resource allocation formula should take into account the pressures of local geographical circumstances or populations in terms of the relative health need. The overall approach is not to second-guess that or redo that exercise to adjust everything and divvy up a bit more here or there, because that would get us into quite difficult relationships with boards.
The uplift percentages for agenda for change and the consultant contract do not vary much between territorial boards. The impact of agenda for change on the Scottish Ambulance Service is a particular issue that we have been dealing with because of the unsocial hours arrangements. We have to make an exception, as there is a particularly large impact on that service.
So, given the revised figures, you are not aware of any board that will have more problems than others. There will be a general approach and the boards will all come in at somewhere under the original estimate.
Yes.
How many consultants have refused to take up the new contract?
The take-up rate is around 98 per cent.
Is the rate worse in any particular area? Does any board have a greater proportion of people who are saying, "No thanks"?
Not that I am aware of.
How will things be managed? Obviously, the new contract has been hailed as benefiting patients, but how will the department deal with that matter? If individuals say, "No thanks," there will be no benefit to the patient in that area.
We are quite pleased with a 98 per cent take-up rate. We think that that is a comprehensive take-up rate of the contract and that 2 per cent represents a pretty small number. We would expect local managers to be able to manage such a proportion of people not taking up the new contract and to manage consultant activity with their colleagues in a way that does not detract from the contract's impact on how consultants' workloads are managed. That is a matter for local managers. Given that the figure is only 2 per cent, we would expect managers to be able to do that.
Is an opt-out available to anybody in respect of the GMS contract and under agenda for change?
There is the potential for opting out with the GMS contract. GPs have not been deciding to opt out—the take-up has again been comprehensive. We have put out a pay circular that says that all staff are expected to sign up to agenda for change on the basis that they voted for it in their trade union ballots.
Did consultants have the same democratic process? Are they treated differently? Can they opt in or opt out?
At the outset of the consultant talks, it was agreed that the question whether consultants wished to stay on the old contract or be under the new contract would be put to them. When agenda for change was negotiated, the staff unions did not require that condition to be put in. In Scotland, the health service is structured in such a way that national terms and conditions are applied through NHS boards; we do not have local trust freedoms. Staff unions in Scotland were therefore keen to have things applied across the board. They have been keen to have harmonised terms and conditions applied for all their staff throughout Scotland and they see that as a positive benefit for their staff.
Are costings available for the backdating of the consultant contract throughout Scotland? Has the patient benefit that has been gained been measured?
If we include the annual 3.225 per cent pay inflation award, the figure for 2003-04, which is the backdated figure, is £70 million.
What was the patient benefit?
The contract was not operable during 2003-04, so consultants were still working under the old contract. The contract was not implemented in that period.
Forgive me if I am not understanding this. Are you saying that the cost was £70 million, but we got nothing for it?
The £70 million is the result of the agreement that we reached with the British Medical Association to pay consultants as if they had been on the new contract from April 2003. That was decided on the basis of an agreement that had been reached in other parts of the UK that, because the original commitment had been to implement a contract from April 2003, the consultants should receive the pay from that time. We agreed with the staff unions that agenda for change would come in from 1 October this year, so that will be backdated as well.
Nice work if you can get it.
I have just a small question, convener.
One small question often burgeons into five, but I am happy to allow it, because the subject is important.
I seek clarification on a response from the department on the benefits of the consultant contract. The response from the tail-end of last year was that the contract would end the practice of having to pay consultants twice for the same work. What does that mean? It seems bizarre to the rest of us that the health service would pay consultants twice for the same work under the old contract.
That refers to the practice in some aspects of activity. For example, consultants were able to do family planning work in their NHS time, receive their NHS salary for it and receive a fee on top of that. They got an extra fee for work that they were doing in NHS time and for which they were getting paid an NHS salary. When we negotiated the contract, we agreed that we could not accept that, so we have written it out of the terms and conditions.
That is interesting. I am glad that I let George Lyon ask that question. Before we finish, I want to clarify that the 2 per cent of consultants who did not take up the contract are not lost from the service and have not gone private; they are still able to work under the old contract.
Yes. That is the case.
I had not allocated as much time as we took on pay modernisation, but the subject is clearly of great interest to the committee, so I was happy for us to explore as much of it as possible. We will stay with financial planning, but move into different areas of it.
I want to make one or two points about the discussion that you have just had, to which I have listened with great interest. It seems to me that the committee has three principal concerns. One is about the quality of the costing information. We hear the concern and we will take it away and consider it. I believe that we have tried to be as accurate as we can, but obviously we take on board the points that have been made.
We have not issued the allocations for 2005-06, but we are looking at an increase of 7 per cent—a 4.5 per cent real-terms increase—in cash terms next year and continuing increases over the following two years of the same order of magnitude. We have not worked out the figures yet, but the cash increase each year will be in the range of 6 per cent to 7 per cent. Significant extra amounts of money are going into the service to help to meet those pressures.
What steps is the department taking to tackle the rising cost of drugs to the NHS? Perhaps you will divide the answer into two parts: first, the cost of prescribing in general practice and secondly, the cost in hospitals, where I presume the problems are slightly different.
For many years, the rate of increase in the cost of drugs in general practice has been well above inflation and the general rate of increase in NHS costs. That should not be viewed exclusively or even partially as a bad thing because the main reason why it has happened is that patients are getting new and better drug treatments. We have to ensure that we get value for money, but the increase is good news in many ways. For example, one of the big cost pressures in recent years has been the growth in prescribing of statins, which are important in reducing the incidence of coronary heart disease.
The issue of drug formularies is important. A lot of work is going on locally around Scotland on that and the Scottish medicines consortium is working on new drugs. That is important work and much of it is associated with hospital prescribing.
The cost of hospital prescribing has traditionally been a much lower part of the overall prescribing bill—it is of the order of £200 million, compared to the £1 billion for GP prescribing. However, there is considerable potential for future cost increases because of a range of new drugs. For example, many new and expensive drugs for treating cancer exist and more are in the pipeline. The cost emphasis is in some ways shifting away from GP prescribing towards expensive drug treatments in hospitals. As Kevin Woods said, one key issue is to ensure that treatments are properly assessed before they are given; much effort is going into that through the Scottish medicines consortium.
The committee might be interested to know that of the 150 new drugs that the SMC has considered so far, it has approved 33 per cent for use in Scotland and a similar amount for use in a limited way for particular conditions. It has rejected 33 per cent. That gateway for new medicines is helpful to everybody.
For clarification, do you expect to make savings of £35 million in prescription drugs next year and £42 million in the following year?
No. The figure is £35 million this year and £42 million next year.
Okay. Do you envisage any cost pressures that might seriously affect the projection for next year?
The main pressures are the potential increase in the prescription of effective drugs that already exist, particularly statins, and the volume of prescribing, which goes up year on year. Some drugs that are in the SMC's forward look, but which it has not yet considered, could be expensive. As I said, they will be used predominantly in hospitals, rather than in primary care.
I am conscious of the clock's ticking. I ask members to bundle their questions together if possible.
What drivers and incentives are in place in the NHS in Scotland to push forward service redesign and reform? I understand that some of the new contracts have a part to play in that. How does the Health Department ensure that service redesign proposals are robustly costed?
I will make one or two preliminary points and invite colleagues to add to them.
Redesign varies depending on what is involved. It covers a range of issues from matters that are local—which we would not get involved in costing but in relation to which we would offer support—to major strategies. When a major strategy is produced, we expect it to be accompanied by an economic and financial analysis, which we will probe. If the strategy is approved, normally it will break down into a series of projects. If those projects are above the delegated authorities of the boards, the board normally has to submit to us an outline business case before it goes to the market to buy whatever it is that it wants to buy, such as a building or whatever. At that point, it will produce a final business case, which would normally be when the board was at the stage of detailed planning and would have received tenders and so on for the work. Each business case is a substantial document; we bring to bear on them a range of skills from within the department when they are costed.
My concern is about the smaller service redesigns. I have experience of that because my health board—Ayrshire and Arran NHS Board—is good at examining its services to find out how the patient journey can be shortened and outcomes improved. Although some boards are good at doing such work, and the department has created the centre for change and innovation, boards across Scotland have not even started the process. What cost benefit is there to having the centre for change and innovation if measures are not being delivered on the ground for patients?
I am not sure that I can answer the specific question about the centre for change and innovation today. However, your concern about the possibility that lessons that are learned in one part of the NHS might not be transferred to other parts is important. Obviously, we must strive to ensure that those lessons are learned because of the benefits of redesign. Some of the projects that were developed in Ayrshire have brought great benefits.
If significant service redesign brought about double-running costs, would bridging finance and support from the department be available?
A bridging scheme was available when we were getting a lot of the major long-stint institutions closed. At the moment, we do not have a bridging finance scheme.
There are pros and cons in such developments and history has shown that the situation can be complex. Essentially, the resources would have to come off the top of the budget. We would then have to have some way of judging between competing claims on the money, which could raise concerns about whether we were being fair.
Margaret Jamieson asked about how change is driven forward in the NHS in Scotland. I would be particularly interested to hear your thoughts on that, given that before you worked for the Scottish Executive Health Department, you worked in and studied various parts of the NHS. Can you share with us your thoughts on how you think the pace and scale of reform in the NHS in Scotland can be accelerated, and in particular whether you think that there are lessons to be learned from some of the approaches that are being adopted south of the border, of which you have experience? On the latter point I stress that it is important to get beyond some of the—dare I say it—headline debates about policies that apply in different parts of the UK, and instead get into the questions of, for example, how major information technology changes and changes to prescribing practice, which Peter Collings touched on earlier, can be moved further and faster than has been the case to date in Scotland.
That is a very big question. I will try to be brief. I preface my comments by saying that what might be appropriate in England might not be entirely appropriate in Scotland. My sense is that in Scotland we have to get an effective performance management system working for the NHS. Interestingly, from my recent experience in England, I know that that has been one of the most important drivers for change there, coupled with an energetic approach to modernisation through the NHS modernisation agency. Those two things have been extremely important, and we can learn from them.
One of the committee's concerns is that, despite record investment in the service and record increases in the number of consultants and allied health professionals, activity levels are declining. For example, elective episodes have declined. More worryingly, day-case surgery plateaued in 1999 and is now also declining. Some of that might be explained by out-patient activity but, unfortunately, it has not been measured well enough to capture the data. How do you view the need to improve productivity in the service and how might you incentivise it? It is clearly a concern of the committee, and it is one of the fundamental concerns of the country, that record amounts of money are going in but activity levels are declining rather than rising.
We need to consider whether we are capturing all the changes in activity that are going on if people are being treated in other settings that are more appropriate to their needs, which surely is a good thing. I sense that our information systems have not necessarily caught up with some of that. I believe that the committee has been concerned about that matter, so my colleague Jill Alexander might want to say a little bit about the work that is being done to address that.
I am happy to say a bit about the work that we are doing, if that would be helpful.
Just a little bit, because we are tight for time, and I have further questions.
As I think you are aware, a fairly major exercise was started by the information services division—ISD Scotland—more than two years ago to address some of the already obvious gaps in measurement of activity in the service.
When are the new data collection systems likely to be in place?
We are reckoning on a three-year span, depending on the type of improvements that we are talking about. Presentational changes can be made very quickly. Changes to how we analyse existing data could possibly be made over the next year or so. However, for new data collection that might mean putting in place new systems in NHS boards, we are probably talking about two to three years, at the very least.
I want to point out that it is right that we seek to develop our information systems. I understand that there are well-identified weaknesses around costing, for instance. However, I do not wish the committee to think that all the data in Scotland are poor or unreliable, or anything like that. We have good hospital activity data with which we are able to do things that cannot be done in other parts of the UK. Much of the ISD's work is very high quality, but we must expand the range of data that it collects.
Have you covered your area on benefits of resources and health, George?
I have one further question to ask.
We shall take Susan Deacon's supplementary question during her questions on information technology.
On incentives, you seemed to suggest that setting targets at board level and ensuring that they are met is one way of trying to drive the system to produce more and to increase activity levels. Is there a role for any form of incentivisation? A number of health professionals have put it to me that there are many perverse incentives in the system, which militate against the service upping its activity and productivity levels. One of the criticisms is that it is a referral service, because there is no incentive to try to treat at community level instead of in acute services.
If perverse incentives are operating that cause actions that are not consistent with the direction in which we want to go, we obviously need to reflect on those and see whether we can address them. A good example of one of the current incentives, to which Mike Palmer referred in his evidence, is around the GMS contract. The new quality and outcomes framework is essentially a package that encourages development of new models of care and greater activity, particularly in respect of management of long-term conditions in primary care. That is highly desirable and our evidence suggests that it is being taken up with energy and vigour. Therefore, there are incentives in place beyond the performance management system. We should not lose sight of the fact that the NHS is a public health service and that the people who lead it have a responsibility to fulfil statutory duties and to meet objectives that are agreed with ministers.
You have covered that area. That is fine. Susan Deacon has questions on information and information technology developments.
I am grateful for Jill Alexander's comments about data collection systems. Her comments pre-empted many of the questions that I was going to ask. Colleagues will be pleased to know that I will not repeat what has been said.
The examples that Susan Deacon mentioned are already being looked at by the data development project, as you may be aware. Those are not in the timetable of the more general statistics review; they have had a head start. Information—experimental data—on practice teams and on nurse-led clinics was published by the ISD in mid to late 2004. As the information starts to come in from boards, it has to go through a period of quality assurance and consistency checking. That is already coming on stream.
I will respond briefly to that. I appreciate everything that has been said about the range of activity that is taking place. However, we all want a situation in which ministers can stand up and not just have to talk about waiting times for consultant-led out-patient clinics, but say with clarity and transparency to Parliament and the public what is going on. I acknowledge all that you have said, but I remain concerned that there seems to be some way to go before we achieve that degree of transparency.
I understand the urgency around measurement and I accept the point entirely. The trick that we have to pull off is to ensure that, wherever we can, we gather data as a product of clinical activity. We must also ensure that the data that we collect are clinically helpful and clinically relevant. Otherwise, people will feel that it is just another administrative burden and, as it were, an information tax on their activities.
We have procured a national information system for accident and emergency and are—I hope—close to signing contracts for a national picture archiving system which, because it stores digital images from X-rays and so on, means that we do not have to use film any more. We have also gone out to the market for what is called a generic clinical system, which will provide clinicians with IT tools to help them in their work. Moreover, we are running an e-pharmacy project that will apply uniformly across Scotland. We are implementing a range of measures to fill gaps in existing IT arrangements and the trend is towards taking a national approach to these matters rather than carrying out a series of local procurements.
As the benefits of these projects work through the system, we would expect improvements not just in the quality of service but in efficiency. Indeed, over time, we might even expect—dare I say it—savings. However, taking such projects forward obviously raises major investment questions. Where does the resource come from to take forward work on the health strategy, changes to pharmacy and prescribing practice and so on? Does it come from the department's central budget, or is it a combination of central funding and funding from local health board budgets?
It is a combination of the department's central budget and some money that is spent locally. As figures that we published following the spending review show, the size of the central budget will increase significantly from about £35 million to £100 million to cover these matters.
Will that money be spent specifically on e-health?
Yes.
I would be grateful for any further written information that the department could make available on that.
We will now move on to discuss cost pressures.
Dr Collings helpfully reassured us that health board budgets would be increased for the next financial year. How will that increase in funding compare with the increased costs of, for example, pay modernisation, the drugs that we discussed, pensions, ICT and increased demand in general? In making those comparisons, will you tell us what scope will be left for NHS boards to develop new services and respond to new demands?
According to our figures for next year, the cost pressures that you have mentioned come to less than the uplifts that boards will receive. Undoubtedly, they will take up most of that uplift, but not all of it.
You said "most of that uplift". Do you have a figure for that?
I am looking at the latest figures that we have. You will be aware from our earlier discussion that the figures are moving around. As regards the uplift in the broad budgets, which will be of the order of £550 million, the main pressures that we have been discussing will take slightly in excess of £400 million to £450 million out of that total.
We have mentioned a few of the cost pressures that we would expect. Is there anything that the Health Department can see on the horizon, of which we are not presently aware, which might add cost pressures to the health boards?
The only one that I would mention, which I do not think has yet been discussed with the committee, is one that kicks in in 2007. It is called modernising medical careers, which is a reform of the training of doctors. Because it is still quite far off, we have not yet discussed it with the committee—it has not been brought to your attention. That is the new pressure on the horizon, although, as I have said, it is a bit of a way off.
I am sure that we will be considering it at some stage in the future.
I seek some clarity on the figures that you have given. You mentioned an uplift of £550 million for 2005-06. Is that right?
It is roughly that amount. The minister has not yet taken the final decision.
Can you give us a breakdown of that for GMS, the consultant contract, agenda for change, the prescribing costs and normal pay inflation?
If you would like to send that in writing—
I would rather do that in writing, if I could, please.
That would be acceptable to the committee. That covers our questions on financial planning. Before we take a break, we have some questions on financial monitoring, which I anticipate will be short. I invite Margaret Jamieson to start on the monitoring of financial performance.
Dr Woods, we were advised by your predecessor that the Health Department does not manage NHS Scotland, but that it does monitor the financial position of individual health boards. How do you assess the quality of boards' financial plans and their in-year performance? How often is that done?
As I understand it, the current practice is that, every year, the Health Department receives a five-year financial plan from each health board, as well as a statement of its service plans. Those are considered by officials in the department. If boards are developing major service change proposals, it might occasionally be necessary to take the plans for ministerial consideration. However, most of the consideration of the finance plans and service plans that come in is undertaken by officials. Dr Collings will no doubt be able to add some information on how the financial plans are assessed within the department.
The first thing I would add is monitoring. We get monthly returns from each health board on how things are going and on the projected outturn, from the end of the first quarter onwards through the financial year. Those returns can be compared to the financial plans. Where necessary, boards send us revised financial plans. As regards how we assess the plans, we have a small group of accountants, one of whom you will be meeting later. They go through the plans and the monitoring returns, assess whether they look credible, work out which bits look like they might be high risk and then go back to the board with questions. They visit each board, typically two or three times per year, to run through in detail both the plans and how that year is going. It is generally a matter of analysis and of probing boards on these issues.
If there is an area of disagreement, where in the process is the final decision taken, and by whom?
We are moving on to some issues on which I was going to comment in relation to Argyll and Clyde NHS Board. The important point is that we must not lose sight of the boards' responsibilities. Their job is to deliver services within the available resources. It is our job to work with them to test the assumptions with which they are working and to test the quality of the proposals, and Dr Collings has referred to that to some extent.
I have to ask about an issue related to funding gaps. The Audit Scotland report identifies that Lanarkshire and Greater Glasgow NHS Boards have funding gaps for 2004-05, but they have financial recovery plans in place to manage those. How confident are you that their plans will be achieved? How did the Health Department satisfy itself that the board savings plans were realistic and that the planned used of non-recurring money was appropriate? As it is now only two months from the year end, can you give us the up-to-date position of those two boards?
Peter, would you comment on those two specific cases?
Lanarkshire's plan for this year is to try and achieve in-year financial balance; it has a cumulative deficit. At the moment, it looks like the board is close to doing that; we expect it to achieve it or miss it by a fairly small amount.
That does rather suggest that their plans were realistic. How did you go about satisfying yourself that they would be?
We went through the plans line by line. In each case, they had a series of specific items where savings could be found, and they had an amount that was specified as further savings that they would need to look for. We have been keeping in touch with the boards through the year to make sure that they have found those elements.
How do you monitor that ring-fenced funds are used for the intended purposes? How much is involved? Will you assure the committee those ring-fenced funds are being used for their allocated purposes?
We ask boards for a plan of how they will use ring-fenced money. The distribution of the money depends on our receiving a plan that we consider to be adequate. We go back to boards during the year to check up on how they are getting on. Quite often, we find that there is slippage in a plan and when that happens we seek an assurance from the board that in future years it will make good the service delivery developments that were in the plan.
You say that there are different definitions of ring-fenced funds and that you go back to boards during the year to see how they are getting on and ask them to make good any failure to apply funds. In other words, you take a retrospective look at what goes on. Is anything preventing you from ensuring that specific allocations are specifically allocated?
We ensure that such funds are specifically allocated. I was trying to explain that we avoid making the financial year end an artificial barrier, so that if boards are delivering what they said that they would deliver, but the timing of the delivery is different, the boards still receive the funds that were promised to them. We would not wish the artificiality of 31 March to mean that a small amount of slippage in, for example, a major change programme meant that the programme would no longer be funded.
The money would have to come from the next year's budget, so boards would use funds that might have been allocated to something else. Funds chase funds. Is that a sensible way of operating?
If, in a given year, boards do not use ring-fenced funds for the purpose for which they were intended, they have a choice. On the one hand, they may keep those funds as part of the moneys that they are allowed to carry forward at the year end and use them the following year. On the other hand, we allow boards the freedom to use the ring-fenced funds for something else in the year, if they identify opportunities to do that and can budget to use other funds to do the work in the following year. Our concern is that the change—or whatever we are funding—is delivered for the money that we put in.
Given what you just said, should the Health Department do more to monitor outcomes?
We monitor intensively the outcomes of many programmes, particularly those that relate to cancer and coronary heart disease.
It is true that you monitor those areas. However, you mentioned other areas, such as audiology, which is a classic example. Ministers gave assurances in good faith that greater priority and resources would be given to audiology. The inference and expectation is that there will be resultant improvement; however, it is quite difficult to see how the Health Department tracks either the input of resource or the results that flow from that. I acknowledge that it is not all about money, but I think that every member of the Scottish Parliament would agree that that area is an issue.
In audiology, there is a specific partnership agreement commitment relating to digital hearing aids. The extra money that is being invested in audiology is linked to that commitment. We are at an early stage in the programme for delivering on that commitment, but we will monitor boards' progress in providing that service so that we can measure whether they have met the partnership agreement commitment.
I appreciate that specific response on audiology. If we were systematically to go through each announcement that has been made over the past one or two years that has indicated the release of targeted—more often than not referred to as ring-fenced—resources in specific service areas, would you be able to give us equivalent answers on where the resources have gone and, more important, what the resultant improvements have been? Could you give a similar answer for each of the services, or does more work require to be done on that?
Although that is an important question, we could get an answer to it in writing. I am conscious of the time. If you could give us an answer to that in writing, Dr Collings, elaborating on those issues, that would be perfectly acceptable.
Meeting suspended.
On resuming—