Agenda item 5 is our second evidence-taking session on the Auditor General's report "Overview of the National Health Service in Scotland 2002/03".
Thank you very much for inviting us to give evidence. Dr Alan Green is the medical director for NHS Ayrshire and Arran, as well as being the medical director of the primary care trust, which, in a couple of days' time, will be the community health division. Derek Lindsay is the finance director for NHS Ayrshire and Arran, and Derek Yuille will be the divisional director of finance for both divisions in NHS Ayrshire and Arran.
Good morning. I introduce Dr Ross Cameron, who is our medical director and chairman of our clinical executive, and Robert Kemp, who is our finance director.
Would you like to make brief opening statements?
Yes. The three main areas that I will cover are our financial position; health and health care improvements in Ayrshire and Arran; and challenges.
First, I will talk about organisational integration. For a number of reasons, we chose proactively to seek permission to change our structure. Principal among those reasons was a recognition that the delivery of health care was about to change radically and that we needed to have an organisation that could provide the necessary leadership. We have an ambition to achieve truly integrated care and we believe that we can more easily realise that with an integrated management structure that reflects that ambition and pulls together acute services, primary care, mental health and health improvement into one management entity. We want to create an organisation that has clearer clinical priorities and a clearer clinical view. We felt that we needed to be more coherent partners externally. For us, in the Borders, the external partnership with Scottish Borders Council and the Lothian councils is important. We felt that, if we were a single entity, we could be a better partner. Importantly, we recognised that, as a small NHS system with three organisations, we were carrying a large management overhead.
The Auditor General's report indicates that NHS Ayrshire and Arran and NHS Borders will face significant financial challenges in 2003-04 and beyond. You alluded to some of those challenges in your opening statements. What is the expected financial performance of NHS Ayrshire and Arran and NHS Borders in 2003-04?
We are on target to achieve year-end balance, as in previous years. However, we face certain challenges in the coming year. The balanced position that we are in will ensure that we have a good foundation to allow us to deal with those challenges.
I will ask Mr Kemp to answer in detail. In principle, we expect to achieve our financial targets. As I said, that will be done with a significant amount of non-recurring support.
We expect to achieve our targets for the coming year. The Scottish Executive has provided us with additional funding, which has been helpful, and the clinical executive and clinical boards have worked hard to keep spending within budgets.
The Auditor General's report highlights a number of cost pressures that the NHS will face over the next few years. It is obvious that the pressures will be different in each of the NHS areas, so I will ask about the Borders first. What are the pressures in your area and how will you address them?
Robert Kemp can best answer on what the pressures are.
One of the main pressures that we will face next year will arise from the consultant contract, which we estimate will cost £2 million. We are still working through the detailed job plans and diaries, so it will be another eight or so weeks until we know the actual cost. We believe that we will be at the high end of costs in Scotland, because of cost issues that relate to the limited ability to rationalise services in a small district general hospital. John Glennie referred to that in his opening statement.
We have set up a leadership group, which comprises the clinical executive and the board management team, to address the pressures. We have an agreed agenda, and there has been an open sharing and ownership of the financial position. The group's health plan indicates that the main drivers in addressing the pressures will be a clinical redesign process, which we envisage will entail fewer in-patient beds in fewer locations; a major drive to improve efficiency; an examination of our high-cost areas; and an attempt to ensure that support service overheads are kept to a minimum. We will work with the Scottish Executive Finance and Central Services Department to ensure that we have a robust five-year plan that brings us back into balance and a timescale that allows us to balance the needs of the clinical services alongside the need to meet our financial targets.
What about NHS Ayrshire and Arran?
The main financial pressures this year and next year include the consultant contract, which Robert Kemp has mentioned. The agenda for change, which will be implemented from 1 October, is a new pressure for 2004-05. The costs of that will exceed those of the consultant contract, because it applies to most staff in the NHS, whereas the consultant contract applies to only a proportion of staff.
Perhaps Dr Green can elaborate on the change in out-of-hours services and the pressures arising from that.
In Ayrshire, we are fairly fortunate in that we already have in place a well-subscribed out-of-hours service that covers the mainland practices; the service is provided by an organisation known as Ayrshire doctors on call, or ADOC. We propose to bring that service into the NHS from 1 April this year. That will mean a significant increase in cost to the NHS, because we have had to transfer all the staff to NHS contracts under the Transfer of Undertakings (Protection of Employment) Regulations and we have had to make up the shortfall that the general practitioners previously paid out of their own pockets to provide the service.
I presume that NHS Borders and NHS Ayrshire and Arran have specific problems because of their rural geography—they have lots of single-handed doctors and small practices. The chief executive of NHS Argyll and Clyde explained to me that one of the ways in which that board would cope with out-of-hours cover was that the GPs would give up the service and hand back £6,000 and, in return, the board would probably have to pay them £60,000 to cover exactly the same hours again. Is that your experience in trying to deal with the problem?
It is similar, but NHS Ayrshire and Arran is slightly different, in that all our mainland practices are covered by ADOC. At present, the doctors pay on average £8,500 to £9,000 into ADOC, then work for it and get paid for doing so. The global sum equivalent is about £5,500, so the difference between that and £8,500 is £3,000 per GP, or in total, as there are 250 GPs in Ayrshire, £750,000.
To help the committee understand the pressures that we face, I will go into the geographic factors, which are particularly important, in some detail. NHS Borders has no large conurbation in its area; we have about 100,000 people spread over 2,000 square miles in a variety of small towns and villages. At the moment, we have a cell network of GPs on call with a minimum of five GPs on call overnight and more than that at weekends. Under the national standards of work load for out-of-hours medicine, if the population is concentrated, one doctor can normally deal with up to 120,000 people. In urban areas, that work load can be coped with, and that would be true in our area were it not for the geography. We get an average of five or six calls after midnight and up to 8 am; it is clear that one doctor could deal with that, but not if he had to travel from Peebles to Eyemouth to Hawick.
How much will the changes cost?
The board has been discussing several options, but the net cost to the board is expected to be around £1 million, taking into account the clawback from GPs and the money that we spend on out-of-hours services at present.
Will the sum be greater than the cost of the consultant contract?
Not in absolute terms. Robert Kemp will give you the details.
We estimate that the consultant contract will cost NHS Borders £2 million and that the excess cost of the out-of-hours service will be £1 million.
I ask the same question of NHS Ayrshire and Arran.
The additional cost of the out-of-hours service is likely to be £1.5 million, while the cost of the consultant contract will be roughly double that.
I want to return to cost pressures. The underlying recurrent deficits are £2.5 million for NHS Borders and £4.5 million for NHS Ayrshire and Arran, but when the witnesses answered my question about cost pressures, none of them said that the deficit was a pressure that would have to be dealt with in the next few years. Why does NHS Borders have a five-year recovery plan for the £2.5 million, while NHS Ayrshire and Arran does not have an agreed recovery plan for the £4.5 million? What action have the boards taken to ensure that the base budget with which they operate is appropriate and correct?
NHS Borders has a history of achieving its financial targets and achieving savings. However, from about 2000, that situation was underpinned by an increasing reliance on non-recurring money and a growing recurring deficit. It is hard to say exactly what caused the deficit to grow, given that spending is around £100 million and that many items change within that. However, the three pressures that we found to be impacting significantly in NHS Borders were the working time directive, the new deal for junior doctors and prescribing costs. Those pressures resulted in a cumulative recurring deficit of £3 million.
In the clinical executive that we have created, which brings together the clinical chairs of the LHCCs, the board of Borders general hospital and the mental health network with the managers of the service, we have clinical decision-making ability and managerial ability in one room. We can consider the financial problems and the priorities without having to cross borders in the same organisation. That system has helped us to achieve an overview and a shared understanding of problems and difficulties, as a result of which we feel that we are giving a more unified response to the difficulties. The new system certainly feels different.
How is that reflected in your base budget?
NHS Ayrshire and Arran described a process whereby a number of groups dealt with the key issues. We have a similar process. One of those groups is a value-for-money benchmarking cost-reduction group, which considers a series of savings targets and savings measures. That work is backed up by a benchmarking process that takes into account value for money and the situation with Arbuthnott for each service. We are trying to develop a robust process in which we work with clinical and support services to establish a reasonable budget and cost targets.
I ask the same question of NHS Ayrshire and Arran.
The yearly increase in prescribing costs tends to be around 10 per cent, but in 2002-03 it was particularly high—about 12 per cent. When we went into 2003-04, we projected that if the increase in prescribing costs continued at that rate, we would face a recurring deficit of around £4.5 million in that year. However, we had non-recurring ways in which to cover that deficit in-year and we could therefore achieve our financial targets. However, the prescribing costs increase has not been as high as we anticipated at the beginning of 2003-04, and the figure is not 12 per cent, but closer to 8 per cent. A number of drugs became generic, which helped our in-year financial position and has meant that we are only £1.25 million out of recurring balance going into 2004-05.
One measure that is identified for NHS Ayrshire and Arran in reducing the £4.5 million deficit is the sale of surplus assets. How is that sale progressing and what is the anticipated receipt?
As we went into 2003-04, we identified a number of measures through which we might cover the anticipated deficit of £4.5 million. One such measure was to carry forward non-recurring money from the previous year, which covered around £2 million. We also anticipated some capital receipts that we were able to transfer to revenue. We have sold a number of assets including Ravenspark hospital, the former headquarters of Ayrshire and Arran Primary Care NHS Trust at Hunters Avenue, and the former financial services building. We have made progress there and we have been able not only to achieve our financial targets this year, but to carry forward significant non-recurring resources into 2004-05, most of which are related to earmarked funding for specific purposes such as cancer and coronary heart disease. However, some of the non-recurring resources will also be available to help us with considerable cost pressures in 2004-05.
As a local member, I welcome the significant amount of money that will be carried forward, but we will debate that matter in another forum.
I will kick off, but my colleagues have specific examples. We ensure that the local health plan is affordable in order to link it with the financial strategy. We do not include in the plan aspirations that we do not feel confident about delivering because that would not be fair on our partner agencies or, in particular, on the public. We are not the sole funders of all the developments in health care improvements. We work closely with the three local authorities in a number of areas—through, for example, the social inclusion partnerships, the new opportunities fund and the health improvement fund. We have clear mechanisms to identify priorities together, particularly in tackling the deprived areas. Those external sources of funding do not come into our bank account, so to speak. I invite Dr Green to give two specific examples of highly deprived areas where we have worked with partnerships to tackle that deprivation.
Margaret Jamieson is right to say that there is massive variation in deprivation in Ayrshire. For example, in the middle of Ayr, which is an affluent area, there is one area of marked deprivation that is known as KA7.
Mr Lindsay will give the committee two more examples.
About three years ago, we received a stream of funding from the health improvement fund. We worked closely with our local authority colleagues to identify the pilot projects that it would be important to develop. Many of those projects were targeted at deprived areas, such as Cumnock and Kilmarnock, and included breakfast clubs and other initiatives. We are now reaching the end of that three-year funding period.
It is right that the public have increasing expectations of the health service, particularly at this time of record investment. I said earlier that we work hard to try to get a shared agreement of priorities in the system. We have also worked hard with the public in a number of ways, talking to them about what they expect of us and what we can reasonably deliver. Much of our thrust is in investment in primary care, chronic care, out-of-hours services and emergency care. We will find it difficult in future to support the number of in-patient beds in the number of locations that we have because of money and staffing. It is likely that staffing resources will be scarce. We must discuss with the public the nature of the service and what redesign will mean in practice. I ask Dr Cameron to respond to the question about deprivation, which has a very different nature in the Borders, as it occurs in small rural communities.
In a rural area such as ours, there are pockets of deprivation in the towns. Although they are quite small in number, their problems are just as severe as problems elsewhere. We tackle those problems with health improvement measures that are similar to those that have been mentioned, such as breakfast clubs and increased input from health visitors in particular.
I return to the matter of the recurring deficits—£4.5 million for NHS Ayrshire and Arran and £2.5 million for NHS Borders. For how many years have those recurring deficits existed?
The audit trail that we put together for NHS Borders goes back about two to three years and covers three separate organisations. That is the period of time over which we have traced the lines on non-recurring funding.
Are you saying that your deficit has existed since 2000?
Yes.
In the case of Ayrshire and Arran NHS Board, the figure of £4.5 million emerged only around a year ago. As I said, half of that figure was related to the prescribing increase in 2002-03. Certain emergency acute pressures accounted for the other part of the figure.
I want to clarify something that I understood from what the witnesses from NHS Borders said. Is the fundamental cause of the recurring deficit the various national agreements on, for example, out-of-hours services and the European Union working time directive, as well as prescribing costs?
The pay modernisation costs are the fundamental reason why our deficit has grown. It is difficult, as Robert Kemp said, to separate out one particular issue, but the deficit has grown significantly during this year and our estimated pay modernisation costs are a major driver of that, alongside what we envisage will be a huge investment in prescribing.
Do you think that the combined costs of those two factors are greater than the uplift that you have received since 2000? I am just trying to understand where the deficit comes from.
If we go back to 2000, the main drivers of cost that we have been able to identify from our experience across NHS Borders related to the new deal, the working time directive and drug costs. The cumulative effects of those factors have built up the recurring deficit of £2.5 million.
So the deficit is not about extra service provision; it is purely about those major costs.
Yes, in relation to those factors. If we look ahead, there are concerns around the additional costs of pay modernisation that would further increase the deficit.
A year ago, Ayrshire and Arran NHS Board took a conscious decision that our allocation uplift would not be able to cover the deficit that we had identified, so we would have to manage that ourselves. The whole of our allocation uplift went towards pay costs, prescribing costs and other cost pressures that were identified for 2003-04. More than 50 per cent of our allocation uplift goes towards increases in pay costs and another 25 per cent goes towards increases in prescribing costs, so there is a very limited balance available for local decision making or local focus.
Is that the current figure or a historical figure?
It is a consistent figure. During the past three years, more than half of our increased allocation each year has gone towards pay increases and more than a quarter has gone towards prescribing uplifts.
The witnesses from both boards have made great play of the fact that their organisations can deliver efficiency targets. That has certainly not been the case for other health boards. How is that process managed and what are your targets?
I ask Robert Kemp to respond first, as he is the chairman of the group that is considering the matter.
NHS Borders has a track record of delivering savings, but it is fair to say that during the past two or three years, savings have been increasingly hard to find. As part of the reorganisation, we have set up five groups to target specific areas of savings. In the past, the practice was to set percentage savings targets for different parts of the organisation, but we found that that approach was becoming less productive. Therefore, the board decided to target areas, such as spending on drugs, on out-of-Borders services—around 15 per cent, which is quite a lot of our allocation, is spent on services that are provided by bodies other than NHS Borders, particularly in Lothian—on bed management throughout NHS Borders and on integrated services to ascertain whether we are making the best of those services. As John Glennie said in his introductory remarks, we are also putting a lot of work into benchmarking value for money, to ensure that our services are benchmarked appropriately against comparable organisations in the Borders.
I will make two points in relation to NHS Ayrshire and Arran before I ask my colleagues in finance to give specific examples of the areas that we are targeting. First, we have always ensured that we set a realistic, achievable target, so we have been considering the figures from the healthcare resource groups—HRGs—to ascertain whether there is scope for savings. Secondly, we ensure that we consider the totality of the £400 million budget, rather than just one or two areas in which we might achieve efficiency savings.
Our budget is £400 million, so a target of, for example, £4 million equates to 1 per cent of the budget. That raises an issue about scale and affordability. Obviously, the targets that are set for efficiency savings must be realistic, or there will not be a sense of ownership or realism around them.
Is 1 per cent a realistic target?
It is difficult to achieve in the context of the efficiency that is demonstrated through, for example, HRG analysis, which considers case mix and so on, but we have achieved roughly 1 per cent over recent years, which has been very challenging.
A number of points have been raised in relation to prescribing. In NHS Ayrshire and Arran, prescribing costs have increased in five years from £45 million to £72 million, which is an increase of 59 per cent. The number of items prescribed has increased by 18 per cent—or an average increase of 4 per cent a year—over that period. Perhaps that is the bad news, but we forget that there is also good news about prescribing. The rate of prescription of generic drugs in NHS Ayrshire and Arran has increased from 62.5 per cent to 77 per cent; the national rate used to be 67.5 per cent but has increased to 77.5 per cent.
I should have made the point that the drive towards improved efficiency and savings has been strongly supported at national level. I draw the committee's attention to two issues. First, the national shared services agenda seeks to make savings in relation to e-procurement in particular. Secondly, Trevor Jones has set up a national benchmarking group—he has asked me to chair the group—which tries to support boards, find efficiencies and benchmark services appropriately. We anticipate help from that area.
What do both boards consider to be a realistic efficiency target? What target is built into your recovery plans?
In Ayrshire and Arran, we have not set a target for 2004-05, because if we consider the HRG figures, we are really one of the lowest in terms of costs, so we do not feel that we can squeeze the system any more. However, we have said, for example, that we will not fund inflation uplift, so the two divisions will have to find ways in which to deal with that. Although the mathematical figure that is generated might be better balanced, we are now concerned with the whole concept of culture, rather than with saying, "You are not working efficiently".
As Robert Kemp said, we need to differentiate between recurrent and non-recurrent savings. The key to that is our current savings. We are setting ourselves an internal target of 1 to 1.5 per cent; we will probably be near the top end of that target this year.
I have a series of points of clarification and follow-up questions on the areas that have been covered—some can be answered relatively briefly.
We concentrated a lot on the expenditure side—the question that we were asked was how we could ensure that we balance our budgets. We are taking a long-term perspective. In line with the Scottish Executive budget cycle, we were given a three-year indicative budget, which covers 2003-04, 2004-05 and 2005-06.
I appreciate that answer and the points that you made, but I seek further clarification on the issue. Is it your expectation—for that matter, is it the expectation of health boards in general—that, when the current spending review process is complete, you will be able to plan over the same horizon that has been set out south of the border?
Yes—once the spending review is complete, which I understand will take a number of months. Although we are expected to have a five-year financial strategy, the figures that we are to put down for our income in years 3, 4 and 5 are an unknown at this point in time.
Thank you; that answers the point.
I mentioned the health funding that came out, which is around £26 million. Locally, we have agreed that it will continue to be spent on similar projects. The figures in the Scottish Executive budget were £23 million, rising to £50 million and £100 million. I understand that the areas to which the funding is to be targeted include early-years provision, activity and sport in primary and secondary schools and school meals.
I appreciate that answer, too.
I will give three examples. The concept is a new one and we are still trying to find different ways of approaching it. The first is to use incentivising as a replacement for the setting of efficiency targets. We might say to a number of departments in our divisions, "If you are able to release £X, we guarantee that you will keep that money and we will encourage you to apply the money to these specific areas of development that are in line with our strategic direction." If they can generate the money, they can keep it to make those developments. That is a fundamental principle.
I appreciate all the points that have just been made. However, I will make a similar observation to one that I made last week in response to Professor James Barbour of NHS Lothian. Some of the areas that Wai-yin Hatton mentioned have been identified as worthwhile areas for some considerable period of time. NHS Lothian raised the example of the use of agency nursing. That issue brings into even sharper focus the question of how we can create incentives within the system to make things happen. I wonder whether John Glennie might take us on to that stage.
We are taking a similar approach. We have found ownership to be one of the major incentives within the single system. This year we have worked really hard to make people feel that they are a part of the service and the decision-making process and that they have a say in our priorities. As a result, we have been explicit about seeking advice and guidance on priorities and about getting clinical and managerial leaders to sign up to them.
The example that I will give is a small one, but it might help the committee if I mention something practical that we have done in the Borders. In partnership with all our GPs, we have established a prescribing incentive scheme that has operated successfully over the past two or three years; it has certainly helped us to contain our drugs spending. We have also established with our pharmacists a range of quality markers. As long as practices achieve those standards, they are able to retain on a non-recurring basis a small proportion of any underspend that they might have generated. That has really helped to kick-start management of the prescribing budget.
At the GPs' request, we have included technical quality markers such as percentage generic prescribing, antibiotic use and other markers alongside simple financial markers so that we can get away from focusing only on the money. We also reward, based on the quality markers, within the incentive scheme.
I want to return to the major national pay awards, but I am aware of the time so, if the convener wishes it, I will keep them for later—if there is a later.
This is the most appropriate place to mention the matter, so I am happy to let you do so.
I listened with interest to the witnesses' comments about the impact of the three major national pay settlements. I would like to ask one specific question about the general medical services contract, just to get the matter out of the way. Part of the narrative about the new contract, particularly as it has been explained at United Kingdom level, is that it will introduce more of a marketplace and that a range of providers will be involved in out-of-hours service provision. Have you found any evidence of that or have you had to find different ways of contracting and paying the same people who provided the services previously? I suppose that the example of the ADOC service partly answers that question.
We have based our planning on the assumption that we will not be able to have contracts with the same people—in other words, with the GPs. I must say that there has never been any access to commercial deputising services in our area because GPs have always carried out the work themselves. However, the clear message from my colleagues over a number of years has been that out-of-hours services have been a major block to recruitment and retention. Indeed, the message from young doctors who have joined the service and enquired about positions has been consistent; the apparent resolution of the out-of-hours issue—at least from the GPs' perspective—is seen as a major gain for recruitment and retention in that they will no longer be responsible for providing a 24-hours service.
I will try to summarise in simple terms what you have said. Is it fair to say that we will not see what will happen more in parts of south-east England, where bona fide new providers will come in? You are saying that the GMS contract here is a catalyst for more imaginative use of the range of health professional roles that is available across the service. Is that a reasonable summary?
The contract is certainly a catalyst. If we put the financial implications to one side, simple consideration of the number of man-hours that would be required from the existing pool of doctors shows to be untenable the idea that we could allow staffing at anything like the present level. In our area, we have to find alternatives by asking what nurses can do, what the primary and secondary care professionals can deliver together, and by considering paramedics and the minor-injuries unit. New provision will come through integration of systems, rather than through our offering to an outsider a contract to supply a service.
As members know, we have ADOC. However, it is important to understand that emergency unplanned care is not only about medical care; a lot of social care is involved as well. We already have outreach services with our local authority colleagues; those services are accessed directly through ADOC. As I said, we have short to medium-term delivery of services, but we have already set up a group to consider the long-term future of unplanned care. The situation is similar to that which Ross Cameron described: there will be a front door to an accident and emergency service, with primary care people working beside secondary care people. Social care will be attached to that—an important way in which to prevent an admission is immediately to offer a small amount of social care to a person. I have been converted to that idea. As Ms Deacon knows, we set up the integrated care scheme in Darvel. I know that if we give a budget to someone on the ground and get them to use it, we can offer care immediately and keep a person at home.
I will ask one last mop-up question. We have spent a considerable time talking about the costs of the various new contracts and pay settlements. Various people have touched on potential benefits, but will you expand on what you hope the benefits to patients will be as a result of these not inconsiderable costs? How can you work locally not only to minimise costs but to maximise benefits to patients?
The GMS contract as a whole certainly offers the chance to refocus on quality clinical outcomes. That chance did not previously exist. The whole quality and outcomes framework part of the new contract will encourage and enable practices to focus on delivering clinical outcomes. That has to be a benefit.
I would not like to isolate any of the three main strands of pay modernisation, which are the GMS contract, the consultant contract and the agenda for change. This is all about service change: how can we deliver high-quality health and social services to patients near their homes? As Ross Cameron said, the GMS contract will enable us to increase chronic disease management, much more of which will be done near patients; they will not have to trek back and forward to hospitals. We will investigate how we can deliver increased services that allow patients to be seen by the acute sector near their homes. That is similar to what we are doing in north-west Kilmarnock and in Largs, where we are bringing the acute sector and primary care together. That is how we will redesign the consultant contract. When I sit down one to one with the consultants, I examine what they do during the week and try to rearrange that so that they will start to deliver the services that I have described.
I want to look forward a bit. Planned expenditure on the NHS in Scotland is expected to increase from £6.7 billion in 2002-03 to £8.5 billion in 2005-06. I want to ask the representatives of both boards three questions that arise from that. First, how much additional funding do you expect to gain between 2002-03 and 2005-06? Secondly, to what extent do you plan to use that additional funding for service development, as opposed to dealing with existing cost pressures, such as staff costs, prescribing costs and other basic issues? How much will be left over for service development? Lastly, how will you ensure that funds that are earmarked for new service developments will be used for that and not switched to another part of the budget later because unplanned costs arise for which you were not prepared?
I suspect that Robert Kemp can provide a more detailed answer than I, but I will make a point about the separation of service development and pressures. We have said that drugs budgets are a significant pressure, but they are also a significant investment. From where we are sitting, it is not simply a matter of saying that one thing is a pressure and another is a service development. Dr Cameron will provide an example of our investments in prescribing, which we see as being significant service developments.
Two main issues impact on large chunks of the drugs budget. One is the statins question, which relates to chronic heart disease and stroke. Another example that may illustrate the point is anti-TNF—tumour necrosis factor—a unique new drug that is an anti-rheumatoid arthritic agent. The Scottish medicines consortium has identified anti-TNF as a unique drug and we must implement the consortium's recommendations. The drug costs £10,000 to £12,000 a year per patient. We have gone through the clinical process of identifying suitable patients and estimate that it will cost us in the region of £600,000 to supply anti-TNF. That is a very significant investment, but the clinical impact on the 60 or 70 patients concerned will be massive and, hopefully, their lives will be changed. To represent the drugs budget as a cost pressure is to tell only half the story.
How much did you gain from Arbuthnott? That information is not given in your submission.
We are £2.6 million below our Arbuthnott parity target.
Do you expect to gain that sum?
Yes.
Is that reflected in the figures?
It is indeed. Arbuthnott works about three years in arrears. On the main pressures and use of allocations during the three years, we estimate that we will need to put aside about £2 million per year for general pay uplift—that sum is not for pay modernisation, but for a 3.25 per cent pay uplift each year. Expenditure on drugs will account for about £2.5 million per year, based on a 10 per cent increase per annum, and we have built in extra funding for some consequentials from the GMS contract quality markers and the Scottish medicines consortium guidance. Non-pay inflation accounts for about £1 million per year and, as we discussed, we are putting aside £1 million per year for out-of-hours services. For pay modernisation, we have put aside £3 million this year and £1.6 million next year—that is the impact of the agenda for change.
I would like clarification. I added the moneys quickly; the £9.3 million that you mentioned appears to cover just contractual issues, pay and prescribing. Is it correct to say that there is nothing left over?
There are quite a few other costs for smaller items; for example, we will have to pay more next year for some out-of-Borders services because the consultant contract is impacting on Lothians and we will pick up a share of that additional cost. We estimate that the cost increases for next year will exceed the increase in the allocation that we have been given, so our deficit will increase.
So apart from the gains that you will get from the new contracts, no other service development money is available.
That is correct.
Within that list, there are some service development—
Some £1.4 million of service development is included in that list.
You mentioned the additional resources that will come out during a five-year period—
No, the period is from 2002-03 to 2005-06.
Okay. The increase for NHS Ayrshire and Arran has been about £30 million per year; in 2002-03, the increase was £25 million, in the current year it is £30 million, and we expect that to increase to £32 million next year. The pattern of where the money has gone is fairly consistent. Roughly £15 million to £16 million has gone on pay and that is also our assumption for the forthcoming year. However, capital charges are variables in those figures; last year, there was an increase of about 6 per cent, but this year we are budgeting on an increase of about 14 per cent. That is based on indices that have been produced nationally. The increase will be a one-off hit as a result of the revaluation. The sum that is spent on prescribing is fairly consistent; it is about £7 million to £8 million of the £30 million increase.
I appreciate that and ask the convener whether we could formally ask each board to provide a note with the answers to those questions for each year, which would be useful.
I see the representatives of the boards agreeing to that, so that information will be forthcoming.
I have a final question. At our meeting two weeks ago, Professor Barbour told us that he believed that there was local and national evidence that activity has dropped off in the health service despite a substantive uplift in financial investment in it. Have you done any work in respect of monitoring and evaluating activity? Will you deal with the issue of demand? I notice that you are making good progress with waiting lists and waiting times. Will you say a little about those, because they are two important factors that we and the general public are interested in.
We have done work on activity, demand and productivity. In the Borders, activity as we currently measure it is roughly static, although it varies between headings. Our day-case activity appears to have gone down, but that is because we have followed the reclassification that has been led by the information and statistics division nationally, which has reclassified cases that were previously day cases as outpatient cases. Broadly, our activity is static, although medical emergencies activity is increasing.
On activities, we have tight monitoring and management reporting in Ayrshire and Arran. Our elective figures have come down, but there has been a corresponding increase in emergencies, day cases and out-patients. We would encourage further work to be done on that nationally. It is necessary to establish a way of reflecting the changes in practice, which are not compatible with the current way of recording the information centrally—especially as significant developments are taking place in respect of the shift from secondary care to primary care in a community setting. Those changes are not currently captured, so we get a skewed picture by comparing data on a purely historical basis.
You said earlier that you believed that the new ways of working and the new contracts should deliver better services. Therefore, one would imagine that it should also deliver better productivity and better quality outcomes. How will you capture whether that is happening and establish that we are getting something back for the substantial investment that has been made in changing the different contracts?
I will give a significant example, which has already happened, and I will ask Dr Green to give the committee some other examples.
My question is on how you will measure the outcomes; I am not asking you to give us examples.
The first example that I was going to give you is in plastic surgery. As a result of the new way of working between the GP and secondary care in plastic surgery, we have significantly reduced the waiting time for the current backlog, so patients are being treated much more quickly. The statistics and waiting times in that particular area of the exercise have given us clear evidence that partnership works.
I will refer to several other areas. It is necessary to consider how we are coping with delayed discharges and how we are dealing with our local authority colleagues. We have significantly reduced delayed discharges.
We can look at outputs, which are the tangible figures, but we also have to look at outcomes and the performance assessment framework that we all have to keep within and report against. There is a significant range of health outcomes and we have to consider them. We have to consider both the qualitative and the quantitative.
A lot of investment goes into the quality issue. Wai-yin Hatton and I have talked about the ways in which we measure health care; perhaps we need to move on. In addition to those mentioned by NHS Ayrshire and Arran, there is a range of other markers that we can measure against. We have quality standards from NHS Quality Improvement Scotland; we have compliance with health and safety requirements; and we have compliance with the new deal for junior doctors and the working time directive. Those are all ways in which we can show that there has been movement on the quality agenda. As a service, we probably need to improve the ways in which we are accountable to the public for our quality improvements. We also have to demonstrate those improvements.
Another area that has yet to be established is that of the data that will arise from the quality and outcomes framework in general practice. The payment system is geared towards outcomes, so the electronic data gathering that will back that up should provide detailed evidence on improvements in outcomes for diabetics, hypertensives, asthmatics and so on. We have not had such evidence before and we have yet to see what it will generate but, in theory, it should give us a good database on where clinical improvement is occurring.
Another measure that we are currently putting in place with our local authority partners is a series of satisfaction surveys. The first satisfaction survey, which we carried out recently, has given the health service in the Borders an extremely high satisfaction rating as a service provider. We intend to carry on with such surveys so that we can measure change over the years.
I want to pick up on the issue of patient satisfaction. I feel that patients are seldom asked their views on the journey from the first knock on the GP's door. Were they able to access the GP? How many buses did they have to take to get there? What was the follow-up if they were required to have an episode in secondary care, whether as an out-patient or an in-patient?
I would ask Dr Cameron to pick up on the 48-hours question first.
We have asked the LHCCs to monitor the situation and provide evidence. The information so far indicates that the target is being achieved already. The target is complex and is not as simple as obtaining an appointment within 48 hours—various qualifications relate to members of staff and the type of consultation. The ultimate measurement would come from widespread and repeated public consultation. The local health council has fed in views. The local health council's chairman is a member of the Borders LHCC's board, so the LHC and the LHCC have a direct link. The LHCC has regular updates from the LHC.
The quality practice award and practice accreditation are the quality measures that are in place for general practices and on which most areas have been fairly successful. Ayrshire has been extremely successful.
I have a final question on financial and service planning. As you have explained, many of the pressures that your organisations face arise from salary agreements, which can be national agreements that do not necessarily take account of different work practices between boards or between Scotland and England. When the uplift is received and consultant contracts, for instance, have to be dealt with, the pressure that you face may be different from pressures south of the border. If that happens, do you have to make different efforts to find the resources to fund the agreements, or do you seek to change work practices so that pressures are similar to those south of the border?
I will give an example of that situation, to which I have referred. In the Borders, we have small working rotas. We have a small district general hospital and small services compared with those south of the border, where services tend to congregate in larger areas.
Private practice is not a big issue for us, but numerically small rotas are an issue. Our week has the same number of hours as the week in the Edinburgh royal infirmary does, and the new contract is based on hours, rather than work load, so we are under pressure on that. In addition, peripheral units tend to have a smaller number of more experienced junior staff than teaching units do. The relative impact on the out-of-hours period can mean that the consultants are more involved, and are involved more often, on site, because, proportionally, they do not have the same large number of experienced junior staff. That is a further complicating issue for us.
I agree with what my colleagues from the Borders have already highlighted. I would reinforce what Dr Green said: in Ayrshire and Arran, we want to examine all three streams in the pay modernisation agenda together, rather than looking at the three of them in silos. All three will present opportunities for and provide flexibility on how we can shape services in the future, so we should be getting the maximum possible mileage out of them. My colleague Mr Lindsay would like to add a comment about the funding differences between north and south of the border.
England has received additional resources for health compared with Scotland, as there has recently been a commitment to move to the European average over five years. The fact that England has received significant resources perhaps gives it extra flexibility to implement the national pay modernisation agenda and to make a little extra available for other things, too. Scotland has to make its own decisions as to how much to invest in health compared with other areas. Because the agreements are national agreements, there might be some extra flexibility in England.
I propose that we suspend the meeting for five to 10 minutes, so that we can all have a comfort break—you have now been giving evidence for more than an hour and a half. We have some further questions on trust integration and performance management to ask you, but we will take a break first. I ask everyone to be back and ready to start again at 10 to 12.
Meeting suspended.
On resuming—
We will now ask about the benefits of trust integration and the lessons that can be learned.
Mr Glennie, to what extent has NHS Borders identified economy and efficiency savings as a result of the integration, to what extent has it identified where other gains might arise, and what more needs to be done to fully integrate the NHS in the Borders?
We have secured just over £0.5 million of recurrent savings from the management side of the organisation. We are pressing on and looking at further reorganisation to see where further savings can be made, but that money is in the bank, so to speak, and it has come entirely from the integration process.
The four main clinical boards—the two LHCCs, the BGH and mental health and learning disability services—are represented. We have a clinical lead from all four through two GPs and two consultants. We have the system managers and representatives from other senior clinical groups such as pharmacists and allied health professionals.
What effect have the bureaucratic changes had on management staff numbers? Have the staff been reallocated or has there been a reduction?
There has been a reduction in the number of staff. I do not have the exact numbers in front of me, but I can get them. The £511,000 saving comes from a reduction in the number of management staff.
What percentage of your total costs do management and administration costs represent and what percentage do the costs of front-line staff represent? What were those percentages in your previous budget? It would be interesting to do a comparison.
If you do not have those figures to hand, you may write to us.
We will submit them to the committee. We know that we have made a significant reduction in management costs and we want to continue in that way, but we do not have the figures with us today. Can we send the figures to you?
Yes, and I ask Ayrshire and Arran to let us know what it expects when it makes those changes.
I will pursue a similar line of questioning with Ayrshire and Arran, although obviously Ayrshire and Arran is at a different stage of development. What benefits do you think will arise when the board moves to single-system working and the trusts are integrated within the board?
I will speak to the general strategic policy and invite Dr Green to talk about clinical services and integration of primary and secondary care. In terms of economies, we do not foresee the same result as in the Borders because our two trusts already have one of the lowest management costs. The HRG in the acute trust was recently ranked in the top five for costs. There is little scope to make further economies from the change.
The first thing that we did was to examine the medical and nursing representation on the unified NHS board. I sit on the board as a medical director, but the nursing director of the acute trust sits on the board as well so that there is equal representation. We have agreed that that will be the case for a period of four years and that the position will then reverse—the medical director of the acute trust will sit on the board, along with the nursing director of the primary care trust. In that sense, we are starting to work closely together.
I want to follow up on that answer, for which I am grateful. What steps have you taken to ensure that the structural changes that you have described remain focused on the delivery of service improvements? Also, what steps are you taking to ensure that staff—who might be considerably removed from some of the structures and processes that you have described—are kept informed of the developments and how they will be affected? Similarly, how are you ensuring that the public, who will be much less concerned with the details of the decision-making processes—important though those are—are kept informed about what the developments will mean for them? I put those questions to both boards, although they are at different stages of development in relation to integration.
We have taken particular care for some time to ensure that there is an ethos in which staff are empowered and involved. That is a challenge; we have 10,000 staff in NHS Ayrshire and Arran and it is difficult to engage them all at the same time. We rely heavily on the area clinical forum and the area professional committees, as well as on the area partnership forum and the three local partnership fora, as the vehicles for ensuring that staff are involved and given equal opportunities from the outset in relation to the planning and design of services. We ensure that people on the front line are involved, so that we can take on board what they believe to be the service needs.
Our starting point was the recognition of how fundamental public and staff involvement would be. There is a director on the board management team whose designated role is to lead on those areas and who attends all board meetings. We have put a significant amount of time and resources into that.
The discussions at the clinical executive's operational meetings are clinically driven. Most of the agenda items are clinical matters such as clinical improvements, changes in technological development, and new drugs. The agendas for the operational meetings are very clinically focused.
John Glennie mentioned community health partnerships in his introduction. When the Audit Committee last met, Professor Barbour of NHS Lothian told us that he felt that the management structure of NHS Lothian might change as the community health partnerships develop. How does the panel see the board structures of NHS Ayrshire and Arran and NHS Borders developing in future? Do you have plans to review their structure? How does that fit with the work that you are undertaking to continue to improve on the management savings that you have made to date?
It is a bit premature for me to say whether the management structure will change. There are two points, the first of which is how the community health division will operate from 1 April. The chairs and leaders of the three current LHCCs will be heavily involved; they will not be excluded from participation. We need to gauge the way in which the CHPs want to go. We will need to find out whether they want to become committees or to continue to act as sub-committees of NHS Ayrshire and Arran. That is why I said that it was premature for me to comment.
When we set up the structure, in effect the Scottish Executive allowed us to design it ourselves. We believe that what we have at the moment is appropriate and that the clinical executive achieves many of the objectives of the community health partnership. If we were to consider the underlying objectives and principles, we would see that the clinical executive achieves many of them.
I have a quick question for NHS Ayrshire and Arran. Under your new set-up, when the trusts become divisions of the board, will they have completely devolved financial control over budgets? If auditors or, indeed, the Audit Committee looked in from the outside, would it be possible to see where cost pressures were arising between the divisions? One of the great concerns about the abolition of the trusts relates to transparency about where cost pressures arise and how gaps are filled.
Balancing devolution and accountability is a challenge. In NHS Ayrshire and Arran we have agreed to move towards a devolved approach with clear schemes of delegation and accountability that have all been agreed and will have to be ratified by the new board at its first meeting in April, when it will be legally operational. My colleague Derek Yuille will be the divisional director of finance and will be looking after the conglomeration of financial functions and workings. There will be a clear line of professional accountability from him to the corporate director of finance, so the transparency and openness will be there to allow scrutiny. In parallel to that will be a single-system audit committee.
Will you elaborate on that? Will each division be allocated a set budget and will they have to report monthly?
Yes. They will operate with clear set budgets within the scheme of delegation. My colleagues are desperate to share their enthusiasm.
The budgeting will remain the same as it was at the start. The two divisions will have to produce monthly financial reports right down to budget holder level. The intention is that we will continue to break down the figures at NHS Ayrshire and Arran level so that the board can see the monthly position in each of the divisions.
How will that be visible to outside bodies, such as auditors? Will the figures be reported in a unified board manner or will the reports say, "The divisions did X against budget," which we would be able to see? That is the point that I am trying to get at.
Each division will report monthly against their budget lines and the NHS board will see each line for the divisions broken down.
How does that get reported to the outside world? If I looked at your accounts, how would I be able to tell in which division the cost pressures were arising and where the overspend or underspend was? You are not being clear on that.
Currently, the reports that come to the board have three annexes. One is an overview, the second is for the acute hospitals trust and the third is for the primary care trust. In future there will continue to be three annexes, which will show line by line the income and expenditure position for each operating division. We will continue to report in the public session of the board meeting the same level of detail that we report currently. Auditors have access to all records, so they can examine reports in more detail if they wish.
The point to emphasise is that we have been anticipating the establishment of a single system for the past two years. The three components have already been producing joint financial reports monthly and then six-monthly to coincide with the NHS board meeting cycle. The existing arrangement of reporting that level of detail for the three components in the public domain will continue in April, although thereafter we will report as one legal body.
I presume that Mr Glennie has already gone down that road to some extent. Will he give us the perspective of NHS Borders?
I will ask Robert Kemp to explain the process that we have used.
Retaining financial transparency is important to us. Pre-integration, we put a lot of effort into bringing together our financial planning and operating as one corporate body, as in NHS Ayrshire and Arran. In setting up the new structure, we have redesigned our financial reporting. The individual department will report all the detailed budget performance. Individual department performance is summarised at clinical board level. That is then rolled up to clinical executive level and is considered at the public session of the board. There is transparency about the performance of each clinical board area in the Borders. Each of the clinical chairs attends the public board session and is invited to comment on any issue that has arisen in their area. That is completely open to scrutiny at the public board session.
We were aware of the danger of centralisation in moving to one system. We have been clear in keeping decision making and budgetary control delegated; indeed, we are trying to extend that as far down to the front line as we can. With the public sessions, there is complete transparency about reporting, targets and achievement throughout all divisions.
That is all for the questions on trust integration, so we will move on to performance management.
I want to ask about the performance assessment framework. I would be grateful if the witnesses would share with the committee their views and experiences now that the system has bedded in. I am deliberately giving you a broad brush to comment and feed back to us, but I will also give some prompts for areas that it would be particularly useful to have covered.
In Ayrshire and Arran, we have found the PAF to be a useful tool and not a tick-box exercise. That is probably because, when the Health Department first designed it, the ultimate users, on the front line, were significantly involved in the process. It was not designed from a one-sided point of view; both sides of the coin were involved.
Perhaps this is the first area of difference between us today. I have campaigned to have more boxes, because I have campaigned for environmental and property issues to be more easily recognisable within the PAF, so it would be hypocritical for me to say that there ought to be fewer boxes. It would be lovely to have a performance assessment framework with 10 areas, but that would not reflect what we have to deliver, as Wai-yin Hatton said. We find the process useful.
Are there any final questions?
I would like information on the cross-funding of projects. The witnesses talked about how they are working more closely with CHPs—or LHCCs as they are just now—and local authorities. There will be projects for which the health service puts in so much capital, the local authority puts in some and, on a good day, the Scottish Executive puts in some. What impact is that having on capital being transferred to revenue? Are there barriers? Are there issues that we should be raising with the Health Department or other departments that would bring some of those projects back on-stream or make your life a wee bit easier?
As I said earlier, we set up a joint management team with the local authority, which is starting to deal with a number of the funding issues. We are keen on co-location. We have a joint property group and we are trying to agree property strategies. We are just coming to the point of trying to tackle the logistical and statutory issues around sharing property—we are perhaps behind NHS Ayrshire and Arran, which has a good example of such working.
One issue that you mentioned, regarding capital to revenue transfers, could create difficulties in the future, as many of our properties are small and one legitimate use of money that is transferred from capital to revenue is for the refurbishment of some of those buildings. The forthcoming change in Treasury rules could constrain some of our joint working in that respect. That concern is on the horizon.
Similarly, although we have in place a property strategy and a group to take forward that strategy, we also have legal commitments with one of our local authorities to provide a project whereby there is a transfer of funding to us in capital and we have to transfer that funding into revenue in order to meet the payments to the council. Those commitments total about £2.5 million over the next two years. If, as Robert Kemp says, the Treasury scheme disallowing such capital to revenue transfers is introduced, that would cause us some difficulties.
What would the impact be on the community in which you want to improve health?
It would have an enormous impact on the community. We should not allow accountancy rules to drive change and partnership working between local authorities and the health sector. We need to find out how we can get round the accountancy rules.
I support what my colleagues have said. We do not want to use capital to revenue transfer as a recurring financial solution, but there needs to be crystal clarity to distinguish capital to revenue transfers that are genuinely used for capital projects. As the regulatory regime for the health service differs from that for local authorities, the definition needs to be reviewed to avoid restrictions. Otherwise, the joint projects might well drop out of the priority list, as they would be competing for NHS resources for developments. That is a real danger. We do not want to move into that arena.
I certainly do not want you to do that, because I think that it is my area that you are talking about.
You are right in saying that there may be options that we could look at in terms of vote head transfer to try to achieve some of those things. However, we must be mindful of the distinction between revenue and capital because, with the introduction of private finance initiative projects, capital demands have been less but the revenue demands have increased. If we are not allowed to make transfers from capital to revenue, our revenue may be out of balance but there may be surplus capital. That issue must be considered nationally. A permanent transfer from capital to revenue might be appropriate, but the issue needs to be examined.
I have a general question. It is clear from the presentations that both NHS boards have given that there is a strong emphasis on meeting financial targets, on financial planning and on the need to have a robust budgeting process. Can you comment on the fact that, over the past two to three years, the Executive has tended to use end-year flexibility to help boards that are in financial difficulties? Does that aid or detract from the robust financial planning process that you have conducted, as boards that have done your best to stick to your budgets? Is such use of the funds helpful or unhelpful? Does it lead boards that have overspent to build that source of funding into their expectations at the beginning of the financial year?
We have strong support from the Scottish Executive as we try to balance our financial targets with service continuity. It is important to see health care in the medium to long term. In-year flexibility is vital. If we do not have that flexibility, trying to meet financial targets in one year could put the continuity of clinical services at a significant disadvantage. Provided that it is within the current framework of understanding and that we get the current position right, the use of in-year flexibility is helpful. We have had in-year flexibility this year in capital and revenue, which has meant that we have been able to protect clinical services while we put our savings plans in place.
At NHS Borders, we put strong emphasis on focusing on the recurring position rather than on any non-recurring issues that arise in a year. In that way, we keep people fixed on the long-term outlook.
NHS Ayrshire and Arran takes a similar view. Although any help is useful and we have balanced our books so far, we face similar challenges, as the committee will appreciate. The Auditor General's report recognises that we will face serious pressures in the coming years, so any help is useful.
Very good. You have exhausted the committee's questions in what has been a marathon session. We look forward to receiving those answers that you have said you will provide in writing. I thank you for your time and perseverance in giving us evidence today.
The Auditor General indicated that he was happy to look at the issues identified in the Official Report before making his comments. I am happy to wait until he has seen the Official Report from today's meeting so that we can make progress.
Is there nothing that you want to say about the Auditor General's report?
The new Treasury rules were mentioned today and are quite worrying. Perhaps the Auditor General will reflect on those and their impact on future developments.
I agree with Margaret Jamieson. I read the Official Report of the evidence session with NHS Lothian. More questions than answers arose from that meeting and we could do with further clarification, if the Auditor General will look through the Official Report. From the evidence session a couple of weeks ago, it seemed that there had been a complete loss of financial control during the transfer from one system to another, as demonstrated by the predicted losses. However, the two boards that gave evidence this morning seem to have had greater control of the system in the past few years. The stark message that came out of this morning's meeting was that the national agreements did not appear to be fully funded. We will need to go through all the evidence that we have heard, pull it together and have a meeting to discuss where we go from there.
The Auditor General and his colleagues will probably know that my primary concern is that we should not simply continue to reinvent the wheel in terms of the analysis of the problem; we should consider how we can put greater momentum behind the delivery of the solutions.
That sounds like a question for Trevor Jones. I invite you to put that to him when he comes before us.
I will happily do that.
I support everything that Susan Deacon has said. Having a further report from the Auditor General on the basis of what we have heard today would help to give a focus.
Further to what Susan Deacon said, another point that I took from the evidence that we heard this week and last week is that, although there are claims that the new contracts and arrangements will deliver better care, better outputs and more flexible services, it is clear that there is nothing in place to capture whether that is being delivered.
The points that George Lyon, Susan Deacon and Robin Harper have made will prove useful in formulating questions for Trevor Jones from what we have learned from this meeting and our previous meeting. They can also form part of the basis of the paper that will be produced by the Auditor General, whom I now invite to make his observations.
We will produce a paper for the committee, which I hope that members will find helpful. On that last point, which raises one of the most significant issues, I absolutely agree. It came over very clearly from the witnesses that the pay modernisation costs were the biggest source of financial pressure, together with movements in the cost of drugs, and so on.
Thank you very much. We look forward to receiving that note. Am I right in thinking that we will consider it before the meeting on 27 April?
We will not have an opportunity to do that formally.
However, it may form part of the discussion on lines of questioning to provide some background at that meeting.
Meeting continued in private until 12:56.