Public Audit and Post-legislative Scrutiny Committee

Meeting date: Thursday, November 16, 2017

Official Report 574KB pdf

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Section 22 Report

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“The 2016/17 audit of NHS Tayside”

We will now take evidence on the Auditor General for Scotland’s report on NHS Tayside. I welcome back Caroline Gardner, the Auditor General for Scotland. I also welcome, from Audit Scotland, Fiona Mitchell-Knight, the assistant director of audit; and Bruce Crosby, senior audit manager. I invite Caroline Gardner to make an opening statement.

Convener, for the first time in five and a half years in this job, I cannot find my speaking note for the meeting, so I will make my opening remarks very short and you can then ask your questions.

As you know, for the past two years, I have reported on questions about the financial sustainability of NHS Tayside and the action that the board and the Scottish Government are taking to return it to financial sustainability. The report that you have in front of you is the third such report. The power that I have under section 22 of the Public Finance and Accountability (Scotland) Act 2000 enables me to bring to the attention of Parliament and this committee issues that have arisen from the audit of the board’s accounts that I think will be of interest to you.

Fiona Mitchell-Knight, as the appointed auditor, has given the board an unqualified audit opinion again this year, but she has highlighted that the concerns on financial sustainability continue and that a lot of action is going on in the board to return it to financial sustainability. NHS Tayside made a significant amount of efficiency savings in 2016-17, but it still required an additional £4 million in brokerage last year and the savings were below the targets that it had set.

As you know, the Scottish Government has appointed an assurance group to work alongside the board to provide assurance about the quality of the work that it is doing to change how it works and bring itself back into balance. The latest report of the group recognises the extent of the work that is going on and the extent to which it focuses on the right areas. It also highlights that the next period will be critical in moving from developing plans to implementing them. We will continue to work alongside the group as part of our audit work to understand what that means.

Fiona Mitchell-Knight and Bruce Crosby from the audit team are here to help me to answer the committee’s questions.

I want to clear up the debt and brokerage issue, because there still seems to be some confusion about what will happen. We have had a letter from Paul Gray, which indicates that the board will not be required to repay the debt until it is in financial balance. What is your understanding of the phrase “financial balance”? Given the timeframe to reach what I suspect is meant by financial balance, the date for making the repayment will be quite a challenge. Would it not be better, particularly if we want to ensure that services do not decline significantly in Tayside, if everyone recognised that we should just write off the debt and allow the board to make a fresh start?

I understand that the chief executive of the health service has made the commitment that NHS Tayside will not be required to repay the debt until the board is back in financial balance and that a decision will be taken at that point about whether the debt needs to be repaid.

Financial balance means meeting the resource limits—both revenue and capital—that are set for NHS Tayside, as they are for every board. The board itself identifies that, in order to be financially sustainable, it will need to make savings of £205.8 million cumulatively over the next five years. There is little doubt that the outstanding brokerage of £33.2 million will increase further by a small amount. Fiona Mitchell-Knight will be able to give you updated indications on that if it would be useful.

It is a policy matter for the Government to decide whether it wants to write off the debt or, as it has done, to suspend it until the board is back in balance. As my report says, there is no doubt that it will be challenging for the board to return to financial balance.

How achievable is £200 million of savings over the next five years, particularly if there is to be no reduction in services? Actually, one should be arguing that there should be anything but a reduction in services and that there should instead be an enhancement of service provision. If you look at all the Government strategies and so on, we see that there will be further demands on resource allocation within Tayside to meet national targets, for example. What are the realistic prospects of achieving a further cumulative £200 million of savings?

That is the key question. The committee knows, from previous work from us, NHS Tayside and the assurance group, that, relative to other boards, it costs NHS Tayside more to deliver like-for-like services even when account is taken of its population and so on. The assurance group has said that the areas that the transformation plan is working on are the right ones to address that higher cost. The plan is looking at the big areas such as the cost of the workforce, realistic medicine and prescribing—all the areas where Tayside is more expensive in providing the same level of service.

There is no doubt that it will be challenging to do that. In some ways, Tayside is facing a more acute version of the problems that the health service as a whole faces, and understanding how the change can be made, what it will cost to make it and what the impacts will be on staff, patients and other public bodies is a key part of what needs to happen in Tayside over the next few years.

Fiona Mitchell-Knight might want to add to that.

NHS Tayside continues to face an extremely challenging financial position with regard to achieving financial balance.

In 2016-17, the board delivered significant efficiency savings of £45 million, which is double what was achieved in the previous year. However, that was still below the target that it needed to meet and, as has been mentioned, brokerage was received for that year.

On the position for 2017-18, the financial plan for the board showed that it needed nearly £50 million of savings to achieve balance. It was recognised that the board could not achieve that in one year, so the local delivery plan includes a target of £45.8 million savings with around £4 million to be met from brokerage this year, which means that there is further brokerage to be achieved.

The latest outturn position that is being reported by the board suggests that the shortfall in efficiency savings is in the region of £5 million. However, the board is taking extra action to draw that into the £4 million that was included in the local delivery plan.

The board recognises that, in order to achieve financial balance, it is not enough to keep making efficiency savings and that more fundamental service redesign and transformational change is required. That is the objective of the transformation programme that is now under way in the board. However, it is yet to deliver those savings. We hope to see the impact of some of the initiatives that are coming through that programme in the longer term.

There is a high risk that the financial plan for 2017-18 will not be achieved, but we will continue to monitor the situation and will report on it through the audit.

It would be helpful if we could get a copy of the transformation plan that the board is working to, if that is possible.

I think that it is possible. It might have been provided when the committee was taking evidence from NHS Tayside. We can work with the clerks to confirm that.

We can pursue that.

Who is making sure that the savings are not being made at the expense of the patients?

That is mainly the responsibility of the board, the chair and the chief executive. I know, from assurances that they have given this committee, that they take that responsibility seriously. The role of the advisory and assurance group is to test that and to ensure that the effect on patients is planned and measured and that any adverse effects are dealt with as quickly as possible. That is one of the reasons why the Government put the group in place.

Your report shows that, of the eight targets, three, I think, have improved, four have remained the same and a couple have gone down the way—something of that order, anyway. Would you say that, at the moment, there is no indication that there will be a reduction in the quality of service? I presume that you will keep a close eye on that against the performance targets.

Paragraph 18 of the report says that eight of the standards were not met, that eight were met or exceeded—

Yes, that is right—sorry.

—and that Tayside is by no means an outlier compared to other boards. We take seriously the need to consider its financial performance in the context of its overall performance and the safety of patients, and we will continue to keep an eye on that.

If we compare the performance from year to year, there is no clear picture about whether performance is improving or declining. Four areas have improved, eight have declined, three are the same and there are two for which no targets are available. It is a mixed picture, and no clear direction of travel can be seen in those indicators.

10:30  

I am being a bit nit-picky, but what is the definition of net expenditure for NHS Tayside? You say £892 million. If there is a net expenditure, there must be a gross expenditure. What is that?

That is the net expenditure that comes from the annual accounts that are published and audited by us. That is the bottom-line figure, which is the net position of income less expenditure.

Does it take into account any income?

Yes, it does.

How much income?

I would need to look at the accounts to check that.

We can trawl the accounts for you and come back to you with that.

I am interested because I want to know what the gross expenditure is and what the savings against gross expenditure are. It would be interesting to see how much income the board actually has.

It is not so simple to take that out of the accounts. The accounts show income and expenditure over costs of different natures. That is not a figure that we can easily provide.

The £205.8 million that has to be saved over the next five years is in addition to the 2016-17 figure of £45.5 million, is it not?

Yes.

I echo what Alex Neil said. Is such a saving possible on that level of budget?

It is challenging. We do not think that it is impossible, and the advisory and assurance group does not think that it is impossible. It might be worth looking at the savings forecasts for the next five years, which are set out in exhibit 3. They show the percentage of the baseline funding that needs to be made in savings declining over that period. For reference, in 2016-17, the equivalent report showed that the savings that were achieved were 6.5 per cent and they are reducing steadily to about 5 per cent.

As we have said, the costs in NHS Tayside are higher than in other boards for like-for-like services, so there is scope to make savings, but it is a significant amount to be taking out and that can only safely be done by transforming services, which is what the board is trying to do. That is why we highlight the risks to achieving those savings.

The report talks about workforce costs, prescribing costs, clinical supplies and so on. Has anyone looked at it and said whether that spend is appropriate for Tayside, especially given its demography and all the other things that have to be taken into account? Is the expenditure not excessive, given what the board is trying to deal with?

No. When I talk about like-for-like spend, it takes account of exactly those sorts of things. It takes account of the population, the demographic make-up, the extent to which there might be particular challenges for delivery because of rurality and so on. As far as it is possible to make like-for-like comparisons, Tayside is still more expensive than other boards, largely for historical reasons including the number of large hospital sites that have been operating during that period and the referral and treatment patterns that have been seen in Tayside. All of that reinforces the point that the savings are possible, if not easy, and that they rely on transforming services.

When the matter first came up, a large proportion of the project savings revolved around the disposal of fixed assets. I know that some fixed assets have been disposed of and I see that the board has reduced its anticipation of what it will get from that source. What is the cost to NHS Tayside of maintaining the fixed assets that it is waiting to dispose of?

I do not have that information to hand, but there will be a cost to the on-going maintenance while the board is waiting to dispose of those assets. The board recognises that and it is taking action to dispose of surplus assets. It monitors and reports back on progress regularly.

Would it be possible for us to know how much those maintenance costs are? They were significant previously.

That is not something that we are aware of as part of this work. You would need to ask the board.

The history of the issue with NHS Tayside has not been easy. There have been failures with management and the board over the years. Are we satisfied that the current governance and management of NHS Tayside is adequate for the task ahead?

In my introductory remarks, I said that this is the third report that I have produced on NHS Tayside in consecutive years. The real difference this year is not just that there is a recognition of the problem—we saw that last year—but there is a much fuller understanding of it and of what is needed to address it than there was initially.

Colin Beattie may be the only current committee member who was on the committee then. My reports on NHS Tayside were originally triggered by the fact that its annual accounts contained overoptimistic assumptions about the proceeds of the disposal of assets in the following year, which had the effect of appearing to minimise the scale of the financial challenge that it faced. We have moved beyond a focus on how to minimise the problem to a situation in which the problem is now much clearer. The plans to address the problem are developing all the time; as we say in the report, the challenge now is to turn those plans into action in a way that takes patients and the people of Tayside with the board to reach a situation that is not just sustainable but in which the board provides better healthcare than it has been able to do so far.

Has there been much change in the composition of the board and management of NHS Tayside?

Since the initial problems came to light, we have seen a new chief executive appointed and some turnover among board members, which has contributed to the recognition and grasping of the problem that I have described.

The director of finance has now been in place for about a year—that was a change in the management team. Our evidence from working with the board is of a clear commitment from the senior executive team to the level of change that is required.

Is the chief executive an internal promotion or is it someone from outside?

It was an internal promotion. I think that the committee explored that appointment in its previous evidence sessions with the board.

However, is it, in essence, the same board that oversaw the situation of the past few years?

I do not want to mislead the committee by focusing on specific appointments. There has been turnover and I think that there has been a new chair since the problems built up, which happened before my first report. Bruce, can you shine any light on that?

We only took on the audit for this year, so I am not sure about the composition of the board before then. I do not think that I can add anything.

My concern is that we need to ensure that those people who failed previously are not building us up for failure in the future, and that there are people in there who understand the issue, have their hands around it and are managing it efficiently and successfully.

I recognise that concern, which I was aware of when I was reaching my audit conclusions for the report that you have before you. The board and senior management team now have a full understanding of the issue and a commitment to resolve it. The challenge of doing so is the next step.

I think that we state in the report that it is being done by the transformation support team. You can take some comfort from the commitment of the executive team at NHS Tayside, and the advice and support of the transformation support team will be crucial in making sure that NHS Tayside gets to a balanced position in the coming years.

We have a brief supplementary question from Liam Kerr.

In response to Colin Beattie, Fiona Mitchell-Knight said that the director of finance had only been there for about a year. I had it in my mind that he had been there for about 33 years. What have I missed?

He has worked at the board for a longer period, but he has been in the post as director for just over a year.

It is the same chap who has been there for 33 years, is it not?

Yes, it is. He has been there for some time, but I do not know the exact term.

Colin Beattie asked about the level of income earlier, and I have now had an opportunity to look at the accounts. The income is of the order of about £600 million, which brought the net expenditure down to just over £800 million.

I will resist the temptation to ask a follow-up question on that point.

I did not take part in the previous discussion on NHS Tayside. Will you elaborate a wee bit about the differences that might be giving rise to some of those cost pressures? What is different or special about Tayside?

The costs are higher in three key areas. Its level of staffing costs is higher than the average for boards across Scotland, relative to the population that it serves and its activity; its prescribing costs—in hospitals and, I think, primary care—are higher, due to higher numbers and higher costs of prescriptions; and estates and property costs are higher than the average for NHS boards in Scotland. NHS Tayside has a lot of analysis as to why that is and where the costs arise. Would Bruce Crosby like to add to that?

No. I think that the point has been covered.

I am interested in why the costs are higher. Paragraph 14 of your report notes:

“prescribing costs - overspent by £6.7 million, compared to an overspend of £4.7 million”

in the previous year. So, in one year, prescribing costs went up by another £2 million. What on earth could the reason for that be?

The board is not alone in that. Its overall prescribing costs are higher than those for Scotland as a whole, but, as we were saying in the earlier evidence session, drug costs are rising faster than inflation UK-wide. Part of that is straightforward inflation in the cost of drugs; part of it is new drugs becoming available, as they tend to be very expensive; and part of it is to do with the ageing population and more people getting prescriptions. The board is not alone with things moving in that way, but it is unusual in that the baseline is higher for NHS Tayside than it is for other boards, and that is having an impact on its overall financial position.

The board has commissioned some detailed exploration of where the higher costs are arising—how much of that is volume, how much is price, whether it is hospital prescribing or GP prescribing and in which specialties it is happening—so that it can drill down and address the matter. The board has a much better understanding now and is getting its arms around the problem, but its starting point is higher than that of other health boards.

So there is good evidence that it is taking that on board and is tackling the matter directly now.

Absolutely, yes.

I have been looking at the performance figures at the back of the report, and something from the previous evidence session has been stuck in my mind. I note from the section on psychological therapy that there have been a number of vacancies, and there have been career breaks, maternity leave and so on. Is it possible that posts are deliberately not being filled? That is quite concerning, given the drop in standard.

I do not think that we can answer that specific question. We know that psychiatry is one of the specialties that can be hard to recruit to across Scotland. NHS Tayside is not alone in that, however.

Fiona Mitchell-Knight might wish to add to that, based on her local knowledge.

I do not have any specifics. While the board is struggling on issues of recruitment, it is considering its attraction and retention policies across the board as part of workforce planning, through its transformation programme. However, I cannot add any specifics on that point.

I have attended a number of evidence sessions on NHS Tayside now, and the picture has proved to be highly challenging. What wider lessons are being taken from Tayside? It has not escaped our attention that the health secretary is local to Tayside. How can we be reassured that the challenges that NHS Tayside has faced will not start to creep in at other boards?

As well as the report that you have before you and Fiona Mitchell-Knight’s close engagement with NHS Tayside, I have tried to keep a close eye on what the Government is doing to manage the situation, to support the board and to protect the interests of patients and people across Scotland.

I genuinely think that the approach of having the advisory and assurance group test and challenge the board’s thinking robustly, but constructively, together with the work of the transformation support team, which is helping the board to draw on expertise elsewhere in Scotland, provides a positive model for dealing with a problem of this scale. Senior people in the Scottish Government are taking the opportunity to think about how elements of that approach can be applied in other areas, by using benchmarking to understand where costs are higher or where performance is lower than elsewhere. They are looking at using that as a way of sharing good practice and expertise, tapping into new ways of doing things and helping peers from across Scotland to learn from one other. A good start has been made on that, and there is scope to take it further.

That work can be used to inform some of the things that we were describing earlier regarding better workforce planning and better capital investment planning. Although the situation in Tayside is very difficult, there is an opportunity for boards in other parts of Scotland to learn from it and there is an opportunity to use it as a lever for encouraging people to adopt good practice in the approaches that are developed elsewhere.

10:45  

The advisory and assurance group came up with the report recommendations and there are some points of concern. The report highlights that the group

“reports that there is insufficient evidence of progress with the key elements of the transformation programme”,

so there is still a lack of confidence

“that NHS Tayside can achieve its financial plan”.

There are some warning signs in your report. We have heard a lot of optimism from witnesses from the board before. How can we be sure that things really are on track?

You have my assurance, which draws on the views of the advisory and assurance group about the balance between the scale of the challenge and the progress that is being made. I hope that we have been able to give you a thorough and balanced view of that. The group genuinely feels that a lot of progress has been made in understanding the problem and drawing up plans, and it is clear that the next stage—implementing those plans—will be the key one.

We all know that that is not going to be easy. It will require a wide range of staff right across NHS Tayside and the board and the management team to do it. It will mean changes to services for patients. In the longer term, some of those changes may result in services that are better than those that are currently provided, but change is always uncomfortable. There are cost pressures pulling in the other direction: drug costs—as we have described—and pressures on the property market where disposals are part of the plan.

Progress is being made, the problem is understood better and there is a much stronger commitment to what needs to happen to address it, but it is not plain sailing.

There are still quite a lot of unknowns there.

My final question is on the recurring savings, which the board is expecting will increase to 60 per cent from 2019-20 onwards. That is quite a big number. Are you satisfied that it is achievable?

In a sense, I am comforted by the fact that the recurring savings are going up at the expense of non-recurring savings. Recurring savings are an indication that the board is genuinely managing to reshape services in ways that can be sustained for the longer term, whereas non-recurring savings are often made by selling properties or not filling vacancies. It is a good sign, but the challenge is whether the board can achieve those savings and maintain the quality of care.

There is some evidence that the percentages of recurring savings are on a positive trend. In 2015-16, only 35 per cent were recurring savings, but in 2016-17, the figure was nearer to 50 per cent. That is a positive direction.

Are you happy that there is no detriment to patients where those recurring savings are being made?

As we said earlier, there is a very mixed picture, based on the indicators in appendix 1. There is no clear evidence of an improvement or decline in performance over the past year. That is something that we will need to monitor.

I will try to be brief, as a number of matters have arisen. First, a great deal of non-financial support has been given to NHS Tayside over a considerable time. Other than providing brokerage and reviewing the national resource allocation committee allocations, are there any other feasible ways in which the Scottish Government could assist the board? Are there any other non-financial or financial things that it should be doing?

For understandable reasons, the focus of the Scottish Government has been on helping the board to understand the problems and to address their underlying causes, rather than on continuing to provide short-term funding to close the gap. I have said previously that I think that having the transformation support team, which is there to provide support and advice, and the slightly arm’s-length assurance and advisory group, which is there to test out and challenge progress, is a good model. It is one that could be adapted and used elsewhere.

If I had any criticism to make of the approach that has been taken so far, it is that it took a while to put in place the focus on taking a longer-term view of the financial situation and what is needed to address it, instead of providing one-year brokerage to fill a gap each year. Since I took this job in 2013, I have been reporting that we need to take a longer-term approach to financial planning and management. NHS Tayside is a good example of overfocusing on the annual situation making it harder to get a grip on the longer-term position and to start to address it.

I will come back to financial management in a second. Has there been a significant cost—including opportunity cost—to the Scottish Government and other parts of the NHS as a result of that extensive support being provided to NHS Tayside? Specifically, I recall—correct me if I am wrong—that NHS Grampian needed about £15 million to meet what the NRAC funding formula required. Is there any suggestion that money is being pulled from other parts of the service to support NHS Tayside?

There is no such suggestion in relation to the micro picture. The amounts of brokerage each year, which are set out in exhibit 2, are very small in the context of Tayside’s overall funding, and in the context of the £13 billion or so that is spent on the NHS overall. The bigger opportunity cost is the one that we described earlier, which is that, on average, it costs NHS Tayside more to provide services than it costs other boards. Tackling those differences will free up resources that can be invested right across the country. It has taken the Government longer than it initially expected to get all the boards to their NRAC formula position, but I do not think that NHS Tayside was a significant element in that.

Is there a suggestion that NHS Tayside will require permanent additional support, whether it be financial or—more likely—support from the AAG, for example?

The intention is that permanent additional support will not be needed. Earlier, Mr Neil asked about what “financial sustainability” means. It means the board being able to manage within the resources that are available to it under the national funding system—its being able, within that money, to provide the level and quality of services that the people of Tayside need. Getting to that position is the challenge.

Fiona Mitchell-Knight talked about the deficit forecast of £4 million for 2017-18 and said that additional brokerage will be required. The AAG believes that that amount is an underestimate. The Auditor General said that previous financial estimates were overoptimistic about the disposals, and now there is recognition after, I think, four years of reporting on the issue, that there is a need for longer-term financial management. Does it concern you that whoever is responsible for the situation apparently still underestimates the size of the hole, and is still trying to fix a problem that some might suggest was caused by the people who are currently on watch?

I will ask Fiona Mitchell-Knight to give you the latest financial position, as we understand it. We have touched on the extent to which there is a new board, and there have been changes in the senior team at Tayside. There is a fuller understanding and a strong commitment to doing what needs to be done. There is genuine complexity in trying to make changes on the scale that is required in NHS Tayside. That is not to say that there is no risk of optimism bias in something of this nature, which is partly because of the commitment that people have to fixing the issues. Therein lies the value of having the assurance and advisory group apply detailed examination and challenge to the board’s plans.

I ask Fiona Mitchell-Knight to provide a quick update on the current position this year.

The current forecast outturn position for March 2018 is that there will be a savings gap of £5 million, rather than £4 million. The board is working on measures to close that gap; it anticipates being able to do it, but obviously we will have to wait and see.

There is a commitment to dealing with the gap.

Yes.

You know the organisation better than anyone, having examined it. Do you think that it will deal with the gap?

As you said, there is definitely a commitment to do so, but the important thing will be the shift away from short-term efficiency savings to real service redesign and transformational change. The actions that the board is taking through the transformation programme are driving that forward.

We are starting to see initiatives coming through. At its meeting in December, the board is due to discuss the overarching clinical strategy, which will set its direction. The workforce plans will be aligned to that clinical strategy. There are, therefore, really important milestones coming up for the board in the near future. However, it is yet to deliver financial savings that are reported in the accounts to date. We will look for those in the future.

In your view, will the board deliver?

We have said in both our reports that the situation is challenging. I cannot give you a guarantee.

Thank you.

Colin Beattie and others have touched on topics that I was going to speak about. I do not have the detailed experience of Tayside NHS Board that others have, but from looking at its history over the past five years, the organisation has, in effect, had to go to its banker to ask for more money and to keep on refinancing it and, not unusually, the banker or lender has put in its own team to try to see what is going on and to oversee that. Not only that, another team has been put in to see that its recommendations are worked through. That is worrying, of course.

The board recognises that it has yet to deliver, and Liam Kerr asked whether it will do that. I presume that, when Fiona Mitchell-Knight was finalising her audit, she was concerned about the organisation’s future viability, that she went to the Government—the lender—to get some comfort that it would continue with the existing funding and provide future funds, and that she spoke about future plans. It is not just recognition that the board is yet to deliver that is key; it will also be about the competence of the management. Did the Scottish Government take a view on the competence of the management?

The Scottish Government certainly has not spoken to me about the competence of the management. The assurance and advisory group reported the level of commitment among senior executives that I have spoken about. It recognised that the executive team’s capacity was stretched because of the scale of change that is required. That is why the transformation support team was brought in to work alongside the executive team and support it. However, there has been no indication that there are capability issues with the senior executive team.

Would you expect there to be a discussion about that? How can you be satisfied that the future plans will work if you do not know how competent the management is?

I think that Fiona Mitchell-Knight takes comfort from her experience of the team and the views of the assurance and advisory group. There is also an important difference between public services and the corporate sector, in that the Government can continue to fund at the required level, as it has done in the past. The assurance that it will continue to do that carries more weight than the need to take a view on the competence of the management team.

That said, I share Fiona Mitchell-Knight’s view that the main issue is not the competence of the team; it is the scale of the challenge and the scale of the change that is required in the healthcare system, which is complex.

I am concerned about the issue that Liam Kerr has uncovered. We are talking about a new finance director, but that person has been there for a long time. I presume that he will carry on as before.

That person has certainly been on the board for some time, but was promoted to the post of director of finance only in the past couple of years.

Overall, our annual audit report says that the financial management of the board is effective with the processes that are in place, but it is clear that it is working on the size of the challenge in meeting the financial forecasts through the transformation programme.

Okay. I will leave the competence issue there.

That is perfect timing. I thank the witnesses for their evidence. The committee will now go into private session.

10:59 Meeting continued in private until 11:12.