PCT Debts

PCT overspending sparks fresh efficiency fears

Just a note of a headline that we will see repeated over the next two years. Health Service Journal report that 25 PCTs have overspent their budget for the current financial year by an aggregated value of £145m. Remember that when GP consortia take over the NHS budget in April 2013 they will take over any debts generated by PCTs between April 2011 and March 2013.

After April 2013 I expect a different headline, the sentiment will be the same, but it will have the word PCT replaced with GP.

Burns Night

The vote on the second reading of the Health and Social Care Bill last night was not unexpected, the coalition has a majority, after all. As always the speeches in the Chamber were a mixed bunch from both sides. Some were tribal, some showed intellect and research, and some were downright silly. For example, this rather dim question from Jesse Norman solicited a suitable put down by John Healey (Hansard 31 Jan 2011 : Column 625):

Jesse Norman (Hereford and South Herefordshire) (Con): I note that the right hon. Gentleman failed to answer the question about the rate of increase in the number of managers. When I last checked, the NHS had 1.3 million employees, of whom almost exactly half were administrators and half were on the front line. Is he really willing to defend such an extraordinary level of overstaffing in management?

John Healey: Oh dear, the hon. Gentleman really has to get a better briefing from his Whips than that.

Either Norman has never visited a single hospital in his constituency (in which case sack him, electors, he's not doing his job correctly!) or he cannot count. If he walked through any hospital he would be able to see that it is not the case of every other person is an administrator.

Norman's question was not the only daft statement said during that debate. I really do despair that our Parliament seems to be populated mostly by such second class politicians.

Anyway after quite a depressing performance from the government benches, with many of the speakers saying how they thought the NHS should be run, rather than saying how it actually will be run under the new policy and hence wasting time by talking about things that are completely irrelevant, it rested upon the government to wind up the debate with a final speech by Simon Burnzzzzz the Minister of State for Health.

The Conservatives avoided any discussion about the NHS during the election last year (and readers of this blog will remember my frustration over this), and have been accused of misleading the public. So now the government is attempting to say that they were completely open and everyone knew what their plans were (although, no one can actually remember being told!
). Simon Burns used his closing speech to tell us that they had not misled the public, but sadly the rather dimwitted and bumbling minister did not check the references that his speech writer had provided (Hansard 31 Jan 2011 : Column 698):

Hon. Members might find it helpful if I debunk a few of the myths that have sprung up about our plans to modernise the NHS. The first, and perhaps the most insidious, is that they were kept secret and hidden from the electorate. Quite frankly, that is palpable nonsense. In June 2007, my right hon. Friends the Secretary of State and the Prime Minister, when in opposition, published the Conservative party's white paper, "NHS Autonomy and Accountability". It laid out our clear intentions, which we reiterated on pages 45 and 46 of our election manifesto.

This is right. The "NHS Autonomy and Accountability" white paper outlined many of the policies that are in the Health Bill, and likewise so did the Conservative manifesto. (My take on this white paper is here.) The problem is that Burns shows that he has not actually read that document, because if he had he would know that it contradicts government policy in two important areas. These two policies were the ones that were discussed the most during the debate, so if I had been him, I would not have mentioned that policy document. However, Burns, being one step behind everyone else chose to read out what he had been told to read.

The "NHS Autonomy and Accountability" white paper section 4.25, 4.26 say:

4.25 As part of our commitment to avoid organisational
upheaval, we will retain England’s ten SHAs, which will
report to the NHS Board.

4.26 SHAs will be the NHS Board’s regional presence, and will
help to performance-manage Primary Care Trusts in the delivery
of the NHS Board’s commissioning objectives.

Notice that? The "clear intentions" mentioned by Burns were not to abolish SHAs in an attempt to avoid organisational upheaval! Further:

4.28 PCTs will remain local commissioning bodies.

4.30 PCTs will also remain, as now, the areas to which NHS resources are allocated, although almost all of these resources will be cascaded down by the PCT to its primary care commissioners.

Oh dear, oh dear. The policy document also said that PCTs would be retained.

So what has changed, why is it now considered so important for the NHS to suffer organisational upheaval? Are Lansley's new plans designed to fail? We can only wait and see.

Too many managers

Before the 2010 election I heard the phrase "too many managers in the NHS" many times. I also heard the "statistic" that in 2009 "the number of managers increased ten times more than the increase in nurses" mentioned often. The right whinge commentators at Conservative Home said that this was because Labour supporters were taking high paid jobs while they still could. Nonsense, of course, but it is a meme that sits in the mind of many Tory supporters. Of course the Tory commentators did not also say that the number of managers went down by -7% in 2006. Nor did they say that the amount of work carried out by the NHS went up by 65% and the total number of employees went up by 35% between 1997 and 2009. (More work, more employees, means more managers are needed.)

Totally out of the blue, the Draft Manifesto of the Conservative manifesto said that administration costs in the NHS had to be cut by 30%. It gave very little idea how this could be done other than waffling about an "information revolution". As a software developer (and trainer, and writer) I am all for yet another "information revolution", but I cannot see how it will cut administration by 30%. The majority of NHS administration is in stuff that cannot be cut by such a large amount: appointments, scheduling diagnostic tests, use of facilities, and supporting the "internal market" where every procedure has to be billed to someone. I am sure that savings can be made, but 30% is just castles in the sky.

Then after the election Lansley had a brainwave. SHAs and PCTs cost £1.85bn a year, if their work is transferred to the private sector at a cut price rate, then the election pledge can be kept. In the NHS white paper Lansley said that there would be a 45% cut in management through the decision to abolish SHAs and PCTs, so that commissioning would cost £1bn. I'll come back to some of the actual costs of this decision in a later blog post.

Recently the phrase "the number of managers in the NHS doubled under Labour" came to my attention, so I thought I would check it out. The first place to look is the NHS Information Centre. However, these figures only go back to 1995 and I wanted to compare the Labour terms with the preceding Tory terms. Another source of information is Hansard. MPs have a habit of asking questions about NHS statistics, sometimes asking the bizarrest format. Anyway I was able to find one question in 1993 asking for the numbers of administrators and managers since 1975, and this gave figures up to 1991. I still had three years to fill in and I was able to get 1992 and 1993 from another Hansard question and the remaining figure (1994) came from a graph in a report by the Kings Fund (Figure 36).

Putting all of this information together I was able to plot a graph of the number of NHS managers since 1985.

What is immediately apparent from this is that the rate of increase in the number of managers actually slowed under Labour. From 1988 to 1994 there was a sharp increase, year-on-year, in the number of managers. There was a drop in 1995 and then a slower increase until 2002 when the rate increased again. The rate of increase between 2007 and 2009 was comparable with the Tory rate between 1988 and 1994.

This graph shows that increasing managers is a Tory phenomenon as much as it is a New Labour one. So the sentiment that "the number of managers in the NHS doubled under Labour" and the implication that a Tory government is needed to get this under control is hypocritical at best.

Lansley says that he wants to cut management by 45% (by about 20, 000). This will take us to the 2000 figure at around 25,000. Is this possible? Few people think that it is. However, I think that it is perfectly possible for one important reason: the graph shows how many NHS managers there will be. Lansley wants to privatise commissioning and this means that manager NHS commissioners (who are classed as "managers") will lose their jobs. The work will move to the private sector where there will be no public figures of how many managers/commissioners will be used. Lansley will get the drop in the graph he wants, but the graph from that point onwards will show a different measurement entirely.

Level Playing Field part 2

In my last blog I pointed out that the Impact Assessment that accompanies the Health and Social Care Bill suggests that the NHS has a 14% "advantage" over the private sector. This is based on a study by KPMG which is not available, but the results quoted in the Impact Assessment indicate that the study does not take into account training. Today Health Service Journal picked up the story and added the following:

Mr Dingwall [partner at Hempsons lawyers] said the most likely scenario would be the creation of a system whereby commissioners paid the same tariff rate to NHS and private providers, but the 14 per cent was subsequently deducted from NHS providers and placed in a central pot to fund their state subsidised benefits.

Earlier Conservative policy papers indicate that Lansley wants private hospitals to pay for training. The NHS Autonomy and Accountability white paper says:

We are also of the view that those who employ health professionals – both NHS and independent sector – should themselves take on responsibility in relation to workforce planning, and accept the risk should they get it wrong. ... All large employers of health professionals will be required to provide training places, or contribute a levy which will train and develop healthcare staff.

This suggests that private hospitals would take a more active role in training or pay a levy. However, this is from Lansley in opposition, in government he does not seem so keen to make private providers pay for training. This is understandable because training is very costly, at the moment it takes up £5bn out of the NHS £105bn budget. There is another issue. Even if private hospitals were to pay a proportion of the £5bn training, that would only be for the current crop of NHS trainees. It would be hard to work out how much the private sector should be charged for their proportion of the training cost of a fully trained employee.

If training is properly taken into account the 14% NHS "advantage" quoted above would easily be wiped out. But let's assume that the government intends to go ahead with this scheme and pay NHS providers the same as providers but take 12% off the tariff paid to the NHS provider for the "services" it gets from the state (if private sector costs ate 114% higher than NHS, that equivalent to the NHS costs being 88% of the private sector costs). A 12% cut in income is huge. NHS hospital trusts get most of their income from payment by results (ie the payment for the treatments it delivers to the NHS). Hospitals can generate private income, but this is usually small (in the region of a few percent of income).

Monitor, the Foundation Trust regulator say in their annual report for 2009/10

The unaudited total operating income of the 129 NHS foundation trusts in 2009-10 was £28.2 billion ... NHS foundation trusts reported an aggregate net surplus (before impairments) of £365 million in 2009-10 ... Impairment costs of £1.1 billion were significantly greater than planned ... an aggregate net deficit (after impairments) of £764 million against a planned surplus of £304 million.

The surplus before impairments was only 1.3% (the impairments were due to adopting International Financial Reporting Standards and taking PFI as assets). Foundation Trusts are supposed to be the cream of hospital trusts and hence chosen because of their financial governance, the remaining non-FT NHS acute trusts should be considered to be less financially viable. If the best NHS hospital trusts can (on average) only generate a surplus of 1.3% (most of which will be from payment by results from the NHS) what will happen to them when they are paid 12% less?

Next year the payment by results tariff will be 1.5% less than the tariff this year, and most hospital trusts will see their activity reduced as GPs refer fewer patients. Fewer patients and a cut in tariff means that trusts income will be cut next year, so it will be interesting to see what effect this will have on the quality of care. The cut in income next year is unlikely to be as large as 12%.

To be frank, a "payment" of 12% of tariff for the state "services" is ludicrous, and the resultant cut in income will mean that even the most financial stable Foundation Trust will go into the red.

Level Playing Field

The problem I have with many broadcast journalists is that they do not listen to what their interviewer is saying and they do not question them carefully on their responses. Instead, it appears that broadcast journalists seem to have a list of questions and when one has been answered they move on to the next one, almost regardless of the answer they are given.

In the last few days I have heard Andrew Lansley questioned several times, and often he is asked about privatisation. He claims that his policy will not privatise services. He is very keen on making this point since an admission of privatisation would create a political furore. Instead, when he has been accused of privatisation he talks about "creating a level playing field".

For example, here is a quote from the transcription of Lansley's press conference on the Health Bill on the Guardian website:

3.00pm: Q: What is the bill doing to encourage private companies to bid for more work?
Lansley says that "strictly speaking" this bill will not make any difference. After the election he implemented an "any willing provider" policy in the NHS. This meant anyone could bid for NHS work. Previously (under Andy Burnham) the NHS was the "preferred provider".

But the bill makes it clear that politicians won't be able to ignore competition rules. It will impose a consistent competition framework. And, for providers, it will mean they have to deal with a regulator who is responsible for creating a level playing field. But it will be a level playing, he says.

What does this mean? The phrase "level playing field" is usually used when one party has an advantage over another and action is taken to remove the advantage. We assume that the two parties involved are NHS providers (ie hospitals) and private providers. Which has the advantage over which?

Interestingly, the LibDem manifesto talked about such level playing fields:

Giving Local Health Boards the freedom to commission services for local people from a range of different types of provider, including for example staff co-operatives, on the basis of a level playing field in any competitive tendering – ending any current bias in favour of private providers.

The implication here is that the LibDems do not like the private providers (particularly, Blair's Independent Sector Treatment Centres, which were given extraordinarily beneficial contracts) and they want the advantageous benefits given to ISTCs removed. This is laudable.

However, I do not think this is what Lansley is talking about. When the Health Bill was published it was accompanied by a document called the Impact Assessments. In this document there is a table (Table B1) called Fair Playing Field Distortions which lists conditions that may give an advantage or disadvantage to the NHS (or private provider) and in some cases a monetary figure is given representing this advantage.

The Health Bill says that private providers should be able to bid for NHS work as long as the cost is at or below the NHS cost (the tariff). However, if the NHS has an advantage that can be quantified then surely the private provider's tender should take this into account? That is, if NHS providers have (say) a 10% advantage then the private provider should be allowed to charge 10% more and this tender will be treated as being the same as the NHS rate. When I looked at the White Paper in July last year I suggested that Lansley will introduce a weighting for private providers so that they can charge extra and "compete" with the NHS providers. This seems to be the purpose of the Fair Playing Field. Here I have listed just the "distortions" that have been quantified:

Distortion	Cost (per £100)
Pensions If the employee and employer contributions payable under the NHS pension were used to buy a pension in the financial markets, the benefits would be significantly less than those offered by the NHS pension – there is effectively government subsidy of NHS pensions.	£7
Cost of Capital a) Public dividend capital rate paid on public investment is much cheaper than private cost of capital, giving NHS providers an advantage over non-NHS providers. b) PFI. NHS providers with PFI schemes are disadvantaged relative to NHS providers who do not have such schemes, due to the higher cost of capital. c) PFI guarantee. State under-writing of PFI schemes means long-term private capital projects are cheaper than on fully commercial terms. d) NHS capital constraints. Although NHS providers have access to capital at interest rates below market rates, they are subject to capital rationing.	a) £4
Corporation Tax Private sector providers and social enterprises are disadvantaged by being subject to corporation tax, reducing their returns. NHS providers and charities are exempt.	£2
VAT Private sector providers benefit from the VAT exemption for healthcare in that they do not have to charge VAT on many of the services they provide. The other side of this is that they consequently cannot recover a significant portion of the VAT costs they incur. Likewise, VCS providers do not have to charge VAT but cannot recover their VAT costs. However they do benefit from certain other reliefs applying to the wider charity sector. NHS providers are advantaged in as much as their overall funding takes account of VAT costs in the same way as any other cost.	£1

A couple of points: first note that it only quantifies the advantage that the NHS has, not the advatnage the private sector has. Funny that. So while there are 103 PFI projects in the NHS and the table says that the NHS pays more for these than they should if they used commercial rates, the table does not quantify this. Instead, it only quantifies the advantage that the NHS has from public sector borrowing. The other point is that this table completely ignores the benefit that the private sector gets from the fact that the NHS trains ALL healthcare staff. This is a huge cost - the recent white paper on NHS training says that £4.8bn out of the £105bn NHS budget is spent on training, the private sector does not pay towards the training of the highly skilled doctors it uses.

The Impact Assessments document concludes (B55):

The majority of the quantifiable distortions work in favour of NHS organisations; tax, capital and pensions distortions result in a private sector acute provider facing costs about £14 higher for every £100 of cost relative to an NHS acute provider.

This is suggesting that the private sector would have to charge 14% more for their tender to be treated as the same as the NHS rate if there was a "level playing field". (Level only when you ignore training.) This is very different to the LibDem manifesto that suggested that private providers were treated better and that they should only be paid the same rate as the NHS providers. Indeed, this document suggests that private providers should be paid more than NHS providers.

For example, NHS providers are paid £741 per eye for cataract surgery. Under a "level playing field" private providers would be allowed to charge £845 and this would be treated as the same as the NHS rate.


If Lansley had been pressed more on this subject when he was interviewed, and he had said that he intends paying private providers 14% more than NHS providers then I think there would have been quite a loud uproar. Sadly, the British Press are more concerned with asking the questions the Department of Health has told them to ask.

UPDATE: Health Service Journal have now picked up this story. They add a new detail:

Mr Dingwall [partner at Hempsons lawyers] said the most likely scenario would be the creation of a system whereby commissioners paid the same tariff rate to NHS and private providers, but the 14 per cent was subsequently deducted from NHS providers and placed in a central pot to fund their state subsidised benefits.

So this will mean that rather than private providers paying more NHS hospitals will have their income cut.Few hospital trusts will be happy with this. A cut as large as 14% is likely to push most of them into bankruptcy since the best Foundation Trusts only generate surpluses in the region of 5% a third of what is needed to handle the 14% cut in income.

Enthusiastic, or Bullied Pathfinders?

In Cameron's speech earlier this week on the "modernisation" of public services (note that he's no longer "liberating" the NHS he's "modernising" it) he said:

And new powers for GPs, who can join together in consortia, take control of NHS budgets and directly commission services for their patients. People said there would be no appetite for this. But let me tell you today the enthusiasm of ... over 140 GP-led consortia [who] have now come forward, covering over half the country.

I talk to GPs and I do not hear of much enthusiasm for Lansley's top-down re-organisation of the NHS. However, I hear a lot of other emotions: apprehension, hostility and resentment. But often I hear about resignation to the inevitable. But the facts are there, aren't there?: in December 52 GP pathfinder consortia were appointed covering a quarter of the population, and on Monday this was extended to 140 consortia, as Cameron mentions, covering half of the population of England. Doesn't that show enthusiasm?

No, the opposite. It shows the result of bullying.

I have blogged before about the fears of GPs, and significantly their fear of inheriting PCT debts. It is clear that some PCTs have debts, and that the Department of Health have blamed GPs in part for these debts. After all, if GPs over-refer patients to secondary care, the costs of these "unnecessary" referrals have to be paid by someone: the PCT. These debts are potentially very large, and although they are apparent on the balance sheets of some PCTs, they are hidden on others through loans by other trusts.

GPs are often regarded as being "small businesses" (which is nonsense, because they have a UK-wide contract with the government, they have state-provided pensions and their training is paid for by the state, what other private businesses have these benefits?) and this means that they have some justification in being concerned about being handed a debt in 2013 that was generated by state organisations (PCTs). This was a sticking point in the acceptance of GP commissioning and so the Department came up with a compromise. This is outlined in the 2011/2012 Operating Framework, the rulebook for the NHS from April this year:

5.10 GP consortia will have their own budgets from 2013/14. They will not be responsible for resolving PCT legacy debt that arose prior to 2011/12. PCTs and clusters must ensure that through planning in 2011/12 and 2012/13, all existing legacy issues are dealt with. During this period we expect developingGP consortia to work closely with PCTs to ensure that financial control and balance is maintained to prevent PCT deficits in those years. This will reduce the risk for GP consortia that they could have responsibility for any post 2010/11 PCT deficit unresolved at the point of PCT abolition.

This says two things:

1. The department will write off any debt PCTs accrued until April this year.
2. Any debt PCTs generate after April this year will be passed onto the GP consortia.

PCTs are staffed by professionals and, contrary to the right-wing rhetoric of some commentators, they are not profligate. However, read #2 again: any debt that PCTs generate from April this year will be passed on to GP consortia.

Do you understand now the "enthusiasm" of GP practices to become "pathfinder" consortia? If a GP practice joins a year later then it may inherit a debt generated by someone else. Why would any business want to inherit a debt that they didn't create? The GPs simply want to have their hand on the tiller to try and ensure that the debt they inherit in 2013 is as small as possible.

So while there are a minority of GPs who are keen on GP commissioning (for example, the National Association of Primary Care - the cheerleaders for the previous Conservative administration's GP fundholding programme) it is clear that the real reason for the 140 pathfinders is blatantly bullying in the Operating Framework over inheriting potentially crippling debts. Cameron, as usual, is misleading the public over the "popularity" of his policies.

Developing the Health Market

There is a lot of talk about privatising the NHS at the moment. Let me calm you all down. The NHS will not be privatised the day after the Health Bill is passed by toady Tory MPs and their lick-spittle Lib Dem chums. But it will happen a year, or maybe five years after. In a decade's time we will look at our local hospitals and reminisce, wistfully "remember when the community owned all the hospitals and there was proper public accountability?"

The problem is that hospitals are a huge investment (the Department of Health reckons that the hospitals in England are worth, in total, £24bn). Few healthcare corporations are able to invest even a fraction of that amount of money, especially since (as we are told incessantly) NHS funds are tight, so there's not much money to pay for treatments and so profit margins will be small.

However, Lansley has bet his reputation on creating a "healthcare market" of alternative providers. If he doesn't deliver this then he will lose all credibility with his right-wing chums. The likelihood is that few companies will want to invest such large amounts of money right now. So what does a government do when it the private sector refuses to invest through lack of cash? It provides our money, free, for the private sector, of course! This is from the Spending Review document from October last year:

1.89 As well as new opportunities and rights, the Government will assist new providers by improving access to the resources they need. The Spending Review announces that:

• the Government will direct around £470 million over the Spending Review period to support capacity building in the voluntary and community sector, including an endowment fund to assist local voluntary and community organisations. As part of this, the Government will provide funds to pilot the National Citizen Service and establish a Transition Fund of £100 million to provide short term support for voluntary sector organisations providing public services. The Big Society Bank will bring in private sector funding in addition to receiving all funding available to England from dormant accounts;

So, when the government is cutting the NHS budget so that some people are being denied treatment; while the government is cutting local authority funding so that social care budgets are being slashed and vulnerable people are not getting the care they need, while all of this is happening because "there's no more money", we learn that there is more money, but it is being used to maintain Lansley's reputation with his right wing chums by creating a market we do not need. Brilliant!