MIDLANDS: PUBLIC SECTOR - Fighting the deficit

A #3m deficit is nothing to brag about but the managers ofraig Seton. Nottingham’s leading teaching hospital will probably be very relieved to end the financial year with this figure showing on the bottom line of its accounts. That’s because its current overspend is #6m.

The Queen’s Medical Centre Nottingham University Hospital NHS Trust is cutting costs in a strenuous attempt to comply with its duty to break even. If it can just halve the current deficit the management team will regard that as no mean achievement.

There are special circumstances surrounding the hospital’s finances. Chief executive David Edwards cites the Audit Commission as saying that it is underfunded by a recurrent #22m on its #145m-a-year budget when measured against the baseline average for provincial teaching hospitals.

Edwards believes the hospital’s plight reveals a deep-seated problem for the health service: ‘If you look at the NHS nationally, it is self evident we are actually running a service that currently we can’t afford.’

NHS Executive figures show that, at the turn of this financial year, 42 of England’s health authorities were tackling serious debts in excess of either #1m or 0.5% of their income (including Lincolnshire, Leicestershire, Solihull in the West Midlands, and Dudley and Sandwell in the Black Country).

A quarter of England’s 429 trusts – general hospitals, ambulance services and community and mental health units – were also grappling with a deficient bottom line.

The government has pledged to correct this situation. At last week’s Labour party conference, health secretary Frank Dobson unveiled a new programme – to be outlined in a White Paper later this year – to replace the internal market. The 42 pilot commissioning projects will bring together GPs – fundholders and non-fundholders – and health authorities to eliminate competition between GPs in purchasing services.

Ten such tests will run in the Midlands: in north and south Derbyshire, Nottingham, north-east Lincolnshire, east Shropshire, Wolverhampton, Walsall, Tipton, Halesowen in the Black Country and Ladywood in Birmingham.

Concern over the future of the NHS in Birmingham has also prompted its 10 Labour MPs to call for the city to be declared one of the government’s proposed new Health Action Zones (HAZs). This would allow health-service bodies, local authorities, community groups, charities and businesses to forge new partnerships to reinvigorate health care. Frank Dobson also announced that HAZs would be established across the NHS by April. Applications to join the project have to be in by 23 January.

Finance directors right across the Midlands, from the Welsh border to the Lincolnshire coast, are wrestling with persistent deficits on their accounts. So the queue of health authorities eager for HAZ status is likely to be a long one.

Worcester Health Authority has been reported as carrying a deficit of #18m, although officials have not responded to requests for a comment.

In Derbyshire, all 15 ambulance stations are closing down in the next 18 months with services transferred to fire stations to save money.

Finance professionals at Leicester Royal Infirmary, Birmingham Children’s Hospital, a supra-national centre for heart surgery, and other centres which provide healthcare have also battled to clear their deficits.

And, in spite of dealing with more people than ever before this June, there were about 250,000 people in the Midlands waiting to be admitted to hospital. This figure is likely to go up still further and the winter crisis predicted for the NHS nationally could be as bad as the glummest forecasts.

The Midlands too will suffer its share of ward closures, the cancellation of non-urgent operations and hospitals struggling even to maintain services for emergency cases. In some cases, money for capital projects is already being used to replace equipment.

Even if the NHS suffers chronic underfunding, aren’t there still areas of gross inefficiency? Or is it all the fault of the infernal internal market and the business pressures the purchaser-provider structure is said to heap on the different layers of the service?

Edwards says neither is the case as far as his hospital is concerned.

He insists that the Queen’s Medical Centre does not spend large amounts of money managing the internal market and he points to the huge strides it has made in improving unit costs. Since 1993-94, the number of in-patients being treated has risen from 80,000 to 95,000 a year and unit costs have fallen from #770 per patient to #670.

Nor is he concerned about the government’s proposed introduction of a new range of clinical indicators – on top of existing league tables that demonstrate patient throughput – to show quality of care and treatment in the NHS. ‘I don’t think they will be a burden. It is quite right that we should account properly for what we do,’ he says.

Andrew Wooding, the hospital’s director of finance, says a lot of the internal market system has been beneficial. But he adds: ‘I think it is time for a change; you run a system and get the best out of it for as long as you can and, after a while, change is necessary.’

According to Wooding, rumours suggest the government will retain what is best of the internal market, such as the purchaser/provider split, while getting rid of bureaucracy and the system required to chase invoices sent to purchasers, which impacts on cashflow.

‘We used to get an allocation from the centre, but chasing invoices means you have to have some debt-collecting services. That involves management time that is not being directed at patient care.’

Nor are financial problems in the Midlands’ NHS largely confined to the big urban centres. Lincolnshire Health Authority had a recurrent income and expenditure deficit of #1.8m in the last quarter of 1996-97. But, according to deputy finance director Jim Gallagher, it is bearing down on costs and is likely to end this year with only a small deficit.

The authority is undertaking a strategic review to ensure its healthcare plans provide clinically acceptable services at minimum cost. Geographically, Lincolnshire is the largest health authority in the Trent region. It covers an area of 1,000 square miles but has a population of only 620,000 – similar to a single, large urban area. Because of its size and the distances involved, the authority does not have many opportunities for saving money by consolidating services into a smaller number of units.

Two-thirds of GPs in the county are in fundholding practices, a small number of which are overspending. Gallagher says the authority works hard to ensure that fundholders can manage their finances and stay within budget on the sums it allocates to them to purchase healthcare services. Although the GP fundholders each have a practice manager, few are qualified accountants and it is essential there is a system to monitor their financial transactions.

Gallagher says: ‘They send in a report on the computer every month and we make sure we go through it with them in detail.’

According to the NHS Executive, Solihull Health Authority in the West Midlands had a recurring income and expenditure deficit of #4m in the last quarter of 1996-97, representing more than 5% of its income. Robert White, deputy finance director, says that because Solihull is a loser under the weighted capitation formula used to allocate funds to health authorities, it has received substantial financial support from the health department for 1997-98 to help it out of its financial difficulties. As a result, it expects to balance its books by the end of this financial year. ‘A great deal of costs have been stripped out of administration,’ he says.

The Midlands NHS is not solely one of end-to-end deficits. The health authority in Nottingham, where the NHS will cost #380m this year, is currently within budget, although cost-cutting has become a way of life. Birmingham Health Authority too has stayed out of deficit, although the future of health services in the UK’s second largest city was described recently by the Labour peer Lord Howell as being embroiled in mystery and chaos.

He was commenting on rumours that a number of the city’s hospitals were to be closed under the health authority’s strategy to reorganise primary healthcare and cut costs. Birmingham Health Authority insists that its plans will be revealed later this year.

A spokeswoman claims the row was unfortunate because the city and West Midlands generally have got the shortest waiting lists in the country.

Although the authority is in balance, she concedes that some GP fundholders were causing concern by their overspending. One is reported to have had a deficit of over #200,000 on a budget of #1.4m in the last financial year.

Whatever the long-term future of the NHS in the Midlands – and projects for new hospitals in Hereford and Worcester have been given the go-ahead under the Private Finance Initiative – the prospect of a tough winter and a lack of resources to meet demand are of most concern to hospitals and health authorities. Finance officers expect much of the extra #1.2bn allocated for next year to be eaten up by existing deficits.

The Royal Wolverhampton Hospitals NHS Trust’s FD Bob Dredge (see right) says the government’s clear message is that emergencies should not be turned away during the winter. But the hospital has a #180,000 deficit and Dredge has to admit: ‘If the predictions of a flu epidemic come to fruition it could be pretty desperate; it is very unlikely we would be able to deal with all our emergency work.’