Acute Hospitals (Funding)

– in the House of Commons at 9:54 pm on 6th April 2005.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Watson.]

Photo of Andrew George Andrew George Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Environment, Food and Rural Affairs) 9:56 pm, 6th April 2005

I am delighted to have secured what may well be the last Adjournment debate of this Parliament, particularly on such an important issue as acute hospital funding. It is a serious issue for many MPs, but I want to speak about particular concerns in my own constituency in the far west of Cornwall and the Isles of Scilly.

At the outset, I declare an interest in that my wife is a nurse working in the NHS—unfortunately, only in a nursing bank at the moment. She has worked all her working life in the NHS. A second declaration of interest is that I was a patient last week at one of the hospitals that I shall mention in the debate. I was there for day surgery just over a week ago, and I must say that an excellent service was provided.

I also want to say at the outset—the Minister will be pleased to hear me say it—that I appreciate the dedication and professionalism of NHS staff. I say that not because my wife works in the NHS, but because I genuinely appreciate those characteristics of the NHS. The Liberal Democrats campaigned at the last general election for increased taxation and investment in the NHS, so I am also pleased to welcome the additional resources that the Government have invested in the NHS in recent years. The funding is much needed and much appreciated.

The title of the debate is "Acute Hospitals (Funding)", but I recognise that such funding does not come in a separate silo from other funding going via primary care trusts into primary and general health care. The Minister will no doubt refer in his response to the extra funding going into Cornwall's three PCTs and health trusts. Certainly, substantial additional amounts of money are going into Cornwall PCTs, but my first main point is about how that money compares with funding in other parts of the country.

The Minister will know that the three Cornwall PCTs are in significant deficit and have been over the past three or four years. They are working hard to achieve a recurring balance, but the Minister will also be aware that the National Audit Office produced a report on 28 April last year that identified the fact that only three PCTs in the UK had overspends of more than £5 million in 2002–03. All three were, of course, the Cornish PCTs.

That raises the question not of management failure in Cornwall, but of whether the funding formula properly reflects the challenges presented to those who have to manage the budgets and meet national targets for NHS spending and care in an area such as Cornwall.

The task of providing health care in Cornwall and the Isles of Scilly is especially challenging, and the formula does not take full account of what I call the geographical challenges that the area faces. Some people ascribe those difficulties to peripherality, rurality or peninsularity but, unlike other parts of the country, Cornwall cannot call on emergency services to the north, west or south. The ambulance funding formula takes account of geography to a small extent, but PCT funding does not do so at all.

Another challenge to the provision of health care in the area is posed by demography. Cornwall's population tends to be much older than is the case with other areas, and the county also has more tourists than elsewhere. I understand that the Department cannot write off the debts incurred by the local PCTs, which are trying incredibly hard to achieve recurring balances in their budgets, but perhaps we should look at the appropriateness of the levels of funding made available to them.

For example, the West Cornwall PCT anticipates a deficit of only £5.9 million this year, a significant reduction from last year. Ultimately, that debt must be recovered and paid off, but the market forces factor is already critical and will become even more important in the future. That factor involves an assessment of external labour market costs, but wage levels in Cornwall have been the lowest in the country since records began. This year, the market forces factor will kick in much harder than has been the case since its introduction in 1976, and it will come as no surprise that the impact will be very significant. In fact, funding for West Cornwall PCT will be the lowest in the country as a result.

Is the Minister satisfied that it is right that the market forces factor should have such a substantial impact on available funding, given that it will leave Cornwall and the Isles of Scilly seriously short of money, in comparison with the rest of the country? That will happen even though the area faces obvious additional costs—as a result of the geographic, demographic and other challenges that I have set out—that are not reflected in the formula. Moreover, as I said, the PCTs must also tackle the requirement to balance the crippling deficits that they face. In addition, will the Minister say which Departments funding locally delivered services—such as social services, police and education, whose staff are primarily paid according to national pay scales—use the same market forces factor in their funding formula?

I come now to the impact of funding on acute services. Cornwall's main district general hospital is the Royal Cornwall at Treliske. It serves some 400,000 of the county's population of a little over half a million people, and it has just over 1,000 acute beds and 174 consultants. The two other acute hospitals in the county are St. Michael's in Hayle, and the West Cornwall hospital in Penzance, which deal primarily with elective and day care work. In the past, the Penzance facility has taken a lot of blue light and emergency admissions, although that happens less nowadays.

The lowering of the protocols mean that more blue light incidents and emergencies pass West Cornwall hospital's front door on their way to Treliske, and that the emergency services are under increasing pressure. I shall return to that matter, but before this debate I sent the Minister some information about the services available in the county. As I said earlier, it is not possible for us to seek additional services in areas to the north, west or south, and the situation in the area covered by the Royal Cornwall Hospitals Trust contrasts with what happens in Northumbria and Calderdale. Those areas have three and two DGHs, respectively, and their populations are roughly the same as Cornwall's. There should be a serious review of whether putting all the eggs—emergency and acute services—into one basket is appropriate. That can be dangerous. On 9 March, less than a month ago, there were 30 patients on trolleys and on the days before and afterwards ambulances were queuing outside unable to offload patients into the hospital. The bed managers were trying desperately to discharge 95 patients to community hospitals only a year after 100 beds in those community hospitals were closed.

The desperate situation has been caused by a funding crisis and because most acute emergencies are brought into one hospital. It is unacceptable that beds in the primary sector have been removed when there are layers of chief executives and boards. Thirteen chief executives run services in Cornwall and it is impossible to have a strategic view when there are three primary care trusts, two delivery trusts, two social services departments—one in Cornwall and one on the Isles of Scilly—an ambulance trust, the strategic health authority and replication on the south-east and north-east borders of Cornwall. Instead of all that bureaucracy, we need a clear strategic view and a focus on the care provided in the acute sector.

The proposal for West Cornwall hospital—I have been working for it with the strategic health authority and others—is for a rebuild with perhaps a doubling of the number of beds. The strategic health authority, the acute trust and the PCT agree that that is a desirable objective and we will work together to try to achieve that new build so that the hospital can take more patients and emergencies. But how can the money be found for new build when capital building programmes require the money to be repaid from revenue and the revenue is insufficient?

I am encouraged that after my hard work and that of many others in the local community, the Labour prospective parliamentary candidate—none of us has heard of him—has issued a leaflet saying that we need a 24-hour accident and emergency unit based in Penzance. That is encouraging—I presume that he was given permission to say that by the Minister—because we have campaigned for that for a long time. I hope that the Minister will confirm that the Government support that.

I had a helpful meeting with the Minister's colleague in June last year when those proposals received broad support and recognition that they need to be taken forward. I have an easy question for the Minister. Can he assure me that if the strategic health authority, the PCT and the Royal Cornwall Hospitals NHS Trust want that his Department will provide all the assistance it can?

My third and final point concerns the impact of Government proposals for independent sector procurement. I understand that the intention for wave 2 funding under the NHS improvement plan published in June 2004 is to set a target of about 15 per cent. elective activity from private sector providers. I also understand that a number of targets will be set to lead to that overall target during the forthcoming years, but as well as elective procurement, additional announcements have been made for targets for budgets for diagnostic and pathology procurement from the private sector.

The problem is that in a place like Cornwall it is not appropriate to seek elective work from the private sector because of the challenges of our geography. Furthermore, if we have to plan for obtaining diagnostic services from the private sector, it will undermine our attempts to build up the critical resources and capacity of the small hospital in west Cornwall; for example, by installing a CT scanner. It would be helpful if the Minister will reassure me that the Government will step back from those targets, especially in places such as Cornwall. The Department seems to be indicating that previous intentions and targets may not be pursued with the vigour that was suggested last year. Will private sector procurement plans be pursued according to the targets set in the NHS improvement plan?

These issues are important to many of my constituents, who are concerned about the difficulties relating to the funding formula in Cornwall and the impact on NHS services, especially the acute sector. I am sure the Minister accepts that the area presents some significant challenges. The geography is challenging and a high number of tourists visit the area. We must ensure that we have the capacity to cope.

Photo of Stephen Ladyman Stephen Ladyman Parliamentary Under-Secretary, Department of Health 10:11 pm, 6th April 2005

I congratulate Andrew George on securing the debate. I know that he feels strongly about the national health service and he is right to congratulate NHS staff throughout the country and in Cornwall on their excellent work—his wife included, no doubt. I am pleased that he acknowledges the funding that is going into the NHS. I reply to many Adjournment debates and usually—certainly when Conservative Members are raising these issues—one would think that we were spending less than in 1997 rather than about double.

The latest round of revenue allocations to primary care trusts, covering 2006–07 to 2007–08, represents further investment in the NHS of no less than £135 billion: £64 billion to PCTs in 2006–07 and £70 billion in 2007–08. That is equivalent to an average increase of 9.2 per cent. for 2006–07 and 9.4 per cent. for 2007–08, and an average of 19.5 per cent. over the two years.

The hon. Gentleman said that I would give him lots of figures and he is quite right. With an election under way, I am not likely to let anybody forget that the Labour Government are responsible for a huge reinvestment in the NHS. His constituency has benefited, too. PCTs in Devon and Cornwall will receive cash increases of more than £368 million for the two-year period. The West of Cornwall PCT, in the hon. Gentleman's constituency, will receive an increase of £37.4 million or 19.9 per cent. for the two years. Those are considerable increases in funding, however we cut it.

The hon. Gentleman raised issues about the funding formula specific to his constituency. I have been a Health Minister for two years and have thoroughly enjoyed it. Electorate and Prime Minister willing, I shall be delighted to carry on for another years. In that time, I have answered an awful lot of Adjournment debates and have heard reasons from every Member of the House as to why his or her constituency is a special case and needs special additional funding. The hon. Gentleman's argument is the first that I have had real sympathy with, because my constituency, too—albeit in east Kent—has land to only one side and it had never occurred me to use that as an excuse for trying to wheedle some more money for the health service. Now that the hon. Gentleman has done that, I shall bear it in mind, but I fear that I cannot be too helpful to him tonight.

The formula that the Government inherited was not getting health services to the areas of greatest health need, so we undertook a wide-ranging review of it before the allocation rounds. The new formula provides a better measure of health need in all areas. In calculating health needs in rural areas, it takes account of the effects of access, transport and poverty. It uses better measures of deprivation that are capable of being updated regularly.

The market forces factor of the allocations formula is not a new concept. In fact, all versions of the allocations formula for the past 20 years have included a market forces factor weighting to recognise the different costs of labour and land across the country. I hope that the hon. Gentleman would agree that it is right and proper that the different costs of land and labour are reflected in the allocations formula to ensure that funds are allocated fairly, but we did not just pluck the formula from the air. It is not an invention of Ministers or politicians. Its development has been overseen by the Advisory Committee on Resource Allocation, and it is the result of many years of analysis by academics.

We recognise that this is a complex issue, which is why we have sought the advice of experts to ensure that the model used to calculate these costs is fair. To the best of my knowledge, the hon. Gentleman has not made any objective criticism of that factor or challenged the opinions of those experts, other than to say that, because he does not like the result that the formula gives us, the formula must be wrong. It is my view that the market forces factor is the best mechanism available to reflect unavoidable differences in the cost of providing services.

For the latest round of allocations—as I say, those for 2006–07 and 2007–08—changes have been made to that factor also to support the implementation of payment by results: the number of zones has been increased from 119 to 303, and they will match the geography of PCTs. An adjustment has also been made to the weights for multi-site trusts in the land and buildings indices.

Photo of Andrew George Andrew George Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Environment, Food and Rural Affairs)

I am not trying to wheedle out money, but the fact is that the Minister has not answered the question about why other Departments do not use a market forces factor, or something similar, in circumstances where national pay scales apply. In fact, people on local pay scales cannot undertake operations, for example, or provide the kind of service that those in hospitals provide on their national pay scales. That is why the funding formula does not properly reflect the true costs of providing the service.

Photo of Stephen Ladyman Stephen Ladyman Parliamentary Under-Secretary, Department of Health

I note the hon. Gentleman's opinion. I cannot tell him why other Departments have not used such a factor. I suspect that Ministers from other Departments answer Adjournment debates on other evenings of the week in which they are asked why they do not implement the same formula as the Department of Health. The fact is that an expert advisory panel works out the allocation formula that we use. We believe that it takes account of such factors in as fair a way as we can come up with, but if he can provide objective reasons to that expert panel that would lead us to believe that we have got it wrong—that is why the panel exists— that would help us to refine the formula and to get it right in future years.

Photo of Stephen Ladyman Stephen Ladyman Parliamentary Under-Secretary, Department of Health

Let me deal with some of the issues that relate to payment by results. In fact, I suspect that payment by results will help the hon. Gentleman a little bit, and I shall explain why.

Under the new system, instead of funding based on historical patterns, hospitals and other providers of care will be paid a fixed price for each patient treated. The prices are based on health care resource groups—groupings of treatment episodes that are similar in resource use and in clinical response—thus reflecting the complexity and cost of providing care. The incentives within the system will help to increase the number of treatments provided by rewarding providers for the work done.

The current figures provided to the Department by the Royal Cornwall hospital suggest that, once payment by results is fully rolled out, the hospital would gain about £13 million. For 2005–06, payment by results will cover only elective activity, and to create a smooth transition, a cap of 2 per cent. has been placed on organisations' gains or losses under the system for this year. The Royal Cornwall hospital consequently stands to gain about £1 million on its baseline activity, as a result of the introduction of payment by results. If the trust performs more activity, it will do even better under the new system. So the financial gains that the trust stands to make will be available to it to invest in quality-enhanced local services and facilities.

For primary care trusts, payment by results will support the development of a more effective approach to commissioning. In place of block contracts or service level agreements, primary care trusts will commission the volume and mix of activity needed by their communities. The introduction of a national tariff will remove the need for price negotiation and focus discussion on the quality of care.

As the organisations that control more than 80 per cent. of the NHS budget, primary care trusts will have an incentive to provide as much care as possible in the most appropriate settings and to avoid any inappropriate admissions to hospitals. In this way, the new system will help to support the development of care closer to home, and the emphasis will be on improving the quality of care for people with long-term conditions. I strongly believe that that will help the hon. Gentleman's constituency.

Another factor in his constituency is out-of-area treatments. Central Cornwall primary care trust has received an extra £4.2 million to cover the costs of the out-of-area treatments that it performs. Under payment by results, the system for funding treatment given to people who fall ill away from home will change and hospitals in Cornwall will be able to invoice the home primary care trusts of their visitor patients directly. This will ensure that the funding is received directly by the hospital within reasonable time scales and, by using the national tariff, there will be no need for home commissioners to engage in discussion about costs.

That brings me to the issue of the inherited debts that the hon. Gentleman raised. As for the challenges of achieving financial balance, I am sure that he will agree that the annual expenditure of the NHS must remain within the resources allocated by Parliament. NHS organisations, including those in Cornwall, receive a fair share of resources and have a corresponding responsibility to manage them effectively without relying on financial support from the centre or from other parts of the NHS. There is a finite amount of resources available to the NHS each year. Where an individual NHS body has a deficit, the overspend has to be matched by underspends elsewhere. This debt must be repaid. We cannot just wipe the slate clean as it would send the wrong messages about responsible financial management to others who balance the books year on year.

Achieving financial balance is a key requirement for all strategic health authorities and the Department's recovery and support unit meets every SHA on a monthly basis to discuss their progress against key requirements and performance targets. For the south-west peninsula, the task of achieving financial balance is particularly challenging. Therefore, we advised the South West Peninsula SHA last year that we would allow it two years to repay the debt and return to recurrent financial balance. This means that the SHA as a whole is working to a maximum deficit control of £15 million for 2004–05, but must deliver recurrent balance by the end of next year. The latest information from the SHA shows that it is working towards delivery of this control total.

The Department, in conjunction with the SHA and the local health economy, is committed to delivering an affordable and sustainable financial position, while delivering the necessary and appropriate levels of service delivery to the local population. The PCTs in Cornwall have developed recovery plans, and the director of finance at the SHA meets monthly the local NHS organisations to discuss financial performance, the risks to delivery and the measures being taken to meet the recovery plans. I am assured that the local health community, with the support of the SHA, believes that it can achieve financial balance while delivering key targets.

The hon. Gentleman also asked about the role of the independent sector. As he said, we are committed to working with the independent sector to provide the best possible services to NHS patients. The independent sector treatment centre programme has already benefited more than 17,000 people. ISTCs have helped us to cut waiting times for NHS patients.

I assure the hon. Gentleman that there will be no target for independent sector usage. That is made clear by Sir Nigel Crisp, the chief executive of the NHS, in his recent publication "Creating a Patient Led NHS: Delivering the NHS Improvement Plan". We are committed to delivering a further national procurement valued at £500 million. The Department of Health is working with the NHS to develop proposals that provide the capacity needed to deliver 18-week waiting times, promote innovation and offer more choice to patients across the country.

The independent sector programme is enabling us to offer new and innovative services to patients in more rural communities. In the south-west peninsula, mobile treatment centres performing cataract operations have visited Plymouth, Tiverton, Hayle and Barnstaple and performed more than 1,700 operations. That means patients coming off waiting lists to have their cataract surgery quickly.

In Plymouth, we will be opening a treatment centre in May 2005 to perform the nearly 3,000 operations annually that the NHS has indicated it needs. The majority are much needed orthopaedic operations. In east Cornwall, a new treatment centre will open in October 2005 to deliver more than 4,000 operations annually, again largely ophthalmic and general surgery. Expanding access to independent sectors providers will give NHS patients greater choice, and ensure more contestability for the NHS, driving up standards for all. I hope that the hon. Gentleman will agree that, even in the circumstances that he has described, it is possible for his constituents to benefit from the independent service providers.

The hon. Gentleman also raised issues relating to the configuration of services, and I hear the points that he makes. It is important, however, to recognise that the decisions are not made in Whitehall by Ministers; they are made locally. There are different opinions about the configuration of acute services everywhere, including in Cornwall. I think that it is right and proper that decisions are made in Cornwall, because I do not know the position there. I cannot make the decision in my office in Whitehall that he and his constituents could make. That is why responsibility for commissioning decisions is devolved to the local area.

Cornwall is already served by three district general hospitals at Truro, Plymouth and Barnstaple. Approximately 120,000 people from Cornwall live in the catchment area of the hospitals in Plymouth and Barnstaple, and there are smaller acute hospitals in Penzance and Hayle, as well as an extensive network of community services throughout Cornwall. The local NHS is trying to make services as locally accessible as possible when it is clinically safe to do so. To achieve that, it has increased the number of operations undertaken and clinics run at the two smaller acute hospitals, as well as the number of clinics and minor injury units.

I am pleased to say that the hon. Gentleman engages with his local NHS. That is not true of all hon. Members who secure Adjournment debates to which I respond, because they sometimes seem to debate such matters before even raising them with their local PCT. I congratulate him on being prepared to engage in the matter, but the debate must take place in Cornwall. I am sure that there will be an opportunity for people to engage in that debate over the next few weeks.

Photo of Andrew George Andrew George Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Environment, Food and Rural Affairs)

Does the Minister accept that the three PCTs in Cornwall have an exceptional deficit in comparison with those in the rest of the country? Is he saying that that is a result of financial mismanagement and incompetence, or is he prepared to accept that it is worth reviewing whether the funding formula in the past, and the proposals for the future, are adequate for the circumstances, which, as he admits, he does not properly comprehend?

Photo of Stephen Ladyman Stephen Ladyman Parliamentary Under-Secretary, Department of Health

There are all sorts of reasons why some PCTs have built up deficits, such as structural reasons. I would hesitate to suggest that incompetence is ever such a reason because if incompetence is suspected, the chief executive usually gets fired and someone who knows what they are doing is brought in. PCTs are relatively new organisations, so they are going through a learning curve. They are learning how to balance budgets and achieve the financial stability that they need. The deficits that are constantly reported in the newspapers represent a tiny proportion of PCTs' budgets. Indeed, most private companies would give their right arm to have the sort of financial management of most PCTs by ending up with a balanced budget at the end of the year.

I am certainly not accusing the hon. Gentleman's local PCTs of incompetence, but neither am I going to leap immediately to the conclusion that the formula allocation is wrong. The fact is that prior to 1997, the health service was dramatically under-funded, so a huge range of pressures subsequently had to be addressed. It is rather like the pothole in the road syndrome: one cannot start to invest in new roads until the potholes caused by a lack of maintenance for years have been fixed. That is the situation in the national health service. The new investment that we have been putting in has met the ever-building pressure in the system. Of course the situation has been difficult, but as more money goes in during the coming years, it will become easier to manage the budgets.

Photo of Andrew George Andrew George Shadow Minister (Environment, Food and Rural Affairs), Shadow Minister (Environment, Food and Rural Affairs)

The formula is changing over the next few years, so if the difficulties persist in Cornwall, does the Minister agree that the situation could be reviewed?

Photo of Stephen Ladyman Stephen Ladyman Parliamentary Under-Secretary, Department of Health

Labour Members are reasonable men and women, so if it is clear that the formula allocation is not working for some reason, it will be reviewed. The Secretary of State has already demonstrated a great degree of flexibility through the way in which he has been prepared to examine such issues and the way in which the recent PCT allocations have been made—

The motion having been made after Seven o'clock, and the debate having continued for half an hour, Mr. Deputy Speaker adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at half-past Ten o'clock.