A report by the government's spending watchdog has blamed poor financial management; lack of input from clinicians on financial matters; and underestimates by the Department of Health of the cost of doctors' recent pay awards for the NHS's current financial troubles.
For its report, the House of Commons' Public Accounts Committee took evidence from the Department of Health on the cause of financial deficits in NHS organisations, their impact, and what steps were being taken to recover deficits.
Errors in costing GPs' and consultants' contracts meant that, in 2005-6, individual NHS bodies were required to fund a £560m (€830m; $1.1bn) shortfall in resources to meet agreed pay awards.
Edward Leigh MP, chairman of the committee, said that there was no one factor that had led to the cumulative deficit for all NHS trusts at the end of March 2006 of more than £1bn.
He added, “I do not doubt it [the deficit] is a consequence of weak control of finances and a lack of interest by clinicians in financial matters. And the NHS has also been saddled with a half billion pound bill as a result of erroneous estimates by the Department of Health of the costs of national pay initiatives, including those for the GPs and consultants,” he said.
Jonathan Fielden, chairman of the BMA's consultants' committee, however, said that doctors' new contracts were not to blame for the NHS's financial crisis.
“The NHS is in a financial mess because of the millions spent on ill thought out and incoherent NHS reforms. You just need to look at the vast sums of money poured into chasing poorly commissioned NHS targets set to political timescales, accounting changes, private finance deals, overpriced contracts with the independent sector, and the grossly overspent information technology project to see where NHS cash is disappearing,” he said.
“The Department of Health has already dismissed a link between new contracts for NHS staff and NHS debt and has stated that the main reasons for financial failure are that some trusts did not allow for the accounting change, whereby trusts were no longer allowed to use capital money for revenue expenditure, and others suffered from the pressure to meet targets.”
Spending on the NHS has risen faster than other public expenditure, increasing from £67.7bn in 2004-5 to £76.4bn in 2005-6 and £92.6bn in 2007-8. But deficits have more than doubled in the past two financial years from £251m in 2004-5 to £570m in 2005-6.
A third of NHS organisations (a total of 190) now report a deficit compared with 28% (168) two years ago.
Once they get into debt, NHS bodies seem to find it hard to recover, with 74% of those in the red in 2004-5 also recording deficits in 2005-6. To manage their deficits, NHS bodies made 903 compulsory redundancies in the six months up to September 2006. They have also been forced to close hospital wards and defer projects.
To claw back the deficits and produce a £250m surplus in 2007-8 the Department of Health has reorganised budgets, creating a reserve of £450m by the end of September 2006. To achieve financial balance there needs to be “a partnership between financial managers and clinicians to enhance both the efficiency and the effectiveness of healthcare,” says the report.
Dr Fielden commented that the BMA had repeatedly called for just such a partnership. “Perhaps now the government will listen. If it continues to ignore the profession it will continue to fail the NHS,” he said.
Mr Leigh added, “The transparency of the NHS financial reporting regime must be improved further to prevent deficits being hidden and to make sure the regime is being applied consistently to all bodies. Without this kind of transparency, there can be no spur to improve the standard of financial management in all NHS bodies. There is also no excuse for clinicians to distance themselves from money matters as if the quality of healthcare delivered by an organisation has nothing to do with whether it has to dig itself out of a deficit.”
The report, Financial Management in the NHS, is available at www.parliament.uk.