Hansard

Thank you. I, too, take the opportunity to wish everyone a happy new year.I welcome the chance briefly to introduce the report, which provides an overview of the main issues that arise from the 2002-03 audit of national health service boards and trusts. It also summarises how the NHS in Scotland is funded and explains how it is organised, including the organisational changes that will result from the integration of trusts with their NHS boards.In the report, I review financial stewardship and corporate governance in the NHS and I comment on the financial performance of the health service in 2002-03. I also highlight four NHS bodies in which financial health is of most concern.Overall financial stewardship in the health service continues to be very good. The audits were completed on time and there were no qualifications to the "true and fair" opinions that were provided by the auditors.However, the auditors of a number of NHS bodies qualified their audit opinions on the regularity of family health service expenditure and income. That is because of continuing difficulty in obtaining sufficient evidence that family health service expenditure and income were incurred and applied in accordance with all the enactments and guidance that are in place. I have mentioned that problem in previous years.FHS activity remains a significant source of potential fraud—I emphasise the phrase "potential fraud"—and irregularity in the health service. The Common Services Agency estimates that practitioner fraud may cost the health service in Scotland £40 million to £100 million per annum, out of the annual expenditure on the family health service of £1.6 billion. Practitioner fraud occurs when claims are submitted for services or prescriptions that have not been legitimately provided. The CSA also estimates that patient fraud cost the health service more than £12 million during 2002-03. Patient fraud occurs when patients falsely claim entitlement to free prescriptions and other services, which results in under-recovery of income by primary care trusts. The CSA is responsible for making the payments in this area. It made significant progress in 2002-03 in improving the control environment and in introducing robust payment verification checks, but it is important that further progress be achieved in order to avoid similar qualified regularity audit opinions in future.I would like to say, however, that the report also comments on a number of good aspects of corporate governance in the health service. One example is that the new unified boards have made good progress in getting the committee structures in place—board and committee meetings are occurring regularly. There are encouraging signs that a good co-operative approach is being taken to management of each local health area.A second example of good practice relates to the bedding down of the new performance assessment framework, which is a comprehensive performance management framework for the NHS in Scotland that was introduced in 2002. Auditors report that most health boards have found the performance assessment framework indicators to be helpful in reviewing and assessing their performance.I will stay just for a moment on the corporate governance theme. A feature of the current structural changes is that individual health boards propose different management structures for the new integrated organisations that are coming in to replace the former boards and trusts. In my report, I point to the opportunities that may exist for health boards to learn valuable lessons from one another in successfully integrating their trusts.I turn now to financial performance. The first thing to note is that the NHS introduced a new financial framework for 2002-03. The intention is to improve consistency in financial reporting and to provide a better picture of the overall financial performance of the health service. There will be a new operating cost statement which, in essence, will describe the net operating costs of health service bodies. Net operating costs will then be compared to the revenue resource limit, which is set by the Scottish Executive for NHS boards. In turn, a revenue resource limit is set by boards for each trust. The revenue resource limit is, in effect, the amount of resources available in a financial year to each NHS body to fund its activity.The revised financial framework also resulted in changes to the financial targets for the NHS in Scotland. However, the statutory break-even target remains and is now interpreted as requiring NHS bodies to remain within the revenue resource limit. Twenty-three of the 28 trusts were at, or within, the new revenue resource limit targets for 2002-03, compared with 25 trusts that achieved their break-even targets in 2001-02. It is clear, however, that achievement of financial targets remains a challenge for NHS bodies.Auditors identified three main methods that allowed the revenue resource limits to be met in 2002-03. The first of those is the rerouting of underspends within NHS systems. In the NHS in Tayside, for example, underspends within the primary care trust allowed funds to be transferred to the acute trust. That shows the benefits that co-operative working can bring to management of NHS finances. The fact that that rerouting of underspends was necessary at all, however, is indicative of the financial pressures that continue to face NHS bodies.There is still a need to identify and address the underlying recurring deficits if financial balance is to be achieved in the foreseeable future. In the current structure of health boards and separate trusts, it is clear when budgets are reallocated between trusts—I have just given the example of Tayside—but there is a risk that, under the proposed single-tier NHS system, such transparency might be lost, and that underlying recurring deficits in particular services or directorates within a unified board may not be disclosed and tackled effectively.Secondly, and also on the financial theme, many NHS bodies have been developing financial recovery plans, which include implementation of cash-releasing efficiency savings. It is important that NHS bodies continue to review the way in which services are provided, and to seek efficiency savings whenever that is possible. However, I have to report that the auditors of several NHS bodies have concerns about the ability of NHS bodies to deliver savings plans, which are essential if financial recovery plans are to be viable.A third issue is that, as in previous years, it is clear that many trusts relied on non-recurring funding—totalling £266 million—to balance their books in 2002-03. Several different types of non-recurring funding can be identified, which I detail in an exhibit in the report. In some cases, in which the Scottish Executive Health Department's funding of specific initiatives is involved, health bodies can form a reasonable expectation that some funding will be received annually, although its level and exact purpose may not be known in advance. In such cases, the earmarked income for those initiatives should be matched to the specific spending needs, and is of little or no help in achieving a balanced recurring budget. In other cases, for example in disposal of surplus property, funding is available only once. Although those sources of income can be used to alleviate in-year deficits, it is important that NHS bodies do not become too dependent upon those one-off sources when they plan to achieve year-on-year financial balance.Over the next three years, the Scottish Executive is committed to spending significantly more on the NHS in Scotland. Planned expenditure is expected to rise from £6.7 billion in 2002-03 to £8.5 billion in 2005-06. There is an expectation—understandably so—that the extra funds will contribute to improved health care, but our best guess is that much of the extra money is likely to be used to meet increased staff costs that will arise from recruitment of more consultants and nurses, from introduction of new contracts for consultants and other staff, from full implementation of the European Union working time directive, and from introduction of new general practitioner contracts.I highlight in my report four NHS bodies whose financial health is of most concern. Those are Lothian University Hospitals NHS Trust, Grampian University Hospitals NHS Trust, NHS Argyll and Clyde and NHS Fife. My report outlines the position of each of those bodies. I will take a moment or two to give the committee a brief outline of the position, if that is agreeable to the committee.In Lothian University Hospitals NHS Trust, the achievement of financial targets has depended significantly on non-recurring funding. The trust's financial recovery plan—dated March 2003—forecast a cumulative shortfall of nearly £180 million in the five years to 2007-08. By June 2003 the revised plan showed a balanced financial position for the current financial year. As at September 2003, however, the trust was reporting an overspend of £6.6 million against its 2003-04 budget.Grampian University Hospitals NHS Trust recorded an overspend of £5.2 million in 2002-03, which was due to the accumulated deficit that had been brought forward from the previous year. The trust received brokerage funding from the Scottish Executive Health Department and other non-recurring—that is, one-off—financial support from Grampian NHS Board. The trust has agreed a plan to repay the brokerage funding and to recover its accumulated deficit by the end of 2005-06, but it needs to address a number of significant issues and cost pressures for that to be achieved.During 2002-03, NHS Argyll and Clyde faced an underlying budget deficit of more than £6 million. A recovery plan was prepared, and financial performance of the Argyll and Clyde Acute Hospitals NHS Trust was seen to be a key factor in achievement of the plan. In 2002-03, the board and all three local trusts reported an overspend of £9.6 million, of which the share of Argyll and Clyde Acute Hospitals NHS Trust was £4.8 million. Without the non-recurring funding, the total deficit in the area could have been as high as £31.4 million. NHS Argyll and Clyde prepared a new financial recovery plan in July 2003, when the local trusts were formally dissolved. However, the auditor is concerned about some of the assumptions in the plan: he considers that NHS Argyll and Clyde's accumulated deficit could reach between £60 million and £70 million by 2007-08, and he suggests that it could be very difficult indeed to correct that deficit, given the pressures in the system.Finally, during its financial planning for 2002-03, NHS Fife identified an underlying deficit of £6.9 million, spread across Fife NHS Board and both of its local trusts. All three Fife NHS bodies achieved their financial targets for 2002-03, but the trusts did so only with the use of £9.6 million of non-recurring funding. The auditors were asked to review the financial monitoring and the recovery planning process of the NHS system in Fife. They found features of good financial management, but they also found some scope for improvement. The auditor also expressed concern about NHS Fife's ability to achieve its savings plans because of pressures.In summing up, I do not need to remind committee members that the NHS in Scotland is undergoing considerable change. It is reorganising its structure and its management arrangements at the same time as significant additional funding is being provided. Against that background, the health service faces persistent financial pressures, not least from increasing staff costs and the rising costs of health care.Once the new unified board structures are in place, it should be an essential requirement that transparency be maintained within the NHS. In my opinion, individual health boards should allow us a clear view of the complex operational and financial activity that will continue to take place between what were formerly acute trusts and primary care trusts to support the delivery of health care in Scotland. I believe that that is important in order to support sound and open accountability and to allow a clear view of the health-care benefits that will result from the extra investment that will flow into the service.As always, I am happy to answer any questions. My colleagues are here to help me to do that.