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Welfare Reform on the Web (March 2006): National Health Service - Funding

E. Burrows and J. Bawtree

British Journal of Health Care Management, vol.12, 2006, p.44-46

Agenda for Change is an initiative aimed at modernising pay and grading within the NHS. This article looks at its implications for contractors providing soft services such as catering and cleaning. As of October 2006, staff working for NHS contractors will enjoy pay and conditions no less favourable overall than those introduced by Agenda for Change.


Guardian, February 16th 2006, p.3

Reports that the government’s failure to decide whether or not PFI projects for rebuilding the Royal London Hospital and St Bartholomew’s can go ahead is costing £600,000 per day. Builders who have been hired are sitting idle awaiting a decision.

A. Pollock

Guardian, January 26th 2006, p.32

The government’s new “payment by results” pricing regime for the NHS is flushing out the true cost of Private Finance Initiative schemes for rebuilding hospitals. The new system requires the NHS to move from block budgets based on contracted volumes of planned work to a system whereby each treatment has a price tag. The price is set to reflect the average cost of the treatment across the NHS. However, using private finance to build a hospital creates a debt to the private contractor which has to be paid off over 30 to 60 years. Since 1991 every NHS hospital has had to pay the Treasury an annual charge for the use of land and buildings. It is therefore possible to compare the cost of capital to the hospital before and after any PFI scheme. For example, the cost of capital at the Royal London and Barts Hospitals will rise from £8.62m per year before the PFI scheme to £67m per year. This will push up the cost of treatments above the national average and leave the hospitals in financial deficit.

N. Timmins

Financial Times, February 9th 2006, p. 2

Four issues explain the current NHS. financial chaos at a time, following six years of record spending, when it should be celebrating attainment of targets. Timmins points out that an historic opportunity to address fundamental structural problems has been missed. Problems stem from: 1) record pay inflation under the Agenda for Change programme; 2) accounting systems – an almost unique requirement to break even on a given day encourages official and unofficial short term brokerage; 3) a culture of burying financial problems (recent, but partial bans on unofficial loans from surplus-making units to units in deficit have revealed underlying deficits, while official schemes provide a disincentive to save.); and 4) the fact that cases for structural changes and reconfigurations, which will see loss of local accident and emergency departments, are poorly backed by politicians.

H. Mooney

Health Service Journal, vol.116, Feb. 9th 2006, p.5

Foundation hospital trusts are set to lose millions of pounds in income following the Department of Health’s decision to limit the rise in the tariff price for the work they do to 1.5%. Managers fear that trusts could be left with gaping holes in their finances for next year, and that the move could also scupper the hopes of the next group of applicants for foundation status.

C. J. Phillips

Oxford: Blackwell, 2005

The book is a concise introduction to the subject of health economics for health professionals who are required to make policy decisions. It demonstrates the key concepts of economics and the role of these in health care planning and decision-making.

N. Timmins

Financial Times, February 15th 2006, p.2

With tensions apparent even before “payment by results”, “patient choice” and increased contestability fully come into effect in the NHS, the Audit Commission advises close observation of the assimilation of profound and painful changes. Questions are raised about improving early warnings of financial and service failure, bizarre NHS accounting practices which have led to fudged financial performance measurement, and inadequate financial skill levels in NHS management.

How do we know if public health funding delivers?

R. Fordham and J. Sussex

British Journal of Health Care Management, vol.12, 2006, p.47-49

More economic evaluations of the costs and benefits of public health interventions are needed. In the future, it must become standard practice to apply cost-benefit analysis to any public health programme. Such a framework will be useful to decision-makers trying to set priorities within limited budgets.

N. Timmins

Financial Times, February 17th 2006, p.4

While in September 2005 the net overspend for English health authorities was ordered by government to be reduced from a forecast £620m to £200m, London authorities still anticipate a £400m overspend in 2005/06. No authority projects a surplus to help reduce the net figure, as Trust board papers and the Audit Commission respectively warn of shortages of cash for paying suppliers and wages, and the “doubtful financial viability” of Suffolk trusts.

J. Carvel

Guardian, January 23rd 2006, p.1

As Health Secretary Hewitt is poised to announce the end of the hand-out culture and the introduction of a sink or swim, payment-by-results financial regime, financial management tops the health service priority list, and a new “Business Arrangements” rule book is about to be issued explaining financial control and “practice-based commissioning”. “Patient Choice” will now make it harder for acute trusts to predict patient numbers and national tariffs will be extended to every hospital activity.

M.-L. Harding

Health Service Journal, vol.116, Feb.23rd 2006, p.5

The current structure of payment by results is wide open to fraud by acute trusts, according to 80% of primary care trust and practice-based commissioners surveyed by the NHS Alliance. They said that the system encouraged so-called “gaming” by providers to unfairly maximise their income. Examples ranged from downright fraudulent claims to unexplained increases in short term emergency admissions which do not appear to be matched by an associated rise in clinical demand.

H. Mooney

Health Service Journal, vol.116, Feb.16th 2006, p.5

Primary care trusts are furious after learning that compensation for those that will see costs rise under payment by results is to be halved in 2006/07, before abolition in 2008. They say this policy will leave huge holes in their finances. Estimates suggest that the worst affected trust will be poorer by £16m.

Poor prognosis for the PFI?

N. Plumridge

Public Finance, Feb.17th-23rd 2006, p.24-27

Both the Treasury and the accounting profession are having doubts about the use of Private Finance Initiative (PFI) schemes to fund the building of large hospitals. In the new market-led NHS, hospitals’ incomes may fluctuate and they may not be able to cope with having to pay a fixed sum every year to the private sector partner. It has also become less and less feasible to justify the off-balance sheet accounting that made PFI schemes so attractive to government in the 1990s. New accounting rules are set to bring off-balance sheet spending firmly within the government’s accounts.

N. Timmins

Financial Times, February 3rd 2006, p. 2

Health Secretary Hewitt refutes King’s Fund research which, using Health Department data, asserts that little of this year’s extra money for hospitals is available for development and service improvement. Only 13% of the money remains after salary increases, higher drug costs, clinical negligence claims, capital costs, implementation of clinical excellence recommendations and other pressures are accounted for according to the think tank.

[See also Times, February 3rd 2006, p. 30; Independent, February 3rd 2006,  p.22]

N. Timmins

Financial Times, February 8th 2006, p.1

The £83m current deficit at one of the country’s largest strategic health authorities, exacerbated by its previous overspend, leaves Surrey and Sussex SHA unable to pay suppliers and next month’s wages without further borrowing. The scale of the financial trouble makes hitting the overall NHS overspend target unlikely. The authority is severely criticised by auditors and seen as inefficient in its management of its its nine acute trusts.

[See also Times, February 8th 2006, p.28]

Waving not drowning?

L. Donnelly

Health Service Journal, vol.116, Feb. 16th 2006, p.15-17

Reports on interviews with chief executives running 62 acute and primary care trusts in which they discuss the root causes of the financial problems besetting the NHS, possible solutions and obstacles to recovery. Topics covered include historic debt, the new payment by results system, managing, ie reducing, demand, service redesign and the patient choice agenda.

What will float the boat?

Health Service Journal, vol.116, Feb.16th 2006, p.20-23

A range of NHS managers debate the root causes of the current financial crisis in the NHS, and how it can be resolved so that organisations move onto a sound financial footing.

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