£ million

		Forecast Outturn 1999-2000	Plan 2000-01
HCHS Capital Expenditure
Sources:
	Net Capital HCHS Expenditure (1)	1,155	1,708
	Plus:
	NHS Trust Receipts	123	209
	Retained Estate Capital Receipts	250	154
	Total Receipts	373	363
	Gross HCHS Capital Expenditure	1,528	2,071
Applications:
	Retained Estate Costs (2)	34	254
	NHS Trust Capital Receipts (3)	123	211
	Non NHS Trust Capital Spend (4)	106	160
	Initial transfers to Revenue (5)	201	220
	NHS Trust Voted Expenditure	1,064	1,455
	Total Capital	1,528	2,071
Financing of Trust capital:
	Depreciation (6)	1,020	1,001
	External Financing Limit (EFL)	44	454
	Total Trust Voted Capital	1,064	1,455
	Plus:
	NHS trust capital receipts spent as capital	123	209
	GP Fundholder Cash Lag Adjustments (7)	100	—
	Total Capital Available to Trusts	1,287	1,664
Financing of EFL:
	Borrowing from Secretary of State	94	454
	Market Borrowing	(50)	—
	EFL	44	454

Notes:

  1.  The figure for 2000-01 is after the transfer to revenue of the IM&T Modernisation Fund (£240 million) and Ambulance Response Times (£23 million).

  2.  These are costs associated with the maintenance and disposal of the NHS retained estate funded from gross capital receipts on the retained estate.

  3.  These are the capital receipts generated from the sale of NHS trust assets. These receipts can be spent in addition to those voted in Estimates.

  4.  Includes centrally held budgets, Health Authority Capital Cash Limits and High Security Psychiatric Hospitals.

  5.  This is to cover:

      (i)  the higher capital threshold in the NHS;

      (ii)  capital expenditure on Joint Finance and GMS which are recorded as revenue as they are spent by a third party.

  6.  £100m was transferred to revenue representing a technical adjustment for GPFH payment lags. This does not reduce spending on capital.

  7.  Figures may not sum due to rounding.

4.8  LONG TERM CAPITAL PROJECTS AND PFI.

   (vi)  For major projects (currently defined as those greater than, £25m in value), could the Department please provide a comparison between the PFI price and the public financed option. The publicly financed comparator's costings should be broken down as follows:

—  Basic construction contract, broken down between pre-implementation and post implementation costs;

—  The value of risk adjustment, again broken down between pre-implementation and post implementation costs, in both pounds and percentage terms; and

—  The final total real full life cost of both options.

—  Where adjustments have been made to the PFI costs (to bring prices to a like for like basis), these should be broken down on the same basis as the publicly funded option.

—  Could the Department also provide a brief commentary on any apparent differences between the reported schemes?

  Explanatory notes:

  1.  All values are expressed as net present costs (NPCs) over the life of the project, including the risk values. The project life is typically assumed to be 60 years. The PFI figures are taken from business cases provided, and actual costs are therefore subject to some slight charge.

  2.  The NPC of the risk adjustment in each phase (pre and post implementation) is expressed as a percentage of the NPC of each phase. The NPCs and risks in the post-implementation phase are often not comparable between projects, because they include variable amounts of costs and risks that are common to both options. For example, the Kings Healthcare project includes the cost of clinical services in the analysis, so the NPCs are high compared to other projects. Other projects, such as Swindon and Marlborough, include risks that are common to both options, so the overall level of risk is relatively high for both options.

  3.  The cost of PFI options is not broken down into pre and post implementation, because the Trusts do not start paying the unitary charge for the development until it is built and available for use.

  4.  The pre-implementation costs refer mainly to costs associated with the construction of the buildings and the large equipment items. Some other costs, such as small equipment items and backlog maintenance, are included in the post-implementation costs in all cases, even though some of these costs are incurred before the new building is commissioned. This approach has been taken to increase the extent to which projects can be compared on a like for like basis.

  5.  In the following cases the PFI option is compared to a conventionally funded option (CFO): Swindon and Marlborough, Leeds Community, Kings Healthcare, and South Durham. The CFO is based on the public funding of the PFI design solution. This is a more difficult value for money test for the project, because the CFO includes any PFI design innovations. Typically, CFOs will have less construction risk than traditional public sector comparators, primarily because the project is at a later stage of develoment. The concept was introduced because it was felt that some PSCs were not providing a robust test of value for money. The Department has introduced measures to ensure PSCs are more robust in the future, so it is expected that use of the CFOs will be phased out.

  6.  The level of risk in the South Tees option appraisal is higher than in the other projects. Analysis by the South Tees NHS trust and their advisers suggests that this amount of risk is justified by the complexity of the project. However, even if the amount of risk included in the appraisal was equivalent to that in other projects, the PFI option would still offer value for money.

4.8  LONG TERM CAPITAL PROJECTS AND PFI

  (vii)   Could the Department update the information given in Table 4.8.7 on donated capital additions by region only?

  12.  The information requested is contained in the table 4.8.7.

(viii)  Could the Department list, by scheme, how much has been spent on developing business cases for a sample of schemes worth over £10 million, identifying which schemes are publicly financed and which financed through the PFI? Where schemes have reached completion, could the estimated development costs be compared with actual cost?

  13.  The actual development costs are shown in tables 4.8.8. These costs are not estimated prior to financial close. This is a sample of schemes representing the ratio of public to PFI.

(ix)  Could the Department detail for every NHS trust with a hospital development, whether publicly or privately financed, worth over £25 million (a) the number of NHS overnight beds by category currently provided by the trust and (b) the number of NHS overnight beds by category to be provided when the development is completed?

  14.  Decisions on bed numbers are taken independently of whether a scheme is publicly or PFI financed. Bed numbers overall have been falling for some decades. Following publication of the National Beds Inquiry, clear guidelines will be issued on likely future requirements for beds and types of services, which future capital developments will need to demonstrate that they have taken fully into account.

  15.  Figures for bed numbers are provided for all the 37 major hospital capital projects (33 PFI and four funded from public capital over £25 million). "Overnight beds" is interpreted as meaning all in-patient beds excluding day case beds. The categories are those provided by individual NHS Trusts. In addition to providing current numbers and those to be provided under the PFI solution we have also provided the indicative requirement as identified in the Outline Business Case (OBC) for PFI schemes.

4.8  LONG TERM CAPITAL PROJECTS AND PFI

(x)  For each PFI scheme could the Department provide the estimates of the unitary fee and split between the availibility and facilities managment fee at outline business case (baseline year) and the actual cost of the unitary fee split as above on signing off the FBC? Could the Department comment on how any increases were funded?

  16.  The information requested is contained in table 4.8.10. Figures quoted are actual final charges.

  17.  An estimate of the unitary fee and split between availability and facilities management is not generally made at the OBC stage, so it is therefore not possible to comment on how any increases are funded.

Notes:

North Durham—New DGH

In the first year (2000-2002) the availability fee will be reduced by 20k to reflect the continuing work on Phase 2 which is to be completed by November 2001.

South Durham Healthcare

The figure of £5.2 million at the OBC stage included only phases 1 and 2. The figure at FBC included phase 3 also.

4.8  LONG TERM CAPITAL PROJECTS AND PFI

(xi)  For each PFI scheme signed or given approval in principal, could the Department provide income and capital charges of Trusts which make up each PFI scheme prior to signing and income, availability fee and capital charges on retained estate for each scheme having signed, or estimates for those schemes which have not yet signed?

  18.  The information requested is contained in the table 4.8.11.

  Notes to Table

  19.  Column A—The income, depreciation and PDC Dividends shown in the audited annual accounts for 1998-99.

  20.  Column B—The income unitary payment, depreciation and PDC dividends expected to be charged to the income and expenditure account in the first full year in which the PFI scheme is operational.

  21.  Information has not been provided on schemes that are yet to reach financial close. These are only broad indications of the likely level of the unitary payment. PDC dividends have been used as a proxy for the 6 per cent return.

4.9  FHS EXPENDITURE ON PRESCRIBING

(i)  Could the Department provide information on total NHS expenditure on pharmaceuticals, including a breakdown by sector and by generic/branded drugs? Could the Department please state what data are available on pharmaceuticals in the non primary care sector, and how they are monitoring drug spending and cost pressures in the acute hospital and community sectors?

(ii)   Could the Department provide information on (a) total FHS expenditure on prescribing for each year from 1992-93 to 1999-2000, (b) the average expenditure per capita, (c) the total number of items prescribed and average number per capita, and (d) the average cost per prescription? Any commentary which the Department would wish to append would be welcome, including an assessment of progress in meeting its stated target of restraining the growth in the drugs bill to sustainable and affordable limits.

(iii)  Could the Department comment on the likely effect on primary care of the increased prices both of some generic drugs and some popular banded drugs? What plans does the Department have to repeat the special allocation of, 90 million made in 1999-2000 to cover the costs of the increased prices of generics?

(iv)  What effect has the Health Act 1999 had in encouraging compliance from the pharmaceutical industry with the PPRS?

(v)  Last year the Department agreed a deal with the pharmaceutical industry that claimed to reduce drugs costs by 4.5 per cent. Recently it has advised Health Authorities to allow for inflation on drugs at 8-11 per cent. What has caused this apparent divergence? Could the Department comment on issues such as volume, price and substitution? Has the lack of reliable data to monitor spending led to a breakdown in cost control?

(i)  Could the Department provide information on total NHS expenditure on pharmaceuticals, including a breakdown by sector and by generic/branded drugs? Could the Department please state what data are available on pharmaceuticals in the non primary care sector, and how they are monitoring drug spending and cost pressures in the acute hospital and community sector?

  1.  Total NHS expenditure on medicines and listed appliances in England in 1998-99 was £5,547 million. £4,339 million (78 per cent) of this total relates to prescriptions dispensed in the community and £1,208 million (22 per cent) relates to medicines supplied in a secondary care setting.

  2.  For prescriptions dispensed in the community in England in 1998, a breakdown between branded medicines, generic medicines, dressings and listed appliances is provided in table 4.9.1. The table shows both the cost (expressed in terms of net ingredient cost) and the volume (number of prescription items) for each category. Branded medicines represent about 80 per cent of the total net ingredient cost, with generics accounting for the vast majority of the remainder.

  3.  The Department collects data on secondary care prescribing through NHS Trust and Health Authority financial returns. On an annual basis, these high level aggregate returns enable it to monitor the pressure faced by local NHS organisations and the aggregate cost to the NHS as a whole. More detailed information is available to Trusts at a local level from hospital pharmacy IT systems. This is primarily used to monitor local spending on pharmaceuticals together with adherence to local policies aimed at ensuring the cost effective use of medicines.

England

	Drugs dispensed generically		Drugs dispensed as proprietary		Dressings and Appliance
Financial year	NIC (£m)	Prescription items (m)	NIC (£m)	Prescription items (m)	NIC (£m)	Prescription items (m)
1992-93	305	149	2,449	267	173	13
1993-94	351	169	2,680	264	190	14
1994-95	402	186	2,881	262	205	14
1995-96	459	201	3,064	259	216	15
1996-97	517	214	3,327	258	228	15
1997-98	651	230	3,574	260	240	15
1998-99	705	240	3,843	261	251	15
Oct 98-Sep 99	823	244	4,020	265	260	15

  Notes:

  1.  Source: PCA, PPA, England. Figures are for prescription items dispensed by chemists and appliance contractors and dispensing doctors including items personally administered in England, for financial years April to March. Note that that in addition to prescriptions written by GPs in England, this includes those written by dentists, hospital doctors, (and, up to March 1994, armed services doctors and dentists) provided they were dispensed in the community. Also included are prescriptions written in Wales, Scotland, Northern Ireland and the Isle of Man but dispensed in England. The data do not cover drugs dispensed in hospital or private prescriptions.

  2.  The net ingredient cost (NIC) is the basic cost of a drug. This cost does not take account of discounts, dispensing costs, fees or prescription charge income. All figures are expressed at outturn prices.

  3.  NIC and items for the period October 1998 to September 1999 are shown, the last full year's data available.

  4.  Generic dispensing covers drugs that are prescribed and available generically and the dispenser is reimbursed at the Drug Tariff or generic price.

(ii)   Could the department provide information on, (a) total FHS expenditure on prescribing for each year from 1992-93 to 1999-2000, (b) the average expenditure per capita, (c) the total number of items prescribed and average number per capita, and (d) the average cost per prescription? Any commentary which the Department would like to append would be welcome, including an assessment of progress in meeting its stated target of restraining the growth in the drugs bill to sustainable and affordable limits.

Number and net ingredient cost of prescription items dispensed in the community

  4.  The information requested is shown in table 4.9.2.

Progress in restraining the drugs bill

  5.  It is not the Government's view that restraining the drugs bill is an objective in its own right. The Government's policy is to seek to improve the cost effectiveness of NHS spending, which could, over time mean a higher share of NHS spending going on pharmaceuticals, where they provide demonstrable good value.

  6.  Since 1999-2000 funding for hospital and community health services, prescribing and discretionary general medical services has been brought together into a single funding stream at Health Authority and Primary Care Group level. Unified allocations enable Health Authorities and Primary Care groups to deploy resources flexibly to best meet the health needs of their population. It is for Health Authorities in partnership with Primary Care groups and other local stakeholders to determine how best to use their funds to meet national and local priorities for improving health, tackling health inequalities and modernising services.

  7.  Average growth in the FHS drugs bill over the last five years has been 8 per cent per annum. This figure would undoubtedly have been higher had it not been for the significant effort that was been put into managing the drugs bill, for example through prescribing incentive schemes and the provision of quality advice and support to prescribers. New and innovative medicines often offer the most cost-effective form of treatment so the Government does not necessarily view growth at this level (or any other level) as a bad thing.

  8.  This year has seen a rise in the cost of generic drugs, partly as a result of supply problems. This is estimated to have cost the NHS £200 million in cash terms. A fundamental review of the way generics are supplied to the NHS is underway and the Government is currently consulting on a proposal to set maximum prices for generic medicines supplied for use in primary care at levels corresponding to those at the turn of 1998-99.

  9.  A new Pharmaceutical Price Regulation Scheme (PPRS) was agreed last year with the Association of British Pharmaceutical Industry (ABPI). The scheme, which will run for five years, began in October 1999, with all suppliers being required to reduce the prices of all products covered by the scheme by 4.5 per cent. It is estimated that the new scheme will save the NHS in England over £150 million in a full year.

  10.  Progress has been made on other key initiatives. By the end of December 1999, some 10,000 nurses with a health visitor or district nurse qualification were able to prescribe from a limited formulary of drugs and appliances, and we are on course to train a total of around 23,000 nurses to prescribe under this scheme by 1 April 2001. Officials are now entering into discussions with professional organisations on the implementation of the Government's decision to extend prescribing rights to additional nurses from April 2001. The contribution of general practitioners to quality prescribing is being recognised through additional remuneration as part of the Sustained Quality Prescribing Scheme announced in April (HSC 1999/107). Every practitioner in a practice which qualifies for the payment, in accordance with a number of benchmarks, among which is the requirement to use a formulary or an increase in generic prescribing, will receive an additional annual payment.

  11.  Measures have also been taken to improve rational prescribing by GPs and towards eliminating unwarranted variations in prescribing. The National Institute for Clinical Excellence (NICE) has already begun to make key decisions, including its first appraisal (the fast track appraisal of the flu drug Relenza) was announced in October 1999. Progress continues to be made on the PRODIGY roll-out and we estimate that around 30-40 per cent of computerised practices had access to PRODIGY at the end of 1999. In broad terms this means that between 3,000 and 3,500 of the 9,000 GP practices should by now have access to PRODIGY. Release 1 is being rolled out to general practitioners with the aim of it being made available to all GPs by the end of 2000. The National Prescribing Centre (NPC) and the Prescribing Support Unit (PSU) have continued to provide support to medical and pharmaceutical advisors via bulletins and through the provision of analytical services.

England

Financial Year	NIC	NIC/Head	Prescription Items	Items/Head	NIC/Item
	(£m)	(£)	(m)		(£)
1992-93	2,926	60	430	8.9	6.81
1993-94	3,222	66	447	9.2	7.20
1994-95	3,489	72	463	9.5	7.54
1995-96	3,739	76	474	9.7	7.88
1996-97	4,072	83	487	9.9	8.37
1997-98	4,465	91	505	10.2	8.85
1998-99	4,799	97	516	10.4	9.30
Oct 98-Sep 99	5,103	103	524	10.6	9.74

Notes:

  1.  Source: PCA, PPA, England. Figures are for prescription items dispensed by chemists and appliance contractors and dispensing doctors including items personally administered in England, for financial years April to March. Note that that in addition to prescriptions written by GPs in England, this includes those written by dentists, hospital doctors, (and, up to March 1994, armed services doctors and dentists) provided they were dispensed in the community. Also included are prescriptions written in Wales, Scotland, Northern Ireland and the Isle of Man but dispensed in England. The data do not cover drugs dispensed in hospital or private prescriptions.

  2.  The net ingredient cost (NIC) is the basic cost of a drug. This cost does not take account of discounts, dispensing costs, fees or prescription charge income. All figures are expressed at outturn prices.

  3.  NIC and items for the period October 1998 to September 1999 are shown, the last full year's data available.

  4.  Population estimates are based on ONS mid-year estimates of the resident England population.

(iii)  Could the Department comment on the likely effect on primary care of the increased prices, both of some generic drugs and some popular branded drugs? What plans does the Department have to repeat the special allocation of £90 million made in 1999-2000 to cover the costs of the increased prices of generics?

  12.  The pressures from increased drug prices should be viewed in the context of the overall funding available to the NHS. The Government's new spending plans for the NHS means that by 2003-04, expenditure will have risen by 35 per cent in real terms in the five years since 1998-99. Prescribing is one element of unified budgets and health authorities and their Primary Care Groups should have contingency arrangements in place to manage financial pressures which occur from time to time. The £90 million special allocation made last year was in recognition of unprecedented turbulence in the generics market at the time. The evidence now available to the Department suggests that generics prices have stabilised. In any event the Department is now consulting (recently completed a consultation) on proposals to set maximum prices for generic medicines supplied for use in the NHS in primary care at levels corresponding to those at the turn of 1998-99, before last year's substantial increases. As far as branded medicines are concerned, prices were reduced by 4.5 per cent overall in October 1999 and are frozen until January 2001 (apart from cost-neutral modulations). This far outweighs the price increases last year which attracted attention, the cost of which was estimated at £30 million.

(iv)  What effect has the Health Act 1999 had in encouraging compliance from the pharmaceutical industry with the PPRS?

  13.  All companies with significant sales of branded medicines to the NHS (ie above £1 million per annum) have joined the 1999 PPRS. To a large extent this takes them out of the direct application of the Act's provisions. The first element of the new scheme has been the price reduction of 4.5 per cent, which has achieved 100 per cent compliance.

  14.  It is too early to decide on the level of compliance with the new PPRS as the financial information required under the new scheme is not yet due, the first returns being due six months after the end of the financial year.

  15.  It can be said, however, that the number of unauthorised price increases since the passing of the Health Act has been sharply reduced compared with the previous year. Whereas in 1998-99 there were 24 instances of price increases which had not been cleared with the Department, since the start of the new Scheme there have been only three cases. In two instances the companies concerned have already reduced their prices to the previous level and there is only one outstanding case at the time of writing.

(v)  Last year the Department agreed a deal with the pharmaceutical industry that claimed to reduce drug costs by 4.5 per cent. Recently it has advised Health Authorities to allow for inflation on drugs at 8-11 per cent. What has caused this apparent divergence? Has the lack of reliable data to monitor spending led to a breakdown in cost control?

  This is to confuse unit prices with volume and product mix changes.

  16.  Average growth in the FHS drugs bill over the last five years has been 8 per cent per annum. This figure would undoubtedly have been higher had it not been for the significant effort that has been put into managing the drugs bill, for example through prescribing incentive schemes and the provision of quality advice and support to prescribers. New and innovative medicines often offer the most cost-effective form of treatment so the Government does not necessarily view growth at this level (or any other level) as a bad thing.

  17.  It is true to say that the 4.5 per cent price cut on branded medicines, as part of the new PPRS scheme, will reduce drug costs significantly. However, because the scheme was introduced part way through the last financial year, only part of the effect will be seen in this year's growth. In advising HAs about 2000-01 budgets the Department also took into account the fact that discount clawed backed from pharmacists is reducing because a past debt has now been repaid and the current high prices for generics. We are currently consulting on proposals to reduce generic prices to levels before the price increases of 1999-2000, but prescribing budgets will not feel the benefit before August 2000 at the earliest.

  18.  In 1999-2000 a number of HAs ran into problems because they had set very low prescribing budgets at the outset. The benchmark of 8 per cent uplift that we recommended to HAs for 2000-01 combines price and volume effects (unlike the PPRS scheme which includes price effects only), and was an attempt to get realistic budgets for 2000-01, which reflect the pressures highlighted above.

4.10  ALLOCATIONS TO NATIONAL SPECIALIST SERVICES

What was the total allocation in 1998-99 and 1999-2000 to each of the supra regional services and what is the planned allocation for 2000-01: and what significant changes have there been in the overall pattern of expenditure?

  1.  The expenditure on each of the supra regional/national specialist services in 1998-99, 1999-2000 and the service agreement value for 2000-01 is given in table 4.10.1.

  2.  The National Specialist Commissioning Advisory Group (NSCAG) was established in April 1996 to advise Ministers on the identification and funding of services where central intervention into local commissioning of patient services was necessary for reasons of clinical effectiveness, equity of access, and/or economic viability. NSCAG superseded the Supra Regional Services Advisory Group.

  3.  Two new national services are to be centrally funded from 1 April 2000:—

(i)  Pseudomyxoma Peritonei Service

One unit, the North Hampshire, has been designated to provide this service. Pseudomyxoma Peirtonei is a rare tumour that differs from the common forms of bowel cancer in its mode of spread. There is growing international evidence that the treatment provided by the North Hampshire Hospital is the treatment of choice. Treatment in this single national centre will allow further development of that expertise and improved outcomes for patients.

(ii)  Pulmonary Thrombo-endarterectomy (PTE) Service

One unit, the Papworth hospital, has been designated to provide this service. Chronic pulmonary thrombo-embolic disease is an important cause of severe life-threatening pulmonary hypertension. International studies demonstrate that PTE is effective in carefully selected patients and NSCAG intervention will allow a carefully designed protocol to be prepared. This service will not meet the entire English caseload of patients in the first year. NSCAG funding and the levies from Health Authorities have been structured to reflect this.

  4.  Two services will have their service costs funded through NSCAG while undergoing final evaluation:—

(i)  Adult Extra Corporeal Membrane Oxygenation (ECMO)

One unit, the Glenfield NHS Trust, has been designated to undertake this service while it is undergoing evaluation. NSCAG currently funds an ECMO service for neonates and children up to six months old.

(ii)  Paediatric Stem Cell Transplants Evaluation

Two units, Newcastle upon Tyne Hospitals NHS trust and Great Ormond Street NHS Trust, will provide this treatment whilst it is undergoing evaluation through a European trial.

The evaluation will seek to establish whether the proposed treatment offers an effective way of treating children with systematic and polyarticular onset inflammatory joint disease.

  5.  There have been no other significant changes to the overall pattern of expenditure.

  6.  In 1999-2000 the NHS Executive held service agreements with 49 individual national specialist units.

4.11  MANAGEMENT AND ADMINISTRATION COSTS

Could the Department provide a commentary on the progress it has made in defining management costs in PCGs, Health Authorities and NHS trusts? Could the Department update Table 4.11.1? Does the Department intend to develop a definition of NHS administration costs?

  1.  Integrated guidance on the definition of management costs in Health Authorities and Primary Care Groups was issued in March 2000. The definition has effect in the current financial year. It is based on and updates previous guidance issued in March 1999.

  2.  The definition of HA costs incorporates expenditure on management of PCGs. Unless specifically listed as an exclusion, all HA and PCG staff and non-staff expenditure, including non-recurrent expenditure, is included in HA management costs.

  3.  Specific areas of exclusion from HA management costs relate to payments to health care providers in respect of health services, activities related to improving health and promoting effective health care, and time-limited exclusions in respect of pilot or developmental activities.

  4.  The definition of PCG management costs continues to draw a distinction between the activities that are primarily concerned with the management and administration of the PCG's budget and its responsibilities as a commissioning body and those activities that are the clinical responsibilities of PCG members.

  5.  On this basis the costs of support staff that directly contribute to the clinical processes and arrangements for patients—such as receptionists and practice managers—and whose responsibilities are to individual practices rather than the PCG continue to be excluded from PCG management costs.

  6.  Guidance on the definition of management costs in NHS Trusts was also issued in March 2000. The definition has effect in the current financial year and is based on and updates previous guidance issued in March 1999.

  7.  The definition of management costs in NHS Trusts covers the staff costs of management activities, including contracted out services and consortia arrangements. In line with previous practice the definition allows for exclusion of costs related to specific pilot or developmental activities on a time-limited basis.

  8.  The definition includes the costs of all staff required to support the board and corporate functions of the NHS Trust as well as the costs of senior and other managers of clinical, operational and support services functions. Where appropriate it allows managers to apportion their time between managerial and clinical responsibilities, ensuring that clinical duties are not counted towards management costs.

  9.  In preparation for the establishment of Primary Care Trusts from April 2000 onwards guidance on the definition of management costs of PCTs was issued in March 2000. The guidance makes no distinction between the definition of management costs of PCTs at level 3 and level 4, except that at level 4 it is widened to include provider functions. The definition is based on the existing definition for NHS Trusts but also takes account of the functions of PCGs.

  10.  Table 4.11.1 shows trends in NHS management costs since 1996-97 at 1998-99 prices.

  11.  Steps have already been taken to reduce NHS management costs significantly. Reductions in 1997-98, 1998-99 and 1999-00 mean that, to date, an estimated £500 million has been redirected from management towards patient care.

  12.  Further savings of £40 million will be made in the current financial year and an additional saving of £20 million will be required in 2001-02. Savings will be targeted at NHS Trusts with proportionately higher management costs and those NHS Trusts undergoing mergers.

  13.  There are no plans to require further net reductions in HA/PCG costs nationally over the next two years but there will be continued emphasis on the need to maximise value for money from management investment and redeployment of resources within the overall cost envelope.

  14.  In terms of management costs the introducton of PCTs will be cost neutral overall and the transition from existing PCGs to PCTs will be accompanied by complementary reorganisation of HAs and NHS Trusts as functions are devolved or transferred. This provides an opportunity for a fundamental consideration of how management functions are best delivered including increased scope for sharing services and pooling functions across the local health economy.

  15.  There is no single accepted definition of NHS administration costs and the Department has no current plans to develop such a definition. Figures on expenditure against NHS management costs are based on clear definitions and are available from audited accounts of HAs and NHS Trusts. They provide the most reliable indicator of the cost of administration in the NHS.

  16.  Paybill costs of staff in senior management, management, and administrative and clerical grades may be used as an alternative, approximate measure of NHS administration costs. These costs include the salaries of large numbers of staff providing support to clinical services and exclude the costs of medical staff working in management roles, as well as other costs such as contracted out services. They provide a less precise indicator of the true cost of administration as they fail to differentiate between managerial and clinical.

  Note: All costs shown at 1998-99 prices.

  Source of data: Ceilings set by Department of Health. All HAs and NHS Trusts are required to set plans for management.

4.12  ACTIVITY DATA

Could the Department update the information given in Tables 4.12 showing activity data by region for 1998-99 and 1999-00, including: total activity, with trends; activity by In, Day-Case and Outpatient; maternity and simple access data? Could the Department provide figures for the ratio of Finished Consultant Episodes (FCEs) to hospital spells by Region for the same period? To what extent do a relatively small number of providers depart from the overall pattern? Could the Department report on the progress made by the NHS Information Authority in reviewing clinical information, including the use of the FCE as a measure of activity?

  1.  The updated activity data requested are shown in the tables 4.12.1, 4.12.2, and 4.12.3. Data for 1997-98 and 1998-99 have been provided as data for 1999-00 is not yet available.

  2.  Data for 1997-98 and 1998-99 have not yet been adjusted for shortfalls in data. However, they are on the same basis so are therefore comparable. Adjustments for shortfalls in data, using a complex methodology, are currently being applied to the dataset but are not yet available.

  3.  HES data was affected by the change to data flows through the NHS Wide Clearing Service (NWCS) in 1996-97, through which all HES data now flows. Since the introduction of the Data Quality Indicator (DQI) in August 1999, the quality of the data flowing through the NWCS has improved, although this will not be fully evident until the 1999-2000 data year is received.

  4.  The latest information on FCE/hospital spell ratios by Region and for England as a whole is given in table 4.12.2. First order admissions have been used as a proxy for spells. These figures supersede those provided last year. All calculations are based on data that are unadjusted for shortfalls.

  5.  A proportion of patients transfer from the care of one consultant to another in the course of their hospital stay in order to undergo specialist treatment. Each period of care under a different consultant is defined as a new consultant episode. Because we measure "activity" by counting the number of consultant episodes, the figure is higher than the number of stays in hospital (known as hospital spells). The extent of transfers may vary between providers for many different reasons, including:

(i)  elderly patients are increasingly likely to be cared for by more than one consultant;

(ii)  advances in medical procedures, which are sometimes carried out by separate consultants (An example is the growth in endoscopic and ultrasound diagnostic procedures);

(iii)  increases in the variety and number of specialisms/consultants;

  6.  Within the overall figures there are a small number of provider units which have a significantly higher FCE/spell ratio than the national figure. The 15 providers with the highest FCE/spell ratio, and with more than 10,000 FCEs, are listed in table 4.12.3. The variation in ratio from provider to provider may be quite legitimate and may be due to a number of factors, including service provision, complexity of clinical care, clinical policy, and data quality. In some cases higher ratios are due to a failure to code episodes according to nationally agreed definitions.

  7.  The method used to calculate the FCE/spell ratio is not exactly the same as that used in previous years. The new method compares the number of completed FCEs (ie those that finished within the HES year ending 31 March), with the number of completed first order FCEs ("admissions"), as a count of spells. This is preferable to the previous methodology, as it avoids the use of unfinished episodes, which are considered unreliable, while also using admission episodes as a count of spells, which is considered more reliable than a count of discharges. These newly calculated ratios, however, are very similar to the figures produced in last year using the original methodology.

Could the Department report on the progress made by the NHS Information Authority in reviewing clinical information, including the use of the FCE as a measure of activity?

  The NHSIA has replied as follows:

  8.  Whilst FCEs have some drawbacks in measuring activity they remain a significant source of comprehensive data for various types of analysis. At the same time as reviewing data required to meet the emerging demands for clinical analytical purposes the NHSIA has several projects which rely upon FCE data. The FCE is becoming of higher quality and more reliably collected as time progresses.

  9.  In the interim period, whilst more clinically rich datasets and their collection are being developed by the NHSIA, FCEs provide a useful base, which can be used as a platform for building more sophisticated analysis when FCE data are integrated with other data. The new NHS number, which is now being widely collected, is an important enabling factor in this process. In addition, the Department will be using the FCE-based data to produce a new dataset which links all the episodes of a patient's spell, and ultimately an in-year patient record, to help produce analyses on the patterns of inpatient treatment (eg emergency re-admissions).

  10.  There are several projects reviewing and developing national standards for clinical data and its coding.

  Footnotes:

  1.  NHS hospitals in England.

  2.  Percentages calculated on unrounded figures.

  3.   Source: KH05 return.

  Footnotes:

  1.  NHS hospitals in England.

  2.  Percentages calculated on unrounded figures.

  3.   Source: KH05 return.

  Footnotes:

  1.  NHS hospitals in England.

  2.  Percentages calculated on unrounded figures.

  3.   Source: KH09 return.

  Footnotes:

  1.  NHS hospitals in England.

  2.  Percentages calculated on unrounded figures.

  3.   Source: KH09 return.

  Footnotes:

  1.  Figures reflect Regional Offices as in 1998-99.

  2.  Figures for well babies are not included.

  3.  NHS hospitals in England.

  4.  Percentages calculated on unrounded figures.

  5.   Source: HES.

  Footnotes:

  1.  Figures reflect Regional Offices as in 1998-99.

  2.  NHS hospitals in England.

  3.  Percentages calculated on unrounded figures.

  4.   Source: HES.

  Footnotes:

  1.  Figures reflect Regional Offices as in 1998-99.

  2.  NHS hospitals in England.

  3.  Percentages calculated on unrounded figures.

  4.   Source: HES return.

  Footnotes:

  1.  Figures reflect Regional Offices as in 1998-99.

  2.  Figures for well babies are not included.

  3.  NHS hospitals in England.

  4.  Percentages calculated on unrounded figures.

  5.   Source: HES.

  Footnotes:

  1.  Figures reflect Regional Offices as in 1998-99.

  2.  Figures for well babies are not included.

  3.  NHS hospitals in England.

  4.  Percentages calculated on unrounded figures.

  5.   Source: HES.