MR DAVID NICHOLSON, MR HUGH TAYLOR AND MR RICHARD DOUGLAS

23 NOVEMBER 2006

  Q80  Dr Naysmith: I am more than alluding to it; I am asking you about it.

  Mr Taylor: You are asking a question which we reflect on ourselves, not just in relation to one firm, but in relation to firms across the board.

  Q81  Chairman: When we did our inquiry into ISTCs, we realised there was a level of commercial confidentiality that the contracts had when they were put out there, and I suppose in a sense what Doug is asking and what I ask is this. I assume you would say if they were actually advising the Department on what the contract should be, and another arm of their business was actually bidding in, that would be unethical, and something that could not happen.

  Mr Taylor: If there were a causal connection as close as that, then I am sure that would not happen.

  Q82  Jim Dowd: Can I go back to something apropos of what Ronnie was saying? Part of the problem with some of the deficits that we have looked at has actually been poor financial and management information. What is your assessment, any of you, of the quality of financial and management information at unit level throughout the NHS?

  Mr Douglas: My first answer would be that it is variable. I think what you will find is that in the big hospital trusts you usually have pretty good standards of information actually. Where there has been less reliable or less timely information, it has tended to be in the smaller organisations and particularly, I think, in PCTs as well. There are two or three things we are trying to do about that. One is that some of the turnaround work is about getting good, timely information so boards can make proper decisions. The other is trying to encourage more and more organisations into shared services operations, so your back-office provision of financial information is done by someone else, and what your finance team, your chief executive, should be doing then is working on the analysis and the understanding of the information that someone else is generating for you. That is my experience from most organisations I have seen across the NHS. I do not know whether it is consistent with David's.

  Mr Nicholson: It is getting better because, apart from anything else, it is being used more, but also it is more business-critical than it has been. It was not long ago where, no matter how many patients a hospital treated, they would get a similar amount of money. Now it is determined by the number of patients they treat. So I think it is getting sharper and better. I think PCTs are slightly behind for a whole variety of reasons, not the least of which is that we have just reorganised them all again.

  Q83  Jim Dowd: PCTs were new creations just a few years ago. It is not as if they have a historical legacy to carry forward. Why did they not have accurate management information as a priority for their functions?

  Mr Nicholson: This is presumably going back to 2002. PCTs came out of health authorities predominantly, out of a mixture of health authorities and primary care organisations, and, to be frank, the major issue in relation to them was managing their financial affairs, their cash limit, which they had significant controls over. They allocated money to hospitals and different organisations and were not under the kind of pressure that, as the reforms have developed through and the transparency has come in, we have seen. So they really did not need a great deal of management information at that stage to discharge their functions, but as they have developed those functions, of course, and as general practice has moved to the GMS contract, as the quality outcomes framework has developed, they have needed far more as they have gone through. I think nobody at that particular stage knew we would get to where we are, and I think they have worked quite well to make that jump.

  Q84  Jim Dowd: Can I move on to a variation to the question of management to questions of governance. The Department put out an integrated governance handbook earlier this year, which drew upon the Higgs review 2003, amongst other things, and suggested that NHS bodies should have on their board of management at least half non-exec members. The board at the Department of Health, upon all three of you see it, I am sure with distinction and great benefit, only has three out of 15 non-execs. Is it a case of do what you say, not do what you do, or is this an oversight that you are attempting to address? You do not have many women on it either, I would add.

  Mr Taylor: This will sound lame, but it is true: there is not a direct analogy between, effectively, what is a statutory board of an NHS trust, which has staff responsibilities, and the board of a Department. The system of ministerial accountability under which we operate means that the board of a Department has different kinds of responsibilities from that of a trust. One of the things that slightly frustrates some of my colleagues when they come into the Department is that the departmental board is not just a place where decisions are taken. We sit over the governance of the operation, obviously, quite properly, in a democracy; decisions in a Department are taken by Ministers, and there are differences. Nevertheless, it is true that departmental boards have really only just started taking up with the notion of having non-executive members on the board. We have not had them in place in the Department very long, and they have already proven their value. I accept your challenge with regard to that.

  Q85  Jim Dowd: I would say that was not at all lame; it was just unconvincing.

  Mr Taylor: They are just not the same. You are not comparing like with like.

  Q86  Jim Dowd: Fair enough. If it is structurally different, then I can understand why you would have none. What I cannot understand is why you are stuck in this no-man's land, where you have some but you do not have as many as you say everybody else should have.

  Mr Taylor: First of all, we have a big board, and that raises challenges of its own. If we had 15 executive members on our board and 15 non-executives, it would not be a board; it would be a conference that met every so often. The people who are on the board are there for good reasons. We need to reflect on that. I myself think that moving to a situation over time of smaller departmental boards with parallel numbers of non-execs might well be a good direction for the Government to go in. We have just started dipping our foot in it and you are right in a sense, to challenge us by saying, "Are you going to take it seriously or not?"

  Q87  Jim Dowd: If you accept there is a merit there, what value do you actually think non-execs would bring not just to the departmental board, but to units throughout the NHS?

  Mr Nicholson: I have spent most of the last 20 years on boards in the NHS. Partly, having just gone to the departmental board, and it is shown very clearly, that idea of external scrutiny coming from outside the culture of the system, to be able to hold a mirror up to ourselves and how we do it and also to engage in discussion, is extremely valuable. Similarly with boards in the NHS; non-executive directors do bring that to it. The other thing that they bring is a different set of expertise. Some non-executive directors who have interests, knowledge and understanding of finance or business or corporate life in general are particularly valuable and bring a whole set of expertise and experience into the system. The other group of non-executive directors are those from the local communities. Very often, the executive directors have not spent a lot of time working and living in the local community in the past. Each community, in my experience, has its own distinctive culture which boards need to understand in order to get real understanding about the services they are trying to provide. They are the softer end of it but, of course, there is a whole range of functions around audit committees and governance, around pay and conditions of executive directors and all the rest of it.

  Mr Taylor: Can I just say relation to the Department, just to reinforce the points I was making earlier, if you look across to local government, of course, you have elected representatives and then the executive team, and that has been the tradition in a government department, but I think we have found value for us in having non-execs. For example, we have a local authority chief executive on our board now, and he is keeping us on our toes all the time—if we needed it—about the read across to local government and social care. Similarly, we have brought somebody in with a finance background in the private sector, and once he started to find his way round the maze of government public service accounting, he is already producing very sharp insights into the way we present our material internally and so on. So I think it does have real value.

  Q88  Jim Dowd: You mentioned governance and foundation trusts, because, of course, new forms of governance are one of the key elements in the whole foundation trust project. When the then Secretary of State, now the Home Secretary, came before this Committee, and indeed he told the House the same thing, in 2003, before the inception in 2004, he said that by 2008 all NHS boards should have achieved—not just applied for, but achieved—foundation trust status. At the moment there are just over 50. There is another 180. So you are going to have to clear about 90 a year to reach that target. Is that still the objective?

  Mr Nicholson: My understanding of the objective is that they should be in a position to be able to apply for foundation trust status.

  Q89  Jim Dowd: The Secretary of State said "achieve", not "apply for". I can understand the "applied for" argument, but the then Secretary of State's objective was that they should have achieved foundation trust status by the end of 2008.

  Mr Nicholson: It is unlikely that that will happen. The reality is that we suspect that something in the region of 70% or 80% of hospital secondary care activity will be delivered through foundation trusts by that sort of time. There are a whole series of organisations and, for a variety of reasons, probably just over 50 in the country as a whole, the way it sits at the moment, are going to have some difficulty delivering that. That could be partly to do with the organisations themselves but some of it could be to do with the policy of the Department, which we need to look at. What we are doing with that 50 at the moment is looking at each of those organisations individually to see what we need to do to get them into a position where they can be foundation trusts by 2008. That is exactly where we are.

  Q90  Jim Dowd: Obviously, the regulator is involved in this as well, but within the Department, as I say, you managed to process 20 in 2004, 12 in 2005 and 20 so far this year. Do you have the expertise to process the numbers required to get to your 70-80% figure?

  Mr Nicholson: What we have been doing over the last 12 months or so is every single acute trust, and now mental health trust, in the country has been going through an extensive diagnostic process with the Strategic Health Authorities both to identify what they need to do to get them to foundation status and then agreeing a plan with them, and a trajectory and a target date for them to be in a position. To be frank, that is the key part of the process. The Department, once they are in a position to apply, then takes them through the last stage, but the real work is done by the organisations themselves and the Strategic Health Authorities and that has been, as you can imagine, a massive amount of work for all these organisations to do, and out of that we have been able to identify in absolute details the sort of things I have just talked to you about, about how many will be ready by what year. So we now have a trajectory which sets out quarter by quarter how many we expect to be in a position to apply.

  Q91  Jim Dowd: Going back to what Ronnie was saying about turnaround teams, given the fact that by definition, where the turnaround teams have gone in, these are probably the trusts that are furthest away from foundation status, do the turnaround teams have any kind of remit to prepare and improve them so that they can apply for trust status?

  Mr Nicholson: No, they do not have a remit in that sense. What they have a remit to do is to get them into financial balance but, of course, getting them into financial balance is the key pre-requisite to being a foundation trust.

  Q92  Jim Dowd: With my own trust in Lewisham, it was entirely their financial performance that prevented them from going for foundation trust status. Clinical services were actually excellent. A technical question then on foundation trusts: do you—I think you do not—collect information on payment disputes between PCTs and foundation trusts? If the answer is no, are you not missing an opportunity there to see whether the foundation trust model provides a better means of resolving these? If the answer is no, then you would not know, would you?

  Mr Nicholson: We do not as a routine collect information about that, but one of the issues that came out of the original turnaround work was that one of the issues why organisations were getting into trouble is that they were making different assumptions about what they were going to pay and what they were going to receive. So we have some information about that. Where there is a dispute which is material, we would get to know about it through the Strategic Health Authorities, who would be engaged, but I suspect there are low-level discussions going on all the time about individual cases or individual contracts, but we would not know about those.

  Q93  Jim Dowd: Do you think you should? Do you think it would benefit you if you could find out?

  Mr Nicholson: One of the issues about the NHS culture is that it enjoys triangles. You get two organisations who need to work together in partnership but the NHS loves the idea of having another organisation at the apex that they can both appeal to. We are trying to avoid that, because that just creates an organisation which is constantly looking up. We need to focus people's relationships horizontally, so the PCT in Lewisham should do all of its work with the trust, not constantly be appealing to a different body to do it. I think the danger of becoming engaged in that low-level discussion is that everyone will look up the system all the time, and that is not what we are trying to achieve. We are trying to develop a system which is self-sustaining, where relationships and partnerships can work.

  Q94  Jim Dowd: So you do not need a referee?

  Mr Nicholson: I think as a last resort, when everything has failed, I am sure that, to protect services and to protect patients better, we need some mechanism to do that. But I think it should be an absolute last resort, when everything has failed, and should be seen by both organisations as their failure.

  Jim Dowd: I will just say in passing that the PCT in Lewisham should be abolished, but that is a different question.

  Chairman: Thank you for that.

  Q95  Sandra Gidley: Another change of subject to programme budgeting and quality of data or otherwise. Can you start by briefly explaining the purpose behind the introduction of programme budgeting information and how that will actually translate into improvements in effective commissioning?

  Mr Douglas: The intention behind programme budgeting was to start people focusing on where they are spending and what they are actually delivering for spending their money, what health care they are buying, rather than just, as we have done in the past, say how much is going out on staff, how much is going out on wages, how much is going out on suppliers? It is first of all about how much is going into different categories of care, different programmes of disease. The first stage of it was to start collecting information in a way that distributed the money across those categories, which is where we kicked off from a couple of years ago. What we have then tried to do alongside that is to link the programme information to outcome information, so for coronary heart disease, for cancer, for a number of other areas, what we can do is look not only at how much each PCT is spending in that area, but what their outcomes look like in that area. The intention then is for PCTs to use that information themselves to help inform their commissioning decisions, to look at themselves against their peer organisations, against organisations with similar population characteristics and ask themselves questions about "Why is my spend level different per head of population for that? Does my spending level link in any way to the outcomes I am delivering?" We have produced a series of tools in the last year or so that all PCTs can now access the information that will allow them to compare spend with all their peers, to compare outcomes with their peers and to do various statistical stuff that allows them to link outcomes with spend. It is looking to inform what you are spending on different areas and what you are actually getting for it. It does not give you any answers.

  Q96  Sandra Gidley: How much confidence do you have in the actual information provided though?

  Mr Douglas: It is getting better, as with all the information we are talking about here. We started this in 2004, I believe, and until you get people to use information in anger and until you make that information public, similar to the things we said about the quality and value metrics, once that information is in the public domain and people start to use it, it gets better. So part of the getting better is that transparency around the information. We have also been doing some work with the National Audit Office, who have been out with some people from my team as well over the past six months, looking at how good this data is and what the possibilities are for improving it. I should be getting a report back from them reasonably soon on what we can do to improve it. The final issue about improvements is that I want to also look at including a programme budget statement within the statement of accounts that PCTs publish as part of their audited accounts. We are a little way away from doing that yet, but I frankly think that is a lot more meaningful in terms of local accountability. I want to know where the money is being spent in that way, not how much, as I say, is being spent on staff and wages.

  Q97  Sandra Gidley: I am glad you are not complacent, because I found the figures quite incredible when I looked at them. We have been provided with the cancer figures, and I just could not believe that Oxford City PCT spends 22% of its budget on cancer service, whilst Newcastle-under-Lyme PCT spends only 1.3%. That seems to me to be impossible. There is also a huge variation per capita, so however you break it down. What are the reasons for those variations?

  Mr Douglas: I think the first thing is to try and sort out which of those variations are data variations and which are real variations in spend. The first thing we have to do on this is get the data right so we can see whether the type of variation you are talking about is about real spend or purely a data issue. I would suspect in that extreme case there are data variation issues, data quality issues. It is really then down to the local PCTs to use that information themselves, to say "If I'm in Newcastle and my spend is a lot lower than the equivalent spend of someone in Birmingham, why is that? What is it I am doing differently, and what extra am I getting for it?" It really is about the local organisations themselves asking these questions rather than the Department asking them.

  Q98  Sandra Gidley: Again, there probably are accounting problems, because you seem to suggest in your submission that, because the overall figures between 2003-04 and 2004-05 were broadly similar, that implied consistency. That is not the case when you look at individual PCTs because, for example, Northumberland suddenly jumped from 6% to 21% and Westminster dropped from 10.2% to 3.5%. What was done in the interim to change those figures or to make PCTs account differently?

  Mr Douglas: There will be nothing specifically that we have done to make them account differently. What we did was put that information back to them to allow them to test the information themselves and question that information. We have not changed what we have done as a Department. What we have said is, "Look at this information, check it yourselves, compare it with other organisations and then each year move forward and improve that information."

  Q99  Sandra Gidley: So what are you doing to try and improve the quality?

  Mr Douglas: This is the two points I mentioned. One is that we have the National Audit Office in doing some work with us and hopefully they will give us some advice on what more we can do across the NHS. The second thing is to look at moving this towards an audited statement in their accounts because, once something is audited, people tend to take it a lot more seriously.