19 January 2007
Audit Commission chief executive Steven Bundred has denied he is disappointed that the Department of Health declined his advice to return financial penalties levied against overspending hospitals.
The recommendation was made last summer in a review ordered by health secretary Patricia Hewitt into the way resource accounting and budgeting was applied to the NHS.
It found that so-called 'Rab adjustments' – through which an organisation's allocation is cut by the size of its previous year's overspend – had exacerbated NHS deficits and was inconsistent with the need to plan and balance an acute trust's budget over a three year period.
The Audit Commission recommended that the Department of Health stopped levying the penalities against trusts and returned those previously made by the end of this financial year. But in the NHS's operating framework for 2007/8 – published before Christmas – the DoH said Rab penalities would not be returned and gave no timetable for stopping further deductions.
The DoH's reasons were outlined in a private letter from Hewitt to the Commission late last year. Explaining its contents, Bundred told Public Finance: 'The DoH has accepted that it's inappropriate to apply the Rab adjustment to NHS trusts, and that is hugely significant. Obviously it hasn't felt able to do anything at this stage and we perfectly understand why – there's a cost associated with it and the financial position of the NHS remains tight. The fact the door hasn't been completely closed on unwinding RAB adjustments is very positive.'
Although the Commons health committee had recently added to the calls to immediately abolish Rab penalties, Bundred said that it would be unhelpful for the DoH to reverse its decision on the 2007/8 rules now, as an unstable operating framework and inconsistent rules were among problems that had blighted the NHS in the past.
Bundred said that whilst most attention had been given to the Commission's recommendation to end and reverse Rab penalties to trusts, it had made nine other equally important recommendations aimed at improving the consistency, transparency and professionalism of NHS financial management and reporting. The DoH had accepted those in full.
'The RAB adjustment is only one part of the bigger picture and that bigger picture is much more important. If they'd said “yes” on Rab and “no” on everything else we'd have been disappointed because it wouldn't have had the same impact on changing the culture, and it's the cultural changes that are important,' he told PF. Steve Freer, chief executive of CIPFA, said: 'There is no doubt that the Audit Commission's review has already had considerable impact. But the RAB issue is proving to be by far the most difficult and contentious recommendation to progress to the satisfaction of all iinterest.
'Trusts with significant deficits will almost certainly continue to lobby for more sympathetic treatment and will no doubt pray in aid the Commission's original conclusion thataspects of RAB are simply incompatible with the NHS trustregime.'
The NHS suffered from a culture in which 'fudge and mudge at the end of the financial year as money gets moved around the system' was common, said Bundred, whilst financial reports given to strategic health authorities 'differed in substance' to those considered internally by trust boards.
Some of this behaviour was down to inappropriate incentives and management emanating from the DoH itself, said Bundred – citing as an example last year's late publication and then untimely withdrawal of the national Payment by Results tariff.
The DoH had already shown it was willing to address those problems and Bundred noted that both the PbR tariff for 2007/8 and operating framework had been published in December 2006 – some two months earlier than the previous year.
But he added that some of the changes necessary to make the NHS run more smoothly would take time as financial management and accounting rules and skills had 'not quite kept apace with the pace of reform [such as PbR and choice].' The DoH had accepted the need to address that by making NHS accounting compliant with generally accepted accounting practice and improving training.
Asked if he was concerned with the quality of NHS decision making as the service attempted to return to financial balance Bundred said: 'Inevitably the decisions that are needed to address [large deficits] are difficult. But the evidence we've seen suggests those difficult decisions are being taken. It remains the case the financial position in the current year will be tight, but we certainly see signs of some improvement.'
PFjan2007
