Save Hinchingbrooke Hospital

'Alice in Wonderland' rules leave hospitals facing £1.6bn deficit



John Carvel, social affairs editor

Monday December 11, 2006

The Guardian



At least a dozen NHS hospital trusts are technically bankrupt, with no chance of meeting a legal obligation to balance their books, a Guardian investigation has revealed.



Data provided by the Department of Health under the Freedom of Information Act showed 103 hospital trusts across England expect to end the year with accumulated deficits of £1.6bn, caused by overspending since 2001.



Many are taking corrective action, including laying off staff, closing wards and reducing the time patients spend in hospital. But the Guardian has identified a group of trusts that have passed the point of no return.



Patricia Hewitt, the health secretary, is expected to announce changes in the NHS's accounting rules today. If they do not address the problem of accumulating deficits, the trusts will ruin her chances of restoring financial equilibrium.



The group in greatest difficulty includes Queen Elizabeth hospital in Woolwich, south-east
London, which is on course to overspend by £37.1m this year after racking up deficits totalling £28.3m over the previous two years. This would bring its cumulative deficit by the end of
March to £65.3m, equivalent to 56.9% of its turnover.



Like every other hospital and mental health trust, the Queen Elizabeth has a legal obligation to balance the books over three years, stretching in exceptional circumstances to five. But to do so it would have to generate surpluses of £65.3m. Its senior executives have convinced the DoH that they have absolutely no chance of doing so.



Other trusts with irrecoverable positions include Surrey and Sussex Healthcare, Hinchingbrooke
in Huntingdonshire, Ipswich, North West London and West Hertfordshire. Their financial difficulties became impossible to manage due to a mistake made by the DoH and the Treasury
in 2001, when they put NHS trusts under a financial regime known as Resource Accounting and Budgeting (RAB). The Guardian's analysis used information from thousands of spreadsheets supplied under the Freedom of Information Act.



The new system was designed to regulate spending by Whitehall departments, but had a devastating effect when it was applied to overspending hospital trusts. If a trust spent £105m, but had an income of only £100m, it would end the year with a deficit of £5m. The new rules sliced £5m from its income in the following year and obliged it to make a £5m surplus. That required the trust to cut its spending from £105m to £90m. Trusts faced with this triple whammy could not achieve the target without damaging patient care and so their deficits escalated.



The rules were described last night by one NHS finance director as "a nightmare from Alice in Wonderland". Ms Hewitt asked the Audit Commission to investigate the problem. It told her in July: "We consider the RAB regime should not be applied to NHS trusts."



She is expected to change the accounting rules today when she announces the financial objectives for the NHS in 2007/8.



Her officials debated with the Treasury last week how to eliminate the worst features of the system without giving the impression that the government has gone soft on NHS deficits.



Ms Hewitt has been under strong pressure from trusts to scrap the accounting rules. Nigel Edwards, policy director of the NHS Confederation, said the trusts identified by the Guardian as being under extreme financial pressure were being pushed by the accounting system "into a position where recovery looks extremely difficult, if not impossible".



He added: "Financial recovery would imply such damage to patients that no sensible person would go for it. They would not compromise the survival of the people they serve."