Save Hinchingbrooke Hospital

NHS chief admits flawed accounting behind deficits





· Trusts forced into red by 'unsustainable' system

· Department cannot afford £600m to repair damage





John Carvel, social affairs editor

Tuesday December 12, 2006

The Guardian



The head of the NHS in England admitted yesterday that its accounting system was "unsustainable and inconsistent", forcing the weakest hospital trusts into a vicious cycle of spiralling deficits.



David Nicholson, the NHS chief executive, did not dispute reports in the Guardian that used data obtained under the Freedom of Information Act to show how at least a dozen trusts were in an irrecoverable financial predicament. He said the accounting system had to change, but the Department of Health could not afford the £600m cost of repairing the damage the system had already caused. It might have the resources to do so in 2007-08 if the NHS managed to break even at the end of the current financial year. He said he was "absolutely confident" it would avoid another deficit.

His comments came as the Heart of England foundation trust, with hospitals in east Birmingham and Solihull, prepared to announce plans today to take over the financially troubled Good Hope hospital in Sutton Coldfield. The merger would create one of the biggest hospital trusts in England and is seen as a model for rescuing other hospitals from a cycle of deficits.



Mr Nicholson published the priorities, targets and rules that will govern all NHS organisations for the 12 months from April. They include plans to achieve a £250m surplus by March 2008, while increasing hospital activity to make a dramatic reduction in waiting times. He said: "There will be no let-up in the pace ... and I make no apologies for being ambitious on behalf of patients and taxpayers."



But the fragility of the NHS's finances was highlighted by his admission that the health service cannot operate well under the system of resource accounting and budgeting (Rab) imposed on it in 2001. He said: "The way in which Rab is applied to NHS trusts, although providing a strong disincentive to overspend, will become increasingly unsustainable as we move forward with the programme of reform."



Under the Rab rules, a hospital trust making a deficit in one financial year has the amount deducted from its income in the following year. But it is also under a statutory obligation to make a surplus to compensate for the deficit. Mr Nicholson said this double penalty was "inconsistent" with the principles of the government's strategy for paying hospitals a fair price for the number of patients they treated. He accepted the logic of recommendations from the Audit Commission to exempt trusts from the Rab regime, but said it would cost £600m to pay off the trusts' Rab debts. This would have to come out of the department's budget for treating patients and could only be afforded after NHS trusts proved they had financial discipline.



Mr Nicholson did not dispute the assertion in yesterday's Guardian that the Rab rules have forced 13 trusts into an irrecoverable financial position. But he said it was wrong to describe them as "technically bankrupt" because they were public sector organisations.



Gill Morgan, chief executive of the NHS Confederation, which represents the trusts, said: "We are very disappointed the department has not taken the opportunity to revise the NHS accounting rules." Niall Dickson, chief executive of the King's Fund, a health research institute, said: "The quest for financial balance must not come at the expense of patient care."



Doctors and nurses' leaders said the plan to achieve a £250m surplus in 2007-08 implied cuts in jobs and services.



Jonathan Fielden, chairman of the British Medical Association's consultants committee, said: "Operations are being delayed, jobs are being frozen and trained doctors and other healthcare staff are struggling to find jobs, while the NHS attempts to get its finances sorted.



"Meanwhile, NHS money is being siphoned into the private sector through generous, guaranteed contracts to provide care for NHS patients."