Unsustainable NHS resource account and budgeting (RAB) rules to stay
The health department has postponed a decision to scrap a set of accounting rules- that have plunged some NHS trusts into potentially irrecoverable financial deficit. The NHS Confederation, which represents health authorities and trusts, said yesterday that it was disappointed at the decision which came despite the health department accepting that the application of the rules to individual NHS trusts "will become increasingly unsustainable".
Richard Douglas, the health department's finance director, in effect acknowledged that, with the NHS struggling this year to achieve overall financial balance, it cannot at present afford the £600m-plus bill for scrapping the system.
Under resource accounting and budgeting, not only does an overspend have to be paid back but the same amount is knocked off the budget for the succeeding year. As a result a £10m overspend on a £100m budget has to be paid back from a budget that has been reduced to £90m.
That "double whammy" makes it harder to break even and auditors warned last year that it could easily turn a £9m deficit for the Queen Elizabeth Hospital in Woolwich into a £99m one - three quarters of its total budget - within five years.
At least a dozen NHS trusts are faced with a similar spiral of debt whilst others have escaped because, the department admits, the rules have not been applied consistently across the NHS.
The Audit Commission recommended in the summer that the rules should be dropped for individual NHS trusts, although they should still apply to primary care trusts.
However, the health department yesterday said that it needed to find the money to reverse the impact of the system and NHS trusts have first to demonstrate they can cope financially without the discipline that the RAB system brings.
Jonathan Fielden, chairman of the British Medical Association's consultants committee, said it was "extremely disappointing" to see that the rules had not been scrapped.
They threatened to "imperil" NHS organisations by pushing them yet deeper into debt, while already causing "short term cuts directly impacting on patient care".
At the same time, NHS trusts are due next year receive interest-bearing loans rather than cash support for any overspends, and loans for capital rather than cash allocations as they are moved towards the financial regime that applies to foundation trusts.
The effect of Labour's 'Alice in Wonderland' rules is staggering as it leave hospitals facing a £1.6bn deficit. At least a dozen NHS hospital trusts are technically bankrupt, with no chance of meeting a legal obligation to balance their books.
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 many have passed the point of no return.
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."
Today's blog is compiled from:
http://politics.guardian.co.uk/publicservices/story/0,,1969154,00.html
http://www.ft.com/cms/s/7c32ab18-8986-11db-a876-0000779e2340.html
http://politics.guardian.co.uk/publicservices/story/0,,1969173,00.html
The refusal of Hewitt to halt the Resource Account and Budgetting farce nails once and for all the lie that the NHS cutbacks are part of a process by Labour ministers to improve the NHS's services.
These accounting cutbacks are the purely the result of Brown and Milburn's incompetent stitch up in 2002 when they tried to agree a new funding process for the NHS.
Richard Douglas, the health department's finance director, in effect acknowledged that, with the NHS struggling this year to achieve overall financial balance, it cannot at present afford the £600m-plus bill for scrapping the system.
Under resource accounting and budgeting, not only does an overspend have to be paid back but the same amount is knocked off the budget for the succeeding year. As a result a £10m overspend on a £100m budget has to be paid back from a budget that has been reduced to £90m.
That "double whammy" makes it harder to break even and auditors warned last year that it could easily turn a £9m deficit for the Queen Elizabeth Hospital in Woolwich into a £99m one - three quarters of its total budget - within five years.
At least a dozen NHS trusts are faced with a similar spiral of debt whilst others have escaped because, the department admits, the rules have not been applied consistently across the NHS.
The Audit Commission recommended in the summer that the rules should be dropped for individual NHS trusts, although they should still apply to primary care trusts.
However, the health department yesterday said that it needed to find the money to reverse the impact of the system and NHS trusts have first to demonstrate they can cope financially without the discipline that the RAB system brings.
Jonathan Fielden, chairman of the British Medical Association's consultants committee, said it was "extremely disappointing" to see that the rules had not been scrapped.
They threatened to "imperil" NHS organisations by pushing them yet deeper into debt, while already causing "short term cuts directly impacting on patient care".
At the same time, NHS trusts are due next year receive interest-bearing loans rather than cash support for any overspends, and loans for capital rather than cash allocations as they are moved towards the financial regime that applies to foundation trusts.
The effect of Labour's 'Alice in Wonderland' rules is staggering as it leave hospitals facing a £1.6bn deficit. At least a dozen NHS hospital trusts are technically bankrupt, with no chance of meeting a legal obligation to balance their books.
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 many have passed the point of no return.
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."
Today's blog is compiled from:
http://politics.guardian.co.uk/publicservices/story/0,,1969154,00.html
http://www.ft.com/cms/s/7c32ab18-8986-11db-a876-0000779e2340.html
http://politics.guardian.co.uk/publicservices/story/0,,1969173,00.html
The refusal of Hewitt to halt the Resource Account and Budgetting farce nails once and for all the lie that the NHS cutbacks are part of a process by Labour ministers to improve the NHS's services.
These accounting cutbacks are the purely the result of Brown and Milburn's incompetent stitch up in 2002 when they tried to agree a new funding process for the NHS.
posted by Dr Search- Principal Consultant at the Search Clinic at
8:42 AM
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