UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 26-ii

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

HEALTH COMMITTEE

PUBLIC EXPENDITURE ON HEALTH AND PERSONAL SOCIAL SERVICES 2007

Thursday 22 November 2007

MR DAVID NICHOLSON CBE, MR HUGH TAYLOR CB, MR DAVID FLORY and MR RICHARD DOUGLAS

Evidence heard in Public Questions 1 - 229

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Health Committee

on Thursday 22 November 2007

Members present

Mr Kevin Barron, in the Chair

Charlotte Atkins

Jim Dowd

Sandra Gidley

Dr Doug Naysmith

Mike Penning

Mr Robert Syms

Dr Richard Taylor

________________

Witnesses: Mr David Nicholson CBE, NHS Executive, Mr Hugh Taylor CB, Permanent Secretary, Mr David Flory, Director General of NHS Finance, Performance and Operations and Mr Richard Douglas, Director General, Finance and Chief Operating Officer, Department of Health, gave evidence.

Q1 Chairman: Good morning. Could welcome you to our first evidence session on the public expenditure questionnaire that we do on an annual basis. Could I ask you if you could introduce yourself for the record and the position that you hold?

Mr Flory: Good morning, I am David Flory, Director General of NHS Finance, Performance and Operations, Department of Health.

Mr Nicholson: David Nicholson, NHS Chief Executive.

Mr Taylor: Hugh Taylor, Permanent Secretary, Department of Health.

Mr Douglas: Richard Douglas, Director General, Finance and Chief Operating Officer, Department of Health.

Q2 Chairman: Thank you and welcome once again. I will start with some financial situations which seem very topical this morning in some parts of the media. You actually turned a half a billion pound deficit in 2005/2006 into a half a billion pound surplus in 2006/2007. Can you tell us how that was achieved?

Mr Nicholson: Yes, and I think it is worth saying, of course, that we were in deficit the year before that; we had two years of deficit. We turned round the position to a half billion surplus last year and we are expecting a surplus for this year. No doubt we will get on to that as we go through. First of all, I would say that we have to bear in mind the kind of scale of all of this. This is still within 1% of the turnover of the NHS at both ends. So, when you consider we have got over 300 organisations, 1.3 million people work for us, we are treating in any day over a million people, we turnover almost £100 billion in a year, these figures need to be understood in context. That is the first thing. In terms of our approach for last year, we did two things. We focused very hard in those areas where we knew we had financial difficulties, and the introduction of the turnaround teams were a particular example of that. We focused really hard on good financial managing and good financial recovery plans to get us out of the position and, at the same time, we delegated responsibility for a whole series of what were central budgets under the control of the department to the NHS as a whole and out of that we created a buffer of £450 million which we used to give us the certainty that we could deliver financial balance in the year.

Q3 Chairman: Did you use any resources that were earmarked for capital expenditure?

Mr Nicholson: The opportunity for us to transfer capital to revenue, which is something that happened significantly in the past up to about two or three years ago, was not available to us this time, so we could not use capital to offset the revenue position.

Q4 Chairman: What about any other funds? Were any other funds available to help you get there?

Mr Nicholson: The only thing that I would say is the development of the £450 million out of the central budgets, and, as I have spoken before to the Committee about, a substantial proportion of that was a 10% reduction in the training budget, which we made across the country, which, of course, we have subsequently reinstated in the NHS, as we said we would do this year.

Q5 Chairman: So the 450 was just from the central fund?

Mr Nicholson: Yes, a whole series of central budgets that we would normally hold in the department and issue during the year. It was described to the service, and people would understand it, as "the bundle" of resources. We put that under the control of the strategic health authorities after we had taken £450 million out of it.

Q6 Chairman: Can I move on. We assume another way this was managed within the service was by top-slicing. The Audit Commission Review of the NHS financial year 2006/2007 states that top-slicing PCT budgets helped improve financial outturn. What assessment was made of the impact of top-slicing on PCTs on both services, workforce and education and training?

Mr Nicholson: I will ask David to talk about some of the detail in this, but can I say, first of all, that in the operating framework that we sent out to the NHS before the year, we set this out as a potential lever, a tool, that SHAs and PCTs could use to give themselves more certainty and more flexibility in the financial system. I think, in the past, certainly as someone who was a regional director in Trent, there was much more ability to move money around the system than there is now. The ways in which we tightened up the financial rules mean that it is much more transparent now about where money goes. We gave SHAs and PCTs the opportunity to top-slice, to create reserves, in order to add more flexibility to the system and to give people certainty that they could deliver their financial targets, and in a sense the assessments and implications of that and how that was working was something that was much better done locally than was done nationally. So we allowed that to happen; it did happen across the country. I was at the time responsible for London and we did do it in London. This year, of course, there is no necessity for doing that in terms of the financial position because we are in a much better place, although some parts of the NHS are still doing it to a small extent, but that is to do much more with organising and managing strategic change than it is to do with the financial position, but I think David can talk about the detail.

Mr Flory: The top-slices that SHAs applied to PCTs in the year 2006/2007 was a matter for local determination. In fact, when we look across the country we will see a range of half a per cent in some parts of the country to up to 3% in others, and we must remember the context that these financial plans, of which the top-slices were part, were being put together in the first part of calendar year 2006 when across the country up to a third of NHS organisations were over spending and in deficit in that year and the total over spending of those was £1.3 billion. Therefore, what we needed to be sure of in setting the top-slice was that there would be sufficient surpluses being held by strategic health authorities to cover what were judged the inevitable deficits in some parts of the system. Over spending simply could not be recovered in the space of one year, so the SHAs top-sliced - they held that money back. In the event in 2006/2007, in the end, 81 NHS organisations over spent, they over spent by a total of £911 million, and the top-slices that the SHA held ensured that we covered that in helping the NHS, in aggregate, get back into surplus. In many cases towards the end of the year, as the actual position became apparent, money was returned to PCTs from SHAs in-year and in other cases it is still being held in SHAs and will be returned to PCTs at some point in the future.

Q7 Chairman: What effect did it have on services? My own PCT was top-sliced, and I live in an area that has got high health inequalities. Quite clearly it must have had some effect inside the National Health Service, and I ask as my first question: what assessment was made when top-slicing took place?

Mr Nicholson: I think what I would say is that the financial position of the NHS had been deteriorating for the two years before hand and we were very clear that we could not get the NHS back into financial balance across all its organisations in one year without having significant disruption of service; so we took the judgment it was going to take longer than one year. When you take that judgment, you have to find some financial flexibility to enable you to do that, and that was one of the reasons we went for the top-slice. Generally what happened in those circumstances is that we made an assessment about what individual PCTs would need to deliver the basic minimum that we would expect in improvement in service in that particular year. For example, in the case of Rotherham, the SHA and the PCT would have made an assumption about what they would have needed to deliver - 18 weeks, the cancer waiting times, the six targets that were in the front of the operating framework being the absolute national targets. So we would have expected all PCTs to be able to deliver those improvements in their particular patch. As to the rest of their growth, a judgment was taken about how much to take that off. So, in a sense, what I think we deliberately did in those circumstances is we reduced the speed in which organisations could go forward to improve their services, both locally and against other national targets.

Q8 Chairman: Did you ever find evidence where top-slicing had actually reduced service. Potentially I think what you are saying is that it slowed growth.

Mr Nicholson: Yes.

Q9 Chairman: Now there is a difference there. Was that an estimate of the SHAs that it would only slow growth and not reduce service, or was that never put?

Mr Flory: That was the general criteria that SHAs were applying, and whilst I described the variation in the level of top-slice between different parts of the country by SHAs, also within some SHAs there was a differential level of top-slice for PCTs according to their particular circumstances.

Q10 Chairman: What percentage across the SHAs? We were led to believe it would be X per cent across all organisations within an SHA, but that was not the case. Is that what you are saying?

Mr Flory: Not in all cases, no.

Q11 Chairman: That is surprising. Mr Flory, you said something was paid back within year. Was there any interest on that?

Mr Flory: No.

Q12 Chairman: If it was held centrally?

Mr Flory: No.

Q13 Chairman: So there was no interest paid, money was stopped. What about the money that is still held?

Mr Flory: No, the amounts will be returned to the PCTs for saying that they were top-sliced in the first instance. There is no interest on that.

Q14 Chairman: There would be no interest on any of this money that is repaid?

Mr Flory: No.

Q15 Chairman: Would it be fair to say that top-slicing is a more transparent form of brokerage? Brokerage is what used to take place years ago, just a few years ago, without people knowing that it was taking place.

Mr Nicholson: It was a response to a requirement to get ourselves into financial balance in an assured way in as short a possible time as we could. We would not regard it as being a long-term way in which we should manage the NHS arrangements. So, in the sense we had to assure ourselves we could deliver financial balance across the whole of the system, it was a more transparent way of doing some of the things we might have done in the past. That is true.

Q16 Dr Taylor: I am with you, Chairman, that we rather thought it was a 3% top-slice right across the board. I like the way that you say you gave SHAs the opportunity to top-slice when certainly we had the impression that it was an edict that they would top-slice?

Mr Nicholson: No.

Q17 Dr Taylor: It was not. Okay. Talking about education budgets, one of the things we were desperately worried about in the NHS deficits inquiry was the effect of the cut on education budgets which seemed to take the load fairly unfairly, and at the time I think it was Lord Warner who we had here, who would not give us an answer as to how long these cuts were going to go on?

Mr Nicholson: Yes.

Q18 Dr Taylor: Can we be reassured that the education budgets are fully restored?

Mr Nicholson: Yes, you can be assured that is the case.

Q19 Chairman: Going back to PCTs, I am going to have the most incredible difficulty explaining to some of my constituents why we have got a 1.8 billion surplus and yet some of the drugs that have not been through NICE yet, which are being afforded across the country in certain PCTs, are not being afforded in mine. I am thinking particularly of Sunitinib, which gives people with terminal cancer a few extra months, and that is a very strong chance. I have constituents who will just not understand how we can be imbalanced to that amount, and some people across the country can get these drugs, and this goes to several other things we are still waiting for NICE to inquire about. Can there be any relaxation for PCTs to go for some of these items that NICE has not yet ruled on that are proven to have a benefit?

Mr Nicholson: If you are asking me whether we will give out national edicts about all this, no, we will not. It is a matter for local PCTs to make the judgments against their own priorities and their own assessment of their own health needs. I think you said 1.8 billion as the surplus. We have not published the figures and we will be publishing them, I think, on 20 or 30 November, but if I can go back to the position I set out earlier, we did say in quarter one that we were looking towards a surplus of over a billion at that particular stage, and that was made up of the target that we gave ourselves of a quarter of a billion surplus, plus we asked all PCTs to put together a contingency of half a billion, and then there were some other technical issues around that which came to just over a billion pounds, which is a relatively small amount. I know it sounds big to people, but in terms of the scale of the NHS and what we are trying to manage, it is quite difficult. When we issue our figures next month, my guess is it is going to be larger than a billion, but it is still, in percentage terms, relatively manageable. Any big organisation like ours, which turns over over 100 billion, within 2% either way seems to me is a reasonable place for us to be and does give us benefits, but the point I would make about what you have just described is this is a matter for local circumstances. We are certainly not saying to people that they cannot spend the money, because that surplus is not sat with us at the centre. I have not got it in a safe in my office; it is actually out there with the PCTs. When we say what the surplus in the NHS is, we are counting up what all those organisations have. It really is a matter for your local PCT to make a judgment about how it uses its resource and what priorities its puts on it.

Q20 Dr Taylor: If, as according to the Health Service Journal, there is a quite a healthy surplus sitting with my SHA, I can hammer my SHA, who I am meeting at lunch time today, to release a little of this for these specific things to undo the postcode rationing that is taking place?

Mr Nicholson: It will not be sat with the SHA, it will be sat with the PCTs. That is where the resource is, with the PCTs and the trusts. There is nothing wrong with having a conversation with them about that. It is a matter for them to decide what they do. We are certainly not saying you cannot spend that money.

Q21 Jim Dowd: Although the Treasury might eventually.

Mr Nicholson: I am trying to manage the resources of the NHS against a vote that Parliament gave me, and that is what we are trying to do in the most effective and efficient way. What I can say is that the kind of decisions that you have described can now be taken wholly on clinical grounds, not on the basis of whether we have the resource.

Q22 Dr Taylor: Because there is enough money to do it on clinical grounds.

Mr Nicholson: The NHS, by its good management and organisation, has created a healthy financial position for most of the country.

Dr Taylor: Thank you.

Q23 Dr Naysmith: I am just sitting here slightly puzzled about something. It is to do with the titles of Mr Douglas and Mr Flory. David Flory is Director General of NHS Finance, Performance and Operations and Richard Douglas is Director General of Finance and Chief Operating Officer. How do these two things merge together, or is this another example: Mr Nicholson is Head of the National Health Service and Mr Taylor is Head of the Department of Health. Is it that kind of---

Mr Douglas: It broadly mirrors that relationship.

Q24 Dr Naysmith: Who decides on finances then? Is it you, Mr Douglas, or Mr Flory?

Mr Douglas: It depends on what the area is. I lead on negotiations with Treasury on the overall working within Whitehall around department numbers, but I clearly work with David on that. Similarly, David looks out for the NHS and focuses on NHS financial management but at the same time, clearly, he works with me on that as well. Broadly speaking, I am the Whitehall end of the business and David is more the NHS end of the business.

Q25 Dr Naysmith: It works well, does it?

Mr Douglas: It works very well.

Q26 Mike Penning: Perhaps we can talk about something which you are solely responsible for, which is assembling turnaround teams. Do you accept that is your responsibility?

Mr Nicholson: Absolutely.

Q27 Mike Penning: I did not want you to say it was somebody else's responsibility.

Mr Nicholson: No, I have not said it is anybody else's responsibility.

Q28 Mike Penning: On the latest figures this Committee has available, some £36.4 million was spent by trusts around the country on turnaround teams in 2006/2007. These turnaround teams were sent into trusts which had financial problems. Do you think they achieved any savings? How were these savings done? Was this done by cutting the services, as we know has happened, by the loss of jobs, or through better management within the trusts?

Mr Nicholson: David will take you through the detail of this, but to talk about turnaround teams in general, we clearly were in what I would describe as a deteriorating financial position for the NHS and we needed to sort it out pretty quickly. What we concluded was that there were some organisations that were in such difficulty that they did not have the capacity themselves to turn themselves round. On that basis, we decided to bring in expertise from outside, and that is what you have described. David will take you through the numbers, but I would argue they have been pretty effective across the country as a whole. The thing I think we learnt from them is that they did not come up, generally speaking, with lots of exciting, interesting and innovative ideas about how to manage our resources better. Most of the ideas to do that were generated quite straightforwardly from the NHS. What they did bring in was a set of management techniques and a discipline into the system that was lacking in some of our organisations, and so, in that sense, not only were they effective at turning things round but they also, I think, transferred some really important skills to the NHS as a whole to the extent that now we are just about to launch our own turnaround capacity in the NHS of NHS people who we can move around the system to enable these really difficult things to be put together.

Q29 Mike Penning: Can I bring you back before we go to Mr Flory. I specifically said to you: how do they do it?

Mr Nicholson: Good management.

Q30 Mike Penning: Good management in your opinion. It sounds to me then that they were willing to do things which your existing management structures were not willing to do, and in most cases that meant cuts, blood on the carpet?

Mr Nicholson: No, not at all. What they were very good at doing---. If you take an organisation that has a £10 million financial gap, what the NHS was quite good at is saying: these are the areas where we think we can reduce expenditure, without affecting service, that will improve the financial standing of organisations. What we were pretty poor at when we looked at it in these organisations that were struggling is actually executing that, actually making it happen, actually setting out the project plan, the detailed work to deliver that out. That is what they were really very good at. They did not come up with a whole series of things that were unpalatable.

Q31 Mike Penning: No, but you are saying they had the courage, or whatever way you describe it, the professionalism, to go ahead with these plans.

Mr Nicholson: To see through and execute those schemes.

Q32 Mike Penning: I accept that. What I am saying to you (and the Chairman used the example of his own trust and I will use mine) is that in West Herts we were in excess of £17 million in deficit. The turnaround teams came in and 750 job losses were announced. That may well have been sitting there on the plans with the existing management, but they did not come through the system until after the turnaround teams came in. We could have a long debate about whether this has gone too far, which is why you have got the surplus now, how many jobs are being lost which did not need to be lost or how many services were lost, but the crucial thing is, if your teams then leave, the same management is in place that was facing the crisis in the first place. You are now creating your own teams. They are going to come in and go out. If the quality of management is the same when you leave, the same people are in place, the same quality, the same skills. Frankly you are just putting off an inevitable problem again going further down the line.

Mr Nicholson: I think---

Q33 Mike Penning: That is the assumption to make, is it not? If you go in and make decisions, then you take your turnaround teams out and the same existing management is in place, you are likely have the same problems again further down the line?

Mr Nicholson: All I would repeat is what I said before. One of the great things about the turnaround teams was the transfer of skills, of knowledge and of technique to the existing management, and there is no doubt now, if you look around the system, NHS management is much better equipped to deliver these kinds of changes than they were in the past.

Q34 Mike Penning: Let us see if we can find some evidence of that. One hundred and four organisations were judged to have financial problems by your department and turnaround teams were put in. Fifty-five of them still have financial deficit balances in 2006/2007. It is not a great result if you only turn round half of them. That is a specific question to yourself. You are in charge of the department. One hundred and four million, huge amounts of tax-payers money spent, lots of jobs and services cut and yet 55 were still in almost the same position as when you went in.

Mr Nicholson: I do not accept this idea that lots of jobs and services were cut. The data does not reflect that.

Q35 Mike Penning: So 750 positions and jobs were not lost in West Herts Hospital Trust. David Law, the then Chief Executive of West Herts Hospital Trust, sat in that chair, answered questions from this Committee and agreed that 750 jobs or positions will be going in that trust. You are now saying that is not the case.

Mr Nicholson: It is not the case, because that did not happen in practice. If look around the country, if you added up all the jobs that people said were going to be lost, you would come to a fairly significant number. The information that we have through the census shows that overall, to September of last year, 6,000 jobs were lost across the NHS as a whole. What was happening, of course, is because people were looking at these areas and areas were being put at risk in terms of identifying changes that needed to be made, in terms of getting the consultation position right, we had to identify, and individual organisations identified, those areas that they were looking at, and that did come to substantial numbers but it did not relate to the reality of what happened in practice, and I can go back again and say that we were sensible about this. There are some organisations that are in such financial difficulty that the idea of trying to get them back into balance in one year was simply not a credible plan, both in terms of the impact that would have on the service and the impact on the organisation. We always knew that there were some organisations that would be going into this year with financial problems, and we are using this year to enable us to get to a position so that by the time we get to the end of it we have real clarity about where we are, and the figures, I think, will demonstrate that when we publish them next.

Q36 Mike Penning: The last question. Is there a relationship between the amount of money paid to the directors, which for turnaround teams is a substantial amount of money, and the improvement of the financial performance and (to follow on from that) does a large amount of remuneration, and the figures are there, reflect value for money? In other words, if you are paying huge amounts of money to these turnaround directors to come in, is that value for money or is that why you have now stopped doing that and are trying to do it internally?

Mr Nicholson: First of all, there was not a connection between what we paid the turnaround people and the amount of money they had to get out. There was not a performance-related element to that. We paid them for the jobs, and the hours and the weeks that they did with us, and we had to pay them because we simply did not have the skills and capacity within our existing NHS to deliver that. I think we are in a much better place now to be able to do that, although there will always be times when we need to bring people in.

Q37 Mike Penning: The people that did not have the skills before these turnaround teams went in have got the skills now they have left?

Mr Nicholson: Some of them have, yes, absolutely, and we will be able to show you that through the improving financial position of the NHS over the next two or three years.

Q38 Charlotte Atkins: What support are you giving those management teams that had the turnaround teams in there now that the turnaround teams have gone? I appreciate that turnaround teams were largely focused on finance, but it is very clear that some managements, for instance my own local university hospital in North Staffordshire, still need support in terms of getting things down, like MRSA levels?

Mr Nicholson: That is absolutely right, and some organisations are in difficulty and the system need to support and help them, and it is doing that.

Q39 Charlotte Atkins: How exactly are you doing that?

Mr Nicholson: If you take MRSA, there are both teams working from the centre, nationally, with organisations in the field who have difficulties and the strategic health authorities have also got teams that are working with organisations.

Q40 Charlotte Atkins: But you talked about the NHS having its own turnaround team?

Mr Nicholson: Yes.

Q41 Charlotte Atkins: How is that going to work and how is that going impact on people's perceptions of their own local hospitals: because people are losing patience with some hospitals getting their act together?

Mr Nicholson: What we are doing in terms of turnaround for the NHS as a whole, we are going through a process of identifying our most talented managers across the system as a whole who have got experience in turning round various elements of the work and we are putting them together in team. Sir Ian Carruthers, who is the Chief Executive, South West, is organising and leading all of this. We are putting them into six organisations as pilots to see how it works in practice so that we can bring people in for a relatively short amount of time to do the work that is needed to help these organisations being taken forward.

Q42 Charlotte Atkins: What criteria do you use to indicate that a particular area needs such a turnaround team?

Mr Nicholson: I think there are a variety (and I am sure David can say something about this if he wants to), but those organisations that are still in serious financial difficulty, those organisations that are in particular difficulty in relation to hospital infection are the ones that we are focusing our attention on in the first case.

Q43 Sandra Gidley: Nobody would argue the fact that there has been huge increase in spend in the NHS, but what have tax-payers actually got for their money?

Mr Nicholson: Well, if you look at the NHS over the last year or so, we have delivered on every single major national target that we have been given, through access both of primary and secondary care, cancer---

Q44 Sandra Gidley: Cancer? But our survival rates are no better than---

Mr Nicholson: No, but they are significantly improving.

Q45 Sandra Gidley: That was happening anyway. The curve has not increased.

Mr Nicholson: We have significantly improved access to cancer services, the development of multi-disciplinary teams in cancer, the quality of service that we provide on coronary heart disease - there is a long list of things that have been delivered by the NHS over the last few years which I am certainly proud of. At the same time, we have delivered record levels of patient satisfaction. Over 90% of our patients are either satisfied or very satisfied with the service that they get. My guess is that most private sector organisations would be extraordinarily jealous of those sorts of results, and we have delivered financial balance and a financial service.

Q46 Sandra Gidley: Approximately a third of that money has gone on increasing staff wages, and today we have a report from the Public Accounts Committee: "NHS pay deal gave something for nothing." Do you think a lot of that increased money has been wasted?

Mr Nicholson: I do not buy that at all. We set out at the beginning of this process to completely change the way in which we paid and rewarded all of our staff. Over the last three or four years virtually every single person who works for the NHS has had their terms and conditions of service changed. We have got a position now where, for example, for the first time in terms of consultant medical staff, which I assume is the one that you are referring to, many people around will remember that for most consultant medical staff there was no system in terms of way they were managed in the organisation as a whole. We did not know how many sessions they were doing. We did not know where they were doing them.

Q47 Sandra Gidley: Clearly, because you are now paying them more for working less.

Mr Nicholson: And part of it was to improve the remuneration of people who worked in the NHS and consultant medical staff were one of them. We get fantastic productivity out of our consultant medical staff.

Q48 Sandra Gidley: You say that. Consultants' pay has risen by an average of 27% but their working hours have fallen. How can that be a good deal for the patients?

Mr Nicholson: Over three years, and, I would say, that the number of patients they have treated has gone up significantly during that period as well, so their productivity has improved during that time.

Q49 Sandra Gidley: Do you have any figures to back that up?

Mr Nicholson: Year on year we are increasing the number of patients that we treat.

Q50 Sandra Gidley: But you are also increasing the number of consultants, so does each individual consultant actually treat more patients for their nice increase in salary?

Mr Nicholson: No, but what it does allow you to do is to manage the system far better, because now we have a situation where all consultants have a clear job plan. They did not before. We can co-ordinate the work of consultants across hospitals in a way that we could not before. The idea of a consultant working as an individual, separate from the team, is no longer the way in which hospitals operate; you need to co-ordinate the work of that consultant with either their theatre team, with other consultants through multi-disciplinary teams, all of those sorts of things are a reality, and to do that you need a much more managed system. What is true---

Q51 Sandra Gidley: Surely some of that was happening anyway; so all you have done is introduce an extra layer of form-filling and bureaucracy.

Mr Nicholson: No, on the contrary. What I have just described was the implementation of the National Consultant Contract which gave a real clarity about the hours that consultants worked and what they did while they were there, which I think is a transparent and really good way of doing it. If you are telling me: have we got all the benefits out of that? No, we have not, but in a sense just the implementation of it was a big task for the NHS, and the 27%, of course, referred to three years, not one.

Q52 Sandra Gidley: We had better move on. Obviously there is more money in the pipeline, so what are the department's priorities for health over the next three years?

Mr Nicholson: The department has set out its departmental strategic objectives to do that, but in terms of the NHS, we are working through the operating framework at the moment, which will identify the kind of things that we would regard in the NHS as being particularly significant over the next period, and that document will come out in the middle of December, as it did the year before, but my guess is that there will be no surprises in all of that. We will still want to deliver 18 weeks, we will still want to deliver better access to primary---

Q53 Sandra Gidley: Only for 90% though, but we will come to that later.

Mr Nicholson: That is an interest point. We have just set the target for 18 weeks. There was not a target for 18 weeks. There was not a 100% target that we have now changed, we have just set the target, and when you set these targets one of the things we have learnt is that you have to listen to patients and you have to listen to clinical staff. We did not want to get ourselves into a position where we were essentially telling patients that they had to be treated within 18 weeks whether they wanted to be or not, because quite a lot of patients want to pick when they are treated, so we did not want to get into that, and we also did not want to get into a position where we were encouraging clinicians to treat patients when essentially watching and waiting was a better way of dealing with it. We could have done it in such a way, as every time there was a clinical or patient exception we could take them out or suspend them in some way in terms of that contract. We took the judgment that that would be incredibly bureaucratic and incredibly difficult to do, the idea of getting patients to sign a form that said, "I exempt myself from the 18 weeks", so we have had to make an assessment of what percentage they are, and that is why we have got to the percentage you describe.

Sandra Gidley: I think there will be more on that later.

Q54 Dr Naysmith: One of the things there cannot be much argument about is that there are going to be a lot more doctors appearing over the next few years. The predictions are quite substantial that in the five years from 2007 to 2011 there will be 29,481 medical graduates and 14,275 of the current workforce saying they are going to retire. That leaves quite a large number of doctors. How does the Government plan to organise employment for this large number of new doctors?

Mr Nicholson: There are some really important issues here that have not finally been teased out. The most obvious one is what is the nature of the service that we are going to be taking forward in the future? Is it going to be a consultant-led service or a consultant-delivered service? That has a big impact in terms of the numbers of staff that you want. We have not come to a conclusion on all of that and, in a sense, one of the things that the next stage review is tackling is that very important policy decision, and that has a massive impact on the number of doctors that you need and the way that you deploy them. The second one, of course, is---

Q55 Dr Naysmith: To be fair, it has a massive impact on the grade of doctors you employ; we still need this large number of doctors. If it is consultant-led and therefore you have got another grade lower than consultant employed, it will cost less, that is true, but there will still be just the same number of doctors.

Mr Nicholson: If, for example, doctors in training had very little or no service impact, that would have an impact on the number of doctors that you needed.

Q56 Dr Naysmith: But then they would not get trained, would they? The way doctors are trained is as apprentices. If they are not delivering the service, then they would not be seeing patients.

Mr Nicholson: But as doctors come out of training, we may well be using them more and more to replace the training the next set of doctors are doing. The second area, of course, is the whole issue about shifting to more community based, primary care based services, and I think we are going to see a significant expansion in primary care medical services. For example, one of the things that I am doing as part of going round the country with Lord Darzi at the moment is that wherever you go you are seeing new grades of doctors being developed. For example, community cardiologists, community stroke physicians, community urologists, community gynaecologists, a whole new set of people that we are looking to develop in the community. I think those two things are really very important.

Q57 Dr Naysmith: All of this is going to cost more money.

Mr Nicholson: It is.

Q58 Dr Naysmith: You are predicting that the percentage is going to go down over the next three years, or the percentage of growth is going to be lower over the next three years than it has been over the last three years, so where is the money coming from?

Mr Nicholson: Yes, that is absolutely true. One of the most important things about getting the finance of the NHS into a good place is that we can make sure that, instead of spending growth money on funding deficits and funding problems, we want to get to the position, hopefully next year if we can, where every PCT can spend all of their growth on new things. That is the great thing. Over the last two or three years, sadly, some growth has been spent on supporting deficits. So I think, although the growth rate is smaller, although I have to say as someone who worked in the NHS it is larger than we had imagined it was going to be, my focus has to be to make sure we can spend that on new things, and if we can do that, I think we have got the opportunity to expand the medical workforce.

Q59 Dr Naysmith: As I know from my local PCT and other PCTs, they have got ideas for spending that money and they do not all include having new medical graduates.

Mr Nicholson: That is true.

Q60 Dr Naysmith: But the tap is turned on and these trainees are going to come out of the colleges over the next few years, and there was the Appeal Court judgment recently which said we have got 1,200 applicants for our medical schools. There may not be secure training posts, because there will be competition from outside the EEC, and last week the Chief Medical Officer implied that these 1,200 applicants will, nevertheless, be employed by the National Health Service. How can we be sure that is the case? Is it correct, first of all?

Mr Nicholson: I think that the Appeal Court result gives us some serious problems. I will not under estimate the scale of those problems. Last year we had a position where we had two doctors going after every one training place that we had.

Q61 Dr Naysmith: Will there be still positions for doctors with this extra 1,200 over the next three or four years?

Mr Nicholson: Based on the Appeal Court judgment, it is going to be three to one next year, so that is a serious problem, and we are looking at how we can get ourselves into a much better place to do that, particularly around UK graduates and UK trained doctors. As I sit here at the moment, we are still working through how we can work that.

Q62 Dr Naysmith: You have talked to the Chief Medical Officer about it?

Mr Nicholson: Yes, he talks to me regularly about this.

Q63 Dr Naysmith: You have not come to any solution yet?

Mr Nicholson: No.

Q64 Dr Naysmith: It is a very difficult problem.

Mr Nicholson: It is very difficult.

Q65 Dr Naysmith: Where will you find the money for it?

Mr Nicholson: It is not just money, of course. Part of the issue is, if you have a policy of self-sufficiency but you have open borders, how do you deal with it? That is the conundrum that we are dealing with, but it is not just a question of money. One of the big limiting factors is our ability to give supervision to training doctors. You could put a lot of money into the system, but we would not be able to deliver the training because the service doctors are there to treat patients.

Q66 Dr Naysmith: The Chief Medical Officer told us also that in his opinion there were still too few doctors in England. Do you think that is true? Do you agree with him?

Mr Nicholson: I agree with him, and that is why we have trained the ones that we have. We expect an increase in the number of doctors.

Q67 Dr Naysmith: At what level would the department consider that we have enough doctors? When would you say we have enough? We have a lot fewer than Italy, for instance, but there is lots of unemployment amongst doctors and undergraduates?

Mr Nicholson: Yes. I think that is quite difficult to judge against the background of us not finalising our position on the structure of the way in which secondary medical care is delivered and the consequences of the big changes from secondary to primary care around the next stage review. So, I think we will be in a much better position in the spring of next year to answer that question than we are at the moment.

Q68 Dr Naysmith: We will have you back in the spring of next year and we will get an answer, will we?

Mr Nicholson: I will be delighted to come and talk to you.

Q69 Jim Dowd: You said that with such enthusiasm.

Mr Nicholson: I would be delighted to come to this committee and talk about it!

Q70 Mr Syms: The department's answer to Public Expenditure Questionnaire Six indicates that in 2005/2006, as in the last two or three years, between roughly one-third and one half of additional resources have been spent on wage increases. You mentioned that conditions have been changed and the service has taken the opportunity to review some of these, but is this sustainable?

Mr Nicholson: No, it is not sustainable. You can see by the pay deals that we have done for this year, around 2% for most of our staff and 0% for GPs is increasingly going to be the way in which we handle pay. Our evidence to the review body for next year says that we would expect pay increases of around 2% to be appropriate for most of our staff, one and a half for doctors and, again, nought for GPs. That, I think, is the way we can squeeze the pay bill in the NHS and at the same time focus our attention on all the opportunities that particularly the GP contract and the consultant contract give us now to improve productivity.

Q71 Mr Syms: You mentioned the 2% or below pay awards. Do you think it realistic that you are going to be able to deliver pay increases below the rate of inflation for the NHS? Are we going from feast to famine in that regard?

Mr Nicholson: I do not know whether we are going from feast to famine, but the reason we put so much into the pay system over the last three or four years was to reform that system, was to change it. We have now changed it. We have got Agenda for Change, we have got the GP contract, we have got the CWOF, we have got issues around job planning for consultants and a much clearer understanding about what they do and how they do it; the task now is to get the best value for money for tax-payers out of that arrangement, and I think a good mix of that will be to try and keep the overall level of pay increase down.

Q72 Mr Syms: Does the Comprehensive Spending Review make assumptions for future pay settlements and, if so, what are they?

Mr Nicholson: I think Richard is probably best to answer that.

Mr Douglas: When we entered into negotiations on the spending review they were based on current public sector assumptions around pay, so we built in the assumptions around 2% headline pay growth. One of the reasons - I think an answer to one of the earlier questions - for managing within a slower rate of growth in resources is, as David said, we put an awful lot of money into reforming pay in the last spending review period. We will not be needing to put that level of resource into pay in the next period.

Mr Syms: Thank you.

Q73 Jim Dowd: Can I follow up what you were saying. When we talk about wage increases between one-third and one half, we are talking about the total pay bill, we are not talking about everybody in the NHS having seen their pay go up by one-third and one half in the last three years, are we?

Mr Nicholson: No.

Q74 Jim Dowd: Can I pick you up on one thing you said, Mr Nicholson. You said, "An organisation like ours, a £100 billion a year business" - there are not many like that, certainly not in the UK let alone across the world - plus or minus 2% outturn. Why, when it was on the minus side of that tolerance, were you a good deal more excited than you are now it is on the plus side?

Mr Nicholson: I am very excited about being on the plus side, I have said. Perhaps I am not showing it. I am extremely excited about it because having spent 30 years in the NHS, I cannot ever remember a place that we have been where we have---. All of my career people have been saying, "If only we had a bit of head room, if only we had a bit of give in the system which would enable us to make some of the big strategic changes that we need, what a great place the NHS would be." Well, we have that, but actually it makes it much tougher in lots of ways, because it is easier, in those circumstances, to say we cannot do something because we cannot afford it, to say we cannot do something because it is not clinically effective and we do not think it will give benefits to patients. That, I think, is a much more difficult thing to do. So, I am excited about it. The issue for us on deficit, though, and this is why I am absolutely determined we will not get there again, is the impact it had on public confidence and the confidence of our people. A relatively small deficit, whether we like it or not, impacts on the confidence of the general public, people, tax-payers, on whether we are capable of taking this organisation, this system, forward and that, it seems to me, was the key issue that we had to get over to our people. Although it was small, it was vital that we did it. If we cannot essentially keep our finances in order, I think people make the judgment that we could not keep many of the other things in order, so that is why it was so important to do it.

Q75 Jim Dowd: I certainly share your view of its importance, but it is going to move from a plus or minus tolerance to simply a plus tolerance in future, is it not, or a minus, whichever way you care to look at it, because, of course, the operating framework document projects every NHS body to plan for a surplus every year?

Mr Nicholson: We certainly believe that organisations can plan better and have more control over their future if they plan for a surplus. That is true. We identified this year a particular surplus that we expected them to deliver. I doubt whether we will do it in the same way in the future.

Q76 Jim Dowd: Are you not fearful, though, if you are now projecting year on year services unendingly, that the Treasury may look at the allocations?

Mr Nicholson: If you want change, if you want to transform a service, if you want to improve services for patients, if you want to shift from secondary to primary care, you need financial head room, and I am sure the Government as a whole wants the NHS to transform itself to make it an organisation fit for the twenty-first century, and that is part of it, creating the head room to do it.

Q77 Jim Dowd: Sure. How would you react then to the notion that if the Government, if Parliament allocates a specific sum of money to the National Health Service, it expects to get that sum of money spent to maximum benefit both the tax-payers and the users of the service?

Mr Nicholson: I think that is absolutely right, and so it should, but it also should believe that we should not spend money just because we have got it. One of the things that we had to get over in the past was that individual PCTs are incredibly ambitious for their own populations, they want to do good, and many PCTs see it as almost their moral responsibility to spend every single penny that they have got, but if you do that, what happens is when things come along that are unexpected - new drugs, changes in technology, changes in the way that patients are being treated in the system, influenza outbreaks, a whole series of things - you have absolutely no flexibility to deal with them, and so I think not only do the population want us to make sure that we spend money in the best possible way, but they also need to be assured that when things do happen that are unexpected the NHS has the resources to respond to them.

Q78 Jim Dowd: I share that view. You need that flexibility.

Mr Flory: Could I add to that. Perhaps the implication of the question is, is the rate of improvement in the financial position likely to continue if everybody generates a surplus again next year? Will we have a significantly larger under spend? We are at a relatively early stage of the financial planning for next year, we still have at this stage of this year 25 NHS organisations who are projecting to be in deficit at the end of this year, and a key priority as part of our financial plan going into next year will be that they return to balance. We have seen a significant reduction in the number in deficit, we want that to go to nil for next year, and in the context of the significantly healthier financial position that we now find ourselves in, we have the expectation that Primary Care Trusts will be much more confident in fully committing in their expenditure plans the money available to them. As David says, we hope to get to a position by 1 April where all the new money for PCTs will be available to them to spend in year and that they will be able to produce their service improvement plans for the year with much more confidence than we have seen previously. The combination of those two things, and it is a little bit speculative at this stage to say, but I think it points us next year to a level of surplus in the system pretty much equivalent to where we are going to be this year. I do not see a steep increase in the rate of surplus during the next financial year at all.

Q79 Jim Dowd: But if you are planning for a year on year surplus, how can you then deploy the surpluses, if you are an NHS body, whether a PCT or a trust, whatever it might be? How can you deploy those surpluses for patient benefit if you know you have got to return another surplus next year?

Mr Flory: I think that when we talk about the system being continually in surplus, it comes from a point of view of eliminating any organisations who are spending more money than they have got. That is the core principle of this now, that each organisation gets to a point, and there is a small number still to get there, as I say, of managing effectively their resources in year, bringing stability certainty not only to the financial performance but to the service delivery for NHS organisations; and my emphasis in terms of the surplus every year means that there will not be any deficits, rather that there will be an increasing build up of an under spend in the system.

Q80 Jim Dowd: But is there not a tension, the point that Richard was alluding to earlier. It is a general truism that the demand for healthcare in the UK is virtually infinite but the resources are not, but if you arrive at a position that says, "We have been given an amount but we do not need to spend it all", surely we are then not meeting all the needs we can?

Mr Flory: Our expectation, in the context of the healthier financial position that has already been described in this discussion, is that primary care trusts will fully commit the resources that are available to them, to have resources for next year, including their growth allocations for next year, built into their service improvement plans.

Q81 Jim Dowd: Can I turn to financial forecasting within the NHS? I think it is fair to say, not just in recent years but probably since the earliest days of the NHS, it has had a pretty patchy record, to put it at best. Can you describe (a) how they regard the quality of the financial planning and where it is generated from - from within the department or within the NHS itself? If it is generated from somebody sitting round this table, clearly you are going to tell me it is very good, but a general view on the reliability and, therefore, the usefulness of financial planning within the NHS.

Mr Flory: The numbers that we talk about when we describe the forecast surplus for the year is a product of the aggregation of the forecasts of all NHS organisations. It does not include the NHS foundation trusts, but all PCTs and all NHS trusts that are not foundation develop their projections for the year. It is fair to say that the evidence that we see in some previous years is that there is some volatility in the forecasting in the course of the year when we look at where we finish at the end of the year.

Q82 Jim Dowd: Qualitativity means unreliability, does it?

Mr Flory: I think we are getting better, and there are a number of reasons for that, and I think that we look to continue to improve this as we go from this year into next and set our plans and forecasts for the next financial year. The financial regime changes, as we referred to earlier in terms of simplifying the regime. Taking out the resource accounting, budgeting regime for trusts, introducing a system of working capital loans to replace the old brokerage means that we have a much clearer position and understanding now of the financial health of individual organisations, more so than we have ever had before, and that is not only for us looking at them but for them themselves and those boards who are managing their own financial business. I think that there is a greater clarity and transparency in the regime which now we are beginning to see, and, indeed, are seeing, reflected in a greater transparency in the financial forecast for the year. A forecast at any stage in the year, one looks at the evidence of what has happened previously, one looks at commitments that have been made and entered into that are going to affect expenditure for the year, one looks at income for the year in NHS trusts and one draws on evidence that has got us to where we are now and makes judgments about what is going to happen in the remainder of the year; and we are getting much clearer and better at standardising the evidence base that we draw on for forecasts but, ultimately, the forecast of what is going to happen in the future is a matter of judgment for finance directors, for chief executives, for boards in NHS organisations, and we continue to work with them through the strategic health authorities to get a more consistent and higher quality basis upon which those forecasts will be made in the future.

Q83 Dr Naysmith: Could we move to value for money, productivity and cost-effectiveness again? It is something we have touched on already. When we were inquiring into workforce planning about a year ago, we were told by the department that the number of staff employed had risen but productivity had not, and that was said quite clearly. Is there any evidence that productivity in the NHS has improved since our inquiry?

Mr Douglas: I think the first thing to say is that it is very difficult to measure productivity across the whole NHS. What people tend to look at is can you come up with a single measure that aggregates every single piece of NHS activity and turns it into a number. The latest assessment we have had from the Office of National Statistics was that, when you take into account quality changes and improvement of up to about 1.5% a year in productivity growth, if you take out the quality improvements, then you are down to something like minus half a per cent, something like that, per year change. We are trying to produce a far better measure of productivity across the whole system. We are working with a number of academics, a number of universities on that, but what we have found is that no one in the world has cracked this and there is no one in the world actually that has cracked a way of measuring overall productivity across an entire service sector, which is what we are. What we tend to focus a lot more on is what are the things we can do to improve productivity in individual pieces of work to individual areas of our business, and that was really what we were trying to get through to on the pay contracts, the changed consultant contracts, Agenda for Change. How can we use those contracts to lever more productivity out of the system? There are a number of initiatives there, but I would not come up with a single measure that says: this tells you everything about productivity.

Q84 Dr Naysmith: Since you have mentioned the consultant contract, we were told at the time that great productivity gains were expected from the new contract. The Public Accounts Committee has just published a report that says that consultants are now working fewer hours than they did and they are seeing fewer patients. Do you think they just got it wrong, or do you accept that conclusion? You gave evidence to the committee, Mr Nicholson.

Mr Nicholson: I did.

Q85 Dr Naysmith: Have they just got it all wrong, or what?

Mr Nicholson: I suppose what I would say about that, reflecting on what I said earlier, is that there is no doubt that the consultant contract gives the opportunity to take that forward. I do not believe the NHS, as yet, has demonstrated that we have delivered that out of it. That is true.

Q86 Dr Naysmith: Can I give you another quotation from the public accounts: "NHS consultants must now justify their big jump in pay by giving more support to the redesign of services and by changing their working culture. In so doing, they can perhaps deliver that increase in productivity, which was the point of the whole exercise. However, with the extra cash now in their pockets, the incentive for changing how they work has disappeared." That is a damning indictment, if it is true?

Mr Nicholson: I do not think it is a damning---. It seems to me that the consultant contract for the first time gave us the opportunity to be really clear about what consultants do, when they do it and what we expect. It also gave us the opportunity annually for them to have to sit down with the management of their organisations, often medical managers, to talk through and work through what is expected of them for the year to come, and there is no doubt, if you look around the country you will see increasing individual trusts being able to lever that change in significantly. Not least of all, we know that when the original consultant contract was put in place consultants were being paid for over eleven Pas - they are now being paid for just over ten - so there has been quite a squeeze in all of that to get better value for money out of that, but in terms of the way in which consultants can contribute to service redesign, I think the next stage of the review is showing us a fantastic coming together of those two things. Everywhere we go we see consultant medical staff who are now much more engaged in redesigning services. In fact, yesterday I was at a conference that Lord Darzi had organised with nearly a thousand clinicians there, all working on how we can redesign service. The consultant contract gives you a common currency and a common system by which you can then start to change the way people work in terms of hours in a way that we have never had before.

Q87 Dr Naysmith: I know quite a lot of consultants who work very hard, and there is no doubt that they do, but some do not. We have had some amazing pieces of evidence to this Committee where you look at consultants' outturn in terms of operations done and that sort of thing and the range between some of them, from the top to the bottom, can be really quite significant. You mentioned earlier that you did not have the tools to do it before this contract. Actually you did have the tools - job plans have been around for quite a long time - but we have also had chief executives of trusts sitting there and telling us that they had no control over their consultants before; they could not even get them to agree a job plan. You have got that now.

Mr Nicholson: They have got to do it now.

Q88 Dr Naysmith: They have to do it now. They are now doing what they were paid to do before without the job plan?

Mr Nicholson: I am not trying to say that the consultant contract has significantly improved the productivity of consultant medical staff, and the evidence does not support that. What I am saying, and what I said to the Public Accounts Committee, is that we now have the tools in place to enable us to do it.

Q89 Dr Naysmith: So how are you going to measure it? We have just had this discussion saying that we cannot really measure it very well, so how are you going to measure it?

Mr Nicholson: In a sense, how are we going to measure it nationally? The important thing is how are they going to measure it in terms of individual organisations, how they actually use their consultant medical resource, and it does vary, and this is part of the problem that we have. If you try to identify one number which relates to the whole of the NHS, you get yourselves into all sorts of difficulties. Having run hospitals in the past, I know that an individual member of the consultant medical staff could do an operation in 11 minutes whereas it would take someone else 21 minutes. I certainly do not see it as our responsibility to stop-watch how long operations take. That is a local management decision. There may be all sorts of reasons why that is the case and that is much better done locally. All I am saying is that the consultant contract gives a framework for people to work in that manner.

Q90 Dr Naysmith: What do you say to the fact that in 2004/2005 the number of consultants increased by 7% that year but the number of emergency and non emergency admissions to hospital increased by 3%?

Mr Nicholson: Yes.

Q91 Dr Naysmith: Can you use these kinds of figures to talk about productivity or not? It seems to those outside that you have got more people working and fewer people being treated.

Mr Nicholson: If you take that particular example, ten years ago you would have had half a dozen general physicians taking a medical take who were generalists, who may have a special interest, but were working with those patients. These days you may have 20 or 30 individual consultants who have a whole variety of individual specialisms, where patients are moved to the place where they can be better treated. I think the quality of emergency services has improved significantly. The problem we have had is just getting a grip on how you measure it. That has been our dilemma.

Dr Naysmith: Finally - you did not really answer my question - do you think the Public Accounts Committee got it wrong?

Q92 Jim Dowd: Do not be afraid to say yes!

Mr Nicholson: I am in front of the Public Accounts Committee in about two weeks' time. I think there are significant benefits for the consultant contract which are not reflected in what you have said or the Public Accounts Committee have said. It was a big change in terms of the relationship between medical staff and the NHS as a whole. It is true that we have not delivered all the benefits of that system in the first two or three years of its implementation, but I have absolutely no doubt that it gives us fantastic leverage to move the service forward in the future.

Q93 Dr Taylor: Can we come to another tool to improve effectiveness, and I am talking about better care better value indicators. Firstly, I am going to try to establish if the amount you think you are saving, 180 million, is actually just an estimate or real. I have got the figures you have given us on table 97, page 181. It is question 97 at the bottom. We have got the table which gives the length of stay, day case rates, pre-op bed days and then figures. At the end, if you take length of stay, there is minus 124, which we assume from the sums at the bottom is minus 124 million. Whatever are the figures 975, 947, 909, 851, which when subtracted from each other give you this 124? I do not understand what those figures are and how you get 124 million out of them. I really wanted some explanation.

Mr Douglas: I think, turning to the table quickly, the figures by quarter show the assessed productivity opportunity.

Q94 Dr Taylor: "Assessed productivity opportunity". What does that mean?

Mr Douglas: For each of the indicators, a productivity opportunity is assessed based on the performance of the better trust.

Q95 Dr Taylor: I understand that for statins, but length of stay what does that 975 figure mean? What is it?

Mr Douglas: That will be the assessed amount that could be saved by moving the worst performers in terms of length of stay towards the better performers. So if the product opportunity decreases each quarter, it is because people have moved up the scale towards the best, so some of that opportunity has been taken. The improvement in value would then be the 124, the difference between the productivity opportunity, two points.

Q96 Dr Taylor: So the 975 refers to millions - they are all millions that you are taking away from each other - because if the 124 at the end is millions, the others have got to be millions.

Mr Douglas: Yes.

Q97 Dr Taylor: Are these actually real observed figures or are they guessimates and hopes?

Mr Douglas: They are observed figures in terms of the changes in length of stay. So whether someone has actually taken those pounds out as a result of reducing length of stay is not something that would reflect in the better care better value indicators.

Q98 Dr Taylor: If you look at the statins figures, which I did think I understood until I saw this, we are trying to get all PCTs up to the top quartile, which is a prescription of 69% of low-cost statins over generic statins originally. What do those figures, 63, 72, 53, 34 and minus 29 refer to?

Mr Flory: The 63 million figure---

Q99 Dr Taylor: So it is 63 million pounds?

Mr Flory: Yes.

Q100 Dr Taylor: What is that?

Mr Flory: That is deemed to be the current excess costs of prescribing statins over and above what the cost would be if everybody achieved the low-cost stain prescribing for better care.

Q101 Dr Taylor: The 69% achievement?

Mr Flory: Yes.

Q102 Dr Taylor: We think we have saved 29 million on that already?

Mr Flory: Yes.

Q103 Dr Taylor: So these are firm figures that we have saved, are they, this 180 million, by these better care better value indicators?

Mr Douglas: They will be the reported improvement in performance, say, on things like the length of stay, but people then have to take the costs out as well. You can have a productivity opportunity and reduce your length of stay; what you have then got to do is redeploy that resource in some other way. So, yes, they are reported changes in length of stay, they are reported changes in statin prescribing, so in that sense they are real numbers.

Q104 Dr Taylor: What do you do to help trusts achieve these improvements? Do you just give them the example and say, "Work to that"?

Mr Nicholson: All these are published, and when we publish them we benchmark every organisation against what the best would be and point out to every organisation what potential savings there are if they were to get to the working of the best. The Institute for Innovation, whatever it is called, supports and helps organisations who ask for help or who have particular problems; so they will send teams in to help and support them tackle some of these issues.

Q105 Dr Taylor: So shaming the worst organisations does have some effect?

Mr Nicholson: I do not think shaming. It is more to do with their boards. When their boards are looking at their performance, they can look at their comparative performance with other organisations, which seems to be a very powerful way of doing it. We do not publish a league table and publicly shame people. What we do is we send out information to individual boards so in Worcester they can look at how they are doing against Hereford, or other places.

Q106 Dr Taylor: I always remember that before the latest reshuffle three health ministers were in the worst 10% of the statin prescribing PCTs. However, do you think clinicians take any notice of the better care better value indicators in their work? Do you think it actually changes what they do?

Mr Nicholson: Certainly medical directors do because, as part of boards, I would expect all medical directors to be engaged in this, and there is good evidence that they are. How that works its way through the system - it would be based on individual organisations and the way that they are operating. If you are asking me whether consultants when they sit in their tea room talk about these things, I would doubt whether they did.

Q107 Dr Taylor: Have you got more of these in the pipeline?

Mr Nicholson: Yes, we are going to 20 of these better care better value indicators soon.

Q108 Dr Taylor: Soon?

Mr Nicholson: I cannot remember the date, but in the next few months.

Q109 Dr Taylor: You have already mentioned that you have now got the head room to make the NHS better?

Mr Nicholson: Yes.

Q110 Dr Taylor: Could you focus on the absolute basics of quality of care? I do not know if you have had a chance to read - I think it should be obligatory reading - A Personal View in the British Medical Journal of 10 November, which was headed, "So you want to know what is wrong with the NHS"?

Mr Nicholson: Is that about Wales? Was it the example of Wales?

Q111 Dr Taylor: No, it is written by a psychiatrist about the treatment of a particular relative.

Mr Nicholson: But was it in Wales?

Q112 Dr Taylor: It does not say. I think it should be mandatory reading, because quality of care, certainly according to the letters and the complaints that I get, is a basic failing, and it would not cost much money to improve the attitude of staff to give more dignity of care, more respect. This is the basis of many of the complaints that I am getting, and this view means that it is a basic failing across the NHS, and to improve that should not cost much. To improve that should not cost much. Can you aim at improving quality and the perception of the standard of care that a patient actually gets?

Mr Nicholson: Yes, you are absolutely right. Some of this stuff does not cost much at all, and it is linked to a whole series of issues, whether it is training, things like The Essence Of Care, which the Chief Nursing Officer has been running, and the increased focus on quality of care which is going to come out within of the Next Stage Review that Liam Donaldson and the Chief Nursing Officer are running. I think what you will find in the new operating framework when it comes out in December is that you will see improvement of patient experience and quality of care right up there with the absolutely critical national targets that we need to deliver.

Q113 Dr Taylor: So, as a constituency MP, I can expect fewer complaints about quality of care?

Mr Nicholson: On the other side, of course, there is a lot of evidence around that lots of patients are extraordinarily satisfied with the service that they get as well but what we are dealing with, of course, at the same time as trying to improve this position is that patient expectations are rising as well, and quite rightly. I am saying we want to get the NHS to a place where it can respond much better to that. Whether they send more letters to you I could not really comment on.

Q114 Dr Taylor: Can I move on to people who do not turn up for appointments because one of the disappointments - this is on page 148. It gives the figures for DNAs, "do not arrives", and although we believe you have been struggling to improve these, since 1997 the proportion has really barely changed, 11.9% to 10.9%. How can you address this more effectively? It is a terrible waste of money when people just do not turn up.

Mr Nicholson: Yes, it is, and there have been some improvements and people do work quite hard on this but I would not like you to think - I am sure you do not - that because of this, there are lots of slots that are vacant in patient outpatient clinics around the country. What tends to happen in these circumstances is that hospitals operate on the basis that they expect some DNAs, so they will over-book, which is a problem, I know, in terms of convenience but it is not a complete waste of resource. There are two things for me. One of them is around better organising outpatients, better planning them, the kinds of telephone access systems that people are operating so that they can cancel appointments easily, because one of the issues we face when we look at this is that it is often very difficult for a patient to cancel a session they cannot make. All of that kind of personalisation agenda is part of this to get this right. The other thing is to be really clear with patients about what their responsibilities are. That is something we are tackling in relation to, again, the Next Stage Review and particularly in relation to the constitution for the NHS.

Q115 Dr Taylor: Is there any evidence that any shareholders are better than others at addressing this?

Mr Nicholson: No, there is not.

Q116 Jim Dowd: I just wanted to follow up with a couple of questions on what Mr Douglas said about this productivity opportunity element or whatever you called it. You said that if that number decreases, it is because the worst performers are moving towards the better performers. Is the reverse is true, i.e. the number decreases because the best are going down to the worst?

Mr Douglas: No, the way it is structured - I am sure one of my colleagues behind me will tell me if I am wrong on this - that will not happen. The way the opportunities have been calculated, as the amount available, as the size of the opportunity reduces, it means it is because you have already captured the productivity gains. A reduction in the opportunity should never be caused by a deterioration in performance. What you would get is the productivity opportunity might increase if performance deteriorated.

Q117 Jim Dowd: So it is not just a crude measure of the generality between the best and the worst?

Mr Douglas: No.

Q118 Jim Dowd: I do not know whether it is a productivity question or not but I had a rather striking assertion put to me from a normally reliable and well-informed source that we are not actually treating any more people in primary care these days than we were in 1990. I do not know who wants to respond to that but can you tell me whether it is true and, if it is not true, what evidence exists for the assertion in the first place?

Mr Nicholson: I do not know what the evidence of that is but I would have thought there is significant evidence in the opposite direction.

Q119 Jim Dowd: That is my strong feeling but I am trying to see where I can find it.

Mr Nicholson: One of the most obvious ways is the number of people with long-term conditions, which, of course, is the big area which primary care is particularly engaged in. That number has gone up significantly over the last few years; there are now between 15 million and 17 million people in this country with long-term conditions. When you look at the kinds of services that we have rolled out, interestingly, as part of the GP contract through QUAFF, the hypertension clinics and all those sorts of things, there has been a massive expansion of that.

Q120 Jim Dowd: Is it not also the case that we are a good deal less diligent at collecting data from primary care than we are from the acute sector?

Mr Nicholson: That is absolutely true, particularly in terms of community services. We do not have a good record.

Q121 Jim Dowd: Is that being addressed?

Mr Nicholson: Partly it is being addressed by the implementation of the national programme for IT, which is having quite a lot of success in terms of getting community services computerised and reorganised. But yes, we are tackling that, because it is going to be a very important issue for us over the next few years at least to be able to measure that what we think is happening is happening in practice.

Q122 Charlotte Atkins: Moving on to independent sector treatment centres, does the decision announced last week to pull the plug on seven ISTCs mean that you now recognize that ISTCs are poor value for money?

Mr Nicholson: No, not at all. If you take the issue around ISTCs, and I am sure you are well aware of this but I will just reflect on it anyway, when we did the first wave of ISTCs, obviously, we were moving through a period of significant capacity expansion. We had to increase the number of patients that we treated, particularly in elective circumstances, to deliver the big waiting time targets that we had to deliver. So there was a big capacity issue for us but also we wanted more contestability in the system and more choice for patients. We judged that that would not happen if we just essentially left it to the existing indigenous private sector. We did not believe that they were going to respond to the kind of changes that we wanted. So the first wave of the independent treatment centre process was about bringing in new providers, people who were currently not providing in this country, and I think we did that very successfully. As you can see, over time, the first wave have worked pretty well but, even going through the first wave, there were occasions when, on an individual basis, we did not think schemes were value for money and we stopped them. In the second wave similarly. The difference I think in the second wave has been that the NHS has responded dramatically to these changes, and much of the capacity that the NHS was saying that it could not deliver it has found ways of delivering. So when two or three years ago we were seeing capacity gaps in different parts of the country, what we can see as we get closer to it is that those capacity gaps, those demands for services, have gone down. So when you judge the individual value for money for independent treatment centre projects, you can see it is much more difficult now for them to be able to demonstrate that they have got value for money because of the way in which the NHS has responded. We have cancelled some, that is true, but it seems to me that is absolutely the right thing to do when they do not give us individual value for money. We started this process about eight months ago, when we started to look at the independent treatment centre process as a whole and we are seeing the conclusions of those discussions now.

Q123 Charlotte Atkins: Surely, any independent look at the evidence demonstrates that when we are talking about increasing capacity, given that the ISTCs really produce quite a small percentage of the capacity, actually, it is the NHS as a whole that has fulfilled that capacity, not the ISTCs.

Mr Nicholson: Yes, the NHS has responded enormously. In some parts of the country - and a good example being one you will know - is in the West Midlands, where two years ago, for a diagnostic wait, the median waiting was something in the order of 18 months; it is now three weeks in the NHS.

Q124 Charlotte Atkins: Our note tells us that an existing contract for a diagnostic service ISTC has now been pulled because of a fall of take-up.

Mr Nicholson: In the West Midlands?

Q125 Charlotte Atkins: Yes.

Mr Nicholson: That shows you how the NHS has moved on.

Q126 Charlotte Atkins: Is that the case, that one has been spiked because of poor take-up?

Mr Nicholson: What we had to do with that particular contract is we are looking with the supplier at the moment at renegotiating it in such a way that it can provide services that we want as opposed to those that three years ago we thought we might need.

Q127 Charlotte Atkins: That really, I think, focuses on the particular issue, because you will know that PCTs had their arms twisted up their backs to actually sign up to ISTC contracts on a take-or-pay contract basis and, certainly in my part of the world, which you know very well, my local North Staffordshire PCT is paying an arm and a leg - the figures are confidential; I do know what the figures are - to have very few people treated in Burton because it is an impossible journey and, whereas the ISTC in Burton originally put on transport, it no longer does so. So now that we have Choose and Book, patients choose not to go there. If you happen to live in Burton, that might actually be a reasonable place to go, but it does not make any sense if you live in Leek or Biddulph to travel that distance, particularly as you are not just going there for treatment; you are going there for assessment to start off with, and anyone who visits you will have to visit you many miles away. When will PCTs be able to pull out of these contracts for the ISTCs?

Mr Nicholson: There are different arrangements for the different phases. On the first wave, of which Burton is one, it is absolutely true that the PCTs are responsible if there is a shortfall in the amount of work that is done in them to pay. That is absolutely the case, but it was designed in that way because what we were trying to do was to create a whole set of new providers, and so we had to respond in terms of what the start-up costs of all of that would be. The particular case that you give I think is a difficult one because, you are absolutely right, the journey lengths and the way in which the deal was done on reflection does not look as if it was the best that could possibly have been done but, having said that, the work that is done at Burton, they have transformed the way in which patients are treated electively in Burton. That is absolutely the case.

Q128 Charlotte Atkins: They may have done in the Burton area but in the meantime Stoke-on-Trent Primary Care Trust and North Staffordshire Primary Care Trust are being ripped off because they are not getting the patient throughput. If the Burton ISTC were to take up audiology cases, for instance, then people might be willing to travel that distance but at the moment they are being ripped off and, what is more, the figures are commercially confidential, therefore the local papers - and indeed when we did our own report on the ISTCs - could not find out the figures, and they are alarming and disgraceful.

Mr Nicholson: We can talk about that particular detailed one if you want to but the principle...

Q129 Charlotte Atkins: It illustrates the problem that occurs where PCTs are locked into a contract that they do not appear to be able to get out of.

Mr Nicholson: My response to all of that to PCTs in those circumstances is to engage in the contractual process and get them to deliver what you want them to deliver. It is perfectly possible to do that. Our Commercial Directorate...

Q130 Charlotte Atkins: Not if patients are not willing to travel the distance.

Mr Nicholson: Our Commercial Directorate are perfectly happy to work with you and, if it means putting on transport, if it means changing things around, then we should change them around and that is what I want PCTs and the Commercial Directorate to do. That does not mean that independent treatment centres per se are problems. In fact, they are fantastic opportunities because they have transformed the way in which services are delivered in Burton. But that was the first wave. In the second wave, of course, we did not do that. Essentially, the Department of Health has taken the risk on the financial arrangements in relation to the second wave.

Q131 Charlotte Atkins: You are talking about opportunities there but in the meantime there is an opportunity cost, because my PCT and Stoke PCT have just got into the black. In the meantime they are having to pay out money under take-or-pay contracts for patients who are not being treated. That means that drugs that they could be paying for, IVF that they could be paying for, sleep apnoea that they could be paying for is not being paid for because they are putting money in that direction. What advice would you give my PCT about its contract with Burton? Can it renegotiate now? What are the rules in relation to that?

Mr Nicholson: There are lots of examples of PCTs who have worked with the Commercial Directorate to change contracts, to align them much better with what they want, so I would encourage them to do that, but also, it is not that there are not lots of people in Stoke who need services, so they should look to ways in which they can help people make that journey to Burton to get treated.

Q132 Charlotte Atkins: The choice under Choose and Book is for them to go to the University Hospital of North Staffordshire. That might seem surprising to you, given what has happened in the past but that is their choice and, as a result, people in Burton are being treated by the Burton treatment centre but not people further afield. Clearly, that is an area which, now that we are going into surplus, indicates that we should be looking at these issues. Certainly in that part of the country, a part of the country you know very well as well, there is a lot of anger about it. What advice would you be giving them?

Mr Nicholson: As I said, they should work with the Commercial Directorate to see how...

Q133 Charlotte Atkins: But what sanction do they have? Can they walk away from the contract?

Mr Nicholson: No, because we agreed a five-year contract with that particular provider. It was part of the development to get people to come into the system to start afresh.

Q134 Charlotte Atkins: Presumably, when the contract comes to an end, they will then be able to walk away from it?

Mr Nicholson: That is exactly right, at the end of five years. They were normally five years. I cannot remember whether the one on your particular patch is five years but that is the general.

Q135 Charlotte Atkins: Certainly, when we did our report we looked also at NHS treatment centres and we found that they were far more effective in terms of their relationship with PCTs, other parts of the NHS. Do you not think in retrospect that we should have spent more time and money on developing NHS treatment centres rather than independent sector treatment centres?

Mr Nicholson: No. We are engaged here in quite a significant change. In order to give patients choice and in order to provide some contestability in the system, you need to bring in new providers. Our judgement was that the indigenous private sector was not going to deliver that challenge and so we went outside the normal arrangements to get people in, and that has been effective in the sense that a whole series of new providers have come in but now we are in a different place. We have the independent treatment centre wave one in, we are still going to have a substantial wave two independent treatment centres, but also, the indigenous private sector has now responded so that we have the extended choice network. Patients are increasingly going to have more choice of provider, and indeed, next year we are going to have free choice so that individuals will be able to choose any provider who can deliver to NHS standards at NHS tariffs. Patients will be able to choose. That seems to be a fantastic thing for patients, a great offer for patients, and will give, I think, the stimulus that the NHS needs to improve its own services.

Q136 Charlotte Atkins: In the meantime those ISTCs that are now not going to proceed, will there be compensation for the companies involved?

Mr Nicholson: Obviously, there are bid costs relating to these because these are significant, and we are currently discussing and negotiating with all of these companies about what that settlement may or may not be. I do not know whether anybody else knows anything. That is all I can say. That is where we are.

Q137 Charlotte Atkins: There have been press reports talking about a total of over £20 million. Is that in the right sort of order?

Mr Nicholson: I would not want to comment. I do not know what the £20 million relates to.

Q138 Dr Naysmith: Can we move to programme budgeting. In last year's equivalent session to this Mr Douglas told us the data relating to programme budgeting are becoming more robust. Do you remain confident that programme budgeting data is now more robust and more reliable than it was?

Mr Nicholson: It is improving. It is improving every year. There are a number of things we try to do to get the improvement to the data. The first one is we have improved the guidance that we have issued to the NHS. It sounds a technical thing but actually getting the guidance right about how we do it is important. We are now very focused on the SHAs, strategic health authority finance directors leading the quality assurance process. We have a focused piece of work on quality assurance. More importantly than either of those things is that what we are doing is making people a lot more aware of programme budgeting, what benefits it can bring, what tools they can use to help them in their work of programme budgeting. The more people get to use it and see the benefits, the more it improves. Finally, we are working with the NAO as well and they are doing a project for us to look at what we need to do to get this information auditable. As I said last year, it is not perfect. You will find at individual PCT level some pretty wide variations in numbers that are very difficult to explain but overall it is getting better.

Q139 Dr Naysmith: If we look at the answer to PEQ number 56, it says the largest programme budget expenditure in 2005-2006 was under the heading "miscellaneous". That totalled £8.6 billion spent on miscellaneous. What does "miscellaneous" include? What does it mean and how useful can the data be if the largest category is so non-specific?

Mr Douglas: What "miscellaneous" is is anything that is not in the above.

Q140 Dr Naysmith: That is the largest chunk of all.

Mr Douglas: Clearly, what we want to do is to get that down.

Q141 Dr Naysmith: That would be an improvement if you could get more individual headings in there, would it?

Mr Douglas: Actually, one of the difficulties is if you end up with too many headings, frankly, it becomes meaningless to people but what we should be aiming to do is to get that unspecified bit a lot smaller than it is now. What I come back to all the time is that the value of this stuff is not really at a national aggregate level. It is not looking at the overall numbers in a set of accounts. It is an individual PCT looking at how much they are spending in their area on particular programmes compared to people in other areas, compared to the outcomes they are getting. It is that process that people go through that is the real value of this.

Q142 Dr Naysmith: What sort of things would be under "miscellaneous" then? I know you said everything that is not above.

Mr Douglas: I would have to check.

Q143 Dr Naysmith: It does not immediately spring to mind?

Mr Douglas: It does not immediately spring to mind. It can be just expenditure that has not been allocated, just not classified against one of the headings. It will not be a list of lots of things necessarily in there; it will be some bits just not classified within there.

Q144 Dr Naysmith: PEQ56 shows that between 2003 and 2005 the NHS spent proportionately less on coronary heart disease and mental health services, yet we know these are key elements in the Department's national plan and policy framework for the NHS. How is this consistent with the national policy framework? How can it be?

Mr Douglas: David may wish to comment on this as well. There have been some classification changes in the last year on how some of these categories are counted.

Q145 Dr Naysmith: So the data could be wrong?

Mr Douglas: There could have been classification changes. PEQ56. Coronary heart disease shows increasing spend from 2003-2004 to 2005-2006 in my table.

Q146 Dr Naysmith: Proportionately? As a proportion of the overall spend?

Mr Douglas: As an overall proportion? It may have gone down slightly as a proportion over the years but I would not off the top of my head be able to explain the reason for that.

Q147 Dr Naysmith: Can anyone explain that? We must have employed more consultants in that area or the work must have changed in some way. I would have thought we would employ more people in mental health certainly.

Mr Douglas: Can we take that away and have a look at that individual line?

Q148 Jim Dowd: That is your homework for today. Can I just look at waiting times and access, the 18 weeks in particular? Could somebody just talk us through its genesis and the thinking behind it? I am talking specifically about the 18-week figure, not the notion of reducing treatment times. Why 18 weeks?

Mr Flory: Clearly, we are now counting waiting in this 18 weeks in a very different way than we have done before. Previously we measured the time it took to go from a GP referral to an outpatient appointment, separately we measured the time it took to get from an outpatient referral to an operation in hospital, and in the middle of all that, we did not count the time it might take for a diagnostic test and so on. The whole concept of 18 weeks now is for us to measure that period from the first GP referral all the way through to treatment, whether that be treatment in hospital or out of hospital, like with general practice or through a course of drug treatment. Where 18 weeks came from is that when you look at the spectrum of all of that, the outpatient stage, the diagnostic stage, the potential inpatient stage, it feels that that is the time that it would take to go through the system typically without undue waiting at any one of those stages. So the 18 weeks is the articulation of going through all of that without any unnecessary or undue wait.

Q149 Jim Dowd: For example, if it were a persistent condition or one that needed more than one referral, the 18 weeks, at what point would that be? Would that be once you got to the repetitive stage of the treatment?

Mr Flory: Yes, to the first point of the treatment. So if the period ends with treatment in hospital, it would be the first episode of that treatment, yes.

Q150 Jim Dowd: The answers in the questionnaire indicate that there is a substantial variation between areas at the moment on the 18-week target. I think the south-east coast is showing 38% reaching that time, whereas the West Midlands is 65%. Has any work been done obviously to encourage those at the lower end to move up, and into the disparities?

Mr Flory: Yes, there is ongoing work on the time. We have at national level a number of improvement teams who are working with particular local health systems whose performance is below par, looking at ways in which that can be improved. We are doing a lot of work at the same time on getting our data completeness right. Because this is a whole new way of defining and measuring waiting, it requires a whole new way of tracking that through our number collection and monitoring system. So there is a concerted effort being made with those that are not performing as well as others to make sure that those things are being done correctly.

Q151 Jim Dowd: Are there any common characteristics emerging as to the difference between those who are doing well and those who are doing poorly?

Mr Flory: There is no general conclusion that can be drawn from that. There is, however, one consistent issue for all, and particularly for those who are performing at the poorer end of the spectrum, which is about getting the information systems right and for those to be administered properly within individual hospital trusts.

Q152 Jim Dowd: Is your feeling then that the major cause of disparity is unreliable data rather than unreliable performance?

Mr Flory: No, it is not the major cause of disparity but it is one of the issues we need to get right so that we can continue to improve the data completeness and see the improvement in performance.

Q153 Jim Dowd: The Department said in December last year, the best part of 12 months ago, that £1.4 billion would be spent in the cost of meeting the targets in 2006-2007 and that that figure would rise to £2.7 billion in the current financial year. Is that still the case? What is the variance on those figures and what is it projected to be over time? Is there a current cost every year, for example?

Mr Flory: Those figures that you referred to were projections of how much would need to be invested, particularly in capacity in the acute sector, to increase the throughput of patients and therefore reduce the numbers of people waiting for a longer period of time. In the way that we measure performance on this, on the one hand, we track the information which we set out in table 85 about the percentage of patients that are getting through, and separately we look at the overall PCT's plans. We do not track separately a line which says exactly how much is being spent on delivering 18 weeks because there are so many different dimensions to it. The biggest part is hospital capacity. There are other parts on information systems, other parts on developing services outside of hospital. Therefore we cannot report on the specific level of investment in achieving this target.

Mr Nicholson: What we can say relation to all of that is that one of the opportunities available to us through the surplus is that we could accelerate 18 weeks in some parts of the country and there is increasing evidence as we go around talking to the SHAs about this that there are some parts of the country which would be able to deliver this more quickly and so may spend more money this year to do that.

Q154 Jim Dowd: What if people were regularly able to get in earlier than 18 weeks? Is this an optimum figure?

Mr Flory: No. For most people already the mean and median waiting time is significantly less than that. Our expectation would be that when we achieve 18 weeks as a maximum, the typical waiting experience would be less than that.

Q155 Jim Dowd: The pressure to reduce the spend on treatment will be permanent, will it, to get it down as soon as possible, or is there a point at which it becomes certainly financially disadvantageous to go below?

Mr Nicholson: Two of the reasons we went for the 18 weeks as a figure were, first of all, patients were telling us "Don't measure what you used to measure because it makes no sense to us as individuals. To be told it is six months inpatient is all very well but if I've waited nine months for a diagnostic test, it does not seem like it. So we want a measure that does all of those things." The second thing, the median waiting time when we deliver 18 weeks will be around eight weeks. That would be what we would expect, which at that time, two or three years ago, was the kind of average that you might expect across the rest of Europe. What we would expect in future... Certainly we have no plans at the moment to try and squeeze that 18 weeks to ten weeks or nine weeks. What we do think though is that the drive for choice and contestability through the system, through the extended choice network and all the rest of it, will inevitably drive down waiting times, the median waiting time.

Q156 Jim Dowd: Finally, as distinct from the waiting list initiatives, which required a temporary increase in capacity, I am assuming that the increased capacity that Mr Flory referred to on the 18-week target is permanent.

Mr Flory: It cannot be assumed that it is permanent in all cases in that what we are trying to deal with at the moment is a backlog of patients who have been waiting a period of time. Once we achieve 18 weeks, it is then about getting the right balance between demand and supply, which in turn is affected by changes in demand for service, which is a product of a developing services closer to patients' homes and doing more procedures in primary and community care and so on. That continues to be a dynamic situation. The most important thing as we move forward is that we look at ways in which we can flex our capacity in the acute sector up and down when we need to and, in some instances, on achievement of 18 weeks, we will be able to flex down. One cannot generalise for the country as a whole but there will be different scenarios along those lines played out in different parts of the country.

Q157 Sandra Gidley: I would just like to clarify something that was said earlier about the relaxing of the targets. I think the answer was that we listened to patients but there is already a capacity to have some leeway for social reasons. Given the relaxation by 10%, you actually have the potential for quite a lot of slack in the system. Is not the real reason for relaxing this that this target was not going to be reached in certain disciplines?

Mr Nicholson: No, that is genuinely not the reason. It is true that in waiting list management generally you can suspend people from waiting lists for a particular social reason or particular issues that come up. We were concerned about extending that. We thought the dangers of doing that were that it would create a complexity in the system so great, and the ability of people to focus on organising the system rather than organising the patient experience was difficult. We thought that it was much better to say, as we did with the 98% on A&E, rather than go through a complicated way of measuring exceptions and suspending them and moving them into different categories, that it was best to say a flat rate of what we think is reasonable. It certainly was not connected to our inability to deliver the target, which, as I say, we have only just set.

Q158 Sandra Gidley: We will come back to that. The arrival at the 18 weeks seems to be a process decision rather than something based on any clinical evidence. If the waiting time was clinically based, would you not have a range of start to finish targets for different illnesses? For example, 18 weeks if you have cancer seems to me quite a long time to have to wait.

Mr Nicholson: Yes, and within that, of course, we would expect individual clinicians and organisations to operate on the basis of clinical need.

Q159 Sandra Gidley: But we all know that that has not happened in the past and that clinical priorities have been distorted so that waiting times can be achieved, so that the chief executive keeps his job.

Mr Nicholson: I think the evidence is the opposite to that, to be frank. Having spent my whole life managing waiting lists, the evidence is completely the other way. The idea that an individual clinician on a particular theatre list treats the six or seven sickest people is simply not and never has been the case.

Q160 Sandra Gidley: Sorry? You are saying they have never treated them?

Mr Nicholson: No, no.

Q161 Sandra Gidley: So why do doctors come to me and complain that they are not allowed to use their clinical judgement?

Mr Nicholson: As I say, when you look at the evidence, what it shows is that people pick patients in all sorts of different ways. What the whole waiting list process has done is it has made that much more transparent. It is absolutely true that when you are trying to compress a waiting list to at end, getting down to a particular figure, that does bring stresses into the system but the big evidence is that that has never been the case, that people have treated the sickest people first. That simply has not been the case.

Q162 Sandra Gidley: I think a lot of consultants will disagree with you.

Mr Nicholson: But the evidence is really compelling and really interesting, and when you show individual consultants actually how it works in practice, you will see that most of them are really quite surprised when they see the evidence of their own clinical practice.

Q163 Sandra Gidley: So how do you explain the doctors who are disgruntled because they feel that their clinical decision-making and their idea of priorities for treatments are being altered by managers?

Mr Nicholson: One of the things I think about all of this is that it makes judgements about priority very transparent and very often you will find that the assumptions underneath those---

Q164 Sandra Gidley: With respect, it does not make it transparent because these people come to me privately; they cannot raise anything publicly because of whistleblower charters and fear of losing their jobs.

Mr Nicholson: As someone who has run a hospital, I have never found consultant medical staff behind the door, coming to tell me, as a chief executive, when they are disgruntled about clinical practice.

Q165 Sandra Gidley: No, they will not tell you but coming to an MP is a different thing. I am not a chief executive of the trust.

Mr Nicholson: They would always come to me and complain bitterly if they felt their clinical practice was being affected by what I was trying to do. The idea that they are frightened or hidden is not borne out by the evidence.

Jim Dowd: Consultants are such shrinking violets!

Q166 Sandra Gidley: We will move on. You have a 90% target for the 18 weeks. What is going to be the upper limit and how are you going to prevent some people in difficult areas having a much longer wait, which they may not want? Some people are already waiting a year for some operations.

Mr Nicholson: I am sorry. The upper limit is 18 weeks.

Q167 Sandra Gidley: Yes, I know but if 10% do not have to fit into that, for whatever reason, how long are they going to have to wait?

Mr Flory: This is a 10% tolerance. We looked at a lot of evidence and practice in a number of hospitals across the country and, drawing from that analysis, it showed that in a whole number of cases it is not clinically appropriate and not, in the view of the clinician treating the patient, appropriate to complete that within the 18-week cycle; for a whole range of different clinical circumstances, the best care for that patient can be delivered over a longer time period. We looked at what percentage of the total patient throughput came into that category. Likewise, we looked at evidence of where patients themselves are choosing when it is the best time for them to go to hospital for their treatment and, respecting the rights of the patient and so on to be able to take charge of those decisions, we looked at the number of those in the total population and came up with the 10% tolerance as being an appropriate representative number of those where the patient chose not to complete the treatment within that time, but the treatment would have been available, or the clinician in charge of the patient's care deemed it inappropriate. The 10% was a product of that. It was not saying that for 10% of the people we will set a different target or have a higher level.

Q168 Sandra Gidley: Can you clarify that it is not going to be 10% plus a social leeway.

Mr Flory: No, the 10% includes that.

Q169 Sandra Gidley: So it will be 10% and no more?

Mr Flory: Yes.

Q170 Sandra Gidley: Right, but within that 10%, there will surely be areas, such as orthopaedics, which are under extreme pressure to achieve this, where there may be manipulation of waiting lists and the patient might have their operation cancelled and that will not be captured. How will that be captured?

Mr Flory: If we were in a situation whereby a particular service at a particular hospital, whether it be orthopaedics or anything else, was not seeing patients through in 18 weeks, because of the way in which we have set this tolerance, for the reasons I have just described, we would expect that to show up in non-achievement of the target.

Q171 Sandra Gidley: The 10% presumably applies to a trust, so they could be hitting everything but have a very poor showing in orthopaedics and they would still achieve their target.

Mr Flory: That is possible in the way that the arithmetic works in measuring the target at trust level but, in reality, I do not think that situation is going to materialise. Unless the trust for a particular reason had fewer patients for whom it was not clinically appropriate or a smaller number of patients who chose themselves not to complete in 18 weeks, thus creating some space for some specialties not to achieve it in 18 weeks, then the situation that you describe would not arise. In addition to that, we would expect the PCT commissioners and indeed the trust's own internal management systems not to be complacent about letting off any particular specialty. It is vitally important that the 18-week target is applied and managed through the system for all patients. The 10% tolerance is not a way of letting some specialties off or some places off.

Q172 Sandra Gidley: It is not all patients though, is it, because only 70% of patient journeys are covered by the target?

Mr Flory: We are looking at those patient pathways at the moment; we are collecting more data. We have now published data for those episodes of care that do not end in a hospital admission - what we refer to as non-admitted patients - and what we find when we look at that data is that the number currently where their treatment starts within the 18-week period is significantly higher than for admitted patients and the data completeness is significantly better.

Q173 Sandra Gidley: If I am a patient, where can I find the information as to whether my problem is covered by this 18-week target, how many times it is okay for me to have an operation or a procedure cancelled? Where is that patient information at the moment?

Mr Flory: One of the things that we are working closely with the NHS on as we develop our information systems and management of this 18-week target, now that we have clarified the definition of that, or set the definition for that, is through primary care trusts, through the family doctor services, through the hospital services, to embed that awareness and responsibilities for communication to patients.

Q174 Sandra Gidley: But patients do not think to contact their PCT. Where is the patient going to find this information? How is the patient going to know what they can expect from their local NHS and what is inappropriate?

Mr Nicholson: Can I just say a couple of things about that? One of them is that what we are going to try and do this time which we have not done in the past in the same way is to have a really important part of the measurement mechanism the experience of the patient. We are rolling that out as part of this, so not only will we be able to say "Have we delivered the 18 weeks?" on the one hand, we will also be able to say "But did the patients notice?" We will be monitoring that as part of the process, because the worst thing for us, the worst thing for the system as a whole, is to hit the target and miss the point.

Q175 Sandra Gidley: That is retrospective.

Mr Nicholson: Yes, but on the other side, we would expect individual PCTs to publicise what the position was and we would expect the development of things like NHS Choices websites to enable people to get on and understand what is available and what is not as part of the process.

Q176 Sandra Gidley: So will there be something on the national NHS Choices website?

Mr Nicholson: Yes, there will.

Q177 Sandra Gidley: Did we have a timescale for that?

Mr Nicholson: We do not at the moment.

Q178 Chairman: A couple of questions on emergency admissions. The written answers to our questions have highlighted that year-on-year increases in emergency admissions have slowed from a 4.3% increase in 2005-2006 to 0.14% in 2006-2007. I wonder if you can share with us how that was achieved and if it is likely to carry on.

Mr Nicholson: A major part of the whole of the future of the NHS is getting a handle on the emergency admissions. As we know, quite a lot of emergency admissions are people with long-term conditions. On average, a quarter of hospital beds will be full of people with long-term conditions who have been admitted more than three times. We can see over the past period a whole series of things being implemented by PCTs and primary care to enable long-term conditions in particular to be managed better, although there is still a lot to do. It seems to me that is the first bit. The second bit is the incentives in the system, and one of the issues that people said when payment by results was first established is that in a sense, it was an incentive for hospitals to treat more and more patients and there was this idea that hospitals sucked in emergency admissions, of which I saw there was no evidence. Most acute hospitals would be horrified if they thought that was the case because they would not do it. There is some evidence that better counting may have identified some of the growth that has been reflected in there. The third thing relates to those incentives. Practice-based commissioning, engaging clinicians, all the kind of outreach service that we have been putting in over the last three or four years is showing benefits in the system - perhaps not as fast as people would like but I think that will improve in the future.

Q179 Chairman: So you think it is likely to carry on?

Mr Nicholson: Certainly our expectation is that those schemes will carry on, and indeed, all around the country PCTs are putting in place new schemes in order to divert patients from hospital and to better manage long-term conditions but, of course, counting against that is the increasing number of people with long-term conditions and the demographic shifts anyway. Our expectation is that we will not see the kinds of growth levels in the future that we have had in the immediate past.

Q180 Chairman: Can I move on to the 28 day emergency readmission rates? They have increased both for patients aged 75 years and over and those aged 16 to 74 years by 31% and 22% respectively between 1998-1999 and 2005-2006. Is this increase in readmission linked to the pressures to reduce lengths of stay in hospitals?

Mr Nicholson: This is obviously a major issue. Andy Burnham, when he came to this Committee, did talk about this and we did commission some research. A lot of these things are, in the jargon, multi-factoral. There is a whole series of things affecting these at any one time. I think there has been some evidence published but there is some more to come.

Mr Taylor: I think we can get back to you on this.

Q181 Chairman: We understand that some research is taking place or has taken place. Could you share that information with us when it is completed?

Mr Nicholson: When it is completed we would be absolutely delighted to do that, but there is some good evidence in some parts of the country that it is possible to reverse this increase and what we are finding is that it is much less to do with length of stay reduction and much more to do with the kind of social care and community services that are in place in the localities: befriending schemes, watch schemes, a whole series of schemes that seem to be very effective at reversing this trend, and we will have to look at that in the light of the research.

Q182 Chairman: We have been looking at partnership and looking after people in the community not for the last two or three years but for probably the last ten or 15 years, looking at shared budgets with social services and primary care. Why has it taken so long for us to be doing some research analysis on this, when this is quite recently that you are looking at the issue?

Mr Nicholson: You are absolutely right; partnership working across health and social care has been going on for a long time and there are some parts of the country where it works fantastically well and some places where it does not work so well, and services have improved on the back of that. What is true is that it is only in the last couple of years that we have focused our attention on emergency admissions. That is absolutely right and that is why we have commissioned the research.

Q183 Dr Taylor: Turning to staffing, on table 30 on evidence 53 you give us the total projected new graduates for each year, and it shows that nurses are only going to increase between 2006-2007 and 2011-2012 by 0.5%, and doctors are increasing by 20%. The question is, is that consistent