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§ Mr. Denzil Davies (Llanelli)
Dyfed Powys health authority may seem an esoteric subject, but it does not to my constituents. It is a matter of keen concern to them, to others in the Dyfed Powys area and to me.
Health authorities buy medical services from hospitals—in the case of Llanelli, from the Prince Philip hospital and one or two smaller ones. If Dyfed Powys health authority goes bankrupt or runs out of money, the hospital services provided for my constituents will deteriorate. I thank my hon. Friend the Member for Bridgend (Mr. Griffiths) for meeting a delegation of hon. Members from the old Dyfed area some time ago. This debate should not be taken as a criticism of that meeting, which was very helpful. However, time has moved on and the situation is changing.
Dyfed Powys health authority resulted from a merger, under the previous Government, of Dyfed health authority and Powys health authority. The area covered by the Dyfed health authority had three acute hospitals and a small number of community hospitals, as they are described. The Powys area had no acute hospitals and a large number of community hospitals. To a city banker experienced in merger negotiations, that situation would have been ideal. One complemented the other: Dyfed provided the acute hospitals of which Powys had none, and Powys provided the community hospitals of which Dyfed had only a few. Real life is not like that, certainly not in the health service.
The new authority inherited many problems, most of them, I am sorry to say, from Powys. It has tried to resolve them. It made various suggestions some time ago to resolve them by closing many community hospitals—
§ Mr. Davies
Not at the moment.
The authority also proposed the reduction of services. Those proposals met with universal condemnation and were thrown out. Poor Dyfed Powys health authority is again trying to resolve the matter. In the autumn, it will no doubt advance other proposals. As far I can see, its proposals will aim to improve the financial situation. They will not be for the purpose of improving the health service. The corollary or obverse of improving the health authority's financial situation will be a deterioration of the health services provided for Llanelli and the other constituencies affected. There is not much use in looking at the matter from the point of view of trying to resolve the financial problems in that way.
I do not want to criticise anyone. I do not want to criticise Dyfed Powys health authority because it inherited difficult problems. I am not criticising my hon. Friend the Minister, who has also inherited a horrible situation, but I have several questions. I shall understand if he cannot answer them now. This is an Adjournment debate and, if he is not in a position to answer them, he will no doubt write to clarify matters.
I understand that health authorities make up accounts, although I am not sure in what form, or whether they are audited by outside, independent accountants. Has my 263 hon. Friend the Minister received the 1996–97 accounts, if they exist, of the Dyfed Powys health authority? Are they properly audited? Who drew them up? Do they set out what one would normally expect to find in accounts—borrowings, assets, loans, liabilities, expenditures, and everything else that people would wish and need to know? When they appear—if they have appeared, fine—could he please place them in the Library for us to try to fathom? I know that it is a long way from mid-Wales or Llanelli, but at least the accounts should be open for inspection so that we can then ask questions about them. Are the accounts in a form that an accountant would not feel disgraced to sign?
My second question relates to debts. I do not understand the structure of health authorities. I tabled a question to my hon. Friend the Minister, which he properly answered quickly. Again, I make no criticism. Perhaps I was naive, but I asked what were the borrowings of the Dyfed Powys health authority from the Welsh Office. The answer that I got was approximately £2.5 million. That surprised me a little because various figures have been bandied around: deficits of £6 million and £7 million. I wondered whether I had missed something. Was it a very carefully drafted answer? I am sure that the £2.5 million figure is correct, but can my hon. Friend say whether there are other borrowings, loans, brokerages or whatever other words can be used to dress up debt? Has Dyfed Powys health authority borrowed secretly from somewhere such as the Drover's bank in Llangammarch Wells? Who knows whether there are liabilities to building societies in small mid-Wales villages? May we be told how much the health authority really owes? I am told that it has money somewhere that should be going to GP fundholders and that it borrows a bit, then pays it back again.
§ Mr. Livsey
The right hon. Gentleman is making a powerful case about the finances of Dyfed Powys health authority. Does he agree that it is strange that, last October, it said that it would have a deficit of £9 million over the next five years; that in January it said that it would be £11 million over the next five years; and that, in meetings in my constituency in March, it said that, if compound interest were added, it would have a deficit of £38 million over the next five years?
§ Mr. Davies
We should leave compound interest to the Chancellor of the Exchequer, but I agree. I am as baffled as the hon. Gentleman, and that is one reason for this debate. Again, I do not expect my hon. Friend the Minister to be able to answer fully, but I hope that we can get some figures for the so-called deficit.
What is a deficit? I suppose that a deficit means spending more than is being earned. I do not how to apply that concept to such an organisation. From where does the money come? Does it come out of the dreaded public sector borrowing requirement? That would be terrible. I take it that the £2.5 million comes out of the dreaded PSBR, but what about all the other deficits? Are they added to the wretched borrowing requirement? We should like to be told the answer so that we can assess the position.
I shall now refer to 1997–98, this financial year; we have already asked for the accounts for the last financial year. I do not know how the health authorities are funded. No doubt, a sum of money is provided for them by the 264 Welsh Office. I am told that there is some sort of formula for local authorities that is called the standard spending assessment. It used to be the rate support grant, but names get changed, although the reality does not.
How much money has the Dyfed Powys health authority received—or will it receive—from the Welsh Office for the next 12 months from this April to next April? We need to know how much it will be so that we know how much it is being paid. Is the figure plucked out of the air? At the meeting with my hon. Friend the Minister, he mentioned a long equation, which no doubt ends in nought—such equations for economists usually end in zero; I do not know why. Could my hon. Friend the Minister send me a letter explaining how the algebraic equation is arrived at? How is the figure arrived at? It is an important question because the spending figure is important. It tells us the amount that can be spent on buying services from the Prince Philip hospital in Llanelli and from other hospitals. I do not expect to be told the equation now, but we need to know it so that we can work out—or be told—exactly how much money is allocated for this year. What will the deficit be for this year? Apparently, there will be one. Is the deficit rolled on every year until the Welsh Office has to provide a loan?
The Llanelli-Dinefwr hospital trust operates the main hospital in my constituency, the Prince Philip hospital, and other hospitals, but there is still no negotiated contract. I raised that issue with my hon. Friend the Minister and he made some helpful comments. I am told that there is no negotiated contract between those hospitals and the health authority.
We have the extraordinary situation whereby a public body—the health authority—pays what it can. It is as though I went into Tesco in Llanelli, took a trolley full of food to the till and said that I could afford only £5 and the shop could possibly have the rest later. When will the contract be signed? If a contract is not signed on satisfactory terms, the Llanelli-Dinefwr hospital trust will run up debts. As the Minister knows, that trust runs a tight ship—it has never been in debt and it balances its books—but I am told that, if the situation continues, by the end of this financial year the trust could be in debt to the tune of at least £1.5 million.
In reply to another question, which is not relevant to this debate, my hon. Friend the Minister said that Morriston hospital was now in debt to the tune of £16.5 million. I do not want that to happen to my hospital trust. It would not be fair if it had to pile up debts that were not of its own making and then had to do something in future to try to reduce those debts. Could that contract be negotiated fast so that the trust does not run up a debt like the one that has been run up by Dyfed Powys health authority?
There is no solution to the problem to be found in measures to reduce the bureaucracy of the Dyfed Powys health authority. It is always possible to find savings in a bureaucracy, but that will not solve the problem. The difficulties should not be solved by cutting services. I am sure that my hon. Friend the Minister would agree that the problem should not be solved in that way. I am sure that he will also agree that we should not come up with a plan to solve financial problems by cutting services. We are not looking to improve hospital services in Llanelli, merely for them to be at least maintained. If the financial plans are put into operation, health services will deteriorate. People who voted for us and for my hon.
265 Friend the Minister at the last election did not vote for a deterioration in existing services—within realistic boundaries, they want improvements.
Ultimately, the only solution to the problem comes from money from the Welsh Office. That money must be used to wipe out the debts and place the health authority on a proper basis to ensure decent hospital services. I understand that now, a few hours before the Budget, is not the best time to talk about money, but there is plenty of it about. As a former Treasury Minister, I find it difficult to say that—it sticks in my gullet—but there is plenty of money. Even the City and the Confederation of British Industry want to increase taxes.
What is my right hon. Friend the Chancellor going to do with those taxes? I know that he is a Scotsman, but I hope that he will not put the money into a tin trunk under his bed. Everyone wants increased taxes and everyone wants the Government to have more money. Some of that money should be used for these purposes; I know that it is not easy, but there is no shortage of money at the moment. It is a question whether we have the will to use that money to sort out the problem which, although not of my hon. Friend the Minister's making, nevertheless exists. The problem can be solved only with money, not by the deterioration of hospital services in my constituency.
§ The Parliamentary Under-Secretary of State for Wales (Mr. Win Griffiths)
I congratulate my right hon. Friend the Member for Llanelli (Mr. Davies) on securing this important debate so soon in the life of the Parliament. I am grateful to him for bringing this issue to the attention of the House. The publicity that has surrounded the difficult financial position in Dyfed Powys health authority has aroused considerable strength of feeling locally and I welcome the opportunity to debate the matter in this forum.
Before we go into the detail, it is important that I explain something of the background to the position that we have inherited. Back in the early 1990s, as part of the market reforms, the previous Government decided that funding for health care should be population based—health authorities should receive money to meet the health needs of the residents living in the authority area. Money would follow the patient so that, no matter where treatment occurred, the health authority would still have to pay. Under that policy, the capitation formula used to distribute resources provided by Parliament showed that, if the total amount of cash were allocated solely according to population rather than on the old service basis, some authorities were not getting enough cash while others were receiving too much. Dyfed Powys was one of the authorities that was receiving too much.
To enable a more equitable distribution, a weighted capitation formula was introduced and the move to it was phased over five years. Funding by a weighted capitation approach seeks to take account of the need for health services in a population by adjusting the crude population share according to various factors. Those are chosen to show the relative demand for health services and include, for example, the relative death rate and the proportion of elderly people. I am quite sure that my right hon. Friend 266 can be given information on how that formula works. This financial year is the last year of transition to that arrangement.
As a result of that readjustment to the existing capitation formula, over the past four years, the allocation for Dyfed Powys health authority has risen by only 19 per cent. compared to growth across Wales of 23 per cent. Nevertheless, the formula and the arrangements for its phased introduction were designed to provide time for the service to plan and were agreed with the NHS in Wales. While I expect that the process was manageable, it would have posed some difficult choices for the authorities involved.
§ Mr. Lembit Öpik (Montgomeryshire)
Does the Minister agree that, even with a transition time, the provision in rural areas will not become any cheaper? We have therefore compounded the problem—the net income per capita is coming down, but the problems of increasing elderly provision are rising. That is why so many of our residents in Powys have been concerned about the future of the cottage hospitals which seem to be under threat for the very reason that the Minister was giving.
§ Mr. Griffiths
As services for the elderly are increasing, the capitation formula will be of some help. Like the hon. Gentleman, I am concerned about the future of the health service, not only in rural areas, but in industrial areas. Although the formula has been accepted by the NHS in Wales as a robust means of distributing resources, my officials have convened a working group consisting of a wide range of NHS interests in order to review the methodology. I believe that that is necessary for a number of reasons.
Since the formula was introduced, there have been developments in the approach to determining health need; health authorities in Wales have been reorganised; and new sources of information on the health status of the population have become available—for example, the Welsh health survey. We must consider, together with the service, whether any of those developments should influence our approach. It is my intention to ensure that the distribution of resources between health authorities in Wales is done in the most effective and efficient way, but, clearly, these are early days and we cannot predict the outcome of the review or its effect on any particular health authority.
That is for the future. I shall now answer one or two of my right hon. Friend's questions.
§ Mr. Cynog Dafis (Ceredigion)
When it is reviewed, the formula must take account of rurality in relation to the provision of hospital services.
§ Mr. Griffiths
There is an element for that in the current formula, but there may be a need to consider whether its weighting should be increased. That is one of the matters that the review group will consider.
This year, Dyfed Powys received £265 million for hospital, community and family health services, including £257 million that is available for the authority's discretionary expenditure—that is, to purchase health services according to local priorities. The sum represents an increase in funding of 2.6 per cent. over 1996–97, which in cash terms means that the authority received an 267 additional £6 million. As well as funding for hospital, community and family health services, almost £10 million was allocated to the authority for cash-limited general medical services—£600,000 more than in the previous year, or an increase of more than 6 per cent.
Of course, the move to weighted capitation funding has not been made any easier by the decision to reorganise health authorities. The new authority was created on 1 April 1996 and its unaudited accounts for its first year show a deficit of £1.9 million, adding to its inherited deficit of over £3 million. I assure my right hon. Friend the Member for Llanelli that such accounts do get properly audited and that he will be able to receive a copy of them. In addition, I cannot envisage any difficulty in placing a copy in the House in Commons Library.
In income and expenditure terms, the authority is obviously spending more money than it receives from the Welsh Office and, as I told my right hon. Friend when we met recently to discuss the matter, I have been asked to provide additional resources to help overcome that situation. In considering that, it should be recognised that, in allocating resources to authorities, the Welsh Office does not routinely keep cash in reserve at the centre. Consequently, we expect authorities to live within the resources allocated to them. Despite that, we try to be flexible and, in 1995–96, the Welsh Office provided a loan of £810,000 to the former Powys health authority, and, in 1996–97, provided the new Dyfed Powys authority with a further loan of £1.7 million. Therefore, as my right hon. Friend rightly said, the Welsh Office is now owed £2.51 million.
The authority has asked fir a further loan in the current year totalling well over £5 million. That is a considerable sum and, although it helps with cash liquidity to pay bills in the short term, it masks a much more serious underlying problem about the ability of the authority to maintain its existing level of commitments in future years. Cash injections in the form of repayable loans may have a part to play in managing the short term, but I would be unwilling to countenance their use as a substitute for addressing the underlying resource problem. Moreover, I am sure that, as a former Treasury Minister, my right hon. Friend would agree that, before I can reach a decision, it is essential that the authority produces a plan to demonstrate how it will get back to a balanced position. That is awaited, but, in the meantime, officials are giving the matter careful consideration and I hope to announce a decision this month.
From all of that, it is clear that the current contracting round with the authorities' main providers in the area is going to be very difficult and I can understand the frustration of all the trust chief executives. Representatives of the Llanelli trust have impressed on me their frustration—indeed, the small delegation from that trust which accompanied my right hon. Friend gave me a clear picture of the situation. I understand that, until contracts are agreed, temporary arrangements have been put in place to ensure that patient services—which must be the prime consideration—are not disrupted and trusts have a cash flow.
As I mentioned earlier, the provision of cash loans is not the only answer and neither can we add more money permanently to the allocation. That would create an imbalance in the move to a capitation-based mechanism and cause tensions elsewhere in Wales. The way forward is for the authority to develop a more acceptable strategy 268 for the delivery of health care to its resident population than was proposed in the consultation document "Effective Care and Healthy People". That was intended to provide opportunities for residents and others to contribute to the review of health care provision in the area.
As my right hon. Friend will know, after considering the responses to consultation, the authority decided at its board meeting on 3 June that it should work with local interests to produce a revised strategy. A progress report on work towards completion of the revised strategy is to be made to the board in the autumn. It is now for the authority to take the matter forward, although I shall continue to take a keen interest and have asked to be kept closely informed of developments.
Of course it is not simply a matter for the health authority. The trusts in the area do need to play their part and, although I understand the difficulties they face, they must realise that resources are severely stretched. They will need to ensure that their organisations operate as efficiently and as effectively as they can. That will often mean careful consideration of the management of the capital estate, much of which is old, poorly maintained and in many cases not suited to modern health care techniques. Some estate rationalisation might therefore be necessary.
The Powys trust is developing proposals with the private sector for the rationalisation of patient and support services currently provided by Bronllys and Mid-Wales hospitals. That will enable the old establishment at Talgarth to be closed. Hospital services at Newtown will also be redeveloped in a new hospital to complement the services envisaged at Bronllys. The total cost of the two new developments is almost £19 million and negotiations are currently under way with the private sector to develop those schemes. The estate rationalisation flowing from the projects is likely to result in cost savings that will go some way to alleviate the financial problems of the authority.
In my right hon. Friend's constituency, the Llanelli trust is currently working with the Pembrokeshire and Derwen trusts in the development of proposals for elderly people that will incorporate alterations to Mynydd Mawr, Tumble and Bryntirion hospitals, and also for the reprovision of in-patient psychiatric services from St David's hospital, Carmarthen and Bryntirion hospital, Llanelli on to the Prince Philip hospital site. Those proposals will also allow some site rationalisation that may result in cost savings to the authority.
I was also interested in the plans that the Llanelli trust has in mind for an integrated model of care delivery in the Llanelli-Dinefwr area. As I explained to the chairman and chief executive of the trust when I met them with my right hon. Friend, the proposals need to he properly costed; nevertheless, it is encouraging that the trust and local GPs are working together. The GPs will need further to develop their thinking and perhaps consider producing clear, costed proposals for consideration as one of the locality commissioning pilots which I announced last Thursday.
From the Government's point of view, I think it important to recognise that the position that we inherited cannot be dealt with overnight. There will be situations like the one in Dyfed Powys when there is a need for everyone to pull together to ensure that patient services are not affected; that will entail co-operation and compromise locally.
269 My right hon. Friend will know that I have already suspended the eighth wave of GP fundholding. That will release £1.9 million, to be used to reduce cancer waiting lists and for developments in primary care. I announced a wide-ranging review of the number and shape of NHS trusts in Wales, and it will get under way soon. We are also issuing a White Paper in the autumn to abolish the internal market—