Overview of  Scotland’s health and NHS performance in 2006/07
Prepared for the Auditor General for Scotland
December  2007

Auditor General for Scotland
The Auditor General for Scotland is the Parliament’s watchdog for ensuring propriety and
value for money in the spending of public funds.

He is responsible for investigating whether public spending bodies achieve the best
possible value for money and adhere to the highest standards of financial management.

He is independent and not subject to the control of any member of the Scottish Executive or
the Parliament.

The Auditor General is responsible for securing the audit of the Scottish Executive and most
other public sector bodies except local authorities and fire and police boards.

The following bodies fall within the remit of the Auditor General:

•	departments of the Scottish Government eg, the Health Department
•	executive agencies eg, the Prison Service, Historic Scotland
•	NHS boards
•	further education colleges
•	Scottish Water
•	NDPBs and others eg, Scottish Enterprise.

Summary
Introduction

1. This report provides an overview of the health of people living in Scotland and the performance and financial management of the NHS in Scotland.

2. The aim of the Scottish Government is to improve the health and wellbeing of the people of Scotland. This will require efforts by a range of bodies and individuals, not just the NHS. This report focuses on the NHS contribution. Expenditure on the Scottish health service in 2006/07 was £9.4 billion, an increase of 29 per cent since 2001/02 in real terms. There was little change between 2005/06 and 2006/07 (Exhibit 1).

3. The NHS in Scotland faced a number of challenges in 2006/07. NHS boards are continuing to redesign the way services are provided, with the development of Community Health Partnerships (CHPs) and the implementation of pay modernisation contracts. All boards have been assessed against the new clinical governance and risk management standards by NHS Quality Improvement Scotland (NHS QIS) and the Scottish Government has introduced a new performance management framework including targets for boards to achieve.

4. The rest of our report is in four parts:

•	How healthy are we?
•	How is the NHS performing?
•	How is the NHS planning for major changes?
•	How did the NHS perform financially?
5. As well as providing assurance about how the NHS performed and what it spent during 2006/07, the report contains recommendations for improvement. These are largely aimed at the Scottish Government Health Directorates (SGHD) but may have wider implications for NHS bodies.1

Information sources
6. The commentary on financial performance and governance is based largely on auditors’ reports on the 2006/07 audits of the 14 NHS boards, nine special health boards and the SGHD.2 All NHS bodies have received annual audit reports which are published on the Audit Scotland website.3 This report also draws on published information from sources such as NHS QIS, HM Treasury, Office of National Statistics (ONS) and the Organisation for European Co-operation and Development (OECD). 

7. Parts 1, 2 and 3 of the report, concerning the performance and delivery of the health service, use a range of sources including the Information and Statistics Division of NHS National Services Scotland (ISD), the General Register Office for Scotland (GROS) and the Chief Medical Officer (CMO). Other information sources are cited throughout the report. The information in the report is as current as possible.
 
8. We have tried to minimise the use of jargon and technical terms, but in some places this is unavoidable and we have therefore included a glossary of terms at Appendix 3.
 
Summary of key messages 

•	Mortality rates for key diseases and overall life expectancy are improving, but other public health concerns, including drug and alcohol-related problems and obesity, continue to grow. Significant inequalities in health outcomes remain.
•	New performance measures were introduced in 2006/07 and the NHS is performing well against waiting times. However, other areas still need to improve including cancer waiting times, delayed discharges and reducing older people’s readmissions
to hospital.
•	The Scottish Government needs to build on the current performance management system for the NHS to be able to report on productivity, cost and quality together. This should fit with wider work on developing outcome measures.
•	New ways of delivering services are being developed and implemented throughout the NHS, including CHPs and a move from hospital to community-based services, but there is no evidence that resources are shifting along with these changes. CHPs now need to focus on delivering benefits for patients rather than structures and processes.
•	Improvements are needed to the way the benefits of service changes, including CHPs and pay modernisation, are identified, measured and monitored.
•	The financial performance of boards improved in 2006/07, with an overall underspend against the revenue budget. Only one board, NHS Western Isles, did not meet a financial target. Continuing cost pressures for the future, including service redesign, pay modernisation and drug costs, reinforce the need for strong financial management.
Recommendations

The Scottish Government should:

•	Ensure that information on the performance of the NHS is publicly reported and brings together data on costs, outcomes, targets, productivity, patient satisfaction and experience. It should assess performance against all these elements together to better inform decision-making.
•	Ensure the performance management system for the NHS in Scotland fits with
wider developments around outcome measures across public services.
•	Ensure that the costs and benefits of major changes such as service redesign, pay modernisation contracts and the introduction of CHPs are fully identified.
Boards should aim to be in recurring financial balance and minimise the use of non-recurring income on day-to-day expenditure.
Part 1. How healthy are we?
Key messages

•	Mortality rates for key diseases and overall life expectancy are improving but inequalities remain.
•	Higher levels of deprivation are linked with higher overall mortality and alcohol-related problems.
•	Obesity levels continue to rise, and only a third of adults are meeting recommended levels for physical activity.
Overall mortality rates in Scotland are improving but inequalities remain

9. Mortality rates for key diseases such as coronary heart disease (CHD), cerebrovascular disease (CVD) and cancer have decreased over the last ten years. CHD mortality rates have decreased the most, from 208 deaths per 100,000 population in 1997 to 125 deaths per 100,000 population in 2006. The mortality rate for males for cancer remains the highest of the three diseases, but has reduced to 249 deaths per 100,000 population in 2006. 

Life expectancy is improving
10. Life expectancy is improving, from 72.1 years to 74.6 years for men and from 77.8 years to 79.6 years for women between 1994-96 and 2004-06. However, it is still lower than the European Union (EU) average: life expectancy for men is almost a year lower than the EU average and almost two years lower for women. The gap between the council areas with the highest and lowest life expectancy has not decreased over the last ten years. For men a gap of 7.5 years on average remains between men living in East Dunbartonshire (78.0 years) and Glasgow City (70.5 years).4

11. Higher deprivation is related to higher incidence and higher overall mortality for diseases including CHD, CVD and cancer.

12. Overall, 34 per cent of all premature deaths can be attributed to deprivation.5 At a younger age suicide and drug-related problems are more prevalent for people in deprived areas; at an older age key diseases are more prevalent.6 Alcohol-related discharges from hospital and deaths increase with higher levels of deprivation.

13. Mortality rates from chronic liver disease have also risen over the last 20 years, and the increase has been more pronounced for the most deprived areas.

14. Drug-related deaths increased by 25 per cent between 2005 and 2006, from 336 to 421. Thirty-eight per cent of these deaths occurred in the NHS Greater Glasgow and Clyde area, which saw an increase in drug-related deaths from 111 to 162.7

Scotland is ranked behind other countries in many areas of health and wellbeing
15. Obesity continues to be a major public health concern, increasing from 16 to 24 per cent of men aged between 16 and 64, and from 19 to 27 per cent for women between 1995 and 2003.8 Scotland has the second highest rate of obesity among the OECD countries, behind only the USA.

16. Only 36 per cent of adults in Scotland meet the recommended level of physical activity per week. People in NHS Borders, NHS Dumfries and Galloway, NHS Fife, NHS Grampian, NHS Highland and NHS Lothian exceed the Scottish average.

17. Scotland is ranked 22nd out of 24 in a recent report on the wellbeing of children, with suicide rates, dental health and teenage pregnancy rates contributing to this low ranking.9

18. The live birth rate for teenage pregnancy in Scotland (and the rest of the UK) is the fourth highest among the OECD countries. Within Scotland, NHS Tayside and NHS Dumfries and Galloway have the highest rates of teenage pregnancy, with rates at 70.5 and 67 per 1,000 women aged between 15 and 19 respectively.10
Part 2. How is the NHS performing?
Key messages

•	It is still hard to get a complete picture of NHS activity – the best information remains in the acute hospital sector and for consultant-led activity. For example, consultants’ outpatient activity shows a downward trend and accident and emergency attendances have increased by 50,000 over the last year. Improvements in data are being made but there are still no measures for productivity.
•	Performance against key targets including waiting times is improving, but further work is needed on other targets:
o	87.3 per cent of cancer patients are treated within the target that all patients with an urgent referral should be treated within 62 days 
o	40 per cent of patients clinically ready for discharge are waiting for more than
six weeks
o	elderly readmission rates have declined marginally, but by 2008/09 they need to reduce by 20 per cent from the 2004/05 level.
•	New performance measures were implemented, but information on performance is not published for all targets, and is not brought together in an accessible format.
•	The Scottish Government needs to build on the current performance management system for the NHS to be able to report on productivity, cost and quality together. This should fit with wider work on developing outcome measures.
Activity levels have been variable as funding for the NHS increases

19. Overall expenditure on health has increased by 29 per cent in real terms between 2001/02 and 2006/07. Total expenditure was £9.4 billion in 2006/07 and is budgeted to increase to over £10 billion in 2007/08.11  Expenditure on health per head of population continues to be higher in Scotland than in the rest of the UK. 

20. Activity measures have historically focused on the hospital sector and consultant activity in particular. As services change these measures no longer reflect the full range of activity.  There are currently no measures to show the changes in productivity.

21. The increased investment does not appear to be matched by increases in traditional consultant-led activity. For example, there is a downwards trend in consultant-led outpatient total attendances (Exhibit 10).
Boards are aiming to eliminate unnecessary repeat visits and this may explain some of the difference – the ratio of new to returning patients has decreased from 2.6 in 1999 to 2.3 in 2007.12 However, the number of new outpatient appointments also shows a slight downwards trend.13

22. The Scottish Government is developing new measures to ensure that all activity is recorded such as the activity of Allied Health Professionals (AHPs). For 2007, total AHP and other technical services attendances were 5.4 million, which is more than consultant-led outpatient attendances. This gives a more complete picture of activity and shows the extent of activity not previously recorded. Data development work suggests that nurse-led clinics may account for a further one million outpatient attendances.

23. Accident and emergency (A&E) attendances reached their second highest level in the last ten years in 2007. Rates have been increasing for the last two years, following a five-year downward trend.

24. Over the last 20 years there has been an increase in emergency and day case activity, but this has levelled out over the last five years. Elective inpatient activity has decreased over the 20-year period but has remained fairly static over the last five years.

25. Audit Scotland completed a review of day surgery in 2004 based on a basket of procedures and noted that rates were lower than in England. Between March 2003 and March 2006, day surgery rates have been increasing at about 1 to 1.5 per cent per year. The Scottish Government aims to increase these rates and has estimated a potential efficiency saving of £9.5 million a year.14 Audit Scotland is undertaking a review of day surgery and will report its findings in 2008.

26. Within primary care, contacts with GPs have remained static over the last three years, with approximately 79 per cent of the practice population seeing a GP in 2005/06 as compared to 78 per cent in 2004/05.15 The Audit Scotland report on managing long-term conditions noted that for patients with chronic obstructive pulmonary disease the number of contacts with their GPs had decreased, while contact with practice nurses increased. This reflects the wider role that nursing staff are having in the care of patients.16

27. The number of adult and child dental registrations has declined slightly since 2000, decreasing from 2.73 million to 2.58 million (5.21 per cent fall).17 The numbers of NHS sight tests and eye examinations slowly increased from 2000 until 2007 when there was a large increase due to the extension of free eye tests to all, increasing from 0.96 million to 1.6 million in one year.18
 
Healthcare associated infection is estimated to cost the NHS £183 million per year
28. According to a study undertaken by Health Protection Scotland between October 2005 and October 2006, 9.5 per cent of patients in acute hospitals and 7.3 per cent in non-acute hospitals had a healthcare associated infection (HAI). The cost of HAI is estimated to be £183 million per year in Scotland.19 Those specialties with the highest rates were care of the elderly and medicine for both acute and non-acute hospitals and also surgery for acute hospitals.

29. Similar studies have been undertaken in other parts of the UK. A study undertaken in England, Northern Ireland, Wales and the Republic of Ireland between February and May 2006 showed an overall infection rate of 7.6 per cent.20 It is difficult to make comparisons between the Scotland study and the other studies because of differences in patient case mix, methodology and time period.

30. The Scottish Government has put in place an HAI task force to tackle HAI. The task force has produced a delivery plan stating the actions it is going to take up to March 2008. Also, a target has been included in the 2007/08 health targets to reduce all Staphylococcus aureus bacteraemia (including MRSA) by
30 per cent by 2010.

The Scottish Government introduced a new performance framework for the NHS in 2006/07

31. The NHS developed and implemented new performance measures for 2006/07, with HEAT targets replacing the performance assessment framework (PAF). HEAT has 32 targets, fewer than the system it replaced. These are split into four categories:

•	(H) health improvement for the people of Scotland – improving life expectancy and healthy life expectancy 
•	(E) efficiency and governance improvements – continually improving the efficiency and effectiveness of the NHS 
•	access to services – recognising patients’ need for quicker and easier use of NHS services 
•	(T) treatment appropriate to individuals – ensuring patients receive high-quality services that meet their needs. 
32. Each NHS body must develop a local delivery plan which sets out the HEAT targets and any other local targets the boards are aiming to meet to ensure that the national targets are met. Boards are responsible for measuring performance against the local delivery plans and the results are reported to the Scottish Government.

Performance against targets is improving with some exceptions
33. Performance against HEAT targets is showing improvement in the majority of boards. Appendix 1 provides a full list of all targets and the most recent performance against measures for the whole of Scotland. A selection of the targets is discussed in more detail below.

34. The NHS has been successful in meeting its immunisation targets apart from the measles, mumps and rubella (MMR) immunisation. While uptake is now increasing after a period of decrease, it is still falling short of the 95 per cent target with average performance in the quarter to June 2007 at 92.1 per cent. Only two boards, NHS Dumfries and Galloway and NHS Western Isles, met the target (Exhibit 13, overleaf).

35. Between 2001/02 and 2005/06, there has been a consistent downward trend in the number of suicides.21 Two more mental health indicators have been added for 2007/08:

•	to reduce the annual rate of increase of defined daily dose per capita of anti depressants to zero by 2009/10 
•	to reduce the number of readmissions (within one year for those who have had a psychiatric hospital admission of over seven days) by ten per cent by the end of December 2009.
36. More indicators for mental health are in development following the publication of Delivering for Mental Health by the Scottish Executive in December 2006.22

37. In 2006, 25 per cent of the population smoked, showing a decrease since the previous year and continuing a slow downwards trend towards the target of 22 per cent by 2010. The proportion of adults smoking is highest for those living in the most deprived areas in Scotland, at 41 per cent.23 Smoking has been banned in public places in Scotland since 26 March 2006 but it is too early to assess the impact of this ban.

Sickness absence levels have increased
38. At an average of 5.55 per cent, sickness absence rates have worsened since 2005/06 when the average rate was 5.23 per cent. NHS 24 had the highest rate (9.88 per cent) and the majority of boards look unlikely to meet the target of four per cent by 31 March 2008. Only three boards, NHS Education, NHS QIS and NHS Health Scotland, had a rate below four per cent. This means the Efficient Government Initiative savings target of £34.5 million has not been met. 

The primary care 48-hour access target is generally being met
39. Access targets include waiting times targets. The Scottish Government has a target of access to primary care services, such as GPs or practice nurses, within 48 hours. Performance was measured at 99.4 per cent against the target of 100 per cent in 2005/06.24 Previously this information was self-reported by GPs through the Quality and Outcomes Framework which determines part of their level of payment. However, since 1 April 2006, there has been a change in contracting arrangements and this information is no longer published.

Ambulance response times to high-priority calls were below target
40. Ambulance response times showed a performance of 55.7 per cent against a target of 64 per cent for responding to Category A (high priority) calls within eight minutes.25 The Scottish Ambulance Service is undertaking research to get a better understanding of the demand for its services.

Cancer waiting times have improved, but do not yet meet the national target
41. The Scottish Government has set a target that all patients with an urgent referral from their GP for cancer treatment should be treated within 62 days.

42. For the quarter ending 30 June 2007, 87.3 per cent of all cancer patients were treated within the 62 day waiting time. There have been improvements in the percentage of patients with the three main cancers, breast, lung and colorectal, being treated within 62 days, although performance is still falling short of the target. In the 24 months to June 2007, the percentage of patients being treated within the target timeframe improved as follows:

•	For breast cancer, it improved from 80.5 per cent to 97.2 per cent.
•	For lung cancer, the improvement was from 76.8 per cent to 86.9 per cent.
•	For colorectal cancer, performance improved from 66.8 per cent to 81.3 per cent.26
43. The Scottish Government is working with NHS boards to improve their cancer waiting times performance. Cancer performance support teams were created and directed initially to NHS Highland and NHS Forth Valley to improve their poor performance relative to other boards. The support teams also visited NHS Greater Glasgow and Clyde because its size poses particular risks. These teams have helped boards to reduce their waiting times.

44. Following an improvement in the performance of NHS Forth Valley and NHS Greater Glasgow and Clyde, the support teams withdrew from these areas and focused on NHS Lothian and NHS Lanarkshire, which have poorer performance than other boards. The support team remains at NHS Highland. Exhibit 15 shows board performance against waiting times targets for all cancers combined.

The 18-week target for inpatients has been met
45. For inpatient and outpatient waiting times the targets are that by December 2005 no patient should have been waiting for more than 26 weeks and for more than 18 weeks by December 2007. The national target uses a census measure which provides a snapshot of the number of people waiting to be seen or treated, and how long they have been waiting at the census date. For the 18-week targets that are due for December 2007, the inpatient target has already been met.

46. Availability status codes (ASCs) are assigned to people if they are medically unfit or unavailable for treatment. The code indicates that the waiting times guarantee does not apply to that patient. The number of patients with an ASC has decreased over time, but they still represent 23 per cent of inpatients and nine per cent of outpatients. The Audit Scotland report on tackling waiting times noted that patients with an ASC tended to wait longer.27

47. From 1 January 2008, the current ASC system will be replaced with arrangements, known as ‘New Ways’, that take periods of patient unavailability into account when measuring and reporting waiting times. Abolition of ASCs will present a challenge to NHS boards to meet future waiting times targets. The Auditor General will review how the NHS is applying the new approach during 2008.

Delayed discharges have decreased
48. At July 2007, of the 1,031 patients clinically ready to be discharged from hospital, 423 had been waiting over the target of six weeks. This compares to 2,162 patients waiting over six weeks when rates were at their highest in October 2001. However, across Scotland over 40 per cent of patients clinically ready to be discharged have been waiting more than six weeks. The target for 2007/08 is that no patients should be delayed for more than six weeks.

49. A further treatment target is to reduce the percentage of older people (aged 65 and over) who are admitted as an emergency inpatient twice or more in a single year by 20 per cent by 2008/09 from the level in 2004/05. Performance data, currently available only to March 2006, show a marginal decrease but there is much work to be done to meet the target. This is an area where joined-up health and social care is essential.

50. The HEAT targets are intended to improve the performance and accountability of the NHS in Scotland, but there is no publicly available information on performance against the following targets:

•	Reduce health inequalities by increasing the rate of improvement for the most deprived communities by 15 per cent across a range of indicators, including CHD, cancer, adult smoking, smoking during pregnancy, teenage pregnancy and suicides in young people.
•	Ensure that everyone contacting their GP has guaranteed access to a GP, nurse or other healthcare professional within 48 hours.
•	Women who have breast cancer and need urgent treatment will get it within one month where appropriate.
51. The NHS in Scotland does not produce an annual report of its performance against the targets. This means that the public and patients cannot easily get a comprehensive picture of how the NHS is performing. There is also scope to develop the framework further; at present not all the measures are relevant to the target they are supposed to be measuring.

52. On 14 November 2007, as part of the budget and spending review, the Scottish Government launched a new outcome-focused approach to performance. This involves setting a single purpose for the Government which is underpinned by five strategic objectives (wealthier and fairer, smarter, healthier, safer and stronger, and greener). These strategic objectives are in turn supported by 15 national outcomes which will be measured through 45 national indicators and targets. All performance management systems across the public sector will be aligned to a single set of priorities.

Several initiatives to improve performance management are in place but need to link to the wider work on outcomes

53. Effective performance relies on the monitoring of information on a range of factors: costs, inputs, outputs and outcomes. The Scottish Government has several initiatives in place or under development to gather this information. However, these initiatives are currently not fully coordinated to allow these factors to be monitored together to give an overall picture of performance.

54. Current national initiatives include:

•	reviewing health improvement measures
•	developing outcome measures for community care
•	developing cost information using NHS tariffs28
•	contributing to the UK-wide review of productivity measures29 30
•	exploring the use of programme budgeting to identify true costs of specific services (Case study 1).
55. It is essential that all these initiatives support the wider Scottish Government aims of developing outcome measures across public services.

Recommendations

The Scottish Government should:

•	Ensure that information on the performance of the NHS is publicly reported and brings together data on costs, outcomes, targets, productivity, patient satisfaction and experience. It should assess performance against all these elements together to better inform decision-making.
•	Ensure the performance management system for the NHS in Scotland fits with wider developments around outcome measures across public services.
Part 3. How is the NHS planning for major changes?
Key messages

•	New ways of delivering services are being developed and implemented throughout the NHS, including Community Health Partnerships and a move from hospital to community-based services, but there is no evidence that resources are shifting along with these changes. CHPs now need to focus on delivering benefits for patients rather than structures and processes.
•	Improvements are needed to the way the benefits of service changes, including CHPs and pay modernisation, are identified, measured and monitored.
•	Clinical governance arrangements are adequate in most boards but there is scope for improvement. 
The NHS is undergoing a period of service redesign

56. In planning for major changes the NHS needs to focus on ensuring it has good information on costs, workforce and outputs. In previous Audit Scotland reports we have highlighted that the information has not always been good enough, and in the current period of major change it is important that this is addressed.

57. The way services are delivered in the NHS is changing. Recent reports on the NHS, including the Kerr Report Building a Health Service Fit for the Future, the Scottish Executive’s response Delivering for Health and the Government’s current consultation Better Health, Better Care, have signalled a period of service redesign to shift the balance of care from hospitals to community settings.31 32 33 This is partly in response to the challenges of an ageing population, which could see a rise of 81 per cent in the number of over 75s between 2006 and 2031, and an increasing number of people with a long-term condition, of whom there are estimated to be one million in Scotland.34 35 Other reasons for redesigning services are to provide a better quality of care, comply with the European Working Time Directive, make better use of staff and improve waiting times.

58. All boards are reviewing their services. These programmes of change range in size but are significant to the individual boards including NHS Greater Glasgow and Clyde’s plans to invest £750 million in acute services, and NHS Dumfries and Galloway which is investing £19 million in redesigning and modernising mental health services. The Scottish Government has recently introduced independent scrutiny panels to review boards’ service redesign proposals before they are fully approved.

There is no evidence that resources are shifting to community provision
59. Although boards are redesigning services to provide more locally based care, the analysis of total costs shows that the balance of expenditure between hospital and community services has not yet changed. This suggests that resources are not shifting in line with planned changes.

60. The Audit Scotland report on managing long-term conditions, published in August 2007, concluded that there is limited information available to form the basis of decisions about the best use of resources and how to shift the balance of care.36 There are no targets for this and boards are taking different approaches. There are a number of barriers to moving resources, including the significant amount of resources tied up in secondary care and the need to maintain hospital services during periods of change.

To date Community Health Partnerships have focused on structures and processes and now need to focus on delivering benefits for patients

61. CHPs were developed to help facilitate moving services from acute to community settings.37 All boards have now created CHPs, with different types of arrangements with councils being developed; for example some CHPs have also incorporated social care into the arrangement making Community Health and Care Partnerships. Five boards have a single CHP covering the whole board area, the majority have two or three CHPs, while NHS Lothian has four and NHS Greater Glasgow and Clyde has ten.

62. CHPs appear to be making slow progress; to date CHPs have focused on structures and processes but they now need to focus their attention on delivering benefits for patients.

63. Auditors, in their annual audit reports, highlighted a number of areas of good practice currently in place at CHPs, together with a number of common challenges that need to be addressed over the next year.

Workforce planning is a key part of service redesign 

64. Successful redesign of services needs to be supported by having the right number and mix of staff in place. This may include redefining the roles of some staff.

65. The total consultant vacancy rate has fallen from a peak of 7.8 per cent in 2005 to 7.0 per cent in 2006, while the rate for posts vacant for more than six months has remained static over the same time period at 4.2 per cent.38 Nurse vacancy rates have continued to decrease, falling below three per cent in 2006.39 Under the new General Medical Services contract GP practices no longer have to provide workforce information.

66. The Audit Scotland report on primary care out-of-hours services highlighted that NHS boards have begun to develop extended roles for NHS staff so that staff such as paramedics and nurses can contribute to the care of patients in the out-of-hours period.40

Workforce plans are now being integrated with local delivery plans
67. All boards complete workforce plans, which are now being integrated with other planning documents, including the local delivery plan. In the National Workforce Plan 2006, the Scottish Executive stated that boards should further develop and improve the integration of workforce planning with service planning and financial planning.41 The plan also noted that a significant challenge for boards has been projecting staffing requirements for the future, and that they were not linking their workforce planning with their Delivering for Health plans.

68. While boards are putting in place strategies and services to shift the balance of care from acute to community care, it is unclear whether they are adequately planning for the financial and human resources to match this shift. Integrating workforce and delivery plans should help.

The use and cost of agency nurses has decreased
69. The use of agency nurses has decreased with an equivalent decrease in costs, but bank nurse numbers and costs have continued to rise. The 2007 Audit Scotland follow-up report on ward nursing emphasised the need to review the appropriate use of bank nurses. The Scottish Government recently wrote to chief executives setting out the improvements needed to meet the recommendations included in the Audit Scotland report, and encouraged the use of national workload and workforce planning tools for nursing and midwifery.42 43

Agenda for Change is still being implemented but the impact and benefits have not been adequately measured

70. Pay modernisation in the NHS in Scotland continues, with new contracts for consultants and GPs and changes to out-of-hours working in primary care. Boards have made slow progress with the implementation of Agenda for Change since 2004. Agenda for Change covers most NHS staff and aims to harmonise pay scales and terms and conditions throughout the NHS. Implementation of the contract began in October 2004. By May 2007, 94 per cent of the workforce across Scotland had moved onto the new pay system.44 The larger boards are among those behind the national average for progress, while special boards also lag behind due to the number of staff who do not fit national job profiles. Part 4 covers the cost pressures of pay modernisation in more detail.

71. It is unclear whether the full benefits of pay modernisation have been identified and are being monitored. Previous Audit Scotland reports have commented on the weaknesses of benefits realisation plans. The 2006 report Implementing the NHS consultant contract in Scotland stated that plans did not yet provide evidence of clear benefits to the NHS and the 2007 report Primary care out-of-hours services concluded that plans were not measuring the achievement of the benefits originally set out.45 46
 
Clinical governance arrangements are adequate but scope for improvement remains

72. In October 2005, NHS QIS issued clinical governance and risk management standards for implementation by all NHS boards including special health boards. The standards incorporate the key best value criteria of sound governance and cover the following areas:

•	safe and effective care and services (eg, risk management)
•	the health, wellbeing and care experience (eg, access, referral, treatment and discharge)
•	assurance and accountability (eg, clinical governance and external communication).
73. During 2006/07, NHS QIS completed a full assessment of boards’ performance against these standards and concluded that most were performing adequately but that there was scope for improvement. As this was the first year of the standards it was expected that many boards would be at the implementation or monitoring stage of performance, with scope to continue to develop their performance in future years. 

74. NHS QIS found that boards had made good progress in some areas including risk management and emergency planning but there were several common areas which posed challenges.47 These included:

•	strategic planning, where boards were found to be not yet fully coordinating strategic activities 
•	business continuity, an issue which was also reported by
local auditors
•	information governance, which includes data protection, records management and IT security.
75. NHS Western Isles and NHS Orkney were the poorest performing boards. This is confirmed by auditors’ annual reports for these boards, which also identified the need for significant improvements to clinical governance and risk management, and corporate governance.

There have been significant changes in senior management at some boards
76. During 2006/07, a number of boards, including the Scottish Ambulance Service, NHS National Services Scotland, NHS Western Isles and NHS 24, had significant changes in senior positions with interim managers being appointed in some cases. Leadership was seen as a key risk by auditors, with significant senior management changes and vacancies adding to the risk presented by complex and significant future challenges. The 2005 Audit Scotland report on leadership indicated the importance of this issue and the quality of leadership is a key best value criteria.48 

77. We have reported in previous overview reports on boards’ progress with single system working following the abolition of NHS trusts in Scotland. During 2006/07, larger boards continued to make progress with integration, for example NHS Tayside created a new organisational structure at the start of 2006/07 to allow single system working to fully function. In April 2006, NHS Greater Glasgow and NHS Highland took over responsibility for the former NHS Argyll and Clyde and have integrated those functions during the year. Difficulties for the two boards included the use of different financial ledgers, IT systems and governance structures. 

Recommendation
•	The Scottish Government should ensure that the costs and benefits of major changes such as service redesign, pay modernisation contracts and the introduction of CHPs are fully identified, monitored and measured.

Part 4. How did the NHS perform financially?

Key messages

•	The financial performance of boards improved in 2006/07 with an overall underspend against the revenue budget. Only one board did not meet a financial target.
•	Boards are continuing to use non-recurring income to support their revenue position, but this does not represent a large financial risk for most boards.
•	Boards face a number of cost pressures. These include potential liabilities arising from equal pay claims, although these are not yet quantified.
•	In 2006/07, the NHS reported that it delivered Efficient Government savings of £358 million against a target
of £353 million.
The financial performance of the NHS improved in 2006/07

78. Overall the NHS in Scotland underspent against its budget by £98 million in 2006/07. This comprised a revenue underspend of £31 million and an underspend on capital of £67 million.

79. NHS boards underspent their annual revenue budgets by £113.2 million, while the Scottish Executive Health Department (SEHD) overspent its budget by £80 million. There was a revenue underspend of £31 million for the whole of the NHS.

NHS Western Isles was the only board that failed to meet a financial target

80. The Scottish Government has three financial targets for NHS bodies, which are that they should stay within their:

•	Revenue Resource Limit (RRL) – this is the revenue budget allocated for the day-to-day operation of services. Underspends against the RRL, where approved, may be carried forward to the next year.
•	Capital Resource Limit (CRL) – this is the funding that a health body has available for capital programmes.
•	Cash Requirement – this is the amount of cash that may be drawn down by NHS bodies to fund ongoing operational costs and new capital investment.
81. The total RRL underspend of £113 million for 2006/07 was made up of an underspend by NHS boards of £89 million and £24 million for the special boards.

82. In 2006/07, only NHS Western Isles did not meet its RRL target although there were no accounts qualifications. This is an improvement on 2005/06 when two boards overspent their RRL (NHS Western Isles and NHS Lanarkshire) and the accounts of NHS Highland were qualified. Appendix 2 provides a position statement for boards’ performance against their financial targets.

83. NHS Western Isles has overspent its RRL for the last four years. Its total cumulative deficit now stands at £3.4 million, with an in-year deficit against the RRL of £0.9 million. While NHS Western Isles plans to reduce this deficit in 2007/08, its auditor has expressed concerns that there is a risk that a deficit position will be recorded again. The Auditor General reported to Parliament on these matters in November 2007, under Section 22 of the Public Finance and Accountability (Scotland) Act 2000. A report was also made to Parliament under the same provision on the Mental Health Tribunal for Scotland Administration on its need to improve its governance arrangements. 

84. NHS Lanarkshire moved from a cumulative deficit position to a cumulative surplus within 2006/07. The deficit was mainly cleared through the sale of surplus land at the former Law Hospital. This action was planned and had been included within the board’s financial plan for a number of years.

Fifteen boards still rely on non-recurring funding to break even but for most this does not represent a major financial risk

85. In previous overview reports we have commented on boards’ reliance on non-recurring funding in order to break even and meet their RRL targets. The underlying recurring position of boards identifies the income and expenditure boards must incur every year to provide services, and whether they spend more than they receive (underlying recurring deficit) or vice versa (underlying recurring surplus). This then outlines the level of reliance that boards must place on non-recurring funding in order to make up the deficit position.

86. The NHS in Scotland had an overall underlying recurring deficit of £92 million in 2006/07, representing only one per cent of recurring income. This is a small proportion of the recurring income that boards receive each year. Boards are forecasting this deficit to reduce to 0.28 per cent of recurring income in 2007/08 (Exhibit 26, overleaf).

87. NHS Western Isles and NHS Orkney have recurring deficits of £6.8 million (12.14 per cent of recurring income) and £2.58 million (7.93 per cent) respectively. This is a substantially higher proportion than for other NHS boards and represents a significant risk. Their forecast underlying recurring deficits for 2007/08 also remain relatively high compared to the other boards. We have already noted that NHS Western Isles did not meet its financial targets for 2006/07 and this high underlying recurring deficit highlights the financial difficulty facing the board. The auditors of NHS Orkney reported that at the time of the audit, the board did not have a savings plan in place to address the forecast underlying deficit position.

88. NHS Greater Glasgow and Clyde has the highest deficit of the boards in purely monetary terms, but this represents only 1.26 per cent of its recurring income. This underlying recurring deficit is linked to the board’s inheritance of a recurring deficit of £30.5 million relating to the Clyde region. NHS Greater Glasgow and Clyde is receiving transitional funding from the Scottish Government to help manage the deficit, but it acknowledges the difficulties in managing down this deficit and in reducing the transitional funding.

Boards continue to use non-recurring funding to support their revenue position
89. Despite the improved position overall, NHS boards had to use non-recurring funding and non-recurring savings to record an overall surplus. Types of non-recurring income include support from the Scottish Government and proceeds from the sale of assets. Boards continue to use one-off sources of money to meet recurring expenditure; they should be aiming to be in recurring balance and minimise reliance on
non-recurring income to pay for day-to-day running costs.

Boards generated a gain of £74 million by disposing of assets
90. In 2006/07, NHS boards disposed of assets with a net book value of £51 million, generating a profit of £74 million.49 The NHS boards that generated the largest profits on disposal were:

•	NHS Greater Glasgow and Clyde (£33 million)
•	NHS Grampian (£9 million)
•	NHS Lanarkshire (£12 million)
•	NHS Lothian (£11 million).
91. Exhibit 27 shows that the profit from sale of assets has increased significantly over the past three years. 2006/07 was the last year that the profits from the sale of assets could be used to fund revenue expenditure. From 2007/08 these funds will have to be used for capital purposes. 

Boards are still able to make capital grants
92. Boards still have powers to make capital grants to other bodies that create or develop assets for their own use for the benefit of the board’s residents, for example, contribution to care facilities being developed by the council. These grants have to meet specific criteria as set out in the Scottish Government Capital Accounting Manual. These criteria are that:

•	Boards must be able to demonstrate that the recipient body has agreed to use the funding for specific capital purposes.
•	Expenditure should meet the definition of capital expenditure as applied by the board.
•	Grants should only be used by external bodies for the benefit of the board’s residents.
93. All capital grants used in 2006/07 met these criteria according to auditors but some commented that more robust records would have to be maintained in the future. Exhibit 27 shows that the use of capital grants has increased significantly in the past three years. The NHS boards using the most capital grants in 2006/07 were:

•	NHS Grampian (£4 million) 
•	NHS Greater Glasgow and Clyde (£8 million)
•	NHS Lothian (£18 million)
•	NHS Tayside (£6 million).
94. Using capital grants also allows boards to fund capital assets without affecting revenue resources as these costs are picked up by the other organisation. No assets appear on the boards’ accounts so they also avoid paying capital charges.

Boards cited service redesign, pay modernisation, waiting times initiatives and drugs costs as key cost pressures

95. While the level of underlying recurring deficits is small relative to recurring income and is forecast to reduce in 2007/08, the challenge of meeting these forecasts should not be underestimated. Boards continue to face increasing cost pressures and this, combined with reduced flexibility in their use of capital funds, means that the risk of boards not meeting these forecasts is increased. The main cost pressures cited by boards include service redesign, pay modernisation contracts, meeting targets including waiting times, and drugs costs.

Service redesign may have a financial impact
96. Service redesign as envisaged by the Kerr Report was not intended to incur any extra cost to the NHS. However, it is not necessarily cost neutral in the short to medium term and there is no evidence to show that resources are shifting with the balance of care. Many of the cost pressures associated with service redesign are difficult to quantify.

97. The NHS needs to maintain current hospital provision until new services have been put in place. This may cause ‘double-running’ with sections of old and new services running at the same time. Boards also incur higher depreciation charges on assets that have been designated as surplus to requirements as they have to write down the asset over a shorter period. The Scottish Government has currently funded all accelerated depreciation incurred by boards and provision has been made in the Capital Accounting Manual for 2007/08 for this to continue. Therefore, while boards currently remain unaffected this remains a cost pressure for the Scottish Government.

98. Some boards may need to identify additional savings targets to be able to balance their budgets once the new developments are in place. For example, NHS Forth Valley will need to release additional savings of
£2.4 million once the annual charge for the new Larbert hospital is included within its budget.50

Pay modernisation is a source of cost pressure for boards
99. Pay modernisation was cited as a cost pressure by most boards. As implementation of Agenda for Change was not complete by March 2007, boards had to make accruals for the amount of back pay still due to be paid to staff. Boards expect that further cost pressures will arise in future years due to incremental increases in pay. This is where, under their previous contract, a member of staff may have been at the top of their pay band, but moved to a new pay band under Agenda for Change and so become entitled to incremental increases in pay again. Boards have also had to estimate the impact of any appeals by staff against their Agenda for Change grading. This could have a financial impact and will need to be managed throughout 2007/08.

Equal pay claims are not yet quantified
100. Equal pay is also an issue for the health service in Scotland. The NHS in Scotland received over 10,000 claims for backdated pay increases arising from the provisions included within the Treaty of Rome and the Equal Pay Directive. All claims have been referred to the NHS’s Central Legal Office. However, for 2006/07, auditors reported that they were unable to obtain any estimate of the potential liability being faced by the boards. The auditors accepted this position for 2006/07, with a contingent liability with no value being included in the accounts of all boards affected. However, auditors reported that they would have expected further details to have been available to boards, including a reasonable estimate of each board’s liabilities. They encouraged each board to work with the Scottish Government to resolve the matter in advance of the compilation of the 2007/08 financial statements and audit.

Drugs costs have levelled out but are still a cost pressure for boards
101. There has previously been a significant growth in spending on prescribing but this has now levelled out and expenditure has been around £1 billion for the last three years.51 In 2006/07, some boards noted that drugs costs were lower than anticipated, delivering cost savings. Further savings of £38 million were also delivered through the new pharmacy contract as part of the Efficient Government Initiative.52 However, boards continue to identify drugs as a cost pressure as new drugs and technologies are introduced, making it difficult for boards to forecast expenditure.

102. Boards also cite waiting times initiatives as a cost pressure. The total amount spent on decreasing waiting times is unknown but boards are facing continual pressure to meet waiting times targets in all areas. This often involves some service redesign or redesign of the patient pathway.

Provisions for clinical and medical negligence claims continue to rise while the cost of settlement decreases
103. NHS boards are setting aside increasing amounts of money to provide for potential clinical and medical claims. Provisions and contingent liabilities for clinical and medical negligence claims have increased over the last three years from £134 million to £208 million. The amount set aside and the treatment of each claim within the financial statements depends on the estimated probability of its success, as provided by the Central Legal Office. 

104. Exhibit 29 shows that the amount actually paid out in clinical and medical claims increased nearly three-fold between 1999/2000 and 2003/04 but has decreased since then.

Efficient Government savings targets were reported to be met

105. The Scottish Executive launched its Efficient Government Initiative Building a Better Scotland in June 2004. In 2006/07, the NHS reported that it delivered Efficient Government savings of £358 million against a target of £353 million. NHS boards were targeted to make a one per cent recurring efficiency saving, which was a cumulative target of £134 million over two years. The boards reportedly met this target with £137 million of savings over two years.53

106. The majority of savings were cash-releasing (81 per cent), while time-releasing savings were 40 per cent below target. This is mainly because boards in total only met 17 per cent of the target to reduce sickness absence. Initiatives where savings were above target were NHS procurement and improved prescribing. This corresponds with a reduction in cost pressure reported by auditors (paragraph 101). A new approach has been developed to shared services, using certain boards to act as pathfinders after the original final business case was not taken forward.

Recommendation

•	NHS boards should aim to be in recurring financial balance and minimise the use of non-recurring income on day-to-day expenditure.

Footnotes

1	The Scottish Government is split into directorates. This new structure has replaced the former departmental structure and that means that what was previously the Health Department is now a number of individual directorates.
2	For the purposes of this report, NHS National Services Scotland and the Mental Welfare Commission for Scotland are referred to as special health boards. The Mental Health Tribunal for Scotland Administration is an executive agency and is responsible for laying its own accounts in Parliament, and so is excluded from this report.
3	www.audit-scotland.gov.uk
4	Life expectancy for administrative areas within Scotland 2004-06, GROS, September 2007. 
5	Measuring Socio-Economic Inequalities in Health: A Practical Guide, ScotPho, 2007.
6	Inequalities in mortality in Scotland 1981-2001, MRC Social and Public Health Sciences Unit, February 2007. 
7	Drug-related deaths in Scotland 2006, GROS, August 2007. 
8	Obesity is defined as Body Mass Index>30 kg/m2.
9	Index of Wellbeing for Children in Scotland, Barnardo’s Scotland, July 2007. 
10	www.isdscotland.org
11	Consolidated Resource Accounts, Scottish Government, 2001/02 to 2006/07.
12	www.isdscotland.org
13	www.isdscotland.org
14	The Planned Care Improvement Programme: Day Surgery in Scotland, Scottish Executive, 2006.
15	www.isdscotland.org
16	Managing long-term conditions, Audit Scotland, August 2007. 
17	www.isdscotland.org
18	www.isdscotland.org
19	NHSScotland National HAI prevalence survey, Health Protection Scotland, July 2007.
20	NHSScotland National HAI prevalence survey, Health Protection Scotland, July 2007.
21	www.scotpho.org.uk
22	Delivering for Mental Health, Scottish Executive, December 2006.
23	2006 Scottish Household Survey, Scottish Government, August 2007.
24	www.isdscotland.org
25	Annual audit report to Scottish Ambulance Service Board and the Auditor General for Scotland 2006/07, PricewaterhouseCoopers.
26	www.scotland.gov.uk/Topics/health/cancer/waiting-times
27	Tackling waiting times in the NHS in Scotland, Audit Scotland, February 2006.
28	The national tariff sets costs for activity carried out by one NHS board for patients who reside in another board. This would allow each board to compare its cost of providing a particular service against the national standard cost.
29	Atkinson Review: Final Report, Measurement of Government Output and Productivity for the National Accounts, HMSO, 2005.
30	Measuring quality as part of public service output, strategy following consultation, UK Centre for the Measurement of Government Activity, July 2007.
31	Building a Health Service Fit for the Future, Scottish Executive, 2005.
32	Delivering for Health, Scottish Executive, 2005.
33	Better Health, Better Care: A discussion document, Scottish Executive, August 2007.
34	Projected population of Scotland (2006 based), GROS, October 2007.
35	Managing long-term conditions, Audit Scotland, August 2007.
36	Managing long-term conditions, Audit Scotland, August 2007.
37	References to CHPs include community health and care partnerships (CHCPs) and community health and social care partnerships (CHaSCPs).
38	www.isdscotland.org
39	www.isdscotland.org
40	Primary care out-of-hours services, Audit Scotland, August 2007.
41	National Workforce Plan 2006, Scottish Executive, December 2006.
42	Planning ward nursing – legacy or design, a follow-up report, Audit Scotland, January 2007.
43	Implementation of Nursing and Midwifery Workload and Workforce Planning Tools and Methodologies, CEL (2007) 06, Scottish Executive, August 2007.
44	Answer to Parliamentary Question: S3W-1184.
45	Implementing the NHS consultant contract in Scotland, Audit Scotland, March 2006.
46	Primary care out-of-hours services, Audit Scotland, August 2007.
47	Vital Systems: The health of NHSScotland, NHS QIS, August 2007.
48	Leadership development: How government works, Audit Scotland, November 2005.
49	Unified Board Summary 2007.
50	Annual Report to Forth Valley Health Board and the Auditor General for Scotland 2006/07, Scott-Moncrieff.
51	www.isdscotland.org
52	Efficient Government return, Scottish Executive, 2007.
53	Efficient Government return, Scottish Executive, 2007.

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ISBN 978 1 905634 83 5                         AGS/2007/10