Monday, December 11, 2006

Healthy business for some

The National Health Service is in danger of capsizing as a result of the government’s constant changing of the rules, private sector financing and exploitation by the drugs corporations, otherwise known as Big Pharma. At least 13 NHS trusts are technically bankrupt and about a third of the NHS trusts in England forecast deficits totalling almost £1.2bn this year. Thousands of jobs have been cut and wards closed, despite campaigns by local people all over the country. New Labour’s answer? Health secretary Patricia Hewitt has announced that the NHS must make a surplus next year, which is certain to mean another round of closures. How did the 13 trusts go bankrupt? Partly through government incompetence and partly as a result of the expense of building new hospitals in "partnership" with the private sector. In 2001, Gordon Brown and Alan Milburn in 2001 put NHS trusts under a financial regime known as Resource Accounting and Budgeting (RAB). The new system was designed to regulate spending by Whitehall departments, but had a devastating effect when it was applied to already overspending hospital trusts. If a trust spent £105m, but had an income of only £100m, it would end the year with a deficit of £5m. The new rules sliced £5m from its income in the following year and obliged it to make a £5m surplus. That required the trust to cut its spending from £105m to £90m. Trusts faced with this kind of punishment could not achieve the target without damaging patient care and so their deficits escalated.

Also weighing down on NHS finances is the "the Private Finance Initiative" which gives property developers the right to build new hospitals and lease them back to the NHS in fixed contracts lasting many decades. This has cost the NHS dearly. Hardest hit has been the Queen Elizabeth hospital in Woolwich, south-east London. The trust is locked into a PFI deal that adds about £9m to the costs of an equivalent hospital built with public sector money. The construction and fitting out of the QE's efficient but not extravagant premises cost about £93m. For two years the health authority gave financial support to cover the extra PFI costs and the trust managed to declare small surpluses. But that cosy arrangement stopped in 2004-05 when the QE began to suffer the bizarre financial consequences of the Treasury's RAB rules. Unsurprisingly, the trust ended 2004-05 with a deficit of £9m. But the combined effects of PFI and RAB have raised the trust’s deficit to a hair-raising £65m. The government’s plans for the NHS to deliver a surplus have drawn a sharp reaction from doctors. Jonathan Fielden of the British Medical Association said: "At this current time, the NHS is under intense financial pressure, which is directly impacting on patients. "There are patients who could be treated quicker being delayed, jobs being frozen, trained doctors and nurses and others not finding jobs to go to while the NHS tries to get its finances sorted. While it is good to produce a financial surplus, surely these aspects need to be sorted first?" You would have thought so. But New Labour has other priorities. The NHS drugs bill has doubled in five years to £10 billion a year. While jobs are axed and services cut, Big Pharma is doing very nicely, thank you.

Gerry Gold, economics editor

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