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Head of the National Office Sir John Bourn reported to Parliament today that, in 2002-2003, the Department of Health successfully met its target of ensuring that financial balance was achieved in aggregate across the 607 individual NHS organisations. The NHS as a whole reported an underspend of £96 million within the context of healthcare commissioned of £46.7 billion. However, he highlighted the fact that 51 (8 per cent) of organisations suffered significant deficits, the biggest of which amounted to nearly £45 million.

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He said that large deficits in individual NHS organisations, if not matched by surpluses elsewhere, may put at risk the achievement of overall financial balance of the National Health Service.

The report by Sir John Bourn follows his examination of each of the twenty three summarised accounts for the NHS in England. Each summarised account is prepared by the Secretary of State for Health based on the audited financial statements of each underlying health organisation. Sir John gave each of the summarised accounts an unqualified true and fair opinion. However, he has qualified his audit opinion on the summarised accounts of eight Special Health Authorities on the grounds of regularity. Because these eight bodies failed their statutory duty to remain within resource limits set for them by the Secretary of State, the excess expenditure of £0.6 million was irregular.

Overall financial performance of Strategic Health Authorities, Primary Care Trusts and NHS Trusts in 2002-03

Although most of the 607 organisations achieved their financial duties, there was some variation in performance. 71 (12 per cent) did not achieve financial balance, compared with 50 out of 577 bodies (9 per cent) last year. Four Strategic Health Authorities, 31 Primary Care Trusts and eight Special Health Authorities did not achieve their statutory financial duties to remain within revenue resource, capital resource and cash limits.

Eight per cent of NHS organisations reported significant deficits in 2002-03. Three Primary Care Trusts and seven NHS Trusts each reported in-year deficits of over £5 million and six NHS Trusts each had a cumulative deficit of over £10 million as at 31 March 2003.


According to the National Audit Office, the increase in the number of organisations incurring deficits and the increased variability of performance may put at risk the achievement of overall financial balance of the National Health Service if they are not matched by surpluses elsewhere and are significant to the individual organisations themselves.

The report uses the extreme example of North Bristol NHS Trust to illustrate the impact of poor financial management and ineffective corporate governance procedures. In 2002-2003, the Trust reported an in-year deficit of £44.6 million, the largest ever incurred by an NHS organisation. The true scale of the deficit was not reported to the Trust Board until the final quarter of the financial year, leaving little opportunity for remedial action to be taken. Since the North Bristol problem was identified at the end of 2002, the Trust and the Department have worked to address the deficit and ensure that the wider NHS takes on board lessons from this failure.

The results for the year for each organisation are stated after taking into account ‘financial support’, a tool used by the Department to reallocate resources to help NHS organisations achieve financial balance. Today’s report agrees that planned financial support is a legitimate way of allocating resources to where they are required. And, without support, a greater number of individual organisations would have failed to achieve financial balance. However, the need for unplanned financial support can be the result of poor financial management. From 2003-2004 the Department will be restricting the use of unplanned financial support. Surpluses and deficits will remain where they arise and this clarity should act as a further incentive for NHS organisations to manage within budget. This would not impact on the overall position of the NHS.

Clinical negligence

According to the NAO, the cost of clinical negligence claims continues to be a major challenge for the NHS and represents a significant and increasing drain on resources available for patient care. The amount of money paid out by the NHS during 2002-03 to settle clinical negligence claims amounted to £446 million, the same amount as in 2001-2002.

Regarding the NHS’s total long term liability for clinical negligence, this continued to increase. At the end of March 2003, the total amount which the NHS expects to pay out over a number of years to settle currently known or anticipated claims for clinical negligence stood at £5.89 billion. This total takes into account the likelihood of settlement of the claims, as determined by actuaries. (The total liability has increased by £640 million over the previous year when it was estimated at £5.25 billion.).

The total of £5.89 billion is not the amount paid out in a single year but, rather, the amount which the NHS currently expects it will have to pay out over a number of years.

The Chief Medical Officer has consulted on proposals to reform the systems for handling clinical negligence claims and ministers are currently considering the responses received.

Fraud in the NHS

A special health authority, the NHS Counter Fraud and Security Management Service, was established in January 2003 to take over the NHS Counter Fraud Service’s responsibility for tackling losses due to fraud and corruption. Pharmaceutical fraud has been reduced from £117 million a year to £47 million, a reduction of 60 per cent – exceeding the target of 50 per cent.

"Although, overall, the NHS successfully met its financial targets in 2002-2003, I am concerned by the variation in financial performance and the large deficits incurred by some NHS bodies. Such deficits may put at risk the achievement of overall financial balance of the National Health Service if they are not matched by surpluses elsewhere in the NHS.

"The Department of Health has delegated detailed monitoring of NHS Trusts and Primary Care Trusts to Strategic Health Authorities. They must ensure that deficits of the scale of the £44.6 million incurred by North Bristol NHS Trust do not happen again".

Commenting on his report, Sir John


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