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Department of Health

I am about to move on to that issue. I gave an interview to a national newspaper, and I got a letter the following day from someone—I will not name him—who works with an SHA department that is considering the costs of the NHS. I have copy of the letter in front of me. He said:"““As you will be aware, it is a statutory requirement for all hospitals within the NHS to provide cost data—‘reference costs’—to the Department of Health. These data are then used to formulate the national Payment by Results tariffs. The philosophy behind this is sound and used elsewhere.””" He cites Australia, where he has worked. He has worked in a few health services around the world. He continued:"““The immutable truth of this system, however, is that your funding policy is only as good as your cost data. If your cost data lack integrity and the methodology for costing contains flaws, then it follows that the funding policy is also going to lack integrity and be flawed. After four months here, I have to say that I, and my colleagues working on this project, have been shocked at the level of cost data produced in the reference costing process. I could only describe it as the lowest common denominator of costing I have seen in a health environment. I think it goes some way (obviously not all) to explaining the financial problems of hospitals here.""There are a few reasons why the state of costing is so poor here in the NHS. The main problem is that reference costing in the NHS is an extremely ‘top-down’ averaging process.””" He then gives an example, which I hope my right hon. Friend the Minister will consider. I will ask the person who wrote the letter whether she can have a copy. I could not contact him at work today. I have got his phone number, but he was not at his desk when I tried to contact him. He then continued:"““More often than not, no adjustment is made for differences in patient acuity during this cost allocation process. This method of cost allocation makes the assumption that on an obstetrics ward (for example), a woman recovering from a caesarean in one bed is accruing the same nursing, medical drugs, medical supplies and other resources as the woman in the next bed, recovering from the normal uncomplicated delivery of her second child. As a clinician yourself””—" I am not one—"““would you believe that data?””" He then says that, while we have that system in the NHS, the most sceptical people will be those who work in it, and he makes a very good point. I would not dispute what he says about what we are doing at the moment, and if it is true, it will have that impact. My constituency is covered by the Rotherham PCT, which, in an e-mail to me a few weeks ago, said:"““The national tariff price is higher than our local price so we are now paying more for the same level of work.””" That is grossly unfair in the circumstances, so we should charge the actual cost of the health service. I am not too sure whether we will do so if we are basing payment by results on reference costs. That might be a good start, but it will certainly not be an end in finding out exactly what the different activities in the NHS cost.