Scathing attack by hospital chairman

IPSWICH Hospital's chairman has launched a scathing attack on the Department of Health over the way it allocates money to the NHS.

Currently, if a health trust overspends in one year, the amount it has overspent is taken off its Department of Health funding the following year.

However, the trust still has to pay the original debt back within three years - resulting in a “double whammy” effect as the trust not only has less money for the year, it also has to try to make savings. This means in effect it is penalised by twice the original debt.

Speaking at a hospital meeting, Mike Brookes, chairman of the hospital, was outspoken on his views about the situation.

He said: “I have written to the chairman of the Strategic Health Authority (SHA) saying that I think it is one of the most ridiculous things that's ever been introduced.

“The country's SHAs would be serving us well if they got together with the chief executive and financial director of the NHS and found a way for the Department of Health to organise its finances in a totally different way, to take away what is, in fact, a double whammy. In my view that is no way to run a professional organisation.”

The situation is known as the resource accounting and budgeting (RAB effect) and will be responsible for almost £15m of Ipswich Hospital's predicted debt of £16.5m this year.

Combined with previous years' debts it means the hospital could be more than £40m in debt by the end of March.

However, bosses admitted there are a number of factors that mean this figure could still grow.

Andy Morris, the hospital's acting director of finance, said: "There are still risks in the system that mean that we cannot yet absolutely guarantee today that we might not deviate from it.

"What I can say is that everyone in the organisation is working very hard to try to ensure that we don't."

He agreed that the RAB effect made the hospital's debt problems much harder to resolve.

He said: “It would be more manageable to have a longer period to repay the debt as commercial organisations do, however, the current system does not allow it.

A Department of Health spokeswoman said: “The RAB carry forward rules are not new.

“They are applied across government and the public sector and are well known to the NHS.

“It is for the NHS to manage their resources within these rules which includes absorbing the impact of overspending in earlier years.”

How it works

If a hospital (or PCT) has a £2m debt at the end of the year (yr1) the funding from the Department of Health the following year (yr2) will be £2m less than it would have been.

Despite this, the £2m debt remains on the hospital's books in year 2 and has to be paid off by the end of the following year (yr 3)

This instantly means that the hospital has £2m less money than it had the previous year so, if it carries on overspending at the same rate as it was the year before it would be £4m in debt at the end of the year.

The RAB effect is known as the double-whammy effect because it means that, not only is the trust penalised by being given less money, they effectively have to make twice the savings in order to clear the debt.