House of Commons - Public Accounts

Select Committee on Public Accounts Fifty-Ninth Report

2 The cost of introducing a new contract for NHS consultants

13. In the NHS Plan 2000, the Government set out its policy to have more, better paid staff. The policy was developed in response to concerns from the medical professions that consultants' pay lagged behind comparable professions and people were leaving the profession, particularly through early retirement of consultant medical staff. It also reflected the views of the general public, obtained through consultation, that medical staff should be better rewarded for their contribution to the NHS. From the outset, therefore, the Department took the view that consultants should have a pay increase over and above inflation, in the region of 15% over three years. In the event, the average annual pay awarded to consultants increased by 27% over the first three years, from £86,746 in 2002-03 to £109,974 in 2005-06.[23] The total spent on consultants' pay, taking into account increases in the numbers of consultants and an increase in employers pension contributions, has risen from £2.9 billion in 2003-04 to £3.8 billion in 2005-06.

14. In April 2002, the Department estimated that the new contract would add £565 million to the consultant wage-bill in the first three years. However, the Department ended up providing £715 million to fund the new contract, or £150 million more than the Department had estimated it would cost (see Figure 2). The new contract has consequently cost the NHS much more than the Department estimated.[24]

Figure 2. The estimated difference between the cost and funding of the new contract[25]

2003/04

£million 2004/05

£million 2005/06

£million TOTAL

£million

Department's estimate of the additional cost (April 2002 business case to Treasury) 125 175 265 565

Actual additional funding allocated to NHS 133 182 400 715

Increased additional funding provided to NHS 8 7 135 150

Source: C&AG's Report paragraph 2.3 and figure 6 and Appendix 6

15. The Department increased the funding of the contract by £150 million in the first three years because the average number of programmed and level of on-call availability supplements negotiated with consultants were higher than expected. It later estimated that the contract actually cost around £90 million more. This estimate was based on a national survey carried out by the Department in 2004 which asked trusts about the average number of programmed activities they had contracted. The Department's estimations were also based on aggregated data on consultants' job plans rather than the actual pay bill.[26]

16. The National Audit Office calculated the cost of employing consultants since 2002-03, using financial returns from all NHS trusts and some additional data from foundation trusts, and estimated that the costs were between £150 million and £200 million more than originally predicted.[27] Indeed, the view from 84% of NHS trust chief executives was that the contract was not fully funded. The Department pointed out that NHS trusts would always say that they wanted more money and that whilst the contract might have placed financial pressures on some trusts, many had managed their financial affairs adequately.[28]

17. The Department accepted that the new contract had cost more than it predicted, but believed that the excess was due to NHS trusts negotiating a higher than expected number of programmed activities and emergency on-call activities with their consultants (Figure 1). Furthermore, the extra cost of the contract was small compared to the total wage bill, and difficult to control across 300 organisations. NHS trusts did not monitor the cumulative cost of what individual managers and consultants had negotiated and so failed to keep the cost of the contracts within the funding limits. Since 2005-06, the average number of PAs that NHS trusts have agreed with consultants has decreased and therefore the cost pressure has reduced.[29]

18. The Department considered that the implementation could have been improved by piloting the new contract. It accepted that it had not always adequately estimated the impact of the new contract, partly because of the poor quality of the data used. In particular, much of the data that underpinned the consultant contract was based on surveys and agreements with the BMA. Over the last year the Department has introduced new arrangements to ensure that it costs policies more adequately. It has applied this lesson in relation to its new contracts for other staff, such as the Agenda for Change contracts for nurses and healthcare professionals, which it piloted prior to implementation.[30]



© Parliamentary copyright 2007	Prepared 22 November 2007