Could hospital cuts mean ailing services?

NOT only have the brakes been applied at South Tees Hospitals Trust but some would say it looks more like an emergency stop. For the last few years, the North-East has seen tens of millions of extra pounds being invested in infrastructure and services as the NHS performed a massive catch-up exercise. But the years of plenty look like they might be coming to an end in one part of the region.

The South Tees trust, which includes the hugely expanded James Cook "superhospital", has been told to slash its spending and make massive cuts totalling a mind-boggling £66m over three years. This follows the almost unprecedented intervention of the district auditor earlier this week.

Alarmed at a deteriorating financial position and mounting debts, the district auditor - Gateshead-based Lynne Snowball - issued what is known as a public interest letter or, to give it its full title, a 'Report in the Public Interest under Section 8 Audit Commission Act 1988'. Mrs Snowball bluntly told the trust managers that they were heading for disaster unless they put their houses in order.

As a publicly-funded body, the South Tees Trust is legally obliged to balance its books at the end of the financial year. Unfortunately, since early 2004, the trust has received an increasing amount of repayable support each year so it can meet its financial targets. At the end of 2004/05, the amount outstanding was £12m and this was set to rise to £22m by early 2006. Recently, the trust has imposed a tough cost reduction programme and frozen new appointments. This week, it finalised an even tougher savings plan which is expected to save £44m over the next few years. The problem with that plan is that much of the underlying debt will still remain. Mrs Snowball has now told the trust that it needs to save £66m over the next three years. Even with an annual budget of £321m, that is still extremely daunting for the Teesside trust.

Chief executive Simon Pleydell is putting on a brave face, committing the trust to maintaining patient services, increasing income, becoming more efficient and avoiding compulsory redundancies as far as possible. But the deep cuts are bound to have an effect on large tracts of Teesside, South Durham and North Yorkshire, which are served by the trust's three hospitals.

Already, it has pledged to cut 161 jobs, including an undisclosed number of nurses. Ominously, it is also "reviewing" the future of Guisborough Maternity Hospital, which recently re-opened, along with microbiology services at the Friarage Hospital in Northallerton.

So what went wrong? Mr Pleydell says there is no simple answer. "Part of the issue is that we deliver a lot of specialist services here and the cost of those services has actually outstripped the income that we have received," he says.

The trust has also undergone a steady process of expansion over the last five years and that has not always been supported by increased income from the local NHS.

A merger with the Friarage has also proved to be a drain on the trust's finances.

Mr Pleydell says the next step is to sit down with health authority and primary care trust officials - who crucially pay the trust to treat patients - and work out how to get themselves out of the current mess.

Alan Foster, financial director of the County Durham and Tees Valley Strategic Health Authority, says the James Cook hospital is "a victim of its own success" to some extent.

"It has been gloriously successful in terms of improving specialist services, such as cardiothoracics, but maybe it was expanding a bit too quickly in terms of being able to get funding to follow," he says.

Intriguingly, Mr Foster hints that the fact that the massive redevelopment of the James Cook site took place under the controversial Private Finance Initiative contributed to the financial woes.

PFI involves private companies contracting with the NHS to build and maintain hospitals for the public sector. The Government claims this is an economic way to build new hospitals rapidly but opponents say it saddles the local NHS with massive annual repayments.

"There have been a lot of additional costs associated with it. There have also been variations to the contract, partly because of technology and partly because of targets being changed, and that has been expensive. It has added additional costs and put added pressure into the system," says Mr Foster.

Cue Liz Twist, regional head of health for the Unison trade union, who suggests that the PFI influence on the crisis could be more important than anyone is admitting. "In every hospital trust there has been a PFI development, we have seen financial problems following on. So much of the South Tees trust's resources are going towards paying for the PFI. We always said we are really mortgaging our future with PFI," she says.

But the Department of Health takes issue with any idea that the funding tap is being turned off. A spokeswoman says: "Spending in the NHS increased this year by £6bn from £63.7bn to £69.4bn and by 2007/08, we will be spending £92bn on the NHS. This money is speeding up services, reducing waiting times and providing more staff."

As far as the financial problems at South Tees are concerned, the spokeswoman says it is the responsibility of local NHS bodies to live within their means. And she claims that far from being on the brink, the majority of hospital and primary care trusts "will achieve financial balance" by the end of the current financial year. That will be reassuring if the cuts really begin to bite in the North-East.