Pay overrun seen as critical in hospital budget crisis

Salary costs are the "critical issue" in Tallaght Hospital's budget problem, with unapproved staff recruitment a central factor in the payroll's £550,000 monthly overrun, according to the report.

In some of its most trenchant criticisms, the report finds recruitment at the hospital has occurred with no adequate consideration for funding, and that until recently staff were being taken on without the sanction of the director of finance.

When a census of staff was carried out on October 11th last, there were 1,936 Whole Time Equivalents (WTEs) on the payroll, with a further 66 WTE positions considered vacant, compared with the approved staff level of 1,797.

From the start, the hospital's staffing requirements were excessive, the consultants conclude. A

staff requirement plan prepared in late 1997 suggested a need for 2,578 WTEs; this was "by any benchmark, unrealistic", the report says, adding: "The hospital never had a realistic manpower plan."

Although Deloitte & Touche found that up to £175,000 of the monthly payroll overrun was outside the hospital's control - comprising pay awards, pension increases etc - they also concluded that overtime and on-call payments were costing £150,000 a month above budget.

The report is also severely critical of the hospital's payroll systems, and an alleged lack of accurate information on personnel and pay. In particular, it criticises the "complete absence of regular and reliable personnel information on matters such as numbers employed, status (temporary/ permanent), absenteeism etc".

The hospital was found to have had three separate payrolls, with "different coding structures for like staff".

A "major once-off exercise" was required last October "to accurately determine the number of staff employed, and their status".

The consultants add: "It is an understatement to say that the consolidation of one personnel/ payroll system is urgent."

On the question of capital costs, the report concludes that while extra building costing nearly £3 million was deemed essential for the opening and for patient safety, the process of equipping the hospital was "fraught with difficulty".

Equipping costs ran £1.31 million over budget, of which £0.5 million was equipment for the laboratory, where there was a major difference of opinion between the hospital and the Department.

A further £4.5 million in equipment and related costs had been identified as necessary to the hospital, although not yet incurred.

Budgetary control was poor, the consultants conclude, with processes initially allowing for purchase approval without funding constraints. Major overruns were predicted in 1996, "but there is no evidence of a process being put in place from that time to control costs".

The report finds mitigating factors in the overrun of capital costs, including changes in health and safety standards and EU directives.

It also notes that much of the equipment was bought from the UK during a period of currency fluctuation.

And while leaving open the question of how much of the extra capital spending was "absolutely necessary", the consultants accept the hospital had "little choice in most if not all" of the spending if it was to open and function properly.

"These additional capital costs have arisen primarily because of deficiencies in planning for the requirements of the hospital, late changes in the whole hospital and departmental organisational policies, and what appears to be inadequate management and control of the equipping budget."

The report expresses surprise that, while many aspects of the new hospital were subject to minute planning, a detailed financial plan was not prepared.

"The first time the issues associated with such a plan were focused on by the hospital was in early 1998, when the service plan was being prepared.

"By then it was too late to realise the benefits which earlier financial planning would have reaped."

However, the report also questions whether the Department's "determination" process for funding, under which the Department sets the budget for a hospital or other body for the next year, is suited to the opening of a major hospital.

Calling the determination "a relatively blunt instrument", it says the Department of Health and Children would have had "to estimate in late 1997 the impact on the base hospitals' budget of development and commissioning expenditures for a hospital due to open on 21st June, 1998".

"While the Department provided an amount in the determination for these matters, it would have been extremely difficult for it to estimate the requirements with any degree of precision at the time they were required to do so, particularly as the hospital had itself not projected the requirements.

"By their nature, costs associated with developments in, and transition of, organisations are more difficult to predict, particularly as the ability to draw on historical experience is limited."

The consultants conclude that the Department's decision to base its determination on the cost structure of the three base hospitals was inappropriate.

It did not "lend itself well to a situation of major change, such as the opening of a major new hospital, unless supported by a fundamental review of the likely cost profile of the hospital."

The report by Deloitte & Touche was prepared for the Minister for Health and Children, Mr Cowen. It deals with management reporting and control, service planning and the financial position of the hospital in the context of the merger of the base hospitals and the move to Tallaght.