The government's promise of £300m for new equipment comes after two decades of under-investment, which have left much life-saving machinery obsolete. Colin Connolly reports

The state of NHS equipment is a key issue for patient safety and effective treatment. But some of the devices still in use are more than 20 years old and most hospitals have an incomplete picture of the age of their equipment.

This is part of widespread under-investment in equipment in the NHS across virtually the whole medical delivery system. The under-investment in replacing or changing the inventories of such equipment goes back to the mid-1970s and continues now.

Last month's NHS plan announced that£300m would be invested in equipment to improve cancer, renal and heart disease services by 2004.But existing equipment is poorly documented.

There is no national inventory held by the NHS Executive of capital equipment by type and age; neither is data held by regional offices. Enquiries made by my organisation show that only about 40 per cent of trusts have adequate trust-level data about historical inventories and therefore have grossly inadequate information about the resources required to replace such equipment.

The recent tension produced by the possible impact of Y2K problems in medical and surgical equipment on health services delivery has been salutary at trust level, with much emergency inventory production and analysis.

Accurate age-related equipment inventories are common in health service systems such as the US, France, Germany and Japan, where taxation of profits is lessened by allowances related to medical equipment depreciation.

The taxation practice of allowances for writing down capital assets is of course normal for capital investment in private business. Such considerations do not apply in the NHS because the Treasury is the source of funds. Many areas of medical care delivery are completely dependent on the equipment installed in the departments concerned.

These include cardiology, critical care - including intensive care - coronary care and neonatal intensive care, diagnostic imaging including X-rays, CT, MRI, fluoroscopy, ultrasound and nuclear medicine, neurology, operating theatres, pathology and radiotherapy/oncology.

These major medical and surgical disciplines, and others, cannot function without equipment. Further, if the equipment is out of date and/or malfunctions the situation can be life-threatening. Further still, old equipment means inefficient service delivery and maintenance expense.

The state of equipment in a hospital is, therefore, of essential interest to managers, medical and surgical service delivery practitioners, and patients and their families.

Life tables (see box 1) were produced by the NHS Executive to reflect the fact that capital equipment had continuing cost implications - capital charges. These are calculated by adding together the annual cost of depreciation, the interest on the money used to purchase the equipment and inflation indexation of the original costs. The intention was to make the health delivery system sensitive to the cost of capital. This costing system allows the replacement costs of equipment to be managed into the budgetary planning just like in any other decently managed commercial organisation.

Capital charges are apportioned across departmental budgets and give an element of capital in the total cost of each procedure or diagnosis produced. These costs are then charged out to health authorities, primary care groups and primary care trusts in the costs of all trust services.

The cost of capital is therefore a major cost element in clinical contracting which, despite the cessation of the competitive element in health services, is still a requirement. How the cost of equipment is calculated in clinical contracts when the inventory data is so poor is a mystery, but when trust financial directors cannot ascribe a cost to a particular function, it becomes an overhead to be shared across all functions. Is it any wonder that the cost of the same procedures between trusts varies so much?

Although the current situation is difficult to comprehend as rational, the situation before 1991 when the NHS had no system of accounting for capital, which was essentially free at the point of use, was indefensible.

The current system at least has the virtue of reinforcing the knowledge at medical and surgical department level that having a piece of expensive equipment - not necessarily using it - incurs charges. There is, in this statement, an inducement to use capital equipment efficiently. Since some items of imaging equipment cost over£1m and much of the rest of the inventory costs in excess of£50,000 per system, this is an admirable objective. Equipment at a reasonably sized trust would cost more than£20m to renew at 1999 prices.

The capital charges system is also an inducement to financial sleight of hand since hospitals with an older inventory carry fewer capital charges and the costs per medical and surgical procedures are consequently much lower than in a new hospital with new equipment. The costs then bear little relationship to the efficiency of service delivery but have much to do with the application of the financial system, particularly where capital charges are concerned. Since there is financial advantage in the lowered costs of procedures in clinical contracts (even if the competitive element is removed) there is an incentive not to replace ageing equipment. This reinforces the under-investment in capital equipment at trust level and this is at the expense of good service delivery standards to patients.

Throughout the NHS financial system, revenue and capital spending are still accounted separately, although there is great flexibility to transfer revenue to capital and capital to revenue - virement. This regularly occurs in trust accounts and can be seen in the excellent annual analysis from the Institute of Public Finance.

1This means that capital is transferred to revenue when the trust is in danger of overspending its revenue budget.

Some 40 per cent of trusts have historically had a structural problem in balancing revenue accounts. This further exacerbates the major problem of equipment replacement.

The impact of all of these current and historical capital under-investment profiles is that the national equipment inventory is in a dire state - so much so in radiotherapy/oncology that the government allocated£100m in 1999-2001 to go a short way to correcting the deficit in cancer treatment. This was in response to the poor cancer survival figures in the UK against such figures in the EU, the US and Japan. There is, for the first time, an acknowledgement that poor equipment has major effects on the health delivery system. Cancer treatment equipment is not, however, anything like the whole story.

Our research for this article could not uncover any centrally held data and and there is a poverty of data at trust level. But data from manufacturers gives some picture of the age of equipment currently in use.

Manufacturers are required to know the installation date of their own equipment and need to know when competitors' equipment comes up for replacement. The data was cross-correlated with a number of trusts with good data systems and found to be compatible. This is the first attempt at a national data survey. The situation revealed by these figures is critical. Under- investment in capital equipment can be sustained for some time without apparent problems, but when problems do come they cascade very quickly.

The Medical Services Agency reported an increase of 12 per cent in adverse incidents in its annual report last month.

The Treasury acts now as a lender of capital for the NHS.

Capital is not a free resource. It has to be charged at 6 per cent interest on a reducing balance. The cost to the trust also includes depreciation, and the original cost is indexed at the rate of inflation.

In lending the money the Treasury takes no operational risk other than the risk of a government responsibility for the NHS as whole. Further, money lent by the Treasury for all NHS capital counts towards the public sector borrowing requirement.

Other forms of finance - 'unconventional finance'- have only recently been allowed. Such financing come under the general wing of the private finance initiative, or private-public partnership. Within this framework operational leasing for equipment is now growing quickly.

In operational leasing the lender of the money - either the company producing the equipment or an external source of finance - takes a residual value risk. For example, in a piece of equipment with a purchase value of£100,000 the lender might take a residual risk of 30 per cent .

The value of operational leasing in the NHS is increasing rapidly to over£300m in 1999-2000 and projected at£450m in 2000-01 as it is realised that the NHS has a major inventory problem, that Treasury finance has strings attached, and that operational leasing is over the lease term less expensive than conventional finance. If service delivery staff realise the value of operational leasing now sanctioned by the Treasury after 40 years of solid resistance, the pressure on trust managers will be ver y considerable.

REFERENCES

1 ,Institute of Public Finance. Health Service Database 1998,1999.

2 Capital Charges Manual. NHS Management Executive: 1990, 1993, 1995.

Only ventilators and monitors in critical care beds have been investigated since these are the main components of the critical care system. These components are patient-connected and critical for patient well-being. The capital charges manual depreciates these components over seven years. The inventory shows that 43 per cent of the ventilator systems are fully depreciated. Further, 13 per cent have an age greater than 10 years and includes 36 machines which are over 20 years old. The monitors have 25 per cent of systems fully depreciated; 11 per cent of these are older than 10 years and include 83 machines older than 15 years.

2Over 40 per cent of the diagnostic imaging inventory which, in this study does not include ultrasound or nuclear medicine at this stage, are fully 10 years depreciated. The CT and MRI systems recorded here are all within depreciation times allowed which indicates that the priorities from the diagnostic imaging departments are to keep these big expensive systems running at the expense of the general X-ray systems where most of the work is done. In this category 683 or 48 per cent of the machines are fully depreciated out of 1,333 machines installed.

3New standards for anaesthetic machines make much of the UK inventory over five years old unsatisfactory and they have to be upgraded in situ. Over 50 per cent of all anaesthetic machines used in the UK are fully depreciated. Of operating tables not recorded in box 1, 80 per cent are older than 20 years and working at twice their depreciated life.

4Only clinical chemistry has currently been analysed in this study so far. The depreciation time for these devices is 10 years. The 'on-cost' of keeping older clinical chemistry automated devices is considerable.

5The situation in radiotherapy/oncology is being rectified, but 18 per cent of the inventory is obsolescent.

Key points The NHS has under-invested in equipment for more than 20 years.

Most hospitals have inadequate equipment inventories.

More than ha lf the anaesthetic machines in use are more than five years old and should be replaced.

Almost a fifth of the equipment used in cancer treatment is obsolete.

Current accounting systems act as a disincentive to replacing old equipment.