The factors influencing financial status of PCTs are probably very complex and have not been studied in detail. It is unlikely that deficits are due to poor management alone, and if this were the case, one would not expect to see a clustering of the PCTs most in deficit in one region of the country as observed in this study. The aim of this study was to identify factors that differ between PCTs in financial deficit and those in surplus, and a number of striking differences were observed.
The analysis compared the 29 English PCTs most in deficit with the 29 PCTs in the best financial position. The profiles of these PCTs showed that the two groups serve quite different populations. The PCTs in financial surplus have been shown to be in the less prosperous areas of the country, with significantly higher levels of deprivation on measures such as unemployment, educational achievement, proportion of benefit claimants, proportion of poorer housing, standardised mortality ratios, and life expectancy for men. These are the factors that are taken into account in the distribution of resources within the NHS, with positive discrimination in favour of deprived areas, intended to take account of their extra health care needs and to reduce health inequalities.
As other authors have noted: "The current resource allocation formula responds well to the higher relative needs of the urban populations. Yet, it is generally agreed that the NHS (and particularly hospital services which account for the greater proportion of NHS expenditure) has relatively little to contribute towards the reduction of health inequalities compared to other sources of variation such as income distribution, education and so on. Thus, the targeting of additional services at urban deprived populations is likely to be an ineffective response to health inequalities. It is one, moreover, that introduces a new form of inequity by underestimating the needs of rural populations" .
Other government initiatives such as the introduction of health trainers, which are being targeted in the first instance at deprived communities  and which are being funded outside PCT allocations are to be welcomed as they are more likely to tackle some of the root causes of health inequalities.
The results of the study further demonstrate the effects of Resource Allocation when the differences in funding per head of population in the two groups of PCTs are considered. It is noteworthy that deficit PCTs receive on average £205 less per resident population and £123 less per registered population than the surplus PCTs (Table 1). It is also interesting to note that deficit PCTs which were over target in the 2003–04 allocation cycle have moved to become under target in the 2006–07 cycle. This big swing away from target reflects the components of the resource allocation formula, especially its sensitivity to changes in population size. In the inter census years this depends on population projections, which in growth areas such as those of deficit PCTs are harder to predict accurately the further we move away from the census year, thus creating a possible mismatch between population size and resource allocation. Demonstrating this with empirical data would be of value but this was not a part of our exploratory study.
The study has also shown other population differences between the two groups of PCTs which may be independently affecting their financial status. Both the mean resident and registered populations of the deficit PCTs are higher than those of the surplus PCTs. Moreover, the populations of deficit PCTs have grown at a much faster rate than the surplus PCTs in the last two decades. National Statistics  show that there have been big variations in the English regions, with the North East and North West regions experiencing a decline in population while the South West, East and South East have seen population growth of 10 per cent or more. Although population changes are part of the resource allocation formula it is possible that it is not sensitive enough to take account of this growth. In the 2006–07 allocation, Office of the Deputy Prime Minister growth area adjustment has been included for the first time to account for this increase.
The average practice size differed between the PCTs with surplus PCTs having a smaller list per practice, which could be due to the greater number of single handed practices in inner cities. This may affect primary care availability and utilisation which could be lower in single handed practices. Rural areas tend to invest more heavily in primary care and are likely to provide a wider range of services . There is also a significant difference between the two groups in the proportion of dispensing GPs, which are three times higher in the deficit PCTs. This is probably accounted for by the rural nature of many of the deficit PCT. The costs to the PCTs of dispensing practices are much higher than for non-dispensing practices.
To our knowledge rurality is not explicitly included in the current resource allocation formula in England, although a rurality weighting is applied for calculating general medical services payment  and the Department of Health uses a rurality index in emergency ambulance cost adjustment. In a Commons Hansard Written Answers in 2001, the Minister stated, "Earlier studies have not identified evidence of need for health care associated with rurality that is not already covered within the formula. However some services cost more to provide in rural areas. An emergency ambulance cost adjustment has been included in the formula since 1998–99" . Nevertheless "Scotland, Wales and Northern Ireland all operate funding formulae which include a specific allowance for rurality" .
Asthana and Gibson  recently demonstrated that the pattern of PCT financial deficits "implies that NHS funding provides insufficient resources for rural areas, for comparatively affluent areas, and, most particularly, for areas that are both rural and affluent. Traditional measures of poverty are not applicable to rural areas as often rural poverty is hidden" . However introduction of the Index of Multiple Deprivation 2000 and 2004  increases the possibility of identifying rural communities with greater health and social needs.
It could be expected that there might be some difference in the performance of the PCTs in the different groups, but the analysis showed no major differences between the two groups of PCTs, on the Healthcare Commission Star Rating measures, except variation in financial management . This suggests that in spite of resource constraints, PCTs are performing similarly in both groups. Other performance measures considered in this study showed that deficit PCTs had a higher FCE per head of population than the surplus PCTs, which might reflect increased demand from informed consumers of healthcare, or differences in GP referral patterns.
It is possible that supplier induced demand is playing a role in the increased activity seen in deficit PCTs, but data to substantiate this is not readily available and needs further exploration. The recent White Paper  has emphasised the desired shift from secondary to primary and community care, and stated "Unless this White Paper strategy is pursued and the consequent service reconfiguration takes place – some local financial imbalances may never be corrected", demonstrating that even where local financial mismanagement may exist, it alone cannot account for the current financial status of deficit PCTs.
The study points to a positive association between deprivation and financial surplus, for example 14 of the 29 surplus are spearhead PCTs. Whilst the principle of targeting funding at areas of greatest need is not questioned here, it should be recognised that these areas also have access to funding sources to address the wider determinants of health that are not available to more affluent communities. According to Heart of Birmingham PCT , which is both a spearhead PCT and is the PCT with the maximum surplus "Our budget is around £360 million a year. As a "Spearhead PCT" our income is expected to grow even more over the next three years so that we can work with other organisations, particularly the city council and voluntary sector to give people more opportunity to live healthier lives".
Some of the limitations of this study have to be borne in mind while interpreting the results. This study only included PCTs at both extremes of the financial status spectrum (just under 10% of each). Different data sources covering different time periods were used, and although this could be a weakness, as the data were gathered for purposes other than the one under study (financial status), and came from multiple sources, this further strengthens the study observations. Qualitative information from clinicians, managers and patients from the two groups of PCTs might have thrown further light on the difference. We did not attempt to gather this data due to resource constraints. Another important point to note is that associations observed do not imply causation. Finally, as the analysis was undertaken at group level the issue of ecological fallacy needs to be borne in mind. In other words, apparent associations measured at a group level (i.e. PCTs in surplus or deficit), may not necessarily be applicable to individual PCTs.