Memorandum by Professor Allyson Pollock
(CVP 20)
CHOICE
Choice implies substitution. Government policy
is that health services can be substituted for each other like
manufactured goods. In health care this is problematic because
there is often no substitute for the appropriate intervention
or treatment and patients do not seek to trade off the cost of
care against its quality. However, in its latest health service
reforms the government is using choice in the restricted sense
of a choice of provider where the variable is price not quality.
Thus the government has stated its intention
to move 15% of elective work out of the NHS into the independent
sector and is encouraging the creation of joint ventures with
foundation trusts in order to bring in transnational health care
corporations. It is moving towards a market where there is a choice
of different providers which compete largely on the basis of price.
The risks of competitive markets in health services
are well known and were rehearsed extensively when the internal
market was introduced to the NHS in 1991. They are:
— loss of planning on the basis of
a geographic population as administration devolves to provider
units, and administrative tiers become commissioners;
— loss of service integration as administration
devolves to individual units;
— loss of risk pooling as service and
provider budgets are increasingly isolated from one another preventing
cost-sharing;
— loss of equity due to the uncoupling
of equitable resource allocation mechanisms from services through
price; and
— loss of equity as high cost patients
become liabilities for service providers with the devolution of
risk.
These risks were acknowledged in 1997 by the
incoming Labour government whose first step was to announce the
abolition of competition under the internal market. This year
the Scottish Assembly went further in rejecting competition by
abolishing the trust system.
CHOICE AND
FINANCIAL FLOWS
OR PAYMENT
BY RESULTS
However, the "choice and plurality"
agenda now being introduced to the health system in England and
Wales adds a new dimension to competition not present in the internal
market. This new dimension is the payment by results system or
"financial flows". Financial flows provide the price
mechanism that signals the introduction of a true market.
In 1991, provider choice was crudely and only
loosely linked to resource allocation through a rudimentary pricing
system. Health authorities, formerly the planning tiers, were
transformed into purchasers or commissioners, buying care on the
basis of efficiency and quality and price. The idea was that money
would follow patients in this system and although choice was expressed
through contracting by fundholders and commissioners most resource
allocation continued largely on an historic funding basis. Under
the new system choice will be restricted to a specified number
(usually four) of providers selected by the commissioners and
a far larger proportion of provider income will be at risk from
movements in the market:
The government is committed to introducing choice
for patients at the point of referral by their GPs from the end
of 2005. They also want to see much more diversity with services
to NHS patients coming from the independent sector, DTCs, and
Foundation Trusts as well as NHS Trusts. Against this agenda for
plurality and choice the role of PCTs as commissioners is crucial
and the financial flows reforms provide the tools they need to
allow funding to move around with patients in the new NHS. Department
of Health. Response to reforming NHS financial flows: introducing
payment by results: Response issued 10 February 2003
The principle we are trying to instill is that
providers are paid for the activity they actually deliver, and
when they do not the commissioner has sufficient funding to look
for alternative providers. So, when the SLA is based on cost and
volume, there should be some reduction in funding to reflect a
failure to deliver activity. Department of Health. Response to
reforming NHS financial flows: introducing payment by results:
Annex A. Response issued 10 February 2003
The key question is what are the implications
of using market signals for planning financially viable services,
distribution on the basis of need and equitable service provision?
PLANNING AND
FINANCIAL VIABILITY
Under the old system (pre 1991) health authorities
received a budget which was weighted for proxy measures of need.
Services were planned with their local providers and resources
allocated using block budgets according to strategic priorities.
Under the system of financial flows purchasers may now place contracts
with any provider in any area. Primary care trusts will still
receive an allocation on the basis of a geographic population
weighted for need but money will not necessarily flow to local
providers. Thus the link between resource allocation and services
in a geographic area is broken: financial flows result in an uncoupling
of the mechanism for resource allocation from the financial sustainability
of local providers.
RESOURCE DISTRIBUTION
ON THE
BASIS OF
NEED
Under the old system (pre 1991) health authorities
had a duty to measure and meet the health care needs of the population
within their area. Under the system of financial flows the planning
tiers have largely been abolished on the principle that allocation
will be determined by the market. Furthermore, financial flows
remain a crude pricing system subject to gaming and evasion that
frustrates needs-based allocation. Considerable sums circulate
to providers in various concealed subsidies or levies. These include
PFI payments, research & development and teaching levies,
and extra increments for capital charges and market forces factors.
Some providers have more advantages than others. For example foundation
trusts must now secure cash flows to ensure their solvency and
a surplus for investment. But some foundation trusts will have
greater choice than others because the ability to generate cash
flows will depend not just on the ability to compete for NHS income
and generate commercial income but also their asset base and liabilities.
Foundation trusts whose PFIs are off balance sheet will have fewer
liabilities and those with a generous dowry of assets can use
them for joint ventures or to secure new sources of revenue through
private finance. This cash flow variation means some trusts will
be better placed to invest or compete for patients, staff and
services.
The US, upon which the system of financial flows
is modelled, has a large literature on the endemic problem of
provider fraud. This issue is acknowledged but not resolved in
official guidance on financial flows.
EQUITY
The NHS equity principle is conveyed in the
secretary of state's duty to make the best available health care
available to all. But mechanisms that embody this principle are
abandoned under a price system that also creates incentives to
violate it. The weakening of the planning base means that providers
are largely autonomous and are now in the business of choosing
the profitable and lucrative patients, treatments, and services.
The new mantra among providers is that "[our] choice is to
decide what are our core businesses". Some diseases and conditions,
including chronic illness, mental illness, and accident and emergency
trauma care are unpredictable and difficult to price. Financial
flows devolve this risk on to providers, forcing them to manage
risk by placing time limits on care, applying exclusion criteria
to high risk patients, or not providing the services at all.
CONCLUSION
It is difficult to see how the patient has any
voice in the complex and highly unaccountable system being enacted.
The creation of foundation trusts has now returned
the NHS to a pre 1948 situation where power increasingly sits
with local providers rather than planning authorities.
The evidence of all market-oriented systems
is that they do not deliver universal health care. There are no
grounds for introducing this system if the government's objective
remains, as the Treasury stated last year, a universal, publicly
funded and provided health system. On the contrary, the new system
defeats that objective.
Professor AM Pollock
Public Health Policy Unit
School of Public Policy
University College London
November 2004
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