Select Committee on Health Second Report

2  BACKGROUND

Current PCT functions and configuration

11. There are currently 302 Primary Care Trusts (PCTs) in England, serving an average population of about 170,000 (although they range quite widely in size). PCTs commission health care for their local populations from hospitals, GPs, ambulance trusts, and other providers. PCTs are now directly responsible for spending approximately 80% of the NHS budget. [4]

12. In addition to this commissioning role, some PCTs are responsible for directly providing community health services, including district nursing and health visiting. Approximately 200 (2/3) of PCTs are currently 'substantial' providers of community health care.

13. PCTs also have important statutory functions in respect of public health, including improving the health of their local communities and tackling health inequalities.

14. Groups of PCTs within a local area are managed, on behalf of the Department of Health, by Strategic Health Authorities (SHAs). There are 28 SHAs, each of which serve an average population of 1.8 million. [5]

What is 'commissioning'?

15. According to the King's Fund, commissioning is a term that is used "liberally and variably within the NHS".[6] A useful definition of commissioning is given in the King's Fund 2004 policy paper on Practice-led Commissioning:

• identifying effective and appropriate health service responses to assessed patient needs
• securing national and local health care priorities
• planning the coherent delivery of services
• securing those services through contracts with service providers (or purchasing)
• allocating available resources against competing priorities.[7]

A brief history of NHS commissioning

16. While some PCT functions were entirely new when they were set up in 2002, PCTs were not the first 'commissioning' organisations in the NHS. Before 1990 central government ran all aspects of the NHS. With the introduction of the internal market, a split was established between 'purchasers' (health authorities and some family doctors, under the GP fundholding scheme), who were given budgets to commission health care, and 'providers' (acute hospitals, organisations providing care for the mentally ill, people with learning disabilities and the elderly, and ambulance services). Thus, commissioning has been a function of NHS organisations for fifteen years, and GP fundholders and Health Authorities of various types and configurations can be seen as PCTs' predecessors.

17. The internal market was established to address problems, such as growing waiting lists, which had arisen because NHS capacity is limited while demand rises inexorably. While observers credit the internal market with improving cost-consicousness in the NHS, it did have certain unintended negative consequences. The competition it encouraged between 'providers' saw unnecessary duplication of services.[8] Equally, GP fundholders used their budget-holding powers to obtain treatment more quickly for their patients than patients of non-fund holders, which led to inequities in access to healthcare.

18. In 1997, the Government announced the abolition of the internal market and GP fundholding. However, GP fundholding had demonstrated the potential of GP-led commissioning to yield cost-savings and innovation, and GP involvement in commissioning persisted in various guises, including total purchasing pilots. In 1999, Health Authorities established Primary Care Groups (PCGs). Primary Care Groups were sub-committees of Health Authorities, made up mostly of local clinicians, and were responsible for managing devolved budgets to commission health for their local populations, under the supervision of Health Authorities. These were seen to have the benefit of securing better local and clinical engagement in local health care decisions than more remote Health Authority structures were capable of. Devolving power to as local a level as possible was a key tenet of government health policy between 2000-2001, and in 2001 Shifting the Balance of Power announced that by 2002 PCGs should grow into statutory bodies in their own right, called PCTs, which would replace Health Authorities, and which would eventually take over management of the entire NHS purchasing budget, placing decision making at a more local level than ever before.[9] Clinical involvement was a central principle of PCTs, which were each required to have a Professional Executive Committee (PEC) made up of local clinicians. In the same wave of reform that replaced approximately 100 Health Authorities with 302 PCTs, the nine Regional Offices of the NHS Executive were also abolished and replaced by 28 new lower-level organisations called Strategic Health Authorities, which would manage the performance of groups of PCTs.

Market-type reforms—Payment by Results and Patient Choice: the implications for commissioning

19. At the same time as commissioning structures have changed, other market-type reforms have been introduced, namely Payment by Results and the patient choice initiative. These reforms, in common with previous NHS market reforms, have the ultimate aim of promoting cheaper, better quality health services by making providers of care compete for funding, which will be directly linked to the number of patients treated. However unlike previous market-type reforms, a fixed tariff system has been introduced in an attempt to ensure that providers compete on speed of access and quality, rather than price. Under Payment by Results, hospitals are paid for how many patients they actually treat, according to a national tariff. Foundation Trusts began using the tariff in 2004 and, from 2005, all trusts have used it for elective care, representing about 30% of activity. Outpatients, non-elective and A&E services will be covered by the tariff from 2006, and from 2008 the system will cover 90% of significant inpatient, day-case and outpatient activity.[10]

20. Linked to Payment by Results is the introduction of patient choice, whereby GPs referring patients to a hospital are supposed to give their patients a choice of different providers, one of which must be an independent sector provider. It is hoped that patient choice will function as a lever to service improvement, as patients will not choose hospitals with long waits or poor services, and so these hospitals will be forced either to improve, or to lose resources under Payment by Results.

21. For true choice to exist, a market must be created, which is likely to necessitate oversupply. The market for providing government-funded healthcare has already been opened up to private sector providers, as long as they can offer services at the same NHS tariff prices. The success of market reforms in delivering cost savings and improvements in health care will depend on many things. It is not yet known how far patients will be willing to exercise their powers as consumers—for example, will they be willing to travel considerable distances to access better or faster healthcare? Equally, information systems to enable patients to make meaningful choices will need to be developed rapidly. In some areas, particularly rural or deprived areas, there may be very little choice of provider, and it could be wasteful to build up capacity solely to create a market. Similarly, the market could potentially have unpopular consequences, for example if a local hospital fails to attract enough patients and so is forced to close. It is unclear how far the market will be allowed to dictate important issues like this. The introduction of the private sector into NHS-funded healthcare provision has also attracted considerable criticism from those that believe private sector organisations are being given an unfair advantage in competing for contracts with their NHS counterparts.

22. All the market reforms discussed above pertain to secondary care. However, recent developments mean that choice and competition is likely to be extended into the primary and community care sector. This is discussed more fully later in the report.

23. Whatever the current unknowns about the new markets in healthcare, it is clear that commissioning organisations, which effectively hold the pursestrings for the NHS, will be absolutely integral to their success or failure. In the context of increasing complexity and change in the healthcare market, commissioners, which at the moment are PCTs, will have to manage budgets effectively to secure the best value for money services for their patients; to ensure that adequate provision is available to meet the health needs of their local populations; to ensure that care is as integrated as possible for patients; and to maintain an appropriate balance of spending across all types of health care, in line with Government priorities and local needs.

24. There is already concern that current market-type reforms could give the secondary care sector a strong incentive to promote their own services to secure funding, potentially acting as a magnet to pull patients and resources away from the primary care sector where patients may be able to be treated more appropriately and cheaply. Therefore, the commissioning function carried out by PCTs is more crucial than ever. In order to help bolster it, in the past year the Government has proposed several changes to the NHS commissioning function.

Practice Based Commissioning

25. The first of these is Practice Based Commissioning (PbC). In the NHS, patients need a referral from their GP before they can make an appointment to see a specialist in a hospital. In this way, GPs exercise considerable control over access to other parts of the health system—what is known as the 'gatekeeper' function. In addition to their influence over referrals, GPs as a group have direct contact with more patients than any other healthcare sector (over 90% of interaction with the NHS is through primary care.[11]) Arguably, GPs have a unique knowledge of their patients' interactions with local health systems, including community health services and social services departments, as well as the acute sector, and are therefore a rich source of knowledge of local patient needs and pathways. Therefore, harnessing these strengths by involving GPs in the commissioning of health care is an attractive option for improving commissioning.

26. GPs have been involved in commissioning for over 15 years, first through GP fundholding, then total purchasing pilots and finally through involvement in local PCT PECs. Under GP fundholding, GP practices were given their own indicative budgets to spend on commissioning care for their patients, together with considerable freedom to develop innovative alternatives to traditional services if this was more cost-effective. With the abolition of GP fundholding, budgets were returned to PCTs, and although some GPs have continued indirect involvement in commissioning through PCT PECs, GPs' direct influence over local budgets has been reduced.

27. However, in a move that has been described by some commentators as a return to GP fundholding, in December 2004 the Department of Health announced that from April 2005, GP practices that wished to do so would be given indicative commissioning budgets. The document Practice Based Commissioning—promoting clinical engagement gave more details:

The basic right of a practice or locality to have an indicative budget from April 2005 goes beyond this. Practices or localities who wish to do so will receive a firm indicative budget from the PCT that they will use to directly manage the delivery of services for their patients.

Using the indicative budget, the practice or locality, with support from their PCT, would identify the health needs of the local population and, in conjunction with local stakeholders, identify the appropriate services to be provided. Practices or localities should be encouraged to develop their own local delivery plans. In turn, these local delivery plans, will feed into the PCT's Local Delivery Plan (LDP). Where PCTs have pre-existing contractual agreements these should be reflected in the practice and locality plans.

The PCT would continue to hold the actual budget and would be responsible for the service level agreements with the secondary care provider, including monitoring and invoicing functions. However, the practice or localities would make the commissioning decisions and be able to reallocate resources freed up through cost effective commissioning to new patient services. They can also charge reasonable management costs associated with Practice Based Commissioning against resources freed up through effective commissioning.

Resources freed up from effective commissioning may only be used for patient services (with the exception of management costs as outlined above). It is our expectation that this reinvestment will be used to improve clinical services in a substantive way.[12]

Recent changes—Creating a Patient-Led NHS, the 'out-of-hospital' White Paper consultation, and Commissioning a Patient-Led NHS

28. Practice Based Commissioning has the potential to significantly alter the commissioning of NHS services. If, in the future, local GPs are to be primarily responsible for commissioning healthcare for their patients, the role of PCTs, who are currently responsible for commissioning, would need to change. Creating a Patient-Led NHS, which was published in March 2005, gave further detail on Practice Based Commissioning, and hinted at a possible reorganisation of PCTs.[13] The future provision of primary care also came under question with the announcement, in June 2005, of a Department of Health consultation on 'healthcare outside hospitals', including GP services and other community healthcare services currently provided by PCTs.[14] This consultation is to feed into a White Paper on healthcare outside hospitals, expected at the end of 2005.

29. Before the consultation was complete, Commissioning a Patient-Led NHS was published on 28 July 2005. This document brought together previous thinking on commissioning and on the provision of primary care, and for the first time spelt out the Government's intentions in very clear terms, with a fixed and very rapid timescale for their implementation:

• The implementation of Practice Based Commissioning would be accelerated, with all practices involved by December 2006
• PCTs and SHAs would be reconfigured, generating savings of 15%—PCT reconfigurations would be complete by mid-2006 and SHA reconfigurations by mid-2007.
• PCTs' role in directly providing patient services would be reduced to a minimum by December 2008

30. The document called for SHA Chief Executives to put together plans for their local area and submit them to the Department of Health by 15 October 2005, a total of eleven weeks.

31. Plans for local reconfigurations which were submitted to the Department of Health by SHAs were then considered by an External Panel, appointed by the Department of Health, chaired by Michael O'Higgins, Chair of PA Consulting. Following consideration by the External Panel, proposals for reconfiguring PCTs and SHAs have now been put out to formal consultation. The formal consultation process began on the 14th of December 2005, and will last for 14 weeks, ending on 22 March 2006. SHAs will then prepare and submit the results of the consultation, along with recommendations, to the Department of Health by 12 April 2006. The recommendations will be reviewed by the External Panel, who will advise Ministers on whether the proposals meet the criteria set out in Commissioning a Patient-Led NHS, before final consideration by the Secretary of State. Early assessments of initial plans submitted before the formal consultation suggested that PCTs would reduce in number from 302 to between 70 and 130, and that SHAs would reduce in number from 28 to nine.[15]

Rationale behind the changes and assessment criteria

32. In many areas, these proposals will result in the formation of organisations similar in size and function to the Health Authorities and Regional Offices that were abolished in 2002. So in what way, then, are these reforms likely to yield improvements that the organisations and arrangements they supersede could not deliver? What has been the Government's rationale for proposing these changes so soon after the last restructurings of the NHS took place, at such a critical phase in the establishment of new market-based systems, and with such tight timescales?

33. The criteria published by the Department of Health in Commissioning a Patient-Led NHS, stipulate that reconfiguration plans will be assessed according to the PCTs' ability to:

• Secure high quality, safe services
• Improve health and reduce health inequalities
• Improve the engagement of GPs and rollout of Practice Based Commissioning with demonstrable practice support
• Improve public involvement
• Improve commissioning and the effective use of resources
• Manage financial balance and risk
• Improve coordination with social services through greater congruence of PCT and local government boundaries
• Deliver at least 15% reduction in management and administrative costs.

34. Although Michael O'Higgins, Chair of the Department's external panel, said that none of the criteria were 'hurdle' criteria that had to be met before plans were agreed, it is widely held that the requirement for 15% efficiency savings is non-negotiable, and it remains to be seen whether any plans will be accepted by the external panel which do not achieve this level of savings.

35. Besides cost savings, the Government has stated that the main aim of these reforms is to strengthen PCTs' commissioning function, as larger commissioning organisations, similar in size to old Health Authorities, will have increased bargaining power, and can be better aligned to local authority services. The competing justifications for these reforms are discussed in detail in Section 3 of this report. However, before discussing in detail the likely impact of the Government's proposal to restructure PCTs, it is important to note that PCTs were established only three years ago, at considerable cost to the taxpayer. A return to structures which are similar in size and function to previous Health Authorities raises important questions about why the shortcomings now being identified by the Government, including increased management costs and dilution of bargaining power, could not have been easily anticipated and addressed before PCTs' introduction three years ago. As we discuss later in this report, all restructurings are hugely disruptive, and to introduce a large scale reconfiguration of NHS organisations only three years after the last root and branch reform of NHS organisations points to an ill thought-out approach to policy-making.

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4   NHS Confederation, The NHS in England 2005-06, 2005; Department of Health Back

5   ibid. Back

6   King's Fund, Practice-led Commissioning, June 2004 Back

7   ibid. Back

8   http://www.nhs.uk/England/AboutTheNhs/History/1988To1997.cmsx  Back

9   Department of Health, Shifting the Balance of Power, April 2001. Back

10   NHS Confederation, The NHS in England 2005-06, 2005. Back

11   www.dh.gov.uk Back

12   Department of Health, Practice-based commissioning-promoting clinical engagement, Dec 2004 Back

13   Department of Health, Creating a Patient-Led NHS, March 2005 Back

14   Hewitt asks the public to help shape care outside hospitals, Department of Health press release, 23 June 2005 Back

15   Health Service Journal, 27 October 2005 Back

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Prepared 11 January 2006