Memorandum submitted by York Health Economics Consortium (H&SC 15)










January 2008



The legislation on future assessment of economy and efficiency in social care and health is set out in Clause 50 of the Health and Social Care Bill 2007. This proposes that studies of economy and efficiency may be carried out by the new regulator, the Care Quality Commission, when it takes over the roles of the Healthcare Commission, Commission for Social Care Inspection and Mental Health Act Commission.


It should be noted that the legislation simply gives the new Care Quality Commission the powers to carry out studies of economy and efficiency. It is arguable that this should be a key requirement, given the likely future pressure on health and social care budgets. The powers to carry out such studies could be strengthened by making such studies a requirement in future.


YHEC is concerned that there are currently a number of difficulties limiting the effectiveness of efforts to assess economy and efficiency in health and social care. There is clearly a need for a well-developed programme of studies of economy and efficiency in the NHS to complement the quality assessment. Without strong ownership of such a programme by regulators, economy and efficiency in the health and care sector may be neglected. As an organisation committed to the future growth of studies of economy and efficiency in the NHS, YHEC wishes to contribute to the debate on how the responsibility should be discharged in future. Our aim is to raise the issues rather than to criticise any specific organisation.


This paper addresses issues of how best the assessment of economy and efficiency might be discharged in the future regulatory regime. A particular concern is that there is an inevitable tension between quality and efficiency in health and social care. Quality standards tend to be absolute while efficiency involves making trade-offs between different objectives and their cost. While this tension can be overcome or managed by a quality regulator, it nonetheless poses a difficulty which, with others, raises the key question of whether the future quality regulator of care is the best place for the responsibility for studies of economy and efficiency.




Since its creation as the Commission for Health Audit and Inspection, the Healthcare Commission has been responsible for studies of economy and efficiency in the health service that address aspects of service delivery. This responsibility was transferred from the Audit Commission. However, the Audit Commission continues to assess both financial management in the health service and also the economy and efficiency of financial management and related areas, and so remains the key source of assessments of the use of resources by the NHS. The Audit Commission produces the annual assessment of Use of Resources by NHS bodies for the Healthcare Commission and the two assessments are published in tandem in the Annual Health Check on the NHS.


The Commission for Social Care Inspection has a similar responsibility for aspects of value for money in social services, though the Audit Commission continues to assess efficiency in social services as part of its audit of local government.


The Healthcare Commission has carried out a number of studies of value for money in the NHS. These have predominantly continued the work of the Audit Commission's Acute Hospital Portfolio Programme, which transferred with its small team of specialist staff to the Healthcare Commission. Based on our work with the NHS and through membership of NHS trust boards, we believe that these studies are inevitably less closely linked to the work of local auditors than in the past, either for data collection or for implementation of findings, as the auditors are now in a separate organisation, the Audit Commission.


CSCI has not carried out a large body of work in value for money. Its annual report does not address value for money issues in detail and its local reports on individual authorities provide only an overview of their use of resources.


This short paper examines the potential advantages and disadvantages of continuing to focus assessment of economy and efficiency in care services in the care quality regulator rather than the Audit Commission, with its stronger financial background.


An Integrated Quality, Economy and Efficiency Regulator


There are clearly a number of potential advantages of having an integrated regulator of quality, economy and efficiency in health and social care. However, there are also some disadvantages. It should be noted that much of the financial management of the NHS and all of local government is assessed by the Audit Commission. There is no proposal to integrate the Audit Commission with the new care regulator as this would cut across its roles in other local services, such as the police and education. That is, the Audit Commission covers a wider range of services and expenditure than the proposed Care Quality Commission and so would not be readily integrated with it. There are no proposals for such integration in the bill.


Therefore, the future Care Quality Commission will be set the challenge of assessing economy and efficiency, as well as quality, while the financial management of health and social services is separately assessed. The growing role of Monitor and of semi-autonomous Foundation Trust hospitals and health services is also increasing the number of stakeholders in financial management as Foundation Trusts are not obliged to use the Audit Commission and its appointed auditors for local financial audits. Foundation Trusts submit information to the annual assessment of use of resources in the NHS via Monitor, the Foundation Trust regulator, and many care homes, of course, provide the standard company reports only. (It is important that future studies of economy and efficiency in health and social care include studies of the impact of Foundation Trusts and private hospital and care home companies as these bodies could affect the efficiency of the local health and care economy where they may act more in the interests of their own organisation.)


Advantages of having the quality regulator focus on economy and efficiency, even without direct involvement in the assessment of financial management, include:

An integrated approach so that quality considerations are fully built into the assessment of economy and efficiency and not treated as subordinate concerns;

The potential to avoid duplication of effort, where separate quality and economy regulators might cover the same ground from time to time;

A more complete picture of the operation of health and social services, with the potential for a single assessment of services overall.


Disadvantages include:

A risk that the quality regulator will find it difficult to accept trade-offs between quality and cost, particularly where these might appear to weaken the force of its minimum standards. Even where minimum standards are seen as defining value, so that a service which fails to meet them cannot offer value for money, nonetheless once the minimum standard is reached, a quality regulator might still aspire to ever-rising standards rather than standards based on economy and efficiency;

The difficulty of engaging staff with a service quality focus in issues of economy and efficiency. Individuals in the current regulators are essentially champions for their areas of service and might find it difficult to accept reductions in resources that might follow from studies of economy and efficiency. The same issue can be found in the assessment of new therapies by NICE, where interest groups focused on rising standards for a particular patient group typically find it very difficult to accept negative judgements by NICE about a new therapy, based on considerations of economy and efficiency;

The lack of staff in the new regulator could inhibit its effectiveness in the assessment of economy and efficiency. Based on job advertisements and related information, it appears that the Healthcare Commission and CSCI currently employ very small numbers of staff with economic and financial skills;

The current regulators employ field staff with skills in the inspection of services rather than the assessment of economy and efficiency. There is a mis-match of these skills not only with any financial assessment but also with the assessment of commissioning, which is likely to become of increasing importance in the future.

The current regulators have formal links at national and regional level with the Audit Commission but they lack strong local links to auditors and financial management staff in health and local social services.


The new Care Quality Commission could, of course, remove some of these disadvantages by investing more heavily in financial staff and financial skills. But faced with a declining budget, leading up to the merger, the potential to focus more on quality than on cost and the demands of a much bigger inspection and regulation remit, this may be very difficult for it.



Joint Assessment of Quality, Economy and Efficiency


The current bill includes provision for joint working between the new Care Quality Commission and the Audit Commission on some aspects of economy and efficiency in health and social services. There is a case for strengthening this link so that all studies of economy and efficiency are carried out with, and potentially led by, the Audit Commission.


Advantages include:

Greater built-in involvement of staff with financial skills and with links to local auditors and local finance departments;

A stronger focus on the costs of services, as a counter-weight to enthusiasm for higher quality in the quality regulator;

Closer integration of studies of financial management, where the Audit Commission retains the lead, and of the value for money of commissioning and of service delivery.


Disadvantages include:

Divided responsibility for development of studies of economy and efficiency, which could make them less efficient or less effective;

Failure to obtain a consensus on the appropriate balance between quality and cost considerations.


Assessment of Economy and Efficiency by the Audit Commission


The powers to assess economy and efficiency in health services were transferred to the then new Healthcare Commission when it was established. There is a case for transferring these specific powers back to the Audit Commission, though this would also have both advantages and disadvantages.


Advantages include:

Placing the lead for studies about the use of resources and finances with the body with the most skills and most integrated contacts with aspects of financial management in health and social services;

Unifying assessments of economy and efficiency which may, for some services, need to go beyond the bounds of health and social services alone and into wider local service issues such as housing and policing;

Reducing the risks to the assessment of economy and efficiency caused by the low level of current investment in value for money assessment by the Healthcare Commission and CSCI, which will be inherited by the Care Quality Commission.

Highlighting aspects of services where quality standards are not appropriate for reasons of economy and efficiency or where the trade-off between standards does not reflect the relative achievability of different standards for a given level of spending.


Disadvantages include:

The risk of too great a focus on financial issues. This has been overcome in the past by the Audit Commission drawing in experts from the relevant field and there is no reason in principle why such advisory groups should not in future include membership from the Care Quality Commission;

A lack of a coherent programme of assessments so that the Care Quality Commission and the Audit Commission do not pursue integrated programmes of assessment. This could be avoided by joint assessment, as noted earlier in this paper or by ensuring that the Audit Commission build in all quality assessments from the Care Quality Commission into its own assessments of economy and efficiency.




The Care Quality Commission will inherit a small staff of specialists in the assessment of economy and efficiency, a workforce in the field with very limited skills in economics and finance and a system where care quality assessment is relatively isolated from local financial management. This could limit the organisation's effectiveness in the future assessment of economy and efficiency in care services at a time when these will be of increasing importance. Clearly, this particular difficulty could be overcome if the Care Quality Commission had sufficient resources to invest more substantially in studies of economy and efficiency, made it a high priority and was able to overcome the quality/cost tensions that we have noted in this paper.


There is a case for transferring responsibility for studies of economy and efficiency back to the Audit Commission or for strengthening its involvement in all studies of economy and efficiency by the Care Quality Commission, as a full and equal partner for example. This is because of the Audit Commission's greater involvement with financial matters across health and social care, its more appropriate skill base and its lack of a central mission to raise quality in isolation from economy and efficiency.


Given the continuing separation of financial audits and service quality assessments, which is inevitable given the broader remit of the Audit Commission, any decision on the future of studies of economy and efficiency will be a compromise. There is a case for retention of the status quo and a case for change. The conclusion of this paper is that the range of alternatives need to be considered carefully before any endorsement of the proposed retention of the power to assess economy and efficiecy by the new care quality regulator.


January 2008