5 THE EFFECTS OF WIDER REFORMS
IN THE NHS ON COMMISSIONING
111. Over the last decade the NHS has experienced
constant reform, described by one witness as "redisorganisation".
Some reforms, as we have seen, specifically aimed to strengthen
commissioning, but most were concerned with other aspects of the
NHS. Nevertheless, even these wider reforms have had an indirect
effect on the work of commissioners. They have been inconsistent
and some have made the work of commissioners more difficult. Professor
the freedoms available to NHS Foundation Trusts,
the regulatory regime under which they operate with the requirement
to generate financial surpluses for future investment, and the
system of payment by results which creates incentives to increase
hospital activity, present formidable obstacles to PCTs and PBCs
in achieving financial balance and bringing about the shift in
care closer to home that has been at the heart of recent policies
three sets of drivers [have] been put in the
system. There is the Stalinism...targets, performance, management,
drive the system hard from the centrewe also have increasing
regulation through....a plethora of regulators trying to improve
performance, and, thirdly, we have got the market-based reforms,
World Class Commissioning, Foundations Trusts, Payment by Results.
The logic was that over time we might migrate with less emphasis
on Stalinism, a bit more emphasis on regulation and competition
and choice would drive the system. Actually what has happened
is they are co-existing with each other.
112. This chapter looks mainly at the market-based
reforms, in particular the introduction of Payment by Results
(PbR). While these reforms have tended to intensify the adversarial
nature of the relationship between purchasers and providers, other
changes have arguably tended to cut across this, notably the Integrated
Care Pilots, which we also examine. We begin, however, by considering
the consequences of one of the Government's earliest reforms under
the Rt Hon Frank Dobson, the creation of NICE.
113. The National Institute for Health and Clinical
Excellence (NICE) was set up in 1999 with a remit to provide evidence-based
information for the NHS on the effectiveness and cost-effectiveness
of healthcare interventions.
NICE publishes mandatory technology appraisal guidance (stipulating
interventions which must be funded by PCTs), as well as advisory
clinical guidelines and public health guidance (which PCTs are
not obliged to implement).
114. PCTs could insist that providers adopt NICE's
clinical guidelines thereby ensuring that the best care is provided
in the most cost-effective way. Although NICE has been working
on developing tools and resources to help commissioners put its
recommendations into practice in their commissioning,
the evidence we received indicated that PCTs too often fail to
do so. For instance, the Joint Epilepsy Council found that in
2009 more than 90% of acute trusts failed to meet the two-week
guideline for a first appointment with a specialist.
We were advised of similar failings in evidence received from
the National Osteoporosis Society,
HEART UK and the
National Rheumatoid Arthritis Society.
115. On the other hand, the mandatory technology
appraisal guidance is expensive and PCTs think at times the money
would be better spent on other priorities. The Minister of State
admitted that implementing NICE guidance could be very costly
for PCTs, but insisted they must adhere to it and manage their
budgets in order to enable them to do so:
It can be inflationary, I suppose, if it is the
case that they are implementing the NICE guidance without being
prepared to decommission anything. The PCT has to ensure that
it is delivering the best quality of care, and if NICE is saying
to it, "This is the best quality of care" then the PCT
really needs to think very hard if it is going to exercise some
sort of discretion not to deliver the best quality of care. It
would have to have a hell of a good reason for not doing it.
Payment by Results (PbR)
116. Historically, hospitals were paid through some
form of bulk-buying contract.
Payment by Results (PbR) transformed this system so that "the
money follows the patient". Hospitals are now paid a fixed
price for each individual case treated. The amount hospitals are
paid depends on how much work they do.
Box 6: Payment by results (PbR)
|Before the introduction of PbR there was no incentive for providers to increase throughput since they got no additional funding for doing so. |
PbR has addressed this issue and provides fixed tariffs for healthcare resource groups. Tariffs are set by the DH and the same price is paid by commissioners no matter which hospital provides the procedure. The prices contained in the national tariff are broadly speaking set on the basis of the average (mean) cost of providing a particular procedure, calculated using data from all NHS hospitals.
PbR is being phased in gradually. The system began in a small way in 2003-4. In 2006-7 the scope of PbR was extended to include non-elective, A&E, outpatient and emergency admissions for all Trusts. As at 2009-10 the main exclusions from PbR are primary care, community services, mental health services and the ambulance service. From April 2010 there are four "best practice" tariffs which encourage clinical change in areas such as stroke care. In an effort to shift funding to the community, emergency activity levels above 2008-9 levels will only be reimbursed 30% of tariff.
According to the DH, PbR is also intended to support patient choice and a "mixed economy of providers" as well as encouraging activity levels so as to reduce waiting times.
117. The NHS Confederation highlighted the positive aspects of
While the immediate economic constraints might make alternative
payment systems appear attractive, the benefits, both delivered
and possible through PbR are significant. For example, in the
NHS Foundation Trust sector, PbR has supported the investment
of £339 million in improved patient services in 2008-9 alone,
with £353 million anticipated in 2009-10. PbR has enabled
independent sector providers to enter the market competitively
and further drive service improvement in areas where they provide
services alongside incumbent providers. It is a system that maintains
a national health service, avoiding the disruption of local pricing
which would be inefficient and chaotic.
118. Other witnesses, however, argued that Payment by Results
had several failings. In particular, it was claimed that PbR had:
- increased transaction costs;
- encouraged hospitals to generate more activity
to increase their income; and
- made it more difficult to move healthcare into
the community and primary care sectors.
119. It had been expected that PbR would reduce costs
because it ended the need to negotiate prices and volumes. This
had happened, but research commissioned by the Department found
that any reduction in costs had been offset by an increase in
other transaction and administrative costs.
Dr Meldrum of the BMA told us:
The problem I have with Payment by Results is
that you either have a very crude system where you have a relatively
small number of resource groupings, in which case it is easy for
certain providers to cherry-pick the easy cases, leaving the more
complex ones to the NHS who have got intensive care facilities
and such like, and get paid the same. So you either do that, or
else you go down a much more complicated route where you have
many, many more disease groups and payment groups, but, of course,
the more you go down, the more sophisticated you make that, the
more bureaucratic it becomes and the more you get more onto the
American system where almost for every aspirin you have to put
a tick in the balance sheet. So I think there is a real Catch
22 situation that actually, if you want to make it fairer,
you have got to make it more bureaucratic. The more bureaucratic
it is, the more costly it is to administer and to run and you
will end up with administration costs of getting on to 30%, as
they have in the American healthcare system.
120. Professor Street described Payment by Results
as "Essentially an activity-based funding system".
Although early assessments of PbR, such as that undertaken by
the Audit Commission in 2005, found no evidence that PbR had increased
activity, concerns about the incentives PbR created for hospitals
to generate activity were widely expressed by witnesses, for example
by the Cystic Fibrosis Trust,
British Society for Gastroenterology
and the National Childbirth Trust.
The Association of Greater Manchester PCTs informed us:
...we would also highlight the extent to which
national policy can confound local economy efforts to balance
supply and demand. NHS provider organisations tend to have a high
fixed-cost base and are rewarded for increased volumes under the
NHS financial regime payment by results. They therefore have a
major incentive to increase activity in order to secure increased
tariff income at full cost, running directly counter to the objectives
121. While the NHS Confederation had been very positive
about PbR in written evidence, a subsequent communication from
Nigel Edwards, Deputy Director of the organisation, was critical
of the way PbR creates incentives for providers to generate, rather
than help manage, demand for secondary care:
Tariff systems can work in emergency care and
for long term conditions but unless they are used carefully they
have the risk of providing incentives that are not really aligned
with what patients or the wider health system needs. In particular
it has the potential to create incentives for providers to generate
rather than help manage demand for secondary care." (letter
to Howard Stoate from Nigel Crisp. 8 Feb 2010)
122. The King's Fund explained how PbR affected strategies
to switch services out of hospitals:
PCTs have few of the freedoms afforded to foundation
truststhey are restricted by stringent governance and regulatory
structures and must break even on an annual basis. As noted above,
the power differential is exacerbated by a mismatch in the quality
of information accessible to trusts and commissioners. Work undertaken
in the acute setting is coded and costed very carefully to ensure
that costs are covered, but there is a significant delay before
commissioners receive that information. The lack of specialist
knowledge at PCT level means that commissioners find it very difficult
to challenge coding. The complexity of the pricing structure of
PbR has combined with these incentives to restrict the ability
of commissioners to act on strategies that seek to redesign services
and/or shift care out of hospitals.
The Royal College of Physicians warned that care
might be pushed into hospitals rather than the community.
More profoundlyfor Care Closer to Home
advocatesPbR may create perverse incentives, so that it
appears financially easier to admit the patient rather than manage
them outside the hospital or to commission separate specialist
services in primary care, thus avoiding the fully tariff price
of a consultant-delivered service in an outpatient clinic.
Integrated Care Pilots
123. It has long been argued that the different elements
of healthcare and social care in England are too often poorly
coordinated, failing to form seamless "pathways" that
ensure the right care is delivered in the most effective way.
This adversely affects patients' quality of life and clinical
outcomes, as well as efficiency in the use of resources. Addressing
this is made all the more urgent as the population ages and the
prevalence of chronic diseases increases.
124. Government policy sees the answer to this problem
in greater integration of services, both "horizontally"
(e.g. between primary care and social care) and "vertically"
(e.g. between primary care and acute care). In April 2009, the
DH launched a pilot programme, as proposed by Lord Darzi in High
Quality Care for All, to test and evaluate several models
of integrated care through 16 Integrated Care Pilots (ICPs) over
two years. The Department has recently announced that, following
successes in the original ICPs, the programme is being expanded
to encompass a wider range of stakeholders nationally and identify
further worthwhile initiatives.
125. We received evidence from some of the NHS organisations
involved in the initial pilots. John Parkes, the Chief Executive
of Northamptonshire PCT, told us that initiatives being pursued
by his pilot including pooled mental health budgets and joint
commissioning of mental health services with colleagues in social
care. From the
provider side, Stephen Graves, of Cambridge University Hospitals
NHS Foundation Trust, told us that the pilot in which his organisation
was involved, relating to end-of-life care, was not proving straightforward:
"I will be very clear; it is not easy". Bringing together
the information held by different organisations had turned out
to be particularly difficult.
Mr Graves admitted that, even after a year, the pilot was still
in its early stages: "it has taken a year for us to all get
our brains round the issue".
126. It is not clear how the integrated care pilots
relate to other Government policies, for example how it relates
to CQUIN, another policy with its origins in the Darzi review.
In December 2008 guidance from the DH on CQUIN merely stated that:
in areas where Integrated Care Organisations
are being piloted those involved may wish to discuss how to apply
the principles of the CQUIN framework to the care they are providing.
127. Similarly, it is unclear whether the integrated
care pilots are consistent with PbR. Several witnesses, including
the BMA and the
British Association for Sexual Health and HIV (BASHH),
argued that PbR fragmented care. The fpa claimed that PbR created
"disjunctions" in care pathways.
Dr Brambleby, a PCT director of Public Health, argued that PbR
had drawn attention away from commissioning whole care pathways.
I am not by any means alone as a clinician working
in the NHS to be deeply ambivalent about payment by results. We
feel that it was a sincere and partially successful attempt to
address the wrong question
. It is the overall health of
the patient for which we want to commission. To that end payment
by results has been a distraction and distortion and is tangibly
counter-productive in some cases.
The overall impact of reforms
128. It is not just that integrated care pilots sit
uneasily with CQUIN and PbR, but several witnesses, including
the King's Fund, the RCP
and Professor Bevan, stressed that recent reforms were inconsistent.
Professor Bevan told the Committee that it was not that there
were too many cooks, but that they were cooking different meals.
The King's Fund informed us that:
...when examined in detail and in the context
of the system as a whole, it is apparent that there are areas
where the various incentives and structures do not align. As a
result commissioning remains weak. It is not that the policies
themselves do not "fit" with WCC, but rather that the
structures and mechanisms within which they are operating are
working against the aspirations of WCC.
129. The Government has embarked on a series of
sometimes contradictory reforms which have had significant effects
on commissioning. In the first wave of reforms undertaken when
the Rt Hon Frank Dobson was Secretary of State, NICE was created.
This has led to threats and opportunities for PCTs. Potentially,
PCTs could insist that hospitals use NICE guidelines to provide
the best, cost effective care; unfortunately, they have done this
less often than they should have. On the other hand, there is
a tendency for NICE guidance to be "inflationary" in
its effect on spending by PCTs, obliging them to pay for certain
expensive treatments. We repeat our regular injunction that NICE
should do more to specify where disinvestment should take place.
130. The next wave of reforms, made when the Rt
Hon Alan Milburn was Secretary of State, sought to achieve a more
market-oriented NHS; they included the introduction of PbR. We
were informed that this has had a number of disadvantages for
commissioners. PbR threatens to increase transaction costs and,
in part because of the weakness of commissioning, provides hospitals
with an incentive to generate more activity to increase their
131. More recently the DH has appeared to place
less emphasis on the market-based approach. The present Secretary
of State has stated that the NHS is the "preferred provider"
and Integrated Care Pilots have been introduced. It is unclear
how this policy relates to earlier measures such as PbR.
132. Although there has been slightly less emphasis
on market reforms recently, the NHS remains characterised by tensions
between purchasers and providers. The weakness of commissioners
faced by powerful providers means that the reforms have threatened
to undermine some of the Government's key aims, such as switching
care from hospitals to the community. Strengthening commissioners'
powers and skills is vital and we now turn to Government attempts
to do this.
126 Ev 15 Back
Ev 331 Back
Q 527 Back
NICE was initially called the National Institute for Clinical
Excellence. It changed its name in 2005. Back
Ev 232 Back
Ev 321 Back
COM 111 Back
Ev 44 Back
Ev 60 Back
Q 621 Back
A variety of contracts were used:
· Block contracts
Under a block contract the provider
is paid an annual fee in instalments by the commissioner in return
for access to a defined range of services. The provider receives
a flat payment to care for the patient population regardless of
the actual care given. A sophisticated block contract is similar
to a simple block contract but requires the commissioner to monitor
the provider to ensure that they are providing the required care.
· Cost per case contracts
Under a cost per case contract the commissioner
agrees an allocation of funding for each patient treatment provided,
so the provider is paid based on the cost of the medical services
· Cost and volume contracts
Under a cost and volume contract cost
and activity are linked. The provider receives a sum in return
for treating a specified number of cases. These types of arrangement
allow for a variable cost per case adjustment between a threshold
and a ceiling. Back
Ev 313 Back
Georgia Marini and Andrew Street, "The administrative costs
of Payment by Results." CHE Research Paper 17. York: Centre
for Health Economics, (2006) Back
Q 33 Back
Q 170 Back
Ev 72 Back
Ev 304 Back
COM 118 Back
Ev 50 Back
Ev 253 Back
Ev 124 Back
Q 353 Back
Q 467 Back
Q 471 Back
Department of Health, Using the Commissioning for Quality and
Innovation (CQUIN) payment framework, December 2008, para 30 Back
Ev 213 Back
Ev 241 Back
Ev 91 Back
Q 206 Back
Ev 123 Back
Q 62 Back
Ev 252 Back