Commissioning - Health Committee Contents


178. In this inquiry we have found that while there are undoubtedly some examples of good practice, after 20 years of the purchaser/provider split commissioning remains a weak link in the English NHS. PCTs are too often passive, ineffectual players in the health economy. They have failed to adequately challenge providers and have accepted services of an inadequate quality. As we have seen, these weaknesses are partly due to structural imbalances in the system, but also to PCTs' staffs' lack of skills, knowledge and talent and the failure of successive governments to remedy these deficiencies. PCTs are expensive and employ large numbers of staff, but too often not the right staff. In particular, they need people who are better at collecting data and at making use of the large amount of data they already have to inform decision making. PCTs have not been helped by constant reorganisations and high levels of turnover of personnel. Too many of the best managers have been attracted to work in hospitals where pay is higher and the work environment is more rewarding, having been the focus of two decades of reform to improve patient care and ensure value for money. This compares with PCT work which is traditionally undervalued and of marginal immediate impact on patient welfare.

179. The DH recognises the problem and has introduced a number of initiatives to try and improve the situation, including the absurdly named World Class Commissioning. However, as we noted in our report on Lord Darzi's review, it is not clear that PCTs have the talent to support their aim of getting commissioners to do a better job and bring about the radical improvements which are clearly needed.

180. We received several suggestions as to how to improve the situation. Witnesses' proposals can be roughly divided into five groups:

    i.  Abolish PCTs and re-introduce health authorities; i.e. replace the quasi-market system with a planned one

    ii.  Retain PCTs but introduce more integrated care

    iii.  Retain PCTs, but introduce "local clinical partnerships", under which GPs would directly control commissioning budgets

    iv.  Retain PCTs but commission services from hospitals centrally

    v.  Retain and strengthen PCTs

The two main choices are to give PCTs more power or give them up as a bad job.

Abolition of PCTs

181. The most radical option would be to abolish the purchaser-provider split, as Wales and New Zealand have. The BMA argued that the split between purchaser and provider had been expensive, inhibited clinician involvement in planning services, and fostered a system which is dominated by cost containment by PCTs and income generation by providers.[201]

182. The current health system with the purchaser/provider split is expensive to run with high administrative and management costs. As we have seen in chapter 2, we have tried rather unsuccessfully over the years to extract information about these costs from the Department and have received a variety of figures ranging from 3-8%; academic research has concluded that the costs are much higher amounting to 20-25% of total staff costs or 14% of the total cost of the NHS, i.e. the staggering sum of £13 bn per year.

183. The Medical Practitioners Union agreed with the BMA that the purchaser-provider split had limited the scope for clinicians to cooperate in the planning of care:

    The creation of a market nexus between commissioners and providers is not an essential part of commissioning. Nor is it particularly useful. The p-p separation has limited the scope for clinicians to cooperate in the planning of care across the GP/consultant boundary.[202]

184. The abolition of PCTs would generate significant financial savings in a period of considerable financial pressure, would also involve another major reorganisation with all the attendant disadvantages. The successor system would be likely to be even more dominated by providers and act in their interests.

Keep PCTs but do more to integrate care

185. The Royal College of Physicians[203] and others thought PCTs should be retained but hospital clinicians and GPs should work more closely together. Professor Ham argued that:

    There should be progressive migration towards clinically integrated systems building on the most promising aspects of current reforms and drawing on evidence that shows the benefits of integration and the challenges of making a commissioner/provider split system function effectively.[204]

186. Professor Ham sees integrated systems in the US (Kaiser Permanente and Veterans Health Administration) as potential models for integrating care in England. Such systems perform well by engaging clinicians in the quest for improvement, ensuring that the incentives that face the organisation align with those of key front-line decision makers.

187. Moreover, integrated care requires the component parts of the NHS to work together rather than remain fragmented as now with hospitals, primary care and community care/social care each defending their incomes and their empires. Kaiser and the US-Veterans Health Administration are single systems. Thus retaining PCTs and integrating care seems inconsistent with the development of CQUIN which seeks to increase the leverage PCTs have in respect of hospitals and other providers.

Retain PCTs, but introduce "local clinical partnerships"

188. The Nuffield Trust informed us that "there are key changes to the policy environment that are required if commissioning is to stand a chance of becoming effective in the way that was originally intended." These included:

    Finding ways of incentiving and motivating GPs "beyond practice-based commissioning", with an opportunity to hold hard capitated budgets..[and]

    Extending the concept of PBC to enable integrated care organisations or multispeciality clinical groups to take responsibility for funding and providing a wide range of care for their registered population.[205]

The memorandum added that the Trust was to publish a report in November 2009. This report has been published and proposed local clinical partnerships with real budgets.[206]

189. Local clinical partnerships look very like the system of GP-fund-holding and might be expected to have the advantages and disadvantages of that system.

The Department of Health commissions services from hospitals

190. Professor Street proposed that PCTs should cease to commission services from hospitals. Instead, this would be done centrally by the DH. Freed from having to deal with hospitals directly, PCTs could then concentrate on improving care in the primary and community care sectors.

Professor Street's proposal

The more radical option would involve the Department of Health funding hospitals directly instead of having payments pass through PCTs. This is typical of PbR-type arrangements that operate in other countries, where "local commissioning" does not feature.

The arrangement combines the best feature of block contracting—certainty of expenditure—with the incentive properties of PbR since an individual hospital will receive more money if it treats more patients.

Again hospitals might be paid the national tariff up to a planned level, with a marginal price applying thereafter. Crucially, though, the planned level need not be negotiated between hospitals and PCTs but can be specified for the hospital as a whole.

The transfer of responsibility would allow the Department of Health to sharpen the incentives of PbR, using the tariff more effectively to control volume, and it would better facilitate free patient choice of hospital.

Freed from having to deal with hospitals directly, PCTs could then concentrate on improving care in the primary and community care sectors.

The arrangement requires a change to resource allocation, with PCTs receiving funds to pay for primary and community care only, with payments for hospital care made directly to hospitals by the Department of Health.

PCTs that are successful at keeping patients out of hospital would receive a proportionately greater budget for primary and community care. This proportion would increase over time if strategies to reduce referrals and to substitute hospital care for primary or community services prove successful.

Professor Andrew Street: COM 113

191. While this option has attractions, it would move the commissioner away from the provider. Other witnesses have argued that effective commissioning requires commissioners to develop long term relationships. While this does not currently happen as much as it should, Professor Street's option would make it more difficult, although a similar system does work for major retailers and supermarkets.

Retain and strengthen PCTs

192. Despite their failings there are strong arguments for retaining PCTs. There have been too many reorganisations in recent decades and there would need to be very strong arguments for another upheaval.

193. On the other hand, the system of PCTs cannot continue as it is. Moreover, the Government's proposals for improvement by themselves are unlikely to bring about the improvements required. If we are going to keep PCTs they need to be given more teeth and more talent.

194. PCTs employ large numbers of staff, but too many are not of the required calibre. PCTs need to become better at collecting data, for example of the needs of their population, and at analysing it. In particular, it is essential to exploit existing and developing data sources to provide comparative performance information in terms of cost, activity and outcomes. This would facilitate the early identification of "outliers" such as Mid Staffs, Bristol and Shipman. As we noted in our report on the "Next Stage Review" PCTs lack the analytical skills or motivation to handle and interpret performance and routine administrative data. With the introduction of PROMs and other quality related measures this issue is becoming ever more important. There is little evidence that WCC has yet brought about improvements in these areas.

195. There is also an urgent need to improve the quality of management. Research undertaken under the auspices of the NHS Institute for Innovation and Improvement in 2008 into improving the quality of care concluded:

    a significant investment of time, resources and leadership effort will be required to create the capability for large-scale change across the whole of the NHS.[207]

196. In our report on the Next Stage Review[208], the Committee pointed to the potential of the National Training Programme:

    The National Training Programme has attracted graduates of great ability. They should be encouraged to take appropriate academic qualifications and be given sustained career support to ensure that their talent is exploited to the full throughout their careers.

The NHS should make far better use of the Graduate Management Training Scheme to provide highly able managers.

197. As we have discussed CQUIN, PROMs and Quality Accounts legislation[209] are potentially important levers to enable PCTs to provide financial incentives to hospitals to improve their services. As we noted we are alarmed that they have not been properly evaluated. The CEO of the NHS, David Nicholson, said the NHS would learn from local experiments. This approach has all the failings we condemned in our report on Health Inequalities.[210] CQUIN is important and must be properly evaluated. As we have noted above, the list of Never Events is very conservative.

198. It has been argued that the power of PCTs should also be increased by increasing the number of providers; thus PCTs would have a greater choice of provider and could cease to purchase from those who were providing an unsatisfactory service. This would in theory provide incentives to established providers to improve their performance.

199. The Government did take steps in this direction, for example by introducing ISTCs, but seems subsequently to have changed direction. The ISTC programme has been curtailed and the Secretary of State has announced that NHS organisations are the "preferred providers" of NHS care.

Impending Cuts

200. The Government has announced a 30% reduction in management costs in PCTs and SHAs from 2010 to 2013.[211] While some PCTs do a good job with low overheads, we are not convinced that taking money away from weaker PCTs will automatically encourage them to improve their performance. At a time when we are expecting so much of PCTs, it seems risky to be cutting their management costs by 30% when they need better skills and more talent. We note that the Minister indicated the potential to make savings from SHAs; we agree that they should bear the brunt of any cuts.


201. If we are to keep PCTs they need to strengthened. In particular, they require a more capable workforce, with people able to analyse and use data better to commission services. They also need to improve the quality of management, attracting and developing talent. As we have argued in previous reports, the NHS Graduate Management Training Scheme could play a major role in achieving this. However, commissioning cannot be improved in isolation from the rest of the health service. PCTs will need to have more power in dealing with providers. It needs to be able to offer more evidence-based financial incentives to providers to improve its relationship with providers. We trust our successors will follow the CQUIN initiative carefully. It must, however, be properly evaluated. If successful it should be expanded significantly. At the moment the Government has proposed some sort of qualitative analysis, which amounts to little more than asking participants how they feel about it. We recommend the Government institute a rigorous quantitative assessment.

202. A number of witnesses argued that we have had the disadvantages of an adversarial system without as yet seeing many benefits from the purchaser/provider split. If reliable figures for the costs of commissioning prove that it is uneconomic and if it does not begin to improve soon, after 20 years of costly failure, the purchaser/provider split may need to be abolished.

201   Ev 210 Back

202   Ev 82 Back

203   Ev 123 Back

204   Ev 332 Back

205   Ev 261 Back

206   The Nuffield Trust, Beyond Practice-based commissioning: the local clinical partnership. November 2009  Back

207   NHS Institute for Innovation and Improvement ,The next leg of the journey: How do we make High Quality for All a reality? H, Bevan, C, Ham and P, Plsek., 2008. Back

208   Health Committee, First Report of the Session 2008-9, NHS Next Stage Review, HC 53-1 Back

209   Quality Accounts legislation comes into effect in April 2010. Outlined in High Quality Care for All, 2008, Quality Accounts aim to enhance accountability to the public and engage the leaders of an organisation in their quality improvement agenda. From April 2010, all providers of acute, mental health, learning disability and ambulance services will be required to produce a Quality Account. Further work is underway to develop Quality Accounts for primary care and community services providers with the aim to bring these providers into the requirement by June 2011 subject to a testing and evaluation exercise. Back

210   Health Committee, Third Report of 2008-09, Health Inequalities, HC 286-I Back

211   In its publication, NHS 2010-2015: from good to great. preventative, people-centred, productive, Cm 7775, December 2009, the Department of Health stated: "We will significantly reduce management costs in PCTs and strategic health authorities (SHAs) by setting a clear goal of reducing costs by 30% over the next four years" (para 4.35). Back

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