Commissioning - Health Committee Contents

2  Current weaknesses in NHS commissioning

Commissioning arrangements since 2002

10. Since 2002 the statutory bodies responsible for commissioning in the NHS have been Primary Care Trusts (PCTs). There are now 152 of these, each of which is responsible for ensuring that all the healthcare needs of their respective (geographically defined) "responsible populations" are met, within the available budget.

11. PCTs are run by appointed (executive and non-executive) members of Boards, which are ultimately accountable to the Secretary of State for Health. The line of accountability runs through the 10 Strategic Health Authorities (SHAs), which function as regional outposts of the Department of Health (DH), performance managing PCTs and acting as a conduit for their funding.

12. PCTs are responsible for spending around 80% of the NHS annual budget, which stands in 2010-11 at £104 billion. PCT funding is mostly accounted for by the "unified allocations" (non-ringfenced revenue sums) which they are given to pay for Hospital and Community Health Services, General Practitioner (GP) services and the drugs prescribed by GPs. Each PCT has a target unified allocation, determined using the "weighted capitation" formula. This seeks to allocate funding so as to achieve "equal access to healthcare for people at equal need", as well as "to contribute to the reduction in avoidable health inequalities".[6]

13. PCTs must choose how to deploy the resources available to them to meet their local populations' health needs. They must do so within certain constraints. They are required to fund interventions that have been endorsed by the National Institute for Health and Clinical Excellence (NICE) on grounds of clinical and cost effectiveness. Generally, PCTs must seek to achieve value for money, as well as meeting policy goals such as reducing health inequalities.

14. The previous government's programme of "system reform" meant that commissioning had in recent years operated in the context of an emerging NHS "market". Under "Free Choice", patients were given the right to choose their provider for elective secondary care, with "the money following the patient" under Payment by Results (PbR). Under "Any Willing Provider", independent sector providers were given the right to provide elective secondary care for any NHS patient who chose them (provided they met NHS quality standards and the work was done at the fixed NHS "tariff" price). Accordingly, the role of PCTs included managing, and fostering the development of, the "market" in the NHS. However, in practice the exercise of choice and the involvement of the independent sector remained limited and Government policy on "contestability" was tempered by the presumption that the NHS would be the "preferred provider", where it was already providing satisfactory services.

15. The previous government sought to improve the quality of commissioning by PCTs through several initiatives:

  • Practice-Based Commissioning (PBC) allowed GP practices (singly or in consortia) to volunteer to control indicative budgets for commissioning some kinds of care for their patients.
  • The Framework for Procuring External Support for Commissioners (FESC) facilitated the buying in of private sector commissioning support.
  • Various new commissioning levers, based on the idea of "pay for performance" (P4P), were introduced to give commissioners more influence over providers:
    •   Commissioning for Quality and Innovation allowed commissioners greater influence over the safety and quality of services purchased from providers by making payment partly conditional on achieving stipulated quality standards.
    •   PCTs were enabled to withhold payment from providers where "Never Events" (serious and preventable harm to patients) occurred.
    •   Some "best practice" tariffs were introduced, so that the national prices paid by commissioners to providers for certain procedures were based on the costs of the best performing providers, rather than the national average cost.
  • The World Class Commissioning (WCC) initiative sought to make NHS commissioning more professional and effective by reviewing and rating PCTs' commissioning performance against a set of indicators.

The previous Health Committee's report

16. Our predecessor Committee conducted an inquiry into NHS commissioning, publishing its report in March 2010. It noted that, while commissioning is "a key function of the NHS", and PCTs spend the majority of its budget, "the great majority of English people do not know what commissioning is or what a Primary Care Trust (PCT) is."[7]

17. The Committee found that while there were examples of good practice being undertaken by PCTs, commissioners were too "passive", failing to "insist on quality and challenge the inefficiencies of providers". These weaknesses were "due in large part to PCTs' lack of skills, notably poor analysis of data, lack of clinical knowledge and the poor quality of much PCT management". The situation had been exacerbated by "the constant re-organisations and high turnover of staff".[8]

18. In addition, commissioners still lacked "adequate levers to enable them to motivate providers of hospital and other services".[9] PbR gave providers a perverse incentive to generate more activity (regardless of what was optimal in terms of clinical or cost effectiveness) to increase their income. The Committee noted the possible benefits of FESC, P4P and WCC, but was still sceptical about them. In respect of P4P, it called for careful piloting and evaluation.

19. It was noted that the then government had announced it would cut by a third management costs in PCTs and SHAs. The Committee commented that "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".[10]

20. The Committee regretted the inability of the Government to give accurate figures on the transaction costs involved in the purchaser / provider split, while noting unpublished research (commissioned by the DH) which pointed to total NHS management and administration costs of 14%.

21. The report noted that witnesses had referred to having the "disadvantages of an adversarial system without as yet seeing many benefits from the purchaser / provider split". It concluded that 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".[11]

22. The starting point of our inquiry has been our predecessors' findings on the significant shortcomings of the current arrangements for commissioning in the NHS. Like the previous Committee, we are motivated by the desire to deliver high quality care to patients and good value to the taxpayer; and we see the need for an effective instrument to drive innovation and quality if these objectives are to be met. It is from this perspective that we have sought to ask "How do we make commissioning effective?" and reached our conclusions about the Government's proposals.

23. In the next two chapters we consider the development of the Coalition's proposals on NHS commissioning.

6   Department of Health, Resource Allocation: Weighted Capitation Formula (sixth edition), December 2008, p 39 Back

7   HC (2009-10) 268, para 1 Back

8   Ibid., p 3 Back

9   Loc. cit. Back

10   Ibid., p 5 Back

11   Ibid., p 6 Back

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