8 Local Commissioning finances
Weighted Capitation
122. PCT resource allocation takes place through
the medium of a "Weighted Capitation" formula. This
formula is used to determine Primary Care Trusts' target shares
of available resources (on which actual allocations of funds are
based). A PCT is allocated funds based both on the number of people
permanently registered with a GP in their area and the number
of people in the area who are not registered with a GP and for
whom accurate national data are available.
123. The allocation formula includes a weighting
formula designed to ensure that, as closely as possible, the distribution
of resources reflects need. The weightings include:
- age- and sex-related need for
healthcare;
- utilisation of healthcare, population health
status, availability of healthcare services and the numbers of
years someone can be expected to live without a disability;
- geographical variations in the unavoidable cost
of providing healthcare covered by the Market Forces Factor—PCTs
in high cost areas have higher allocations, all else being equal.
124. The Advisory Committee on Resource Allocation
(ACRA) advises the Secretary of State for Health on the weighted
capitation formula. ACRA is an independent expert body whose membership
includes individuals with a wide range of expertise from within,
and outside, the NHS.
The Government's proposals
125. The Government has said that it is working with
ACRA and others to develop an allocation formula based on practice-level
allocations.[99] The
challenge will be to develop a workable methodology which allows
the formula to reflect need when patients are free to register
with practices, and practices are free to join consortia, which
do not reflect geography. This requires a more complex formula
than a simple allocation to geographic communities, particularly
when each consortium will have a population-based responsibility
as well as a responsibility for the care of its practice population.
126. The Department is planning to make shadow allocations
to consortia for the year 2012-13 to allow for testing in the
year before full operation of the new system in April 2013.[100]
As Professor Martin Rowland from the University of Cambridge told
the Committee's previous commissioning inquiry:
If the government pilots nothing else, it must
pilot a range of resource allocation formulas before giving commissioning
groups their budgets.[101]
127. Sir David Nicholson told the Committee that:
Apart from getting the allocations out for 2012-13,
we have done very little work on what will happen in 2013-14.
[…] The kinds of formulae that we have now will be the kinds
of formulae we will have in the future.[102]
128. Professor Margaret Whitehead from the University
of Liverpool expressed some concerns about the Government's proposals
regarding the approach to funding consortia commissioning of NHS
services.
Trying to […] give them a deprivation weighting,
will be very difficult because you do not have the geographic
footprint that previous commissioning authorities have had. You
could get a situation where very aggressive, competitive consortia
could configure themselves very favourably in terms of receiving
money and using the commissioning budget in such a way that they
are in a very good position to make profit, et cetera. In that
respect, you could get a situation where some consortia are much
better placed than others to thrive.[103]
She also told us that finding an appropriate resource
allocation for local commissioning bodies is an area that may
be of particular concern:
Obviously, it is very important to test but I
am also aware of all the difficulties. That is why I am saying
it would be optimistic to think that things could be ready in
time.[104]
The need to provide shadow budgets for 2012-13 means
that consortia need to be in place before this date, as opposed
to fully authorised by April 2013.
129. The Department says that a new NHS funding
formula is to be tested by local commissioning bodies in 2012-13.
To make this a meaningful exercise, the geographic boundaries
and constituent practices of all local commissioning bodies will
need to have been established during 2011-12. The evidence we
have heard suggests that this will be difficult to achieve. The
Committee recommends that the Government should publish a detailed
timetable for the implementation of the new resource allocation
formula as soon as possible.
Risk pooling
130. The White Paper says that consortia will need
to be "of sufficient size to manage financial risk and allow
for accurate allocations".[105]
131. The accompanying document Commissioning
for Patients says that:
There are two broad categories of risk in the
system:
- risks from unavoidable and
natural fluctuations in the healthcare needs of a population,
which are often described as 'insurance risk'
- risks arising from controllable activities, such
as poor prescribing or referral practices, sometimes known as
'service risk'.
132. The challenge for risk management is in helping
commissioners deal with the insurance risk through some form of
risk pooling, while ensuring that commissioners are responsible
for managing service risk. Empirically it can be difficult to
separate out those risks. This means that the approach to managing
financial risk will need to be carefully thought through and evolve
over time as new evidence comes to light.[106]
133. In its memorandum, the Department says that
consortia can pool risk with each other or with the NHS Commissioning
Board itself.[107]
The Command Paper says that DH will explore some form of weighted
insurance premium to ensure appropriate incentives for good financial
management.[108] The
Board may also establish a contingency fund to make payments to
consortia where they are necessary for the Board or consortia
to discharge commissioning functions.[109]
134. Concerns have been raised about how consortium
surpluses and deficits will be handled under risk-pooling arrangements.
The British Medical Association (BMA) told the Committee:
The current proposals seem to differ little from
existing arrangements in PCTs. There appears to be no incentive
not to spend any remaining funds at the end of the financial year,
on items or short-term projects that are of little long-term benefit,
as there remains a risk that unspent money will not be carried
over into the next year.[110]
135. Although there are arguments both for and
against consortia being able to carry forward surpluses, the Committee
considers that greater clarity is needed on commissioners' financial
procedures and risk pooling arrangements. The Department and HM
Treasury must publish the arrangements for effective risk pooling
and any plans for rolling surpluses or deficits forward.
Existing PCT debts
136. When the intention to introduce GP commissioning
consortia was announced, there was some concern amongst GPs that,
on assuming statutory commissioning responsibilities from 1 April
2013, these new organisations might inherit any debts accumulated
by their local PCTs.[111]
137. The DH made clear in the Command Paper that:
During the transition, the Department will require
SHAs and PCTs to have an increased focus on maintaining financial
control. GP consortia will have their own budgets from 2013/14.
They will not be responsible for resolving PCT legacy debt that
arose prior to 2011/12. PCTs and clusters must ensure that, through
planning 2011/12 and 2012/13, all existing legacy issues are dealt
with.[112]
The Department added that it was:
working with SHAs to address circumstances where
PCTs have debts (whether they are related to actual deficits or
to money owed under local brokerage arrangements), with the expectation
that any debt will be fully resolved by the end of 2012/13.[113]
It rejected the case for allowing commissioning consortia
to start with a financial clean sheet on the grounds that it:
would mean taking surpluses away from local health
economies where GPs have been instrumental in generating those
surpluses and would reduce incentives for emerging consortia to
support PCTs in tackling existing deficits and in driving forward
the QIPP agenda in 2011/12 and 2012/13.[114]
138. PCT clusters and emerging GP commissioning consortia
are thus required to collaborate in achieving financial control
during 2011-13, with consortia effectively having a vested interest
in helping PCTs to reduce existing deficits in order to minimise
the amount of debt they inherit in 2013.
139. When we took evidence from a group of experts
on NHS finance we were told that, whilst it was easy to see which
PCTs were in deficit in any given year, the underlying position
was less easy to discern. Andy McKeon, Managing Director for Health
at the Audit Commission, told us:
Last year there were only four PCTs with a deficit
and there were six trusts which incurred a deficit. This year
there is a forecast of four PCTs and three trusts which have a
deficit. These are not significant sums. On the other hand, it
is also clear that PCTs receive support from SHAs in one way or
another. For example, last year North Yorkshire and York received
some money as a non-payable transitional grant to enable them
to get rid of their current problems in that year financially
and to concentrate on a recovery package in the next year. I am
afraid the message is that I can't give you a figure for the underlying
position across the country on PCTs and trusts. Having said that,
it is clear that there is probably enough money in the system
to deal with outstanding legacy debts but not whether a PCT is
over-trading, for example, or a trust is over-trading, its costs
are too high and it needs to do something with its cost base.[115]
140. Noel Plumridge, a freelance writer on NHS finances,
explained that, although the DH had forecast (in September 2010)
a surplus of £1.3 billion amongst PCTs, the real picture
might not be so encouraging:
since September, we have seen a pattern at individual
PCTs of deficits emerging. Some that have been publicised recently
have been south-west Essex, a forecast deficit of £18 million,
and Cumbria, a further £7 million. Those are some specifics
in the last month or so. More generally, we have seen a pattern
of restrictions, especially on access to surgery, being imposed
by PCTs which suggests a need to make savings in a hurry, either
through rationing or through delays.
Mr Plumridge also explained that, in addition, current
efforts to reduce costs in the NHS tended to be concentrated within
providers.[116]
141. Against this background, the planned arrangements
for dealing with deficits have not met with universal approval.
The Royal College of Nursing, for instance, told us:
Overall the proposed arrangements for debt eradication
and tackling structural deficits are not sufficient. It appears
that an adequate risk management regime has not been thought through,
which could result in serious consequences for patient services
and healthcare staff.[117]
142. We heard from GPs from Hackney, Cumbria and
Hull (as well as the Chief Executive of Hull PCT and the Humber
PCT cluster) about their progress towards establishing GP commissioning
and eradicating of existing PCT deficits. The Chief Executive
of Hull PCT was confident that the local commissioning consortium
would begin functioning on 1 April 2013 with no deficits inherited
from the PCT, though he was clear that this picture would not
be replicated across the country.
143. By contrast, Dr Deborah Colvin, a GP leader
from Hackney, told us that their PCT currently had deficits of
£30m. A large PFI project was causing significant pressure
on that particular health economy and she also expressed concerns
that patient expectations around choice were being raised to unrealistic
levels, given the state of PCT finances. Dr Peter Weaving, from
Cumbria, told the Committee that the PCT there had accrued deficits
of £6m.[118] He
added that he thought that
the more important question is why the gap has
arisen rather than starting 2013 with a level playing field of
financial balance. That is no use to me if the issues within the
organisations that are going to take me back into financial deficit
are still there.[119]
144. Sir David Nicholson told the Committee that
SHAs held "enough" funds to eliminate existing PCT deficits,
although he did not specify in which budgets those funds were
held.[120]
145. The Government has asked PCT clusters and
the emerging GP commissioning bodies to eliminate their structural
deficits over the next two years. The Committee recognises that
had consortia been promised that the slate would be wiped entirely
clean when they take over commissioning from 2013, this would
have sent the wrong message to local commissioners—at a
time when substantial efficiency savings urgently need to be made.
146. However, we are concerned that this is just
one of many demands being made on local commissioners (present
and future) as they seek to accomplish the complex transition
in a relatively short period. They face a daunting list of tasks—just
as the resources available for administration are substantially
reduced, leading to significant administrative job losses.
147. We are also concerned at the apparent lack
of robust data on the true underlying financial position in each
PCT (as opposed to the in-year position). Without this information,
it is impossible to know the true scale of the task that confronts
PCT clusters and consortia.
99 Cm 7993, para 4.146 Back
100
Ibid. Back
101
Third Report from the Health Committee, Session 2010-11, Commissioning,
HC 513-II, Ev 129 Back
102
Q 322 Back
103
Q 404 Back
104
Q 419 Back
105
Cm 7993, para 4.22 Back
106
Department of Health, Liberating the NHS: Commissioning for patients,
July 2010, paras. 5.7-8 Back
107
Ev 115 Back
108
Cm 7993, para 4.67 Back
109
Ibid. Back
110
Third Report from the Health Committee, Session 2010-11, Commissioning,
HC 513-II, Ev 109 Back
111
Debts are budget shortfalls that are carried forward from one
year to the next (in contrast to deficits, which are in-year budget
shortfalls). Back
112
Department of Health, Liberating the NHS: Legislative framework
and next steps, December 2010, para 7.30 Back
113
Ibid., para 4.69 Back
114
Ibid., para 4.68 Back
115
Q 392 Back
116
Q 395 Back
117
CFI 24 Back
118
Q 201 Back
119
Q200 Back
120
Q 328 Back
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