News / News analysis: Emergency measures

When it arrived, the English health service’s first ever mid-year revised operating framework contained few, if any, surprises. But its release is consistent with the view that this is a government in a hurry. The coalition government has always maintained that urgent action was needed on the economy, hence June’s emergency budget. And the tweaked operating framework serves as a reminder that there is also an urgency about health service reform, despite the relative protection afforded to NHS budgets in the coming years.

Few in finance can doubt that big changes are on the way. In its briefing on the revised framework, the NHS Confederation said the document appeared to be ‘laying the foundation for substantive systemic changes to come in the operating framework for 2011/12’. Coupled with early commitments on GP commissioning consortia, a cut-down role for strategic health authorities and primary care trusts, a new commissioning board and transforming Monitor into a broader economic regulator, a major shake-up is definitely on the way.

That said, the revised operating framework, confines itself to minor updates for the time being, confirming some coalition pledges on relaxing targets and cutting administration costs and announcing some developments that were already in the pipeline (particularly around payment by results).

Perhaps the most eye-catching paragraphs for managers are those dedicated to cutting management costs. These ‘accelerated cuts’ are likely to have a big impact on employment levels in PCTs and SHAs and have caused some to question whether the remaining management resource will be able to deliver on what will unarguably be a major management challenge.

Health secretary Andrew Lansley said that, according to draft accounts for 2009/10,  management costs stood at £1.85bn – up more than £220m on the previous year. Removing this increase has become the target for 2010/11. In fact the 2008/09 management costs were £1.51bn, but the full difference – £340m – included some technical increases arising from improved reporting on management costs by some SHAs and PCTs. The 2010/11 savings target of £222m represents the ‘real’ increase in 2009/10. The overall target is to create a management costs ceiling at two-thirds of the 2008/09 costs, giving a ceiling of £1.01bn.

In aggregate, PCTs and SHAs have been told to save at least £222m in 2010/11 and a further £350m by the end of 2011/12. The new ceiling will need to be delivered by 2013/14, equating to an £850m reduction (or 46%) on the 2009/10 figures

Mixed reactions

One London PCT finance director told Healthcare Finance that the capital faced a 51% management cost-saving target over the coming four years – 15% this year followed by 25% in 2011/12 and 11% in 2012/13. He said the current year target was ‘more or less achievable’, but the targets beyond that would depend on what functions PCTs were left with.

Others, set in a different local context, saw short-term targets as the real challenge, while the 2011/12 goal appeared deliverable. One PCT director reported that recruitment had been frozen but, with huge levels of uncertainty, turnover was at its lowest for years. She added that achieving the overall targets could require the flexibility to make redundancies, both voluntary and compulsory. All eyes are on the promised white paper on health.

The NHS Confederation said the additional management cost requirement raised questions about the system’s ability to hold the line on finance and performance over the next couple of years with a ‘significantly depleted’ management resource. Its acting chief executive, Nigel Edwards, said everyone was aware of the financial challenges ahead and knew that all parts of the system would have to contribute to savings. ‘Good leadership will be essential both to navigating the service through these challenges and to implementing the ambitious policy agenda being developed by government,’ he said. ‘Cutting management costs will provide some respite for the NHS in meeting increased demand for much of this year, but the figure of £1.85bn is relatively small compared with more than £15bn of savings the service needs to make over the next four years.’

HFMA president Paul Assinder, writing in this issue, added his own concerns about how the cuts could affect the finance function. Referring to the reforms already identified and those trailed in recent ministerial speeches, he said many in the finance community would back the changes or the intentions behind them. ‘But delivering the detailed mechanics will place a further strain on a function that is being actively reduced in number and is central to the productivity quest,’ he said.

The Department has already ruled out any notion PCTs may have had about delivering management cost cuts as a by-product of transferring their provider arms to alternative hosts. But there remains a big question mark over support for the proposed new GP commissioning consortia. The operating framework recognises the issue but provides no immediate answers. ‘The NHS operating framework for 2011/12 will set out how resources will be released from the infrastructure and running costs of SHAs and PCTs to provide a running cost allowance for the GP commissioning consortia,’ it said.

Some argue that significant governance structures will be needed for the new consortia, as well as substantial information flows, analysis and support to inform their commissioning decisions. Some reports suggest there will be up to 600 consortia compared with the existing 150 PCTs, which will still retain some functions, particularly on public health.

How the provision of support across a larger number of smaller bodies fits with major reductions in management costs remains to be seen. Mike Sobanja, chief executive of the NHS Alliance, described it as a ‘conundrum and a challenge’. He queried whether GP consortia management costs would be inside existing management cost boundaries, particularly if they decided to buy support from external sources. He said the detail around the proposals would be key, although he supported the direction of travel towards clinical commissioning. Mr Sobanja added that the proposals’ success would rely on a partnership between GPs, clinicians, managers and patients.

The operating framework confirmed the April 2011 deadline for separating commissioning from provision of community services – ‘even if this means transferring services to other organisations while sustainable medium-term arrangements are identified and secured’.

The guidance also raises the prospect of an additional option – a staff membership foundation trust for community services. Looking to the future, the operating framework says the Department will ‘address barriers to entry to greater participation by the independent and voluntary sector’.

Reconfiguration rules

As expected, the revised framework spelled out the new rules on reconfigurations. Proposals should demonstrate support from GP commissioners, public and patient engagement, clinical evidence and consistency with ‘current and prospective patient choice’. Planned, ongoing and completed consultations will need to be retested against these rules.

The operating framework also spells out  the role of payment by results as a key lever for change – though there is little on this subject that is new. ‘The payment mechanism will be an increasingly vital means of supporting quality and efficiency,’ it said, promising payments based on outcomes, covering whole pathways and stretching across service sectors.

Readmissions focus

The exception is possibly around readmissions. Mr Lansley had already trailed proposals to withhold payment to hospitals for readmissions. The PBR guidance for 2010/11, issued by the previous government, already addressed this to an extent. It had dismissed a national approach on the basis that readmissions would often comprise beneficial elements of care as well as being an indicator of previous poor-quality care. It had preferred a local approach involving setting an locally agreed readmission rate and a 14-day timeframe.

The new proposals are described as ‘strengthening’ these arrangements. Although the period is now being set at 30 days after discharge, the details around how the non-payment will occur is being left to local discretion. The NHS Confederation is also concerned about a possible widening of scope.

‘We had assumed that hospitals would remain financially responsible for readmissions for the same reason as the original admission within 30 days,’ it said. ‘But the operating framework revision states that hospitals will be responsible for patients for 30 days after discharge.’

The confederation in particular highlighted a sentence that said hospitals would be ‘responsible for a patient’s ongoing care after discharge’. ‘This appears to make the hospital responsible for readmission for causes over which it may have no control,’ the confederation concluded. It added that this could delay discharge and create confusion over whether the GP or hospital consultant was accountable for ongoing care of the patient.

One PCT finance director raised concerns that the proposal, while making sense in terms of patient care, might lead to arguments as to whose failure caused the readmission – the hospital, primary care or even social care. However, she added that it could lead to a ‘logical step’ of PCTs or GPs commissioning pathways through a lead provider, with perhaps the acute provider subcontracting for the necessary community support for after-care.

Other PBR changes highlighted in the revised operating framework bring forward changes already in the pipeline, rather than providing examples of a new government stamping its mark on policy. Commissioning packs to support pathway tariffs and an expansion of best practice tariffs were already on the cards for 2011/12, for instance.

In general, however, the coalition changes suggest a greater reliance on the market and PBR as the major enabler. There are rumours that the pace of change could pick up – a faster move to national tariff in mental health, for instance – although ministers’ early enthusiasm may yet be tempered by practical realities.