Feature / Scaling new heights

Across England, former PCT provider arms have been merging with acute and mental health trusts, which now have the opportunity to streamline care pathways, improve quality and reduce costs. But will vertical integration deliver these aims? Steve Brown and Seamus Ward report

The clear motivation behind the creation of a new integrated provider of acute and community care for County Durham and Darlington was to improve patient care, both in terms of clinical outcomes and patient satisfaction. But Sue Jacques, finance director and deputy chief executive of County

Durham and Darlington NHS Foundation Trust, says the acquisition of County Durham and Darlington Community Health Services from NHS Darlington also makes complete business sense.

It has delivered cashable savings from day one and, she believes, will make the organisation’s extremely demanding cost improvement programme more achievable rather than adding to the challenge.

This is no minor tinkering with service provision. In a stroke, the trust has moved from having a turnover of just over £340m to one of £465m. This increase brought it under Monitor’s significant transactions process (where an FT has added 25% or more to turnover), requiring a new financial risk rating (FRR) assessment for the combined body. A rating of 3 (no change) was issued in May.

The Durham and Darlington restructuring is part of a wave of integration under the Transforming community services initiative (TCS). Under TCS, primary care trusts have shed their provider arms – in terms of value 27% have set up as standalone community trusts that are now aiming for foundation status, while 10% have become social enterprises.

A further 10% have either gone out to tender or become part of another community provider. But more than half of community services have been vertically integrated with a provider of secondary care – 28% by value with an acute trust and 24% with mental health trusts. In the past year, Monitor has assessed the FRR of 24 FTs involved in significant transactions under TCS.

Bigger workforce

County Durham and Darlington has added 3,000 staff (in headcount, not whole time equivalents) to its previous 5,000 workforce. ‘We think we’ll add value around workforce opportunities and organisational development; we’ll make clinical outcomes better and improve patient satisfaction. And we think we’ll save money through greater efficiency,’ Ms Jacques explains.

Even a hard-nosed financial assessment of the business case would come down in favour of integration. ‘If you look at the acquisition as you would in the commercial sector, it makes sense,’ she says. ‘Just by running community services as a foundation trust in a business-like fashion, we can make it a better value entity. But if you then look at the added potential of integrating them with our business and joining up the patient pathway, we believe we can eke out even more value.’

But while the benefits of integration may seem too good to pass up, Nuffield Trust senior health policy fellow Rebecca Rosen warns that newly integrated organisations can become distracted. While there have been few UK studies on the impact of vertical integrations, she points to research from 2002 that looked at mergers between trusts in London.

‘They concluded that mergers created a couple of years of organisational disruption. Senior managers were focused on getting the merged organisation back on track at the expense of focusing on system improvement,’ she says. She adds that the merged organisations did not deliver the expected improvements in the quality of care and delivered few financial gains.

American experience

Similarly, work in the United States on the merger of hospitals and physicians’ groups (equivalent of primary care doctors) found few financial gains and that the new organisations were not able to focus on quality improvement.

While she agrees there is potential to reduce waste and improve quality, she argues that the evidence base is not strong. ‘If you look at high-performing integrated organisations, they have been going for a long time. There are some good examples in the US, but these manage to control their cost increases – where costs are rising by 10% or 12% in other providers, theirs are rising at around 4% to 5%,’ says Ms Rosen.

However, many finance directors believe there are real opportunities to make community services more efficient. They suggest community services have not been subjected to the same efficiency demands as the acute sector. This, they argue, is a result of the lack of a tariff that ratchets up the efficiency requirement each year, combined with community services often being an in-house monopoly provider for primary care trusts.

The rigour of the contract management process between two parts of essentially the same organisation can never be as thorough as between two separate entities, suggests Ms Jacques. This was certainly evident through the due diligence process. She says it was clear the services would benefit from closer attention and challenge. What is absolutely apparent is that greater efficiency across all the integrated services is a necessity, not an aspiration.

Ms Jacques is anticipating that income over the next few years will stay broadly static, the net impact of activity changes, tariff efficiencies and local demand management initiatives. But within this stable top line, the trust will need to cover rising service costs linked through a cost improvement programme of £20m this year, £23.5m next year and £21m the year after.

It has already started to deliver these efficiencies. From day one of the new integrated set-up – 1 April – it has taken out £2.7m of staff costs by integrating its human resources, IT, finance and estates departments – this after having taken out 20% of finance function costs over the past two years before integration.

‘These staff cost savings just wouldn’t have been there without integration – and while they won’t deliver our CIP target on their own, they make a good contribution,’ she says.

Rotherham build-up

Integration at The Rotherham NHS Foundation Trust will also contribute to its CIPs. In April the trust took control of community services in the town, swelling its workforce by 1,000 to 4,500. A further 500 staff are due to join the trust when NHS Bassetlaw community services, valued at around £14m, are integrated with the trust this summer.

April’s integration increased the trust’s turnover by less than 25%, so a reassessment of its financial risk rating (FRR) was not triggered and the trust’s FRR of 2 remains unchanged.

Chief of community services Andy Irvine says the Rotherham trust is taking on a full range of services from its local PCT – including district nurses, podiatry, physiotherapy, long-term conditions matrons, the children’s complex care team, falls service and heart failure service.

‘The integration of services across the health community will contribute to our overall QIPP target based on system reform, improved relationships, reduced duplication and so on,’ he says.  ‘However, this will be an enabler rather than an absolute. There are a number of other factors that will contribute to our QIPP. For 2010/11 the trust’s CIP delivered £6.5m; our target was £7.8m, so we achieved 83%.’

He adds that savings will be found through a mixture of integrating back office functions and more streamlined pathways that reduce duplication and maximise the impact on patients’ health. 

‘We have no specific answer on how much integration will save,’ says Mr Irvine. ‘It is part of the overall financial plan and QIPP agenda. In essence integration is one of our enablers to achieve financial viability going forward. The PCT QIPP plans for long-term conditions show a reduction in cost of up to £5m, and we are part of that.’

Following the merger, the trust is focusing on areas it believes offer the greatest potential for service improvement and economies of scale. These include long-term conditions management, such as diabetes, stroke and heart failure, and urgent care. In these, the aim is to prevent avoidable admissions and reduce length of stay in a hospital bed.

In Durham, rationalising the estate, particularly that freed up by the reduced space needed for administration, will add its own savings. ‘We can save £1m in a full year by coming out of some buildings and property leases,’ says Ms Jacques. ‘And we think there’s another £1m to be found next year.’

Children’s services are being integrated across the whole county, covering acute, community and social services. This should deliver almost £800,000 in management cost savings in a full year. But the trust is also looking to improve the service.

‘At the moment, particularly with community health visiting, every child gets the same package. Instead we are looking to provide a single point of contact and integrate the teams. And rather than offering universal cover, we will target more resources at children who most need them,’ she says.

Co-locating urgent services

There are longer term plans to co-locate urgent care and accident and emergency services, a move expected to deliver £1m-£2m of efficiencies, while providing the public with greater clarity over how to access such services.

There are also savings that the trust hopes

will materialise alongside, and as a result of, better quality care for patients.

For example, respiratory services will work as an integrated team across both community and acute activities – with greater consultant support community staff will be better equipped to look after patients at home. Fewer referrals mean less pressure on acute

services and the potential to reduce acute capacity. Equally, with better community services, consultants can discharge patients earlier, leading to reduced lengths of stay and further opportunities to reduce expensive acute capacity.

Re-engineering pathways

Perhaps the theoretical nirvana for integrated acute and community services (or integrated mental health and community services) is a re-engineered patient pathway.

In theory, with the same organisation responsible for both community and inpatient interactions, integrated trusts can change pathways so that patients are treated in the most appropriate setting at the right time. With integration there should be no perverse incentives for hospitals to maintain activity levels and there should be opportunities to switch resources – financial or manpower – from one setting (for example, inpatient wards) to another (community clinics or home visits).

More proactive management of higher risk groups should, so the theory goes, lead to fewer emergency acute admissions – giving a better service to the patient and also potentially reducing costs.

Some changes are needed to infrastructure to align incentives behind this approach. For instance, while acute funding remains tariff based and community services are on block contracts, there are few obvious financial incentives for hospitals to move services out of the acute zone. Tariff funding would go down while there may be no change to the block contract.

But community service currencies are being developed and County Durham and Darlington is beginning to explore this whole pathway territory. It has set up an initial group of 10 patients known to be heavy users of services across acute, community and social care, and will look at how it can support them better with bespoke care packages.

Ms Jacques likens the approach to the US Geisinger model (see HFMA US study tour briefing, available ​herehere).

‘We want to see if we can do something a bit clever that helps keep these patients healthier now that we are integrated,’ says

Ms Jacques. ‘A bit like a managed care programme in the US.’ She adds that controls will be established to ensure the healthcare delivered, be it in the community or hospital, ‘will be optimum’.

For example, at the moment a terminally ill patient who takes a turn for the worse on a weekend evening in a nursing home may end up being admitted to hospital, despite the fact that they have an end-of-life plan that expresses a wish to die at home. The trust is looking to establish a 24/7 single contact point for each patient, which would take into account the patient’s preferred end-of-life pathway.

Ms Jacques says there may be some efficiency gain from cutting out unnecessary emergency admissions, but the overriding motivation is to improve both the patient and carer experience.

In fact, better understanding of patients’ condition, treatment and preferences will be key to taking much of the integration plans forward.

‘We want to have some shared acute and community care records in place,’ she says. This is perhaps a slower burn project, but it underlines the importance of looking across the whole pathway and not just at separate episodes of care or interactions.

Harrogate

‘Harrogate and District NHS Foundation Trust is no longer about the hospital. We are shifting our point of view and we are now an integrated provider of clinical care across a range of settings,’ says the trust’s deputy director of finance, Jenny Ehrhardt, of the trust’s recent merger with local community services.

The transaction, which was completed in April, has raised the trust’s turnover by £37m to about £160m and in the process made it more than a district general hospital.

As it added more than 25% of turnover, Monitor judged the transaction as significant. The regulator reassessed the trust’s financial risk rating, giving it a 3 – consistent with the rating in 2010/11.

The trust now manages local community services such as district nursing and a community hospital formerly managed by NHS North Yorkshire and York. It also oversees a range of North Yorkshire-wide services, including health visitors, podiatry, local minor injuries units, GP out-of-hours services and prison healthcare.

As well as back office efficiencies, it aims to find savings and improve quality by having more influence over the care of patients with long-term conditions. This will avoid admissions while at the same time ensuring the trust can discharge patients more quickly and when it is appropriate.

And since the trust now runs accident and emergency, GP out-of-hours services and minor injury units, there are real opportunities to streamline services, direct emergency patients to the most appropriate care, reduce A&E and out-of-hours waiting times and avoid unnecessary admissions.

The transaction highlighted the skills in the trust’s finance team as it completed all the due diligence required by Monitor in house.

‘It was a real positive for the finance team,’ says Ms Ehrhardt. ‘It was a learning experience for us. Our ability to do it was – rightly – challenged by our non-executives, but it came off and we saved the trust a lot of money.’

Mental Health Trust Takes Intergrated Route

Oxleas NHS Foundation Trust is no stranger to integration, having a history of building up its services through mergers, including two projects in the past year.

Community health services in Bexley, south London, transferred to the trust in July 2010 and in April this year it integrated with community services in Greenwich. The addition of Greenwich community services was the bigger of the two – increasing the trust’s turnover from around £154m to about £194m. Monitor decided this was a significant transaction and reassessed its financial risk rating (FRR), reducing it from 4 to 3.

Director of finance Richard Page (pictured) says that as a mental health trust with a private finance initiative scheme, it already had a relatively low EBITDA margin (earnings before interest, tax, depreciation and amortisation). But taking on leases of community healthcare buildings has further reduced this – lease costs are above the EBITDA line.

‘The I&E position in community services was not much different from our own, but we knew it would affect EBITDA because there were no assets coming with the services, so there is no depreciation and no extra public dividend capital,’ he says.

Despite the reduction in FRR, Mr Page says the trust is ‘sitting comfortably on a 3, rather than sitting comfortably on a 4’. The trust has a strong balance sheet and its internal risk ratings, which look at I&E reserve and liquidity as a percentage of turnover, show it in a strong position.

It’s early days to see benefits, but he believes they will come as the new services become embedded in the trust’s culture. ‘We are looking at hard benefits – things we know we are definitely going to get, having been through due diligence. These are issues such as savings on overheads and corporate costs,’ Mr Page explains. ‘We are not planning on the basis of heroic changes – the type you need to take £1m out to make it financially viable. If that were the case we wouldn’t do it.’

Savings will be made by integrating care pathways – for example, many older people with mental health problems also have physical problems and the trust is finding a lot of crossover between mental health and community patients. And he believes integration will improve quality and reduce inequalities as many patients with mental health issues and learning disabilities find it difficult to access care for physical health problems.