Feature / State of the nation

NHS Wales is to distance itself further from English health reforms by abolishing its internal market, an approach that will lead to a new organisational structure and changes in funding flows. Seamus Ward reports

When the Welsh NHS finance community gathers later this month for the HFMA Wales branch annual conference, the theme will be ‘Preparing for change’. The theme could not be more apt, for NHS Wales is about to enter a period of rapid structural and system reforms that will create new organisations and abolish the internal market.

A lot of discussion and decisions have to be made, especially on the finer details of the reforms, but the model for the new NHS Wales, which is scheduled for implementation next year, seems set. In essence it will look a lot like the Scottish system. Initial proposals outlined in April favoured retaining much of the current structure, albeit with fewer local heath boards (LHBs), but with changes in their functions. Under those plans LHBs were to take community services from the trusts.

But in July, following consultation on the proposed new structure, health minister Edwina Hart revised her proposals and is now considering plans for seven integrated health organisations that would carry out the functions currently performed by trusts and LHBs. In the revised lexicon, ‘commissioning’ has been replaced by ‘planning’, although it remains to be seen whether ‘contracts’ or ‘service level agreements’ will remain intact.

Much will depend on how the new National Board, which will oversee the new local organisations, will be structured and how it will function. It could become a special health authority, a civil service board or an advisory board to the Assembly government’s NHS chief executive. Funding of the new local organisations may be allocated through the new National Board, though it is unclear how this will be linked to service provision. There will be further consultation on the proposals this autumn.

Mike Ponton, Welsh NHS Confederation director, says the proposals are supported in the service, which sees the value of focusing on planning and managing services rather than negotiating contracts.

‘It was difficult to use the contracting process to change things quickly,’ he says. ‘Trusts and LHBs support strengthening planning and linking that to funding.’

The overwhelming favourite option for the National Board is to make it a special health authority. This would oversee planning, operating priorities and processes, and link the funding stream directly to the planning process. Mr Ponton says the National Board would flesh out priorities and strategic health outcomes set by the Welsh Assembly government.

The driving force behind the reforms is ending the internal market. The reorganisation of trusts and LHBs is a secondary issue that has more to do with getting rid of redundant structures. Support for the reforms is strong, largely because the health service itself led the minister to alter her initial proposals and opt for integrated organisations.

Community care

Mr Ponton says there was a view that putting community services into the redefined LHBs would create a new boundary. ‘With trusts being integrated, it was fairly natural to move people from acute inpatient care to community care. But taking community care out created a new organisational boundary. Trusts saw this as a real problem – they asked how it could all be unravelled, including finance and supporting functions,’ he says.

Though many LHBs did not like the idea, they increasingly realised that the original proposals would turn out to be an interim stage on the way to a fully-integrated system. If that was the case, they felt the NHS should move to the integrated model directly.

While the new bodies may look like the old health authorities, Mr Ponton adds that LHBs are concerned they should be different. ‘They are looking to the minister to move away from the perception – and indeed fact – that this is a secondary care driven service. The way the organisations put together their priorities must be underpinned by the fact that it is community-driven; so they will do more outside hospital but people will receive the best-possible care when they have to go into hospital,’ he says.

While the structure is largely set, there is a lot to be done on how funds will flow through the system. Department for Health and Social Services director of resources Jeff Buggle has set up a working group with representatives from the Welsh Assembly government, together with all the LHB and trust finance directors. The group is working through the outstanding financial issues needed to best make the new system work. It is understood that attention is initially focusing on four areas on which draft options and proposals have already been prepared:

• Governance arrangements
• Shared services
• The finance regime and accounting requirements
• Managing allocations and flows of money to positively engage clinicians.

‘It is work in progress but it is pleasing that the finance profession is involved. The Welsh Assembly government has engaged the profession to work through the issues and mechanisms needed to make the restructuring proposals work and enable the delivery of high-quality, cost-effective services,’ says HFMA Wales chairman Chris Lewis.

The branch was an early supporter of integrating LHBs and trusts – it proposed the move in its response to the initial consultation. Though the new financial framework needs to be fleshed out, the model has the majority support, especially from service providers, Mr Lewis adds. ‘It will end months of protracted, fruitless negotiations on contracts. It will be far better to be spending that time managing the services and the risks, as opposed to arguing in which organisation the risks lie,’ he says.

Healthcare Finance has spoken to several finance directors on the options for allocations under the new system. Three themes have emerged. First, as in the current system a needs-based formula could be used. This has the advantage of being simple and well understood. An alternative would be programme funding, which would set out how much should be spent on specific services – cancer or cardiac surgery, for example.

There would be a question over whether funding for each programme should be hypothecated or ring-fenced – if everything were ring-fenced local bodies would have no flexibility to meet local needs.

And finally, finance professionals asked if the new model needed incentives to ensure the new organisations are as efficient as possible. One says: ‘In some ways it looks like a 1980s-style system, but how do you ensure it doesn’t’ deliver 1980s-style performance?’ He suggests this could be achieved through benchmarking, including an element of provider efficiency in the funding formula or even by putting an element of tariff in the funding formula.

Mixed views

Some finance professionals are predicting a mixed outcome, with funding largely allocated on a needs basis, Assembly priorities funded through programme budgets and a third, incentive-based funding element.

But others believe this is not representative of the new thinking, based on taking a planned approach to providing services. This collaborative, integrated system did not need ‘the hand of Adam Smith’ – the levers associated with the market, says one director.

Another finance director says there is just not enough time to get into complex funding arrangements between the centre and the new integrated organisations. In any event the single system model does not support any market-style allocation methods.

‘Funding could be capitation based or on a contracted basis. Assuming the internal market no longer has a role it is difficult to see how the second option could be used. That leaves you with a capitation-based formula. There isn’t enough time to develop a different basis of allocation so the existing Townsend formula would probably have to be used,’ he says.

One of the immediate victims of the abolition of the internal market was the intention to introduce a limited tariff in 2008/09. This has not been implemented as it was seen as going against the spirit of the upcoming reforms. However, that does not mean Wales has seen the back of market mechanisms familiar to English NHS bodies.

While tariffs may not be used in the allocation of funds from the centre to the new organisations, standardised costs may be a useful tool when the new bodies are allocating funds internally. Welsh NHS organisations are keen to gain the benefits of service line management, which could mean introducing costing mechanisms that drill down to department, ward or patient level.

Mr Ponton predicts that with the process work involved in the internal market gone, more management time will be spent assessing organisations’ performance. Tariff information will play a role in this, helping organisations assess their comparative costs. ‘There will be sets of information about how our organisations are improving health, the quality of care they are delivering and whether they are delivering value for money,’ he adds.

There is some debate about the starting date for the new system – though originally slated for April next year, there is now some talk it will be delayed until September. Though it leaves less time to put the new structures and systems in place, finance staff would prefer April, not least because of the additional complications over closing down sets of accounts for 30 organisations mid year.

Job fears

Whatever the start date, changes on such a grand scale will prompt many in finance to fear for their jobs. But most believe the reforms will not reduce total numbers.  ‘There should be sufficient work for everyone in finance. Given the scale of the financial challenges, we have to keep the expertise and retain as many people as possible,’ Mr Lewis says.

Mr Ponton says managers are stoic about their prospects. ‘I think people have grown accustomed to the idea. The attention has turned to the human resources processes and the support people will be given to help them through the changes.

‘It’s more likely to be felt at senior level, where there will be only one director of finance or chief executive for each board. But lower down, the work will still be there to be done. The focus will be on finding people jobs and creating a new infrastructure,’ he adds.

The reforms are sure to dominate conversations when the NHS Wales finance function gathers over three days later this month. They may even have heard more from the minister, who is due to give an update after the Assembly reconvenes on 22 September. But one thing is sure, they will play a key role in refining the new system’s detail and making sure it works.