News / Transition costs outlined as new structures emerge

The transition to the new NHS structures outlined in the health and social care bill and the one third cut in administrative spending could cost more than £1.6bn, according to the Department of Health.

The new legislation will abolish primary care trusts and strategic health authorities, create GP commissioning consortia and the NHS Commissioning Board, and make Monitor an economic regulator.

In an impact assessment that accompanied the bill, the Department said cutting about 30% from administrative spending in PCTs, SHAs and other bodies – including the Department – would cost £772m in redundancies for 15,800 staff. It said a further 3,600 employees would be lost through natural wastage.

There would be further redundancies, but numbers would depend on how many PCT and SHA staff transfer to the consortia and commissioning board.

The assessment said the likely range was 50%-70%. If it amounted to 70%, there would be no further redundancy costs. But if only 50% transferred to the new bodies, another 10,400 staff would lose their jobs.

The total cost – including the £772m cost of the cuts in administration – would amount to almost £1.3bn.

The Department’s assessment added that the best estimate at this stage was that 60% of staff would transfer to the new structure. A total of 24,500 would be made redundant at a cost of £1bn.

In addition, the document recognised there would be one-off non-redundancy costs, including those for IT and property. It estimated these would amount to a total of £377m.

However, the paper added that there would be financial benefits from the reforms. Reducing administrative spending would save the NHS a total of £5.2bn between 2011/12 and 2014/15. While £661m would be saved in the first year, this would rise to £1.2bn, £1.6bn and £1.69bn in the subsequent years.

The cost and benefits estimates come as the Department moves to retain key staff and ensure that PCTs have the stability to maintain local financial control.

A human resources document published alongside the Operating framework 2011/12 explained that PCTs would be formed into clusters by June this year.

In a letter to the service, NHS chief executive Sir David Nicholson said clusters would oversee the transition and closedown of the old system, as well as supporting the new commissioners.

Clusters would identify staff whose future role would be to support commissioning – some would be offered to consortia, although the work could be carried out within clusters.

‘In creating clusters, our aim is to maintain the strength of the commissioning system in light of the significant financial challenges ahead,’ said Sir David.

And he hinted that clusters could become a more long-term link between the NHS Commissioning Board and consortia.

Sir David is set to become leader of the shadow commissioning board later this year.

NHS deputy chief executive David Flory told Healthcare Finance the Department was determined to retain key skills. And while he could make no guarantees to finance staff, he was confident the finance function would play a key role in the transition.

‘I hope to come out with a vibrant, positive, refreshing finance profession that is enthusiastic and equipped for managing in the new world,’ he added.

Following the publication of the health bill on 19 January, concerns have arisen over the level of competition that would be ushered in by the reforms. However, health secretary Andrew Lansley said the new system would embrace ‘value-based competition’, where patients would choose providers of excellent services.

‘Our plans to modernise the NHS will finally bring the power of competition to healthcare – not a free-for-all race to the bottom, but a race for quality, for excellence and for efficiency,’ he said.

NHS Confederation acting chief executive Nigel Edwards said it supported the bill’s objectives, but there were many uncertainties and risks surrounding the legislation. He called on Parliament to analyse the bill forensically.

‘A key issue in the bill is accountability. With central government loosening day-to-day control, we need to be sure who is going to get a grip when things go wrong,’ said Mr Edwards.