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Comments from ACCA
October 2003

Executive Summary

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to provide comments to the Department of Health on the consultation document Payment by Results Consultation: Preparing for 2005. These comments have been developed with members of our Health Service Network Panel, who are all senior accountants working in the NHS.

ACCA welcomes the proposed reforms because they should enable the additional funding planned for the NHS to be used in a cost-effective manner and they will support delivery of patient choice. We recognise, however, that the reforms present significant challenges and additional risks. These are compounded by the introduction of patient choice at the same time as the financial flows reforms. The reduction of the scope of payment by results from 90% to 60% of hospital income may indicate a recognition of the scale of these challenges.

The consultation document identifies the key decisions needed for implementing the next stage of payment by results and outlines how these will apply to NHS Foundation Trusts from April 2004 and to all NHS Trusts from April 2005. This is an ambitious project with significant implications for both NHS Trusts and Primary Care Trusts (PCTs).

There will be important changes in the way funds flow through the system and sound transitional arrangements will have to be in place to manage financial risk. The role of strategic health authorities in this process will be critical.

These changes present significant challenges, especially in managing the 60�70 trusts whose average costs are more than 9% above the national average. The consultation paper has surprisingly little to say about how this will be achieved.

 

The consultation paper proposes that those trusts with costs within 9% of the national average will be given a transition period of three years to adjust their costs. For some of these trusts this will be difficult to achieve without significant additional investment, but the consultation paper does not indicate how this will be funded.

NHS organisations will need access to fast and reliable activity information, converted into income and expenditure figures, to enable them to monitor their financial position. Sophisticated information systems will have to be in place to support this process

Despite the many challenges inherent in payment by results we are confident that accountants in the NHS will ensure that implementation of payment by results runs smoothly. ACCA�s Health Service Network Panel is committed to the success of the proposals and will work, as required, with the Department of Health in resolving any technical accounting difficulties and in providing guidance to support the implementation.

 

Responses to the Consultation Questions

TARIFF STRUCTURE

Question 1. Does the proposed single tariff for elective and non-elective admissions from 2004/05 represent the best way forward?

We do not consider that the proposed single tariff represents the best way forward.

The consultation document proposes the introduction of a single tariff for elective and non-elective activity to discourage growth in emergency activity. We understand the reasoning behind this proposal, but would be interested to know whether any work has been undertaken which supports this argument.

We believe that it is important that the reforms do not have a detrimental effect on the quality of patient care. A 2% reduction in income is likely to have a significant impact on the quality of services being provided by NHS Trusts.

The additional cost of non-elective procedures probably comes from maintaining the capacity to operate out of hours. A single tariff will give a competitive advantage to those Trusts without A&E departments which do not maintain a 24-hour cover service. It is important that the scheme minimises the incidence of such advantages.

The proposed single tariff does, however, have its attractions as set out in paragraph 2.15 of the consultation document. It will also be simpler to maintain a single tariff and to operate the algorithm for the pricing system.

Consideration should be given to including the cost of maintaining out-of-hours cover in the A&E charge, or to extending the range of Healthcare Resource Groups (HRGs) so that they differentiate between elective and non-elective admissions.

Question 2. Should there be an adjustment to the national tariff for inpatient activity with very long lengths of stay, and on what basis should the adjustment be made?

We believe that now may be a good time to revise the definition of very long stays. It may be preferable to base this on the standard deviation of the average length of stay rather than on a fixed point.

Very long length stays may be due to: discharges delayed by social services; discharges delayed for health reasons; hospital-acquired infections (HAIs); and severe illness of patients who may or may not be covered by consortia arrangements

We believe that each of these cases should be considered separately when deciding whether an adjustment should be made to the national tariff.

For delayed discharge for health and social services reasons, we believe there should be no adjustment to the national tariff. If social services cause the delay then they should reimburse the NHS Trust, and if local community services are not in place to support patient discharge then the patient�s PCT should reimburse the NHS Trust.

For patients with hospital-acquired infections, there should be no adjustment to the national tariff. HAIs generally demonstrate a failure of the hospital�s infection control processes and therefore PCTs should not be expected to pick up the cost.

For patients who are severely ill, for example bone marrow transplant (BMT) patients, the costs will be covered by specialist consortia arrangements and so there should be no need to adjust national tariffs for these patients.

It is only for patients who are severely ill and who fall outside consortia arrangements that we consider that there may be a case for adjusting the national tariff. Without knowing the number of patients involved and the potential cost to NHS Trusts it is difficult for ACCA to give a view on this case.

Question 3. Should there be an adjustment to the national tariff for inpatient activity with very short lengths of stay, and on what basis should the adjustment be made?

We believe that the national tariff should be set according to the length of stay recommended by �best practice� guidelines but also consider that there is a need to build in the potential for local flexibility to allow for variable patterns of service delivery. For example, rehabilitation may be provided in the community or by the local hospital and the tariff must be flexible enough to deal with both scenarios.

ACCA is also concerned that, were the tariff to be adjusted nationally for shorter lengths of stay, this would stifle local innovation. In the short term, service reconfiguration often results in increased costs. Therefore, a lower tariff would act as a disincentive to NHS Trusts that wanted to introduce new, quicker ways of treating patients which would improve the patient�s experience in hospital.

A national tariff based on costs should, by definition, reflect length of stay and changes due to innovation will be reflected in the tariff over time.

Question 4. Should there be an adjustment to the national tariff for patients with significantly more complex needs (i.e. specialised services), and how should this be applied?

At present there does not appear to be a clear definition of which services should be classed as specialised. As a result, it is unclear how a complexity payment could be introduced that would be satisfactory to all parties and would work in all circumstances. Would there be a need to give a graduated complexity payment to Trusts that offer services not routinely available at a �standard� district general hospital (DGH)? This would address only �specialised services�, however, and not necessarily those patients whose cases are complex and attract higher costs owing to a combination of pathologies.

How will the HRG grouper cope with multiple pathologies, e.g. general surgical patients who also require plastic surgery? The way that the grouper chooses the appropriate HRG for charging needs to be given careful thought and testing. Consideration should be given to creating new tariffs for multiple pathologies as an alternative to complexity charges. So, for example, if a trauma patient is admitted following an accident there may well be a mixture of episodes: orthopaedics, cardiothoracic, renal, plastic surgery etc. Should this be different spells, or a new HRG, or dealt with under the complexity score?

We believe that there is a need for an adjustment to be made to the national tariff for patients with complex needs but that this would be difficult to achieve using HRGs for specialist services.

We recommend that, rather than adjusting the tariff for specialised services, consideration be given to adjusting the tariff for high-cost services. This would help ensure that all necessary support is available to providers of high cost services, whether or not these services are considered to be specialised. Work would be required to define �high-cost services� but this should be less difficult than producing a definitive list of specialised services.

Question 5. Does the tariff setting approach include sufficient mechanisms to ensure that new technology is adequately funded. If further mechanisms are needed, do you agree that these should only be used where the technology is demonstrably cost effective and will have a material impact on provider costs?

We are concerned that the proposed methodologies for adjusting the tariff to fund new technology will not adequately support increased uptake of new technology and consider that further mechanisms are needed to ensure that all organisations continue to invest in new technologies.

Paragraph 2.29 of the consultation document states that the tariff will be subject to an annual uplift to reflect the aggregate cost of new medical technology. This suggests that all NHS Trusts will automatically receive the uplift, whether or not they have invested in new technology. This approach ignores the �pump-priming� costs that are often associated with new technology and may act as a disincentive to new investment. It is also unclear whether there would be local (PCT) discretion to withhold or vary this element of the uplift from (a) providers who do not intend investing in the new technology or (b) providers where investment is legitimately inappropriate or at negligible cost.

We believe that the national tariff should be used to improve the quality of patient care. Therefore, if further mechanisms are introduced for adjusting the tariff to fund new technologies then these should be based on clinical effectiveness rather than cost effectiveness.

COMMISSIONING

Question 8. What further support is needed on how to contract for activity and move funds through SLAs?

In the past Regional Offices and Health Authorities employed teams of information specialists who helped commissioners make sense of the activity information received from Trusts. The reorganisation of the NHS has meant, however, that this expertise has now been dispersed across many organisations and there are now large gaps in knowledge in many localities.

We consider that the time may now be ripe for the NHS to consider investing in a national coding system and a national qualification for clinical coders.

This would help raise the profile of clinical coders and emphasise the importance of their role and the information that they produce. It would encourage professionalism, decrease inconsistencies in coding and reduce the volume of activity which is not coded to a specific procedure.

A second area of concern is the lack of an Information and Communications Technology (ICT) infrastructure to support the commissioning process. If payment by results is to work, then trusts and PCTs must have fast access to reliable activity information which is converted to income and expenditure. Without this information, trusts will be unable to calculate what income is due to them and PCTs will be unable to monitor spending. Experience from 2003/04 has demonstrated that conversion of HRG data into financial information is both slow and difficult.

At present the clearNET system receives hospital information and sorts it for commissioners. ClearNET has no functionality to add tariffs, however, particularly tariffs which will be different for each provider because of the Market Forces Factor (MFF) and possibly further complicated by complexity payments, additional length of stay, etc. We believe that there is an urgent need for the development of a comprehensive commissioning system to support the payment by results process.

Question 9. What are the problems with monitoring by weighted FCEs in-year?

Although NHS Trusts will continue to monitor in-house activity using Finished Consultant Episodes (FCEs), for internal management purposes, we consider that it may be better for PCTs to monitor activity on the basis of spells rather than FCEs.

This would simplify monitoring arrangements as the national tariff will be based on spells and would enable monitoring of both consultant-led and non-consultant-led activity e.g. nurse-led clinics.

Question 10. We would welcome feedback on developing the casemix tool to allow it to convert FCE based monitoring information into weighted FCEs.

ACCA believes that the casemix tool should be developed to convert FCEs to spells rather than weighted FCEs.

Question 11. What additional issues for the SLA are raised by policies on choice at 6 months from summer 2004 and choice at the point of referral from December 2005?

This is a difficult question to answer in the current climate of uncertainty. We believe that the risks in the introduction of the financial reforms are compounded by the introduction of patient choice at the same time as the financial flows reforms. In addition, for choice to be effective, spare capacity is needed which is not currently available in the NHS.

NHS organisations are only just starting to identify the likely impact of choice. They will need to ensure that there is a sufficient degree of flexibility built into Service Level Agreements (SLAs) from April 2004 to allow them to implement choice for six-month waiters from summer 2004. They then need to develop even more sophisticated SLAs for 2005/06 to enable choice at GP referral from December 2005. This will require local planning but there is no evidence to suggest this preparatory work is taking place.

Question12. Would it make sense to extend risk pooling to include activity currently covered in small volume SLAs?
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Question 13. Or does this work best under local arrangements e.g. via a lead PCT?

Although it may be prudent to extend risk pooling to services where volumes are small, we believe that this decision should be taken locally rather than being dictated by the centre.

Question 14. What can we do to encourage / support this?

Managing risk is the responsibility of PCTs. There should be no need for the centre to encourage or support processes for risk management.

There is, however, a continued need for an efficient and effective independent arbitration process. We believe this role should be undertaken by the Strategic Health Authorities

Question 15. Would it be helpful to have national guidelines on tolerances and funding adjustments?

Decisions around funding adjustments and tolerance levels should be left to local discretion.

Question 16. What support would be helpful in allowing you to handle risk as payment by results extends to cover most activity?

It is important that the transitional arrangements are unambiguous and that an independent arbitration service is established to resolve disputes quickly.

It would be helpful if the solutions to common issues could be shared via the FINMAN website.

Question 17. What are the key steps that would need to be taken to bring all providers of NHS services � public, private and not-for-profit � within the same overall financial framework of payment by results?

It would be helpful if a standard template could be developed detailing the monitoring information that each provider organisation is required to provide to purchasers.

This would standardise the monitoring process, making the information exchange easier for both purchasers and providers.

Question 18. Over what period might it be possible to bring these services and providers within the framework of national tariffs?

All services and providers should be required to adopt the national tariff from the point of time that it covers all aspects of care.

Question 19. What are the likely obstacles and risks?

The complexity of the reform agenda, particularly the possible impact of patient choice, means there is too much uncertainty in the system to forecast future obstacles and risks.

It is important, however, that organisations in the independent sector are aware of the possible implications of patient choice and that they agree flexible SLAs that tolerate fluctuating patient numbers.

Question 20. Do you support the preferred option of replacement of OATs by a system of non-contract treatments, with risk sharing for PCTs based on historical levels of activity outside SLAs, established at SHA level (option 3)?

We believe that Option 2 is the preferred option for managing activity outside SLAs, but there will need to be clarification on how this will fit with choice.

There appears to be an assumption that the NCTs will be at the current OATs level or lower, however patient choice may increase the level of referrals outside contracts (e.g. a commonly cited example is the ability to choose a place of treatment close to family).

Wherever possible, the payment should be made at the national tariff; however the consultation document covers only 60% of hospital activity. Many of the more distant OATs� referrals are for specialist treatments, therefore it is probable that a significant proportion of OATs will be in the 40% of activity outside payment by results. Should trusts be able to set their own tariffs for this work?

Question 21. Or are there circumstances when a system of �non-contract treatments� (NCTs) for activity outside SLAs with payment at national tariff rather than local cost (option 2) might work better?

This is our preferred option. Wherever possible, all payments should be made at the national tariff.

Question 22. Do you agree with the proposal to develop a national system based on existing datasets to minimise transaction costs associated with both data collection and payment processes for activity outside SLAs?

ACCA agrees with this proposal. A national system would benefit the NHS by encouraging more consistent data collection, minimising transaction costs, and reducing the amount of uncoded activity.

TRANSITION

Question 23. Do you think that the underlying principles for transition are appropriate? Would you want to add any others to this list?

These changes present significant challenges especially in managing the 60�70 trusts whose average costs are more than 9% above the national average. The consultation paper has surprisingly little to say on how this will be achieved. In addition, we are concerned that little attention has been give to this issue, as indicated by the number of errors in the graphic on page 31 of the consultation paper.

The consultation paper proposes that those trusts with costs within 9% of the national average will be given a transition period of three years to adjust their costs. For some of these trusts this will be difficult to achieve without significant additional investment. The consultation paper does not indicate how this will be funded.

It is important that the financial transition stage is carefully managed: it should not just move money around the system. The transition stage must be implemented as quickly and consistently as possible.

Some organisations will be severely disadvantaged by financial flows and this issue needs to be properly addressed. What support will be available for these Trusts?

Will there be transitional funding to support the transition stage?

What will happen to Trusts which enter the transition stage at a later date, e.g. Mental Health Trusts? Will they be disadvantaged in any way?

Question 24. Is it reasonable to use reference costs as a proxy for local prices when setting the starting point for the transition process for NHS providers?

Reference costs are the only tool available; therefore there is no choice but to use them.

Question 25. Would you prefer the top down or bottom up approach to setting the starting point for NHS provider transition?

We would prefer the latter, bottom up, approach, as this would encourage local ownership. If the former approach were adopted then NHS organisations would need to reconcile their 2003/04 reference costs to their 2004/05 SLAs: a task which may prove difficult.

The transition process will have an impact on the workload of NHS organisations whichever option is chosen, as the majority will still undertake both a top down and a bottom up analysis to enable them to get a real feeling for the impact on their organisation.

Question 26. Do you think that a 3% per annum efficiency gain is appropriate? What is the maximum level would you suggest that is achievable per annum during the transition process?

We do not agree that a 3% per annum efficiency gain is appropriate. Each organisation will have very different histories and 3% savings per annum may be unachievable. For example, if a Trust needs to implement a savings programme to achieve a total of 9% savings over three years, then the savings are unlikely to be realised in equal instalments of 3% per annum. In the earlier years there may even be increased costs (redundancies, etc.) rather than savings. Any savings may not be delivered until the third year.

Therefore the �maximum level� achievable will depend on the Trust involved and, although it may be possible to agree a figure locally, this should not be set nationally. It is also important to recognise that trusts may need support to undertake the investment necessary to enable them to achieve the national mean cost levels. Additional consideration will also be required of the management of trusts locked into long term costs, for example, PFI hospitals.

Question 27. Which option would you choose for mapping the provider impact to their commissioners?

We would prefer, the bottom up approach as this will ensure transparency and will be auditable.

The top down approach is inappropriate as it is based on the HES data which cover only inpatient and day case activity.

Question 28. For the purposes of mapping the provision of services to the commissioner of those services, is it reasonable to assume that community services are commissioned and provided by the same PCT?

No, it cannot be assumed that community services are always commissioned by and provided by the same PCT. In many localities hosting arrangements will be in place, with each PCT taking responsibility for providing different services.

It is also unlikely that each locality is using the same definition of �community services�.

TRUST FINANCE REGIME

Question 29. Have we correctly identified the implications of payment by results for the Trust Financial Regime? Are there other issues or possible options we should be exploring?

In addition to the issues identified in the consultation document, we believe consideration should be given to intellectual property, the fit of the reforms with Foundation Hospitals, and the introduction of International Accounting Standards.

COSTING

Question 31. What process should be developed to incorporate the costs of unallocated/unclassified activity into the long-term tariff.

We believe that the quality of coding needs to be significantly improved; the current volume of data which is classed as uncoded or unclassified is unacceptable.

Question 32. Would greater prescription in the treatment of costs be welcome?

We consider that the further development of financial flows should take precedence over increased prescription.

Question 34. Are there other steps that could be taken in the short and medium-term to standardise the costing methodology?

We consider that many of the inconsistencies in the reference cost data are due to poor coding rather than inconsistent costing methodologies. With increased investment in clinical coding, many of these inconsistencies would be reduced.

Question 35. Should we consider the development of a standard costing model?

Yes, this should be considered in the medium term. A standard costing model might have been easier to develop if care pathways had been adopted rather than HRGs.

Question 36. Should we formalise the audit / inspection regime for costing?

Reference costs are already audited so the meaning of this question is unclear. Depending on the definition of �formalise� however, we believe that this could be beneficial as it would focus attention on the reference cost exercise and would ensure reference costs were high on each organisation�s agenda.

Question 37. Should we consider alternatives to a full annual national Reference Costing collection exercise? If so, what?

We believe that the reference cost exercise should not be replaced. As organisations have now got systems in place to produce the annual returns it would seem most practical to build on this exercise rather than replace it.

MONITORING AND EVALUATION

Question 38. Are the proposed monitoring measures appropriate and comprehensive?

The NHS reforms programme has created capacity problems across all NHS organisations.

We are concerned that in some areas of the country Strategic Health Authorities do not appear to have the capacity to monitor or assist the progress of implementation. As a minimum we would expect Strategic Health Authorities to have in place a dedicated resource to support the roll-out of payment by results.

Question 39. Are there any other measures that would be appropriate?

The consultation document, perhaps necessarily, takes a short term view. We believe that is also important to consider the longer-term impact of these changes.

Question 40. At what point in the year should monitoring be undertaken?

The monitoring timetable is likely to vary depending on which aspect of the programme is being monitored and it will also need to take account of Foundation Hospitals. The timetable should be staggered so that it fits with the existing timetable for collecting financial information.

We do believe that regular monitoring will be essential and that it should take place no less frequently than four times a year.

 

Other Issues

There are a number of other issues which ACCA believe need consideration including the following.

1. Move to spells

We generally agree with the move to spells as the currency for payment by results as there are clear differences between the ways in which Trusts count Finished Consultant Episodes (FCEs) and, although these have not been significant in the past, there cannot be a move to a standard price without consistency over the use of currency.

We are concerned that the shift to spells may disadvantage tertiary centres where there are higher ratios of FCEs to spells, possibly owing to multiple pathologies and the fact that generalists will internally transfer to specialists, which cannot happen so often in a secondary centre.

We are also concerned that specialist centres may be penalised by the introduction of spells. The observed effect of specialist centres having longer stays could be amplified when spells are introduced because of patients with multiple pathologies being transferred internally.

2. Coverage

Further clarity is needed concerning which services will be covered by payment by results.

Figure 1 in the consultation document suggests that only 60% of �hospital� income will be covered by payment by results, but it is not clear what is meant by �hospital� in this context. In addition, no explanation is provided for the reduction in scope from 90% to 60% of hospital income.

It would be helpful to know whether the 40% of care not covered by payment by results will include the acute care which is not currently covered by HRGs, such as specialist commissioning and cancer services.

3. Tariff structure

The consultation document refers to the use of average costs to set prices. The reason for this is clear and understood: there needs to be neutrality during the transition. We would, however, wish to see some assurance that there would be a gradual shift to a standard price based on best practice.

Average costs encourage average quality and they may give hospitals that operate services below acceptable standards a financial advantage. Standard prices would encourage improved quality of patient care and are likely to be more acceptable to clinicians.

4. Service redesign

Although it was good to see that payment by results should support moves towards commissioning by care pathway and changing the setting in which care is provided, we are concerned that this will not be achieved.

The main problem is that creating a tariff around the HRG spell would put a barrier around this element of the care pathway and make it difficult to break it down further and to introduce new ways of working. For example, if a PCT wants to develop a GP with a specialist interest in diabetes, payment by results will encourage this as the spending on outpatients can shift from the secondary provider to the GP. If, however, a hospital wishes to introduce a system where patients are sent home sooner after surgery to receive GP-led rehabilitation with support from community therapists, there is no incentive for the PCT to support this as they will still have to pay the hospital the same price for a spell.

Service redesign will be encouraged only when there is an incentive to shift whole bundles of care (i.e. spells and outpatients) from one setting to another; but there is now a disincentive to redesign when it breaks up the elements which traditionally go into a spell, or creates two spells where there has traditionally been one.

5. Market forces factor

Those engaged in the additional work of looking into the application of the MFF may like to consider the implications of the way in which trusts are diversifying. Many trusts are now providing their services on multiple sites over a wide patch with widely different MFFs. Should the service at each site have a different tariff? Although this makes sense, the practicalities could make it very difficult.

6. Outpatients

We feel that greater consideration needs to be given to payment for patients with chronic conditions. The emphasis in the document on mental health services, with no consideration given to other chronic conditions, would seem to be rather short-sighted. Patients with diabetes, HIV/AIDS, sickle cell anaemia, etc. are likely to visit outpatient departments numerous times. A tariff structure needs to be developed to reflect this, possibly based on costs of care packages rather than a charge for every outpatient attendance.

There also needs to be a tariff structure which encourages the development of GPs with specialist interests but recognises the cost differentials, positive and negative. GPSIs will still need to purchase diagnostic tests from the local secondary care supplier and the tariff needs to take this into account. Should the GPs be paid the same outpatient tariff as the hospital so that they can then purchase the diagnostic test from the hospital, or should there be a different tariff?

7. Critical care

The proposed method of funding critical care in paragraph 2.11 of the consultation document tends to favour commissioners. It is probable that providers will favour a system of cost per day as is currently operated at UCLH, for example. Anything else pushes risks onto the provider.

It is likely to be difficult to get a standard tariff which works, as lengths of stay are so different, even for patients with similar diagnoses. One problem could be death rates, as the shortest lengths of stay are for the patients who die. This may lead to hospitals with a poor survival rate being financially advantaged.

Is the proposed methodology for funding critical care consistent with the spells methodology? Surely any patient who is in critical care will have a step-down spell in a regular bed. Does this mean that there is a charge for the spell and a charge for the critical care stay?

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