top stories

Comments from ACCA
November 2002

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 and guidance document Reforming NHS Financial Flows (the document). These comments have been developed with our Public Sector Technical Issues Committee, a group of experienced accountants who work in the public sector.

The document sets out how 'fundamental changes to the way that funds flow through the NHS' are to be achieved by the introduction of payment by results over the next 5 years to the end of 2007/08. This is an ambitious project with major implications on how NHS care is commissioned and on the role of Primary Care Trusts (PCTs). 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 improve patient choice. The reforms are also consistent with the proposals in the following ACCA publications on care pathways:

• Managing Care Pathways - the quality and resources of hospital care
• New Commissioning - applying integrated care pathways
  and
• Integrated Care Pathways - a symposium.

ACCA's joint workshop and project with the NHS Confederation highlighted the need to deal with financial and costing issues and link these developments to projects which enhance patient choice and the quality of health service provision. The major challenge will be on developing techniques which can combine these two objectives in the work of each health community. This is a demanding task and needs to be co-ordinated nationally. ACCA will be reporting on this with the NHS Confederation after our joint workshop to be held in February 2003.

The proposed approach includes the risk of significant variations of income if NHS trusts under or over achieve their plans. These variations will be higher than those under the previous internal market of trusts and GP fundholders. The transitional arrangements will be important. We are confident that accountants in the NHS can ensure that the proposals will succeed, as the fundamental principles are sound. The role of strategic health authorities will be critical to the successful management of the transition. ACCA's Health Panel will work with the Department of Health in resolving any technical accounting difficulties and in providing guidance to support the implementation

Throughout the transitional period, the benefits of the changes will be difficult to achieve as only parts of the NHS system are covered. There are many risks inherent with the change-over, and the concept of a national tariff, albeit adjusted for regional variations, is the main focus of concern. The advantage is that it reintroduces prices as the means of containing negotiations on service level agreements and controlling costs. Although the proposals will have lower transaction costs than the internal market, there is a need to restore much of the market infrastructure and renew technical expertise, both of which may have been eroded over the last few years.

Detailed Comments

Links to ACCA publications

1. ACCA welcomes the proposed reforms because they should enable the additional funding planned for the NHS over the period of the proposed reforms to be used in a cost effective manner and to improve patient choice. The proposed reforms are also consistent with our three publications on care pathways published over the last few years:
   • Managing Care Pathways - the quality and resources of hospital care
     
   • New Commissioning - applying integrated care pathways
     and
   • Integrated Care Pathways - a symposium.
     
     
2. These publications proposed that commissioning and costing should be built around care pathways for complete patient episodes with the associated care models and clinical networks. The publications have had some success in ensuring that care pathways have emerged as essential clinical and operational tools for the NHS. They also emphasise the importance of considering care pathways which straddle departments and organisations.
   
   
3. The consultation document is also consistent with the findings of our Health Panel's study tour of the Netherlands. Here, health reforms are moving to care pathways for whole patient episodes in their 'Diagnostic Treatment Combinations' (DTCs) project. They rely on classifications of patient care by treatment, diagnosis and rehabilitation unlike HRGs which exclude treatment and diagnosis.
   

   Time to develop suitable costing information

4. The document recognises the need to develop good service definitions for costing for community and mental health services and for primary care services. This point was raised in ACCA's report on reference costs.

5. The pace of transition needs to be challenging yet realistic. As the initiative develops there may be a need to review the timetable and this should be recognised now. For example, a move from Healthcare Related Groups (HRGs) to a costed care pathway, if agreed, would be a significant additional piece of work.
   
   ACCA's knowledge of European practices
   
   
6. Paragraph 3.7 of the document raises the need to move from HRG based costing to using 'standard costing of optimal practice' as a means of setting the tariff. This is very similar in concept to the DTCs system being introduced in the Netherlands. The use of care pathways and the use of benchmarking are vital to making the changes effective. Through its work within Europe, ACCA's Health Panel has collated a wealth of knowledge on the practical implications of the alternative systems used across Europe.
   
   Period allowed for public consultation
   
   
7. The Government's Code of Practice on Written Consultation (Cabinet Office, November 2000) states that 'Twelve weeks should be the standard minimum period for a consultation'. A consultation period of only four weeks was adopted for this document despite the fact that it 'sets out plans for fundamental changes to the way that funds flow through the NHS' (page 3).
   
   Are prices to be negotiated locally?
   
   
8. The introduction to the document states that there will be 'a nationally agreed set of prices' (page 3). The document then states that the proposals will aim 'to keep transaction costs down since there will be a fixed tariff and therefore no competition on price between providers' (page 15). The detailed sections of the document, however, provide a number of instances where price negotiation may be necessary, for example:
   • health communities will be ‘free to negotiate price’ for ‘packages of care that are strategically important locally’ (page 20)
   • PCTs will be able to develop bonus schemes or link development funds to providers who achieve above their targets (page 23)
   • there will be ‘some circumstances where it may be necessary to pay prices above tariff levels’ (page 24)
   • where a patient exercises their choice to be treated by a new provider, this ‘new provider will be paid an agreed rate for the additional work, the exact level of the payment to be determined’ (page 25)
     and
   • local health communities will ‘be free to determine the level of prices they use for the commissioning agreement and for payment for in-year variations in volume’ (page 38).
     
     
9. As a result, we are concerned that a number of the document's proposals may result in significantly increased transaction costs. The summary of the international experience of introducing casemix payment, included as Annex 2, does not review the costs of introducing such systems. Modelling and evaluation is needed on these forms before implementation of the reforms.
   

   Problems of money following patients rather than costs
   
   

10. There are a number of fundamental challenges associated with moving from the current system (where money essentially follows the costs of provision) to a system where providers are paid on the basis of the patients which they treat, for example:
    
    • providers with a high cost base will be financially penalised when, in at least some cases, they will require additional funding to be able to invest in appropriate cost saving improvements
    • high costs do not necessarily equate with inefficiency, at least in the sense of poor management of health facilities - they can arise from the existing capital base of the provider, the configuration of their facilities or from the provision of low quantity, locally specialist services
    • providers may be able to take advantage of the national pricing structure and only accept those patients whom it is financially advantageous for them to treat, this 'DRG creep' (page 28) is recognised in Annex 2, but the solution of 'regular audit of coding data' is not included in the document's proposals, except as an option for consideration in the longer term (page 36)
      and
    • investment plans may be upset by the effects of patient choice, which is to be routinely introduced by 2005, further work will be needed to establish the features of patient choice that can be influenced and how this will work.
      

    Reconciling conflicts within the proposed system
    

11. The system will be dependant on the development of the appropriate information communication technology (ICT), but it is proposed that the new system will be introduced before, or alongside, the development and introduction of such systems. The document makes almost no recognition of the need to develop such ICT systems beyond stating, in Annex 1, that the 'simultaneous development and implementation of the NHS IT strategy with new technologies like electronic patient record and booking systems will also reduce transaction costs' (page 26).
    
    
12. There is an inconsistency between introducing a system where patient choice is to be one of the key drivers and yet providers are not be paid on the basis of the individual patients treated. The claims in the document that transaction costs will be lower than with the internal market should be reconciled with the following summary of the proposals in Delivering the NHS Plan (April 2002) (page 20):
    
    • 'all providers will be contracted for a minimum volume of cases to achieve waiting time reductions
      
    • providers will lose money on a cost per case basis for failure to deliver
      
    • providers will earn extra resources on a cost per case basis for additional patients that move to them'.
      
      

13. The system will be financially more unstable as providers are to be paid or penalised at the 'full tariff price… (rather than marginal cost)' (page 20). This may lead to the situation where efficient providers accrue financial surpluses, and providers with a cost base which is higher than the tariff develop financial deficits. The document does not outline how these surpluses and deficits are to be managed, although it does recognise the 'key issue of concern to the NHS in using a standard tariff is the risk of financial instability for NHS Trusts and PCTs' (page 14). This should be addressed in further reports.
    

Back to top