NHS Review (February 2005) - Payment by Results

Payment by Results (continued)

At the moment, far-reaching changes are being implemented to the way that money flows through the NHS between commissioners and providers in England. Payment by Results (PbR) is actually quite difficult to 'get one's head around' but it is important for both primary and secondary care sales teams to do so as by 2008, it will be the main way of working across the whole of the NHS. The changes are being implemented gradually over five years to 2008. Now although PCTs will continue to commission the volume of activity they require for their populations, instead of drawing up block agreements with NHS Trusts as previously, the Trusts and other providers will be paid for the activity they undertake. NHS Trusts will lose money for failing to deliver on the agreed volumes commissioned. However they will earn extra money for treating additional patients. One of the key issues thus here is that the new system may actually draw patients into hospitals at a time when other new policies are being put in place around the better treatment of patients with chronic disease in the community to try and keep these patients out of hospital!

One essential feature of PbR is that in the new system a national tariff of fixed prices will remove price negotiation (costs) from local negotiations, so that commissioners will be able to focus on gains in patient choice, quality, shorter waiting time, volumes of activity and efficiency. Reforming financial flows in this way is one of the most significant changes in the way that the NHS operates.

Historically, health authorities (and subsequently PCGs and PCTs) commissioned health services from acute trust providers on a cost-contracting basis. The basis for the contracts varied from cost-per-case, cost/volume to block contracts (not linked to the number of cases treated) where in the latter case the NHS trusts provided services that were commissioned until the money ran out. The prime focus was price, with the health authority trying to get as many patients through the system at the cheapest cost. Price often ended up having little to do with the real cost of service delivery and occasionally massive discrepancies between trusts occurred, some only a few miles apart. As a result, the commissioning process was often adversarial, money-focused and rigid. It was certainly not geared towards delivering service change in an environment as technologically fast moving as the health service. The new system is now entirely focused on a cost-per-case basis.

The main aims of PbR are set out as:

- to support patient choice and encourage hospitals to respond to patient preferences
- to encourage commissioners to provide effective care in the most appropriate settings
- to reward hospitals for the work they do (efficiency)
- to increase transparency of hospital funding
- to impose a sharper budget discipline on hospitals

The key benefits to PCTs are seen as:

- easier to shift funds around -
PCTs that reduce hospital admissions can release funds.
- casemix is taken into account in purchasing
- discussions focus on quality and quantity rather than negotiation skills on price or

The key benefits to Acute Trusts are seen as:

- reflects workload and productivity more
- rewards delivery of NHS targets - more equitable
- planning becomes more sensible and certain
- casemix is taken into account
- discussions focus on quality and quantity rather than negotiation skills on price or budget

The critical elements of the new system are:

Healthcare Resource Groups (HRGs). A tool for classifying patient activity according to casemix and resources used.

- Reference Costs. The costs of each HRG in each trust. Providers allocate their costs to each HRG according to a national reference costs manual.

National Tariff. The national price for each HRG for each patient 'spell' in hospital.

Cost and volume contracts. These will reflect the actual work done

But there are significant risks in the introduction of this new system:

- PCTs will be committed to pay for all work done at full costs but with uncertain demand. There are clear parallels here to prescribing expenditure but which still only represents some 15% of PCT expenditure. Secondary care accounts for over 50% of PCT expenditure.

- Trusts too will face risks and costs will need to be kept within tariff income. Accurately forecasting income will be important. Those trusts whose costs are above the national tariff will need rigorous cost improvement programmes. The tariff may also not fairly meet the costs of some more specialised work. The experience of Bradford NHS Foundation Trust is salutary here….!

- Highly accurate data will be essential. Patient activity needs to be properly recorded to ensure that PCTs are fairly charged for the work done. Costs must be accurately allocated as not all activity will be covered by the tariff and skilled clinical coders will be required here.

So 2005/6 marks yet another (financial) year of radical healthcare reform as the PbR scheme begins to be implemented. As said, the whole system is based on the use of HRGs as descriptors of casemix for specific medical and surgical treatments. A national price tariff will be applied to each HRG. HRGs classify patients into clinically similar groups requiring similar levels of resources for diagnosis, treatment and care and are supposed to reflect the complexity and cost of producing that care. Currently there are around 500 HRGs in the NHS but even that number may not be enough to adequately 'carve' up all health interventions. The timetable for implementing PbR is a challenging one. Through 2003-4 several PCT pilots introduced some cost and volume service level agreements, using 15 HRGs with 48 HRGs used in 2004/5. For 2005/6, all Acute Trusts come on board but the new payment basis only applies to a proportion of hospital activity in non-Foundation hospitals. For Foundation Trusts all work commissioned by PCTs is in the new system. GP Practice-based commissioning (PBC) of acute care will also use PbR and PBC will be covered in the next issue of NHS Review.

So what does all this mean?

So PbR is yet one more very 'hot' topic for companies to work their way through. It is a complicated area and clearly there is a lot of new jargon here to penetrate. We have only just scratched the surface here. But there are considerable implications probably to work through by companies. What will it all mean, for instance, for each of your particular therapy areas? What about new 'expensive' drugs being launched this year? Will they be excluded from the system or not. If included in an HRG this would 'blow' the costs and as a result hospital may not want to use the product…. Acute Trust finance directors/managers will be in the thick of things here and could be well worth talking to.... One guesses that they are not normally amongst the hospital customers of either hospital representatives or local Healthcare Development Managers. The importance of clinical coders has been mentioned. These and other Acute Trust information specialists may also useful to make contact with. Also Acute Trusts running the new system will be much more interested in marketing their services to their local population. There could be a major opportunity here to provide some kind of assistance. And finally, please note that the new Financial Flows system is still a bit 'mysterious' even to the local NHS. …… One medical director has described PbR as 'dumbfoundingly complicated to understand'…. Knowledge of PbR would thus add credibility when talking to clinicians about the scheme.

Some other areas of interest this month
As well as a main feature each month, we will also be picking up on a few other areas for you.

Moving the NHS Furniture

Now that the General Election is out of the way, do expect shortly another period of major NHS furniture movement. Sir Nigel Crisp said earlier this year that the future shape of the NHS would fewer PCTs and SHAs and that 'form needs to follow function'. So the number of SHAs is expected to fall from 28 to 9 in line with Regional Government offices. Certainly the shelf life on the 'intermediate tier' does seem to be about 5 years before they metamorphose into something else… And like the SHAs, reconfiguration of PCTs now looks inevitable too. It is very much back to the future as the NHS pendulum seems set to swing back to 2002 when Health Authorities were abolished… As regards numbers of PCTs, most people seem to be predicting 100-200 PCTs in three years time and perhaps this needs to be planned for - a smaller number of PCTs and more strategic… But some parts of the country will no doubt move faster than others so it will be important for local teams to have their NHS 'antennae' raised. Note that a recent report published by the NHS Alliance looked at a range of PCT configurations including established joint management arrangements through to the more recent associations of PCTs like that in Greater Manchester, as well as joint commissioning and lead commissioning structures. The report was conducted in conjunction with the Birmingham Health Services Management Centre and came out strongly against mergers as a way forward but this is now bound to happen…….. Oh dear that might mean more internal company reorganisation possibly!!... Options in PCT Reconfiguration is available at www.hsmc.bham.ac.uk.

nGMS QOF

The BMA and NHS Employers have announced the start of their review of the nGMS Quality and Outcomes Framework (QOF). It will result in recommendations as to what could be included in a revised QOF from April 2006. The general view so far is that nGMS (including the QOF) is proving to be successful in delivering improved patient care across the UK. And although folk will of course be familiar with GPwSIs - now prepare yourself for Practice Managers with a Special Interest. A new publication looks at how these new 'animals' can contribute to the development of services across primary care communities. See Implementing a scheme for practice managers with special interests. PMs of course have a fundamental role in running nGMS for their practices.

Pharmacy

As folk will know, the new community pharmacy contract came into effect in April. Pharmacies have until 1 October 2005 to ensure that they provide the essential range of services under the new contractual framework. See Community Pharmacy Contractual Framework. The National Pharmaceutical Association (NPA) has produced an implementation toolkit as a resource for PCOs regarding their role in supporting the new pharmacy contract. The New Community Pharmacy Contract in England Implementation Toolkit is available at www.npa.co.uk.

The DH has published new guidance to help develop the role of consultant pharmacists. Guidance for the Development of the Consultant Pharmacist Post is at Link. Note please that it is envisaged that such roles will exist in PCTs too, not just hospitals….. The competency framework is important to look at in the document. The document Vision for Pharmacy did suggest, "Consultant Pharmacists should be well placed to influence the use of medicines across the wider health community".....

Choosing health through pharmacy has been published. The strategy sets out the contribution that pharmacy can make to delivering the Government's White Paper Choosing health. In addition, it describes what pharmaceutical public health might look like in 2015.

The HSC Report

And last but not least, the Health Select Committee published their report last month following their inquiry into the influence of the pharmaceutical industry. The report had massive coverage and is a document that folk should carefully examine…… Committee Chair David Hinchliffe said, "We have developed an over-reliance on medicines. They have been over-prescribed and patients have suffered as a result. Like any industry, drug companies need effective discipline and regulation, and these have been lacking."

So what is actually in this 126-page document? Well it is very wide-ranging and its general review of the industry and how it works is worth the read in itself. But there are some stark conclusions and as expected it is highly critical. There is a lot of criticism of marketing. The Committee suggests that 'intensive marketing, which encourages the inappropriate prescribing of drugs' must be curbed…. It recommends that limits be set as to the quantity of material prescribers receive, particularly in the first six months after launch, as it believes that less experienced and non-specialist doctors are ill-equipped to cope effectively with this promotional material. Also 'stricter controls are needed in respect of drug company representative' promotion of their products to junior doctors and to nurses or pharmacists with new prescribing powers.' The Nursing Times, in their editorial (12/4/05), picked up particularly on the report's suggestion that nurses should be compelled to declare any gifts or hospitality they receive and that the RCN is too close to the Industry. "The warning about aggressive promotion to new prescribers is salient, especially in light of recent government proposals to extend the whole of the BNF to specialist nurses…..As nurses become increasingly targeted by drug company reps, they will need to develop a more sceptical skin and only source independent data - such as up-to-date, peer reviewed, randomised controlled trials - to support their prescribing decisions." Although the report recognises that the Industry has 'improved many people's quality of life and the length of time spent in hospital and saved many lives,' the report says that the Industry has become dominated by 'marketing forces' rather than science.

There is also lot and lots of criticism of the current regulatory system. The report suggests that the MHRA has failed to provide 'the discipline and leadership that this powerful industry needs.' The report in fact strongly suggests that there has been a major failing in the regulatory system, with the MHRA being focussed on bringing new drugs to market too fast, but that this is 'insufficiently qualified by considerations of relative merit or value, or therapeutic need.' The HSC recommends an independent review of the body, as well as greater independence from both the government and Industry and says that the MHRA should more closely monitor newly-approved drugs and recommends it is given the same authority to propose restrictions on drug use as it has when approving drugs. In addition, the HSC urges more transparency in the clinical trials process, and recommends that the MHRA work with the pharmaceutical industry and outside experts to design clinical trials that establish the 'real' therapeutic value of new medicines using measures that are relevant to both patients and public health. NICE should also be involved in this process to provide advice on the type of data more likely to lead to the drug being included in NICE guidance.

In response to the report the ABPI slammed what it termed 'a number of fundamental misconceptions' within the committee's report. ABPI Director General Dr Richard Barker said that while the HSC had put forward a number of constructive proposals, any moves to limit the promotion of drugs would be a step backwards. Health minister Lord Warner said the government would consider the proposals and respond 'in due course'. For more information please see www.publications.parliament.uk/pa/cm/cmhealth.htm.

As said, there was a lot of media coverage, some exposing the baggage on the industry that there is out there. So note that an editorial in the BMJ said, "The 'noble end' of producing 'life-enhancing medicines' is tainted by an industry that buys influence over doctors, charities, patient groups, journalists and politicians…"… See http://bmj.bmjjournals.com/cgi/content/full/330/7496/855. And in a BMJ Editor's Choice article 'Say no to the free lunch', the editor of the BMJ concludes, "When the drug reps call for a chat, or offers to throw a sponsored lunch, make sure you are armed with cynicism, or information, or both. Better still - however seductive they are, just say no".

There is no doubt that the HSC report represents a bit of a watershed and a 'tipping point' for the Industry. In some 25 years in this sector I cannot remember such a hostile environment. Needed is possibly some major pro-active rebranding of corporate Pharma, but not the usual reactive and defensive type response. The battle may have been lost but the Industry cannot afford to lose the war.