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Commissioning for Health Improvement

Author: Dr Brian Fisher

The NHS is pulled apart by the financial incentives that drive it. Payment by Results ensures that money pours into hospitals and limits constraint and control in the system. Primary care aims to keep people out of hospital, but the hospital itself wants to suck people in because that increases its income. This creates a fractured dialogue that undermines integrated care. This paper outlines an alternative approach that is likely to improve integration and better align incentives to improve relationships and care and which is being piloted in Lewisham.

Damaging Tariffs

A tariff system can create a confrontational relationship between sectors - particularly between primary and secondary care. This can create inefficiencies and the risk of fragmentation. Too often, the patient is at the centre of a tug of war between primary and secondary care instead of at the centre of planning their own care.

The current Payment by Results (PBR) system based on a nationally set tariff ensures that patient activity in hospital based care remains the dominant mechanism for financial reward in NHS secondary care... Rather than providing incentives for Acute and Foundation Trusts to collaborate with PCTs... PBR mechanisms discourage co-operation and can even result in inappropriate competition (or at least adversarialism) across the health care system.

The NHS Confederation, in its discussion paper in June 2009 Commissioning in a Cold Climate suggested that “A system based on payment for discrete units of activity will never create the right incentives for providers to help make care pathways (or the sum of multiple pathways) more efficient and less costly.” They also recommended that the system be redesigned to “encourage efficiency along whole care pathways rather than cost-shifting and encouraging supplier-induced demand.”

We need to rearrange incentives to ensure that they encourage NHS organisations to cooperate and ensure that there are rewards for both quality and efficiency.

This can be achieved through Programme Budgeting:

Programme Budgeting (PB) is a retrospective appraisal of resource allocation broken down into “programmes” with a view to influencing and tracking future expenditure in those programmes.

Instead of seeing investment on the level of a hospital or drug budget, the focus switches to specific health objectives such as reducing the incidence of type II diabetes, reducing death rates from heart disease, improving indicators of child health, reducing the burden on family carers of patients with senile dementia, and so on. The ultimate aim is to maximise health gain by deploying the available resources to best effect.

PB helps answer three basic questions:

  1. Where has all the money gone?
  2. What do we get for our money?
  3. Is there a better way to deliver?

Collaborative Commissioning

Joint (not pooled) budgets are allocated virtually across primary and secondary care. These would be along care pathways, based on a programme budget approach. The task of the consortium and local people and hospitals then becomes to manage that joint budget so that it maximises efficiencies and patient care. The incentive for everyone is that savings can be reinvested in the pathway, or elsewhere, as agreed. In particular, the hospital will gain by shifts to the community particularly if it is in charge of community services,.

Pooling budgets has huge opportunity and transaction costs and may not deliver results. Joint budgets are more likely to enable agreement and functional outcomes without the complexities of a more formal merger.

A calculation of a joint budget in, say, diabetes, would need to include:

  • Hospital costs
  • Community costs linked to diabetes
  • Social care and other health costs
  • Primary care costs linked to diabetes
  • Downstream costs – for instance amputations, costs of retinopathy.

Pathway Commissioning

It is important that clinicians and patients worked together to come up with the best solutions. The consortium’s role therefore would be:

  • To set the parameters and outcomes and quality. [For instance, we would expect a reduction in attendances at A+E, a reduction in admissions from A+E, an increase in patients reporting they had received good quality information and were treated with dignity. How this is achieved would be up to the diabetic panel.]
  • Not to pay for poor outcomes – these would be specified in advance eg amputations, retinopathy.
  • To insist on appropriate data – Patient Level Information and Costing Systems
  • To ensure patient and public involvement
  • To include pharmacy
  • To describe the funding envelope
  • To reduce the funding envelope by 2% in the first year and again by 2% in the next.
  • To project manage the process
  • There may need to be risk management, both financial and practical

For instance, in diabetes:

The spend would be seen as belonging to both consortium and hospital and maybe also social care. If savings were made through more efficient care pathway design, then the savings would be shared. If fewer patients came through the hospital’s doors, the hospital would still gain if savings were being made. It would become a joint task to ensure patients received treatment in the most cost-effective way. For many long-term conditions there are evidence-based interventions that reduce out-patient department and A&E attendance, including information-provision for self-care management and prevention. There would now be an incentive for hospitals to invest in these as well as primary care. There may be more enthusiasm for cooperation in A&E, as savings there would mean more joint benefit.

In this way, incentives for efficient care are retained, but the planning and investment becomes a shared enterprise. We predict that NHS staff will leap at this chance to work together again in a shared enterprise.

A&E and urgent care may be another area that is suitable for this kind of approach.

Patient and public involvement

It is essential that these reprogammed pathways are co-produced with local people, particularly those with the conditions the pathway is designed to respond to. We would expect that the Programme Budget teams would include some or all of the following:

  • Local people 
  • Representatives of the local authority
  • Members of the Foundation Trust if appropriate
  • Members of the consortium 
  • Community development workers involved with the relevant groups
  • National or local patient groups relevant to the pathway

There will of course be complexities to deal with:

  • Dealing with more than one hospital
  • Funding reductions in some areas – many disciplines in the hospital will still need to bite the bullet of losing services to the community
  • Including social care and local authority services
  • Ensuring a balance between the consortium overseeing the process but not determining the outcome.

The tariff system assumes that what is paid for is what is needed. Any incentives for efficiency rely upon the tariff recipient to be able to engineer all the necessary changes 'insider their own walls'. It is unlikely that significant efficiencies in health can be achieved by such a limited and conservative system.


The publisher is The Centre for Welfare Reform.

Commissioning for Health Improvement © Brian Fisher 2011.

All Rights Reserved. No part of this paper may be reproduced in any form without permission from the publisher except for the quotation of brief passages in reviews.