DH Impact Analysis Risk Assessment

Material extracted from:
Health and Social Care Bill 2011: combined impact assessments
http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsLegislation/DH_123583

Page 12 Risk assessment

The key risks are:
– CCGs not having the capacity and capability to engage with and deliver clinical commissioning;
– Potential conflicts of interest between CCG members as providers and commissioners of patient care;
– Potential higher transaction costs as we change the number of organisations commissioning services
– The ability of CCGs to manage risk;
– The ability of GP to deliver the potential financial savings outlined above.

Direct impact on business (Equivalent Annual) £m): Costs: 0 Benefits: 0 Net: 0

Page 18 Risks of clinical commissioning

A78. Capacity and Capability. The greatest risk in terms of policy delivery is the capacity and capability of CCGs to deliver effective clinical commissioning, given the reduction in the resources available. This is increased by the fact that the scale of the policy change is both large, i.e. all GP practices must conform, and it is mandatory. Linked to this are the risks associated with the loss of corporate memory as the transition from the current 151 commissioning organisations to a larger number of CCGs.
Page 19

A87. Conflicts of Interest Whilst a CCG may commission a service from a provider in which a GP has an interest, where this would provide best value in terms of quality and cost, this can only be done following an open and fair procurement, and with the CCG ensuring it manages conflicts of interest. A framework will be developed that allows such commissioning of new services whilst guarding against real or perceived conflicts of interest. This will require transparency over how commissioning decisions are made, and the value of services commissioned from GP practices.

The legislation imposes various safeguards against anti-competitive behaviour. The strengthened governance arrangements described in paragraph A73 will help to manage the risk around conflicts of interest. Monitor will have powers to intervene when there has been a breach of regulations (made under clause 70) that require commissioners to adhere to good practice in relation to procurement, protect and promote the right of patients to make choices with respect to treatment and other health care services and not act in an anti-competitive manner.

Page 9 The extra costs of putting “entrepreneurial” GPs in charge of purchasing care on the previous occasion achieved cost savings that were outweighed by the extra administrative costs involved

A16. The overall evidence of the cost effectiveness evidence of GP fundholding is mixed. Whilst GP fundholders reported underspends in the order of £206 million in 2004/5, the Audit Commission estimated the transaction costs in the order of £230 million.3 4
Page 19

A88. High Transaction Costs The transaction costs of GP fundholding were very high and were a significant practical objection to the schemes.2 3 There is a view that excessive bureaucracy was created to ensure that there was no fraud with GPs. With the introduction of PbR (set price), electronic systems including choose and book, financial and clinical records should be more closely easily linked in any new system. This should dramatically reduce the burden associated with transaction costs.
Page 21 CCG will have fixed budgets

A97. Similarly, it is essential that there is independent financial accountability for CCGs. The White Paper proposed that the NHS Commissioning Board’s Accounting Officer will be accountable to the Department for the overall commissioning revenue limit. The intention is therefore that the NHS Commissioning Board in turn will hold the individual Accountable Officers of each CCG responsible for their share of the total funding allocation, and this will include the duty to achieve financial balance.

Page 12 GPs are to sell rationing to patients. Every patient to have a budget allocation

A35 Patients can have increased confidence that GPs will be acting as knowledgeable agents focusing on maximising the care they provide for their given allocation. Clinicians are better placed than managers to assess patients’ needs, and the changes will incentivise GPs to maintain and justify clinical thresholds. Therefore, demand management will be seen more favourably by patients and will be more effective.
Page 9 Evaluation of a pilot of this reform at GP level: some GPs are willing to ration care and send their patients to private hospitals to get waiting lists down, but the GP fundholding model was much more expensive to operate that the standard arrangement.

A15. The results of GP fundholding were mixed. The principal effects were presented in terms of GP fundholders compared to non-GP fundholders2:
• achieved shorter waits for their patients – primarily as a result of having fewer long (3 -12 month) waits;
• reduced their referral rates to hospitals;
• had smaller rises in prescribing costs;
• received more than an equitable share of resources;
• they were seen to have high transaction costs.

Page 19 CCGs are set up like insurance companies

A89. CCG Size There is no consensus on a minimum size to handle the financial risk.2 5 Inter-GP relations and peer review are strong forces and can counter the effects of higher statistical risk in smaller CCGs for many services. However, while some high risk services are best covered at a more regional level, risks could be shared by CCGs grouping together to form their own risk pools.

Page 22 CCGs and CSOs

Commissioning and budget holding
A103. In the following sections, it is important to recognise that responsibility for commissioning a service and budgetary responsibility for a service need not be held by the same organisation. For example, in the section on pharmaceutical services this IA explains the benefits of these services being commissioned by the Board. However, as GPs are responsible for generating the costs of dispensing medicines when they make prescribing decisions, it is entirely reasonable that the costs of dispensing should fall to CCGs. There may be other areas where similar arrangements are appropriate but work on the detailed relative benefits is still ongoing. This is not likely to have a material impact on the overall cost/benefit analysis presented in this IA.
Provider regulation impact assessment p30

Page 31

Key assumptions/sensitivities/risks
*1 Cost to establish new regulator (£5m) plus one-off cost new governance arrangements (£7m)
*2 Annual running cost of Monitor – (£82m) plus annual cost of new governance arrangements (£2m)
The annual operating cost of Monitor is subject to uncertainty and a work programme is in place to scope the regulator’s functions, staff needs and costs per employee.

Page 43

Evidence on impact of choice and competition NHS reforms to date
B51. A recent report by Civitas28 presents the findings of a year-long qualitative study of the impact of the NHS market reforms on efficiency. The report finds some incidences of market based reform delivering efficiencies but concludes that the reforms have “failed thus far to deliver such benefits on any meaningful or systematic scale”.

B52. The report highlights some of the risks inherent in greater use of competition as a lever in delivering NHS services. For example, some participants in the research reported that collaboration is suffering and that high quality care is being undermined by organisational self-interest.
Page 45-46

Table B1: Fair Playing Field Distortions
KPMG Fair Playing Field Report, 2009, economic analysis commissioned by Department of Health.
Tax, capital and pension distortions are those quantified in the report.

Distortion Quantified (yes or no);

If quantified, impact on cost base (£ per £100 of cost) of private acute provider relative to NHS acute provider; Impact (high, medium or low).
Pensions
The NHS employee pension creates a disadvantage for providers whose staff are unable to access it, requiring them to incur significant cost in matching the NHS pension benefits or offering alternative benefits to attract staff. If the employee and employer contributions payable under the NHS pension were used to buy a pension in the financial markets, the benefits would be significantly less than those offered by the NHS pension – there is effectively government subsidy of NHS pensions.
YES
£7
High

Labour Terms and Conditions
Non-statutory providers can offer greater flexibility in their terms and conditions than the NHS, which can be a benefit in attracting staff from the NHS statutory sector. As the NHS is the largest employer of health professionals in the UK, it effectively sets the benchmark for staff remuneration and all NHS trusts use the same agreement. NHS Foundation Trusts are entitled to leave the national pay and conditions agreement (known as ‘Agenda for Change’); however very few have chosen to do so. Non-statutory NHS providers, however, have greater flexibility in their staff terms and conditions which may allow them to recruit staff in preference to the NHS. The statutory protections offered to NHS staff tend to restrict workplace mobility and can make it very expensive to make staff redundant, which impacts the costs of NHS providers and their ability to adapt to changing market requirements
NO
High
Cost of Capital
There are a number of distortions here:
a) Public dividend capital rate paid on public investment is much cheaper than private cost of capital, giving NHS providers an advantage over non-NHS providers.
b) PFI. NHS providers with PFI schemes are disadvantaged relative to NHS providers who do not have such schemes, due to the higher cost of capital.
c) PFI guarantee. State under-writing of PFI schemes means long-term private capital projects are cheaper than on fully commercial terms.
YES
£4 (refers to distortion a)
High

Clinical negligence cover
Statutory NHS providers have access to the Clinical Negligence Scheme for Trusts (CNST), which handles all claims for clinical negligence arising from the care they provide. Due to the nature of the scheme and its coverage of the overwhelming majority of clinical activity, CNST cover is significantly less expensive for statutory NHS providers than equivalent cover available to private providers from commercial insurers (although CNST is available to private providers in a limited range of circumstances)
No
Medium
Cultural behaviours
Cultural behaviours tend to be more advantageous to NHS incumbent providers and make it more difficult for new providers to enter the market, as they tend to reinforce the position of the incumbent. This includes a perceived bias of commissioners preferring NHS providers, a failure to tender for services, and an overly bureaucratic tendering process when services are tendered. Voluntary and charitable providers view these distortions as particularly significant.
No
High

Tariff Bundling and ‘Missing’ Tariffs
The bundling of tariffs makes it difficult for providers to compete for services within the bundle (e.g. diagnostics). The lack of a tariff for many types of services makes contracting more difficult and less consistent, reducing the likelihood that these services will be tendered.
No
Medium

Tariffs
Large multi-product hospitals must take emergency admissions 24/7, which are is perceived to be underfunded due to the way that costs are reported by NHS Trusts – this leads to the use of elective activity to systematically underfunded, so they use tariff for elective admissions to cross-subsidise the large overheads (eg access to critical care, trauma surgery, consultant on-call, ward staff).
NHS hospitals treat more complex patients than private hospitals within any Healthcare Resource Group, as they have to generally accept all elective referrals regardless of cost/complexity- whereas due to the nature of the care they provide private providers accept a narrower cohort of patients can have referral criteria, choosing who they treat.
For both these distortions, non-NHS providers benefit because they do not offer emergency admittance or take especially complex patients – but tariffs are relatively broad categories based on NHS average costs, which include these higher cost cases.
No
High

Corporation Tax
Private sector providers and social enterprises are disadvantaged by being subject to corporation tax, reducing their returns. NHS providers and charities are exempt.
Yes
£2
Medium

VAT
Private sector providers benefit from the VAT exemption for healthcare in that they do not have to charge VAT on many of the services they provide. The other side of this is that they consequently cannot recover a significant portion of the VAT costs they incur. Likewise, VCS providers do not have to charge VAT but cannot recover their VAT costs. However they do benefit from certain other relief applying to the wider charity sector. NHS providers are advantaged in as much as their overall funding takes account of VAT costs in the same way as any other cost.
Yes
£1
Low
Total subsidy to the private sector 14%

B66. As noted earlier, it is important to stress that the evidence currently available is incomplete as some of the distortions that are likely to be significant have not been quantified. Some of these are expected to work in favour of independent sector providers, and so it is not possible to state with any certainty whether the current distortions systematically favour any particular groups of providers.

NB this table and the above note means that there will be a 14% adjustment to the “level playing field” to compensate private providers for the advantages of NHS providers. These figures were compiled by the management consultancy firm KPMG, which stands also to benefit from them as a potential supplier in one of the many conflicts of interest associated with this reform. Interestingly, other issues which would have necessitated an adjustment in favour of public sector providers were also identified but these remain unquantified.

Page 51

B93. It is also proposed that Monitor will be able to:

• Impose general licence conditions to prevent anti-competitive behaviour. For example, rules to prevent misleading advertising.
• Investigate anti-competitive conduct and impose remedies under concurrent powers with the Office of Fair Trading with regards to the Competition Act 1998 and Articles 101 and 102 of the Treaty of the Functioning of the European Union.
• Carry out market studies to investigate markets where competition is not functioning properly. It will have power to refer malfunctioning markets to the Competition Commission for investigation (for all publicly and privately funded healthcare and adult social care)
• Investigate complaints about commissioners – for example, where a commissioner has been accused of unfairly favouring a specific provider.

Page 64 Private patients prioritised ahead of NHS patients

B152. In removing the PPI cap, it is assumed that FTs wishing to generate additional private sector income can do so from three different sources:
• existing independent sector private patients (privately insured or pay-as-you-go)
• additional non-EEA overseas private patients (whom otherwise would not have been able to be treated in England due to the caps); and
• patients who would have otherwise been treated on the NHS but for whom reduced private prices (due to increased competition) now makes private treatment just affordable.

B153. The impact of any such increase in private activity on NHS patients will depend upon how near to capacity an FT is operating and whether:
• NHS FTs respond to the additional private patient income by creating additional capacity to treat private patients; or
• NHS FTs simply allocate more of their existing capacity to treat private patients.

B154. If the former, then NHS patients may derive benefit if the new or enhanced facilities are shared between private and NHS patients.

B155. If the latter, there is a risk that private patients may be prioritised above NHS patients resulting in a growth in waiting lists and waiting times for NHS patients. This is the eventuality that the PPI cap was originally introduced to prevent. However, there are a number of safeguarding factors that act on mitigating this risk some of which were not in place at the inception of FTs in 2004/05. Most pertinently:

• FTs will retain their principal purpose to provide goods and services for the purposes of the health service in England and cannot distribute profits;

• the NHS Constitution has enshrined an 18 week waiting time from referral to treatment as a patient right. NHS commissioners will therefore need to give due regard to whether they are commissioning care from providers that can honour this commitment;

• the extension of patient choice to Any Qualified Provider, will increase the range of providers on offer, so that organisations with long NHS waiting times will risk losing NHS patients; such choices will be informed by the proposed Information Strategy;

• The Quality, Innovation, Productivity and Prevention (QIPP) plans being prepared by the NHS imply that acute capacity will be substituted for community-delivered care. If realised in practice, these plans suggest that capacity in NHS providers could be diverted to private patients without any diminution in the service offered to NHS patients;

• Data from Monitor’s 2010/11 accounts indicates that during that year most FTs operated at a level significantly below their PPI cap36 – see the chart below. The chart also demonstrates that there is not a strong relationship between the level of the cap and the FT’s usage of their entitlement to earn non-NHS income (the trusts are in the same order as that shown in Paragraph B110, i.e. ascending order of their PPI cap). Whilst it is not possible to predict how FTs will behave with the lifting of the caps, the evidence indicates that many FTs will not automatically make use of any ability to earn private income offered to them.

36 This is based upon the definition of non-NHS income believed to apply before the High Court ruling in December 2009, this being the definition that would have governed FTs’ decisions regarding non-NHS income generation during that period.

Page 96

D7. Some people lack the information and/or skills to make choice of local health care services and complain when a service does not meet their expectations/acceptable standards. This may be due to a lack of awareness of sources of information or lack of access to these sources, or support to make sense of the information. We do not know the exact scale of the problem, though of the 152,000 complaints made to the NHS, the ICAS service provided advocacy support for 12,000 people, an increasing number in recent years.

Page 98 Conflict of interest: Healthwatch England will find it hard to complain about inadequate CQC regulation when it is a CQC subunit. This arrangement was not necessary

C. What policy options have been considered?

1. Organisational form for HealthWatch England

D23. Options considered were making HealthWatch England
• a standalone organisation,
• part of the NHS commissioning board,
• a statutory committee of the Care Quality Commission.

D24. We are making HealthWatch England statutory committee of CQC because it builds on CQC’s focus on using patient experience to influence the regulation of services. It is usual for regulators to have a formal consumer representative body. This also makes good economic sense in today’s financial climate, and will enable us to establish HealthWatch England more quickly, so that it can provide support and leadership Local HealthWatch as it develops.

D25. The main risk for setting up HealthWatch England within CQC is that it would not be an independent body in its own right. To address this, we will need to ensure that HealthWatch England has a clear identity within CQC i.e. is a statutory committee with specified functions that will need to be exercised by it. We can also encourage HealthWatch England to have clear and transparent processes for ensuring patient views count.

Page 128-9

E41. There are also provisions in the Health and Social Care Bill for the removal of the requirement in the Mental Health Act 1983 for Second Opinion Appointed Doctors (SOADs) to approve the treatment of patients on Supervised Community Treatment (SCT) who are consenting to the treatment in question. In England, SOADs are appointed by the CQC and since the introduction of SCT in November 2008, demand for SOAD visits has grown significantly. There are therefore three main impacts of this policy: impact on CQC resources, impact on SOAD employment; and the impact on the mental health sector.
E46. There is a risk that this policy could have a detrimental impact on safeguarding patients, in that fewer treatments will now have to be approved by a SOAD. However, this risk is small because treatment approved by a clinician without the involvement of a SOAD may only be given with the patient’s informed consent. The patient may withdraw consent at any time – in which case the treatment could not be continued unless the patient were recalled to hospital, at which point a SOAD certificate would be required (unless the treatment were immediately necessary, or was being continued to prevent serious suffering by the patient).
E5.5. To fully reflect the impact of any particular policy, it is important to consider the effect of reallocating funds away from this alternative use. The impact of reallocation is the policy’s true cost – or “opportunity cost” – that must be measured in Impact Assessments. To calculate the impact of reallocating funds – out of the fixed budget of the NHS – to a new policy, it is necessary to determine how much benefit would have been realised from the alternative use of those funds. At the margin, NHS treatments have been estimated to provide health at a cost of £25,000 per Quality Adjusted Life Years (QALYs). Importantly, however, society is currently estimated to value these QALYs more than twice as highly – at £60,000. This means that any policy which involves spending £1 from the NHS budget will deprive society of an alternative use worth £2.4. Conversely, each £1 saved in the NHS is assumed to be used elsewhere in the NHS to a benefit of £2.4. Note that this opportunity cost ratio of 2.4:1 is assumed to be constant across the public sector.

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