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Getting to grips with CCG Finance

Getting to grips with CCG Finance

Insight: CCG finance
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Bob Senior
Head of Medical Services
RSM Tenon

The revised Health Bill working its way through Parliament appears as though it will complete its journey more or less intact. To date, the government's effort has been focused on getting the bill approved rather than getting down to the nitty gritty and dealing with how the finances will work.

The government has said the NHS Commissioning Board will allocate the funding previously received by primary care trusts (PCTs) directly to GP consortia. In theory, this should be in the form of a budget that is a total of individual practice-level budgets based on a weighted capitation model.  

However, it is worth remembering that the Carr-Hill formula was also a weighted capitation formula – and look how well that worked.

As with the current weighted capitation formula used to allocate resources to PCTs, the key factor affecting the budget each clinical commissioning group (CCG) receives will be the number of patients registered with each constituent practice.
Applying the weighted capitation formula is intended to give a 'target amount' or 'fair share' for each CCG. Under the current approach, a PCT's target allocation is not necessarily the same as the money it actually receives. Moving under-target PCTs to a 'target amount' would mean reducing over-target PCTs' allocation. Instead the goal has been to move all PCTs towards their target share over time, using a differential growth policy that gives all PCTs some growth but more growth to under-target PCTs.

The fundamental question therefore is will a brand new bottom-up weighted capitation model be used to allocate funding to CCGs? If this is to be so, as we are not expecting much new money to put into the system, those areas which have historically received higher levels of funding could see significant cuts. We are also less than two years away from the intended start date, and it is unlikely that a brand new funding system can be successfully introduced in that time. We therefore may see current PCT funding weightings being carried over into the early years of CCGs.  

Historically the speed with which funding reallocation has taken place has depended on the Department of Health's pace of change policy. This in turn depended on the size of the growth funds available. CCGs may face a similar pace of change policy, moving them gradually towards a fair share allocation.
This raises the question of the background to PCT historical overspends; were they actually overspends or merely the result of inadequate funding. If the latter is true then is it likely a new CCG will really be able to deliver the necessary services within budget?

The government has not yet set out final details of what will happen if a CCG overspends. The most immediate impact is likely to be against the 'quality premium'. There has been a lot of concern among the profession at the concept of a quality premium – is it a stick or a carrot? The government's intention appeared to be that it would be a stick cunningly disguised as a carrot.

The original intention was to top-slice a significant sum from GP practices existing incomes and hold that sum hostage against them meeting the CCGs financial targets. If the targets were met then the money would be released back to the CCG for onward distribution to practices.

Such a process would indeed make practices directly accountable for their actions and ensure that peer pressure was applied where necessary to make practices change their behaviour. If the quality premium is stripped out of the system it is difficult to see exactly what financial sanction could be applied to practices that do not conform.

Looking at what has happened to poorly performing PCTs over recent years may give an indication of what may happen to CCGs that fail to hit their financial targets. To start with they will doubtless be given a great deal of 'assistance' and 'support', and time to work towards improving their performance. If that does not produce the desired results then it is conceivable that we might see other solutions introduced:

  • Commissioning responsibilities passed back to the 
NHS Commissioning Board.
  • Forced merger with (takeover by) a neighbouring CCG.
  • Responsibility contracted out to the private sector.

At the moment we don't know exactly what will be paid per patient for the Running Costs Allowance. The range of figures being bandied about seem to be narrowing to £20 to £22 per patient, possibly up to £25. CCGs should be using the DH toolkits to model their operating costs given their planned size and structure to see whether or not they are able to function at the various levels of Running Costs Allowance. That exercise should fairly quickly identify whether a CCG is large enough to operate independently or if it has to consider how it can work with neighbouring CCGs or local authorities to share costs.

In the absence of actual figures, the financial position of CCGs remains uncertain. What is becoming apparent, however, from the work that has been done using the DH toolkits, is that while small CCGs are ideal from the perspective of planning for local need, they will not be able to operate in isolation. It appears increasingly that even CCGs with 250,000 patients will not be able to operate on their own and CCGs will either need to merge to achieve adequate operational scale or cluster in order to share expensive staff.

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