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GPs & actuaries

GPs & actuaries

Insight: risk

Tim Riley
Chief Executive of Tameside and Glossop primary care trust


If anything is certain about the NHS at the moment it is the fact that costs of delivering the service are at risk of outpacing taxpayers’ ability to pay. In England the annual budget for the NHS is £105bn and 40% of that is the cost of the people employed. We know that the potential mismatch between costs and revenue is causing deficits in many NHS trusts across the country.

Tim Riley
Chief Executive of Tameside and Glossop primary care trust


If anything is certain about the NHS at the moment it is the fact that costs of delivering the service are at risk of outpacing taxpayers’ ability to pay. In England the annual budget for the NHS is £105bn and 40% of that is the cost of the people employed. We know that the potential mismatch between costs and revenue is causing deficits in many NHS trusts across the country.

We have already heard from NHS Chief Executive Sir David Nicholson that these financial cracks add up to a gaping chasm. He has said that the NHS would need to save between £15bn and £20bn over the next four years to keep pace with an ageing population, rising costs and lower funding settlements from government.

At the same time we are seeing from the government’s white paper, Equity and excellence: liberating the NHS that a central plank of getting a grip of expenditure is to get GPs to tighten the purse strings by managing their own commissioning consortia. GPs would refer only when necessary and optimise their use of drugs to the point that the rise in costs would be slowed, even abated.

There are some real gremlins lurking under the hospital bed for this policy, as fewer referrals means less income to hospitals. Less income to hospitals means less ability to cover costs without dramatic reductions in the range and extent of services available. Workforce numbers would need to reduce and some of the expensive PFI real estate would need to be utilised differently.

The alternative is that some hospitals will cease to be independently viable. The spectre of hospital closures is a dramatic consequence. In reality, no politician is going to preside over mass hospital closures. More likely, the commercial phrases of ‘market consolidation’ and ‘acquisition and merger’ will be the first pimples of the cost reduction epidemic.

The safety net, from a political sense, is that GPs and patients will have voted with their own feet by using choice and better and more appropriate care locally. At least, that is the mantra.
This safety net means that GPs may have to shoulder much of the ‘health risk’ and the ‘financial risk’ across their own consortia. The challenge of managing the financial risk has been well understood by GPs. The proposals of the legislation that is in progress through parliament are that any GP practice must be part of a ‘clinical commissioning group’ (CCG). The logic follows that to be part of a CCG that fails means hard choices for the constituent practices. In the worse case, it could mean that the practice itself becomes inviable.

There is also the health risk. Of the two forms of risk, health risk places a new duty of responsibility on CCGs and their constituent practices. Managing health risk is what most practices believe they do already. However, it has a significantly different meaning when CCGs come under the scrutiny of local authorities. GP-led commissioning decisions are one thing, but decisions scrutinised and lobbied by local government and the population become another. What is clinically best and what is perceived as best by a patient is a balancing act most GPs take as part of the job. To now walk that tightrope when making population-based decisions shaped in part by population views is different territory.

This has a bearing on managing the financial risk because in actual fact the two are irrevocably entwined.

Under Andrew Lansley’s proposals, the question for many a CCG will be, “How do we avoid going bust?”  After all, if we are to believe the perceived wisdom, PCTs have failed to control costs and in a good number of examples there are local health economies that already carrying sizeable deficits.

If it were as easy as CCGs being able to do a better job than PCTs then there would not be so many worried faces among GP colleagues. It makes sense then to look at how the environment be managed to mitigate or reduce the risks.

Relying on GPs to act as ‘super gatekeepers’ ignores the reality of providing a health service to real people who are not quite as well behaved or as categorised as the health economists would have us believe.

To be able to manage CCG costs within the budget that comes down from government, there have been a range of ideas surfacing – from pooling budgets between CCGs to ‘stop loss’ insurance and even to individual patients taking on costs for ‘non-core’ services. However, mention insurance in the context of the NHS and its can soon get people’s hackles up.

Immediately minds flit to the United States and popular perceptions of ‘designer care’ and the plight of the 40 million or so citizens that do not have health insurance.

However, we often forget that the NHS itself has its roots in the National Health Insurance Act of 1911. David Lloyd George, under pressure from the Labour party, gave initially poorer-paid workers a contributory system of insurance against illness and unemployment. In essence, government was establishing a national scheme to insure against productivity losses and in a short time the scheme had over 15 million members. The key difference with this approach was that the whole population was to become eventually eligible for health insurance as the health services were forged into the NHS in the aftermath of William Beveridge’s report of 1943. National insurance was extended to all and the NHS was born.

In short, insuring against ill health (‘health risk’) was accepted when there was equity of access for all and the service was provided free at the point of delivery. By contrast, personalised health insurance raise concerns of inequity and differential care.

It was said even Aneurin Bevan was concerned about the containment of costs and it is true today that those concerns persist. So how can a transition to managing health and financial risk locally under CCGs be better than sharing those risks across the NHS, as happens today?

Even if CCGs club together to pool risk, how will this be an improvement? The answer has to be in the effectiveness of management of the CCG as much as mitigating the variations in health from one CCG area to another.

If CCGs do run a risk-pool approach then it will rapidly expose poorly performing primary care as much as expose the quality of decision-making in commissioning. The natural tendency then is for low-risk practices to want to work together to maintain a low risk of financial failure. 

There are some perceptions though that the ‘inverse care law’ will surface where those who have the highest health status demand better and more health services. Practices in the leafy suburbs could fare better and succeed. High health needs areas would find themselves disadvantaged.

This picture is not one that reflects reality in most cases but it is a high risk for some areas if they find themselves with less able practices struggling to deliver as an effective CCG. The very ethos of NHS standards being national standards and the unified aim of addressing health equalities would begin to unravel fast.

Perhaps then there is another way. There can be no doubt that a risk pool across a number of CCGs is a better way to spread risk and sustain services within budget. A way of doing this better could be to consider ‘stop loss’ insurance policies being taken out by CCGs. Under aggregate stop loss coverage, the claims are taken care of when the CCG’s total group health claim reaches a pre-determined cut off (ideally less than the total budget available). This cut off is calculated on the basis of the expected healthcare cost of the population covered by the CCG. Essentially the deal is that a premium is paid but after the cut-off is reached the insurance company pays.

There is still the risk that some populations justify a higher premium from CCGs because of poorer health. If risk pooling is across a wide enough and varied enough population then it could still function well. The alternatives move us into personalised insurance and this holds little appeal with 60 years of an NHS behind us, let alone 100 years of socialised healthcare.

Does this then mean then that there is a way to make healthcare affordable and manageable by CCGs? Possibly, but it is an undeveloped market and will appear complex to those without their own personal actuary to hand!

This may be one area where we can look to the US without sacrificing NHS principles. Large employers have been offering stop loss insurance to workers for years. The resources and advice they call on is well developed.

In such a future, CCGs are as likely to seek actuarial advice on health and financial risk as much as they will look to the ‘commissioning support’ left by PCTs.


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