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How budgets will be set for GP commissioning

Commissioning will stand or fall by accurate budgets. Emma Wilkinson looks at how funds will be allocated and how GPs can prepare

One of the most important factors in the success of GP commissioning is going to be getting the budget right from the beginning. Set it too low and it is clear GPs will be doomed to fail before they have even got off the ground. It is also clear that budgets set on historical activity will have little value in a system that needs to distribute limited funds fairly and make substantial efficiency savings.

1 Who sets the budget?

The budget will probably be set by the new independent NHS Commissioning Board using a ‘fair share’ formula developed by the Nuffield Trust. The Department of Health this year launched a toolkit based on this model and PCTs have started to use this formula so there should be some experience of how it will work in practice.

Dr James Kingsland, national clinical lead for PBC and president of the NAPC, says initially there will be issues around how accurate the budgets given to GPs are but commissioners are going to have to be realistic about what can be achieved by next April.

‘One of the reasons that GPs may not take over full commissioning until 2013 is that they will be limited by budget setting,’ he adds.

It was reported shortly after the introduction of the formula, officially known as Person-Based Resource Allocation, that some 20% of practices could expect their target allocations to alter by 5% or more and that GPs in the richest areas would see the greatest boost in funding.

Dr Kingsland adds: ‘I will be absolutely astonished if by next April they’re accurate and based on a fair share for your population. The enormity of setting a budget based on the health needs of the local population is incredibly daunting. Every budget has always started with some element of historic spend but if we don’t move away from that we will have all the inequalities and problems that have blighted the NHS to date.’

2 How do they do it?

Dr Jennifer Dixon, director of the Nuffield Trust, says her organisation set out to design a formula that allocates funds on the basis of need rather than on what an area has traditionally spent.

It works by using data on individuals’ encounters with the NHS over the course of a year. That data is then aligned with information about the characteristics of the area in which the individual lives. In this way, the formula calculates predicted future costs down to patient level for every practice in England.

The model also takes into account supply factors, so areas with a higher number of beds do not automatically get higher resources, she explains.

‘We take the costs that a practice has incurred in a particular year and use data from previous years to try to understand what has led to those costs.

‘So we take into account the number of people in a practice, their age and gender. We then see for every individual if they have been admitted to hospital in the previous two years and we also have basic information about people who haven’t used any service. Other information includes whether they live in a deprived area, how close to healthcare facilities they are and so on. Using that we try to predict expenditure in the next year.’

In developing the formula, the team also performed analyses including the effect of data lags on the predictive power of the model and the effect on GP commissioning budgets of removing certain services, groups of patients, or treatments such as intensive care. Since April, PCTs have been able to use the resulting toolkit to calculate what resource allocations would be under this model and see how that differs from how funds were divided up in the past.

‘The pace of change, from the historic level to the new needs-based level, is being determined locally,’ she says. ‘And that is entirely different across PCTs. The other thing that differs is what risk-sharing arrangements are being worked out. For some things risk needs to be shared across practices and for others, such as tertiary care, even PCT populations may be too small and risk may have to be held at SHA level.’

Of course, those deliberations will eventually be the responsibility of the commissioning board. One point Dr Dixon makes is that currently no GP data on service usage is used to calculate allocations, only information from hospitals, but in the future the formula will need to be developed further to rely less on hospital data and more on figures from primary care.

‘GPs will need to make sure that the clinical data collected on their systems is as accurate as it can possibly be and they will also have to realise how important it is to share the information for accurate budget-setting in the future.’

3 Why is budget-setting going to be so important for GP commissioning?

Dr Dixon stresses that without an accurate way of setting the budget, GPs will not be able to take on the financial risk expected of them.

It is a point with which Dr Kingsland agrees, especially when the current financial climate is taken into account.

‘This is the most important time in the last 10 years. In 1995 the total spend on health was something like £30bn and since then it has more than trebled. NHS managers have been dealing with a budget that has been increasing above inflation and always matching the increase in demand because of new technologies and an ageing population. It was far easier to manage that budget before than it is going to be over the next five years.’

He points out that if you are not set a fair budget in the first place then a difficult task is going to become even more enormous.

‘If you’re starting from 5% below what you need, that would challenge even experts in budget control.’

In addition to getting the budget right at a practice level, it will also be vital to understand what levels of risk organisations are able to take on. This will be particularly important for small, single-handed practices that will need to share the risk associated with taking over the NHS budget with colleagues in the wider commissioning consortium. One key question yet to be solved is what size of population that risk should be spread over.

4 What are the pitfalls?

The Nuffield Trust is seemingly confident in the formula it has devised although more refining will be done as time goes by. There are, of course, still big questions to be answered, such as what the DH is going to do about historic deficits – as well as the aforementioned discussions over the approach to risk-sharing.

At the most basic level, the primary pitfall is that GPs will fail to achieve financial balance because the odds are stacked against them.

‘We have seen PCTs all over the country struggle in a financial climate that was far more favourable – so there is a lot of faith that has been put in general practice,’ says Dr Kingsland. ‘I believe that faith is well placed. But the biggest pitfall as I see it is the loss of spirit and talent. If the budget-setting starts to cause a lot of angst and debate, we should all fear for the NHS.’

He says the culture of the NHS needs to move away from the huge levels of bureaucracy and ‘confrontational’ debates on spending that have dogged it in the past.

‘Also in setting the budget, if we move too far from historic spend there is a risk we may destabilise organisations that are used to spending that amount. There will be winners and losers with fair-share budgets because you can only cut the cloth so many ways.’

Dr Johnny Marshall, chair of the National Association of Primary Care, says if the budgets are set wrong there are only two things that can happen – either GPs get more money than is needed or they get less. Both of these scenarios could be detrimental to the success of the changes to NHS commissioning.

‘If you give people too much money, they may not be motivated to make the necessary changes as fast as they need to. If you give them too little, we will be setting them up to fail to achieve financial control – and even more worrying is that it then leads to problems with the safe provision of services.’

He also points out that those discrepancies in budgets between the old and new calculations may not be apparent at, say, SHA level – but will become all too obvious when they are seen at practice level.

5 What should you do now to prepare?

Dr Marshall says GPs need to get themselves in a position to understand as far as they can the budget they will be working with.

He also points out that moving from funding based on historic spend to the health needs of the population needs to be done sooner rather than later.

‘If we get a chance to test it out in shadow form that would really be of some value. Some GP commissioning groups don’t currently have a budget so the first thing we need to do is understand what that budget should or would look like and how to manage that transition. We should be using PCTs to support them in terms of budget calculation based on the existing method compared with resource allocation under the new method, so that people can understand what the difference is.’

He says every GP commissioning organisation needs to have someone who understands in detail how that budget is calculated so they can verify that the formula is being applied correctly. There may not be any issues but we need to ask those questions. We have to accept that to some extent it is going to be difficult to get it perfect – but we do need to be better at it than we are now by the time we get going.’

Dr Kingsland agrees but says there are other steps practices can take so that they can hit the ground running when the budget is finally set.

‘The most important thing general practice could do at the moment is discuss what the function of the GP consortium will be. The budget will be largely outside GPs’ control but they can get to a point where they understand exactly what the consortium will be and what will be required. So ask what the PCT does, how that will transfer across and how those functions can be improved.’

He warns GPs not to get bogged down in ‘form’ – for example who will do what job in the organisation when responsibilities are transferred. Instead he says practices should get talking about how they are going to mobilise quickly to share risk and what needs to be delivered.

‘If you know exactly what you’re expected to do and how you’re going to do it then you will be on to a real winner.’

Emma Wilkinson is a freelance journalist