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Where next for real budgets?

Questions abound on how real budgets will work under PBC. Emma Wilkinson and Miranda Griffin put them to the experts

What does a real budget actually mean? Does there have to be an element of risk?

JM: Real budgets means real responsibility, real capability and real accountability, transferred from PCTs to practices. When we talk about real budgets, we're talking about a transfer of these key things, which give GPs control of how the money is deployed, rather than having the money sitting in your bank account. If there's no financial risk, where is the accountability? If you overspend, does it simply mean you won't be allowed to do it any more? To me that's not a hard budget.

NC: The idea behind real budgets is that you are aligning incentives with risk. At the moment with notional budgets there's a mismatch as the risk sits with the PCT, but the GPs are making the decisions and have the incentive to make a surplus (although arguably that incentive is quite weak). If they don't manage it properly it's the PCT that carries the risk rather than the GP.

I don't think you can have real budgets without some element of risk. What the risk actually is depends on how things are set up. If you have a set up something like a Foundation Trust model, GPs would be able to carry shortfalls over a number of years. You have to have some sort of accountability structure – there would have to be some sort of penalty for mismanaging the budget. How that's structured and whether they have to repay it has not been established very thoroughly.

JK: There has to be financial risk for a budget to be deemed real. Indicative budgets haven't worked very well because there hasn't been the responsibility and accountability that goes with managing a budget. Ownership has responsibility and accountability that carries risk. Otherwise it's like giving GPs a credit card and saying we'll pick up the bill – they've got no responsibility for what they're spending it on. The financial risk could potentially be that money comes out of practice profits.

The next stage of real budgets is looking at what the scope of the budget is. In fundholding the budget was compartmentalised so you were only responsible for small areas of the NHS budget. In PBC we are talking about the total spend from a registered list of all their activity, not just hospital services but community services too, in hours and out of hours, scheduled and unscheduled care. You can't take on that budget and make it real without some consequences.

One of the reasons we've not been successful with budgetary devolution is that the PCT chief executive – who's the accountable officer for NHS budgets locally – says ‘it's all very well giving general practice a budget but if they overspend it's my job on the line'.

I think it would be naïve of general practice to say: I want a real budget that might be cash in the bank and ultimately full commissioning budget for my patients' needs but I don't want to take any risk.

To those who claim they have a real budget without any financial risk I would say: add the word ‘yet' to the end of that sentence. In this financial climate they've got to wake up and smell the coffee.

BG: As I understand it, the point of giving GPs real budgets is to incentivise more effectively. If your livelihood is at risk through the commissioning process you're going to be a lot more actively engaged than if it's not.

Even without financial risk I think there is an incentive to manage the budget properly as most GPs are involved with the commissioning process because they want decisions to be clinically rather than management driven. They are not in it to make money out of it; they want more clinical control.

How important is it to get the budget right for real budgets and what can practice-based commissioners do now to prepare?

JK: There has to be a fair share that reflects the needs of a population. There's a lot of work to be done to create an accurate budget reflecting the actual costs for a population. One of the failings of fundholding was that budgets were set on historic outturn, which didn't give us any basis of what the need was. Instead it was ‘this is what you spent last year – you can have the same again with an uplift'. That amount may have been based on an overspend or needs not being met.

GPs need to understand exactly how the budget is developed and that it reflects an accurate cost against the need.

NC: GPs should be getting to know their data now. Combined predictive risk models that combine GP and hospital data have been implemented only in a few PCTs. GP data, although very rich, is often inconsistent and not centrally collected at a PCT level. GPs should be looking at their data, getting to know the needs of the patients, implementing predictive risk tools and benchmarking data against different practices – for example comparing referral rates.

BG: GPs should focus on activity rather than on financial information. The budget should be a function of what's happening to activity. GPs as a whole can much better understand numbers of patients than the pounds sterling in a commissioning budget.

Within that they should understand and manage variation. What's the variation of activity between practices? And then what is the variation within practices between individual GPs?

What would be most effective is having real activity targets with consortium GPs and potential gain-share agreements according to the extent to which those targets are achieved. I think if you use that model you can avoid putting practice income at risk and properly incentivise practices to do it. Not many GP practices will currently want to take the risk but I don't think it will be optional.

JM: We need to get the budget right in the first place so it genuinely reflects the health needs of the population. Otherwise it will be an impossible task and GPs are being set up to fail instead of being encouraged to be innovative. I don't think the current allocation to PCTs is going to change this year but the method of allocation from PCTs to practices is using a new formula based on work done by the Nuffield Trust (see box below). We need to make sure that it is based on the health needs of the population and not just setting higher budgets for those areas with higher user activity.

AB: The bottom line is the budget has to be right. The goalposts have moved quite a lot in recent years. I know one PBC group that used one formula and was £22m undercapitated. A different formula showed them to be £6m undercapitated. And another showed they were overcapitated.

The risk is that practices will take over the budget not knowing where they stand. Unless formulas are dynamic and using real-time data they will be very wrong. It is especially important to get it right in deprived areas with people who are not counted and are usually those with high needs and erratic lifestyles. At this point I don't think anyone knows how we are going to get the formula right.

What sort of timeframe are we looking at for real budgets?

JM: A year from now we should at least have a detailed plan of exactly how this is going to work. Three years from now I would like to see 80% of practices taking on some sort of commissioning and looking at what impact that is having on services. Five years from now we need 80% of practices commissioning the majority of services and services should be significantly transformed with more people treated in the community, higher quality of care and improved patient experience – because if we don't see that, what is the point of doing it?

It is very important that if this is going to be successful we allow people to take over this responsibility at the right pace for them.

GM: We want to see a period of transition. We need to set the test bed with the groups who are best placed to fit the criteria. There is no point getting those who are struggling to get to grips with PBC, who are just finding their way, to set the ball rolling. We need a period when people can assess where they are now in terms of data, cashflow, expenditure and so on, then come up with a strategy to take over budgets and problems and look at how they're going to address them.

Anyone who thinks that next April they're simply going to take over the budget is misguided. We need to have a disciplined handover period. Now is the time to have early discussions and start agreeing the principles and direction of travel.

AB: I am in two minds about a phased approach. On the one hand, if we have the leverage of the whole budget we can make a real difference and take out waste and duplication. While if we have partial leverage we will be playing with one arm tied behind our backs.

Because the bottom line is likely to be wrong, because we have just started this process, I suspect very few practices will take accountability of the whole budget in the first year. We are looking at one, two, three years of shadowing.

I think we need to take the long view – if we do all this very quickly, it's not going to happen well. It will be the people who have a healthy population and a large budget who will take this on and those who are under-resourced will be less keen because the formula isn't right.

What if some practices in a consortium insist they don't want a real budget?

NC: Our recent research showed that with a consortium you have a small group of enthusiasts. The majority in a consortium are happy to go along with them. Only very few don't want to go along with the leaders. It could be difficult if someone really didn't want to take on a real budget but within consortiums you generally have enough of a critical mass to take it along.

Whether this would be different if real budgets are involved will depend on what the accountability structure is and what the financial risks actually are.

JK: There would be consequences, such as a PCT considering the future of the practice. I think it will be mandatory.

Miranda Griffin and Emma Wilkinson are freelance journalists

What is the new resource allocation?

Martin Bardsley, of the Nuffield Trust explains how the new person-centred resource allocation works as practices move towards fair shares

'Historically, resource allocation has been based on ways of splitting money up between different geographic areas.

Person-based resource allocation identifies people's needs at an individual level using diagnostic information from their previous pattern of hospital use.

‘The statistical model predicts future healthcare costs based on these diagnostic needs together with information about the area.

‘As the new approach identifies the needs of a population rather than an area, it is not tied to administrative boundaries as the old models were. It has been embedded in the NHS toolkit so is already being used to shape notional budgets, and practices can apply the model themselves to their local data, compare their relative needs and monitor the levels of expenditure against the expectations. It is therefore important that practices ensure lists are accurate.'

Martin Bardley is head of research at the Nuffield Trust.

The new resource allocation has been developed for the DH by the Nuffield Trust plus health economists at University of York, Health Dialog, New York University and London School of Hygiene and Tropical Medicine

Our experts

Dr Johnny Marshall (JM), NAPC chair

Natasha Curry (NC), Health policy fellow, the King's Fund

Dr James Kingsland (JK), NAPC president and national PBC clinical network lead

Ben Gowland (BG), Chief executive of Nene Commissioning, Northamptonshire

Dr Amit Bhargava (AB), Co-lead of the NHS Alliance's new Clinical Commissioning Federation

Gerry McLean GM), Independent PBC consultant

Dr Johnny Marshall