Written evidence submitted by Department of Health (EXP0051)

Contents

1              INTRODUCTION

2              CURRENT ISSUES

2.1              The current financial state of the health and social care systems, including particular pressures in the system (such as the financial position of NHS Trusts and Foundation Trusts and of CCGs)

2.2              The impact of the Better Care Fund on the health and social care systems, including whether all areas have appropriate plans for the introduction of the fund

2.3              The extent to which patient care and support services are provided (a) by NHS bodies (b) others and how has this changed over time

2.4              What types of NHS services are being provided by private sector, voluntary and social enterprises and what is the evidence around quality, costs and outcomes for those services

2.5              What changes there have been over time in the proportion of FT income provided by private patients, the uses to which this funding has been put and evidence of impact on NHS patient care

2.6              Implementation of the level playing field review

2.7              The effectiveness of the mechanisms by which resources are distributed geographically in the NHS

2.8              The impact of competition on the quality of NHS services

2.9              The nature and extent of management costs in the new NHS structure

2.10              What has been the cost of PFI agreements to the NHS over time

3              LONGER TERM ISSUES

3.1              The possible funding options for the NHS for the long term, including international comparisons

3.2              To what extent is it a realistic option to merge NHS and social care eligibility and funding as set out in the Barker Review

3.3              The potential impact of the extensive use of personal budgets on the funding and planning of health and social care services

3.4              The potential impact of the Transatlantic Trade and Investment Partnership (TTIP) on the NHS

3.5              Whether longer contracting periods are feasible and whether they would reduce costs and improve the quality and cost effectiveness of service

1          INTRODUCTION

Department of Health

It is this Government’s privilege to serve as the guardian of the NHS in England and its founding values, and to ensure that care and support services are there for the elderly and most vulnerable in our society.

The NHS is there for everyone, irrespective of background. Throughout this parliament this Government has continued to promote the NHS as a comprehensive and universal service, free at the point of delivery and available to all based on clinical need, not the ability to pay. We have increased health spending in real terms in each year, and have not introduced new patient charges.

Our ambition is for excellent care for everyone regardless of income, location, age, gender, ethnicity or any other characteristic.

In delivering this ambition we have set out a range of priorities that reflect our absolute commitment to high-quality healthcare for all, including:

•      Improving standards of care.

•      Diagnosing, treating and caring for people with dementia.

•      Improving and integrating out of hospital care and support.

•      Supporting people with long-term conditions.

•      Preventing premature deaths

Protecting social care services for the elderly and vulnerable across our society is a priority for this Government. Recognising that local government finances are tight, we have provided extra resources for social care. Every year since 2011 we have allocated significant extra funding for social care, including £859 million in 2013–14 rising to £1.1 billion in 2014–15. In 2015–16 we will be going further by creating the Better Care Fund; a £3.8 billion pooled budget for health and social care, which will provide much needed funding for social care and break new ground in forging closer integration of services.

The Better Care Fund will support better decision-making, resulting in local areas spending this money on creating joined-up services. Local councils and NHS clinical commissioning groups are now undertaking joint planning to deliver better, person-centred care. The integration pioneers will act as exemplars of the most innovative and forward thinking approaches to integrated care and support.

This is part of a wider reform of care and support, which is set out in the Care Act. We will move to a system which prevents and delays the need for care rather than one that reacts to a crisis. A system that is built around the needs and wishes of individuals rather than organisational structures, where people are in control of their own care and support.

The scale of what we are asking is challenging, especially in current economic times, and with an ageing and growing population placing different and increasing demands on our services. It is crucial, therefore, that our services modernise, and we believe that our health and care services are evolving and innovating to ensure that we will continue to deliver high quality, compassionate and joined-up care into the future.

NHS England

The Health and Social Care Act 2012 established NHS England (known in statute as the NHS Commissioning Board) as the lead commissioner for the NHS in England, responsible for arranging to provide more than £25 billion of healthcare directly as well as for allocating more than £65 billion to local clinical commissioning groups (CCGs).

Since 2010, the hard work of NHS staff has meant that we have delivered more than £20 billion of efficiency savings while at the same time delivering significant increases in activity. In the eighteen months since NHS England became fully operational, we have gone further by delivering significant improvements to the way the NHS works, for example:

•      NHS England is introducing consistent national standards on access to specialised services for the first time, to ensure that those who need the NHS most are treated equally wherever they live.

•      Through the Friends and Family Test, NHS England is working to ensure that the public’s experience is central to our planning and management of NHS services.

•      In 2015–16, we will introduce waiting time standards for the first time in mental health services, one step to help make parity of esteem between physical and mental health a reality.

•      The system of allocations to CCGs is more transparent than ever, is better aligned to changes in population, and targets improved equality through both CCG and primary care formulae.

However, no one can dispute that the NHS is facing an unprecedented challenge in the next few years.  NHS England first set out the scale of this challenge in A Call to Action[1]. Bodies across the NHS have updated this analysis in a five-year Forward View for the NHS.  Independent analysis supports the conclusion set out in these documents that if funding continues to be broadly flat in real terms and no further efficiencies are made, rising demand will mean that the NHS would face a gap between patient demand and resources of £28 billion a year by 2021.

The Forward View[2] sets out an ambitious programme for the NHS: to increase public health work to ensure that people are healthier, thereby reducing future demand and to double historic levels of improvement in productivity in the NHS itself.  Modelling suggests that this, in combination with funding between flat (in real terms) per capita and flat as a share of GDP can close the projected gap between patient demand and available resources in 2021.  This is a stretching target, both in comparison with historical performance by the NHS and compared with other industries and healthcare systems world-wide. We are confident that the NHS can deliver it, provided we take action on prevention, invest in new care models, sustain social care services, and over time see a bigger share of the efficiency coming from wider system improvements.  Some critical decisions – for example on investment, on various public health measures, and on local service changes – will need explicit support from the next government.

This is an ambitious programme, but we believe it is deliverable, and it is vital to ensure that the NHS remains one of the best healthcare systems in the world, publically funded and free at the point of use.

2          CURRENT ISSUES

2.1      The current financial state of the health and social care systems, including particular pressures in the system (such as the financial position of NHS Trusts and Foundation Trusts and of CCGs)

Overall

1                         The underspend against the health and social care system Revenue Departmental Expenditure Limit (RDEL) in 2013–14 was £305 million, or 0.3% of total budget. This is lower than the underspends delivered since 2010–11, which have averaged around 1% each year.

2                         A large part of this reduced underspend was due to the increased pressures in the NHS provider sector, where a net surplus of £548 million in 2012–13 turned into a net deficit of £108 million in 2013–14. However, pressure is not confined to one area of the system alone: commissioners (CCGs and NHS England direct commissioners) are also facing pressure from rising demand, an ageing society, the increased resource requirements as organisations respond to the Francis report and the efficiency requirements to generate investment in the Better Care Fund in 2015–16.

3                         Table 1 summarises the savings, pressures and total underspend delivered against the RDEL (excluding depreciation) over the last four years. The underspend reported by the commissioning sector is in the context of an initial plan which included drawdown of £650 million of the NHS’ historical surplus.  Thus the 2013–14 outturn included NHS commissioners spending the whole of their recurrent allocations as well as just over £300 million of the historic surplus.

Table 1: Financial underspends compared with opening plan

Figures above all exclude depreciation (ring-fenced Revenue DEL)

4                         The 2014-15 financial position for the overall health and social care system remains extremely tight as shown in table 2.  After mitigations, the Department expects to deliver an overall balanced RDEL budget for 2014–15, akin to the modest underspend reported in 2013–14.

Table 2: Financial underspends compared with opening plan

Figures above all exclude depreciation (ring-fenced Revenue DEL)

Table above represents opening DH plans, prior to final Provider plans

NHS commissioners

5                         The NHS England consolidated group comprising NHS England and 211 clinical commissioning groups (CCGs) fulfilled all of the financial duties set out in the Mandate for 2013–14, covering revenue spending, administration costs and capital expenditure.

6                         In 2013–14, the final Revenue DEL surplus (excluding depreciation) delivered for the sector was £860 million, £325 million higher than the planned surplus of £534 million.  Any surplus is not lost to the NHS and is carried forward into the following year, although access to these surpluses is constrained by annual limits agreed with HM Treasury.

7                         While this outturn was better than planned, it nonetheless represents a £325 million drawdown of the £1.2 billion historical surpluses ‘inherited’ by CCGs and NHS England.  For 2014-15, NHS England has agreed plans which require a further £400 million drawdown to deal with the deficit arising from unaffordable levels of activity growth in specialised services commissioning. This results in the reduction of the cumulative surplus to £467 million (against the Revenue DEL).

8                         Latest forecasts indicate that significant risks relating to activity growth and the Cancer Drugs Fund can be covered by mitigating actions and contingencies, leading to an expected year-end position broadly in line with this plan.

9                         In 2014–15, overall CCG plans see a slight drop in cumulative surplus to £694 million. The total number of CCGs forecasted to be in deficit stands at 20 compared with 19 in 2013–14. Financial Recovery Plans are being prepared by these CCGs and assured by the relevant NHS England Area Team.

10                    The continuing pressures in specialised services commissioning are being addressed by strengthened national leadership arrangements and a recovery programme team that has a number of work streams progressing initiatives in areas such as QIPP (quality, innovation, productivity and prevention) delivery, contracting, data quality and finance. Work is also underway to increase the engagement of CCGs in the commissioning of specialised services by aligning incentives to enable joined-up management of patient pathways.

11                    The Department of Health established the QIPP programme to generate up to £20 billion of efficiency savings. Though the formal programme was only set out until 2014–15, it is clear that the pressure from demographic, technological and demand changes will continue to outpace growth in funding. Therefore, NHS England’s planning guidance has made clear that commissioners must continue to rise to the QIPP challenge by delivering efficiency savings in 2015–16.

12                    NHS England delivered £1.7 billion of QIPP from commissioners in 2013–14 and plans to deliver £2.1 billion in 2014–15. The 2013–14 savings represented 85% of plan largely due to the difficulties in achieving transformational change and the latest forecast is that NHS England will secure 91% of its planned QIPP from commissioners in 2014–15. CCGs and NHS England’s Area Teams expect that providers will deliver a further £2.3 billion of savings in 2014-15, compared with £1.9 billion achieved in 2013–14; the latest projection is that 94% of this planned saving will be achieved by providers.

NHS providers (NHS trusts and NHS foundation trusts)

13                    Current 2014–15 forecasts suggest a worsening financial position in the overall provider sector as shown in table 3.

Table 3: NHS provider financial performance, 2014-15

14                    The causes driving this worsening financial position relate largely to increasing demand and increasing staffing costs.  Rising staff costs reflect a heightened focus on service quality and clinical staffing levels across the whole provider sector.

15                    In the face of rising demand for its services, NHS performance across the waiting time standards for A&E, ambulances, elective care, cancer and diagnostics began to show signs of strain in 2013–14 and the first quarter of 2014–15.

16                    The Department is providing financial support to the most financially challenged NHS trusts and NHS foundation trusts, ensuring the safe continuity of services during the recovery period.  However, this funding will not be provided on an indefinite basis and the development and delivery of sustainable solutions to financial deficits remains paramount.

17                    Both the NHS Trust Development Authority (TDA) and Monitor continue to work closely with those organisations in financial deficit and/or those with reducing surpluses, including more interventional activity where appropriate.

Action to manage the financial pressures

18                    This Government is taking a number of steps to address the financial pressures facing the health and social care system.  We are protecting the NHS budget and continuing to increase it in real terms with spending on the NHS expected to increase by £12.7 billion during this parliament. In addition, the system is also on track to make around £20 billion of efficiencies in this parliament to reinvest into frontline care.

19                    As part of a five-year planning round, NHS England, Monitor and the TDA identified those health economies that are most challenged and most likely to require intensive support. These represent the health economies most at risk of failing without identifying future service reconfigurations. Eleven health economies were identified using a range of criteria including current and projected CCG and provider deficits and distance of CCG allocations from target. The list of economies is:

20                    The support to the challenged economies consists of four work streams and intensive transitional support has been provided:

•      Diagnosis – supply and demand.

•      Solutions development and options analysis.

•      Plan development.

•      Implementation plan.

21                    The programme has largely completed the diagnosis and initial plan development phases and is now working on facilitating plan implementation. Each health economy is regularly risk assessed with actions recommended to ensure financial gaps are managed down.

22                    The Department published guidance[3] on financial support offered to the NHS; the latest step in a series of  arrangements put in place since April 2013 to develop a transparent financing regime which focuses the need for all bodies to have sustainable financial plans in place, including trusts which presently require DH support.

23                    The guidance sets out that where trusts require funding for a deficit but do not have plans to return to financial balance, ‘interim support’ may be provided to ensure safe services but it is provided on the basis that of the development of a recovery plan to return to balance within a defined period. Throughout this interim phase the ongoing focus of regulations and the department remains on development of this plan.

24                    The Department has also announced a range of conditions that will be attached to the provision of Interim Support including the need to participate in central savings initiatives, to demonstrate their efficiency in operational management areas and ensure ongoing pay restraint within the trust senior management.

25                    The Department is supporting the work of NHS England, the TDA and Monitor with £400 million of funding for winter 2014–15. Some £350 million of this non-recurrent funding will be allocated to local health economies to ensure urgent and emergency care and elective services are sustainable year-round and ready for seasonal pressures. A further £50 million will be retained centrally to support a range of initiatives, including NHS 111 and ambulance trusts.

26                    The Department has also provided an additional £250 million funding for the NHS to start treating an additional 100,000 elective patients. This work will include reviewing and reducing the number of people waiting more than 52 weeks to as close as zero as possible. A ‘managed breach’ of the 90% standard for admitted patients will be permitted while the NHS clears patients who have waited the longest, but we expect it to deliver the extra activity this year and consistently meet the standards thereafter.

27                    These financial pressures will continue into the next parliament.  The Five Year Forward View for the NHS sets out analysis from bodies across the NHS which shows that with flat real funding, no further efficiencies and rising demand the NHS will face a gap of £28 billion in 2021.  The Forward View also sets out the ambition from organisations across the NHS to increase the public’s involvement in their health to reduce future demand and to deliver an unprecedented level of efficiency improvement through to 2021. Combined with funding between flat real per capita and flat as a proportion of GDP, this can close the expected gap by 2021, provided we take action on prevention, invest in new care models, sustain social care services, and over time see a bigger share of the efficiency coming from wider system improvements.  Some critical decisions – for example on investment, on various public health measures, and on local service changes – will need explicit support from the next government.

Adult social care

Local government funding

28                    Adult Social care is primarily funded through local government funding (the DH Group financial position only includes a subset of overall adult social care expenditure). Local government funding is complex and made up from several funding streams, including central government grants, Business Rates Retention Scheme and council tax. Adult social care funding is not ring-fenced and ultimately it is for local authorities to decide how to prioritise their spending based on local priorities and need.

29                    Local government funding has reduced. Local Government DEL has reduced by 29% in real terms from 2011–12 to 2014–15 (Local Government DEL includes the revenue support grant but does not include locally raised funding). The Department for Communities and Local Government (DCLG) use revenue spending power as the key measure of revenue available to local authorities. Revenue spending power aggregates the resources that local councils have available to support services they deliver on behalf of local citizens (this includes the NHS funding for spend on social care that also benefits health). In 2015–16, illustrative spending power includes the Better Care Fund. Total spending power of councils over 2011–12 to 2014–15 is down by about 14%. However, distribution of spending power reductions is varied between councils.

Adult social care expenditure

30                    Table 4 shows that total adult social care expenditure has remained relatively flat in cash terms from 2011–12 to 2013–14. This is a 4.3% reduction in real terms (2013–14 prices). Although the 2013–14 provisional outturn data does show a small cash increase from 2012–13.

31                    Budget data for 2014–15 shows that total expenditure is planned to reduce slightly from 2013–14 by 2.3% in real terms (2014–15 prices). This is a real terms reduction of about 5.4% from 2011–12 to 2014–15 (2014–15 prices).

Table 4: Social care expenditure, England

*Budget data

NHS transfer to social care

32                    The NHS transfer to social care announced in SR 2010 was intended to provide the resources needed to protect social care and to promote closer integration. The conditions of the transfer ensure that it can only be used on social care with a health benefit.

33                    The NHS transfer was worth £859 million in 2013–14 and £1.1 billion in 2014–15. In 2014–15, the NHS transfer largely offsets local authorities’ planned reductions to adult social care expenditure, as can be seen in figure 1.

Figure 1: Council expenditure and total expenditure on adult social care (cash terms), England

34                    The 2014 ADASS budget survey reported that councils have continued to prioritise adult social care and secure increasing value through protecting investment in prevention, seeking further efficiency saving, minimising the impact on the income of people supported and use of NHS transfer to protect frontline services that benefit both health and adult social care, rather than cutting frontline services. However, they have reported that this is becoming more difficult and that in 2014–15 there will be planned service reductions. The National Audit Office (NAO) also reported that spending on adult social care has been protected more than other service areas, except children’s services, between 2010–11 and 2013–14.

Efficiency

35                    Councils have continued to work hard to achieve efficiency savings. In the ADASS budget survey 2014, local authorities reported planned efficiency savings of £679 million – a 4.9% saving. This is above the national efficiency assumption set at SR 2010 of 3%. Of the £3.5 billion or so planned savings reported in the ADASS survey since 2011–12, around £2.5 billion of these were reported as savings from efficiency. The survey reports efficiency savings councils are planning to make and does not measure actual efficiency savings made.

36                    The Department wants to strengthen incentives for sector-led improvements in efficiency by publishing relevant, comparative information and highlight variation between councils. A new efficiency tool was published this summer by the Department on GOV.UK for all local authorities to use. Local authorities had the opportunity to use the tool before publication. Additionally, part of its functionality has also been incorporated into the Local government Association’s ‘LG Inform’ tool.

Activity

37                    The Health and Social Care Information Centre published provisional social care data activity data for the financial year 2013–14. Overall, the total number of people receiving services at 31 March 2014 was 902,875. This is in comparison with 1,032,245 people in receipt of services at 31 March 2012. This is a 12.5% reduction.

38                    There is a longer term trend of service transformation through a focus  on prevention and reablement which has also reduced the numbers of people that depend on formal care; the proportion of older people in receipt of local   authority supported social care has been declining steadily since 2005–06.

39                    The Care Act commencing in 2015–16 will provide a single national threshold for eligibility to care and support, ensuring transparency and consistency across the country. The new national threshold will be set at a level that will allow the vast majority of local authorities to maintain access to care and support when the new framework comes into effect.

2.2        The impact of the Better Care Fund on the health and social care systems, including whether all areas have appropriate plans for the introduction of the fund

40                    There has long been a consensus that the core business of health and care services needs to change from being a ‘sickness service’ to becoming one that is preventative of the causes of deteriorating ill health, particularly in light of an ageing population. In order to be effective and financially sustainable, the health and care system needs to be integrated, so that people are enabled to live independent and healthy lives in the community for as long as possible, relieving the pressure on hospital services.

41                    Since the Health Select Committee Public Expenditure Inquiry 2013, the Integration Transformation Fund has been renamed the Better Care Fund (BCF), and has been given a legislative basis through The Care Act 2014, which received Royal Assent on 14 May 2014.  The Act includes duties on local authorities towards integration and cooperation.

42                    The BCF is the biggest ever financial incentive for the integration of health and social care.  It requires the NHS and local authorities in every single area to pool budgets for the first time, and for health and wellbeing boards (HWBs) to sign-off detailed local plans demonstrating how they will integrate their services in line with wider local health and wellbeing strategies.

43                    In 2014–15, an additional £200 million has been included in the existing transfer from health to social care to help areas prepare for the full implementation of the BCF from 2015–16.

44                    From 2015–16 the BCF will total £3.8 billion and be created from the following:

•      £1.9 billion based on existing funding in 2014–15 that is allocated across the health and wider care system.  It is composed of:

• £130 million Carers' Breaks funding;

• £300 million CCG reablement funding;

• £354 million capital funding (including around £220 million of Disabled Facilities Grant); and,

• £1.1 billion existing transfer from health to social care.

•      £1.9 billion additional contribution from existing NHS budgets.

45                    The original submission date for HWB plans was April 2014. A number of strong plans had been submitted in April, containing many excellent examples of innovative, integrated care.  However, there were also some aspects in many plans that required further development: central government did not feel that it could be properly assured of savings from the plans local areas had submitted.

46                    In July 2014, a central BCF taskforce comprising of representatives of NHS England, the Local Government Association (LGA), the Department of Health (DH) and the Department for Communities and Local Government (DCLG) was established to oversee the programme. It published updated guidance and templates to local areas for developing robust and ambitious local BCF plans. The updated guidance also set out a revised payment for performance framework, designed to strengthen incentives for reducing unplanned emergency admissions – the biggest driver of costs that the BCF can affect.

47                    As well as targets for reducing emergency admissions, all plans will include ambitious targets against five other metrics designed to measure the impact of the BCF:

•      admissions to residential care homes;

•      effectiveness of reablement services;

•      delayed transfers of care;

•      patient/service user experience; and,

•      a locally defined metric.

48                    Local BCF plans will also set out how the HWB area intends to meet six national conditions:

•      joint agreement of BCF plans;

•      protection of social care services;

•      better data sharing;

•      seven-day service across health and social care;

•      agreement on the impact of changes on the acute sector; and,

•      a joint approach to assessment and care planning, and an accountable lead professional for joint packages of care.

49                    Working closely with NHS England and the LGA, the Government has taken forward a number of steps to ensure that local areas have effective plans to support the successful implementation of the fund from 2015–16:

•      from July 2014, an expanded joint BCF programme team (the BCF Taskforce) has been established, working across Whitehall, local government and NHS England to oversee the development of plans and support areas to prepare for implementation;

•      a series of early ‘checkpoints’ assessed the readiness of each local area to submit a robust plan by the deadline of 19 September, and to help design and target the package of improvement support being offered to areas;

•      the BCF Taskforce has implemented an extensive programme of support to help areas in developing their plans, including offering ‘how to’ guides, workshops, and detailed hands-on support from external experts;

•      the BCF Taskforce put in place a robust and consistent methodology (the National Consistent Assurance Review (NCAR)) to assure the quality of local plans and delivery risk due to local context.  The methodology was designed by North-East London Commissioning Support Unit and independently validated by PwC and the Cabinet Office Implementation Unit; and,

•      the BCF Taskforce worked with five ‘fast-track’ areas that submitted their plans early, in order to draw out best practice for the other areas.  This best practice has been shared through published case studies.

50                    All HWBs submitted their BCF plans in September. The plans have undergone the NCAR process, and shortly each will be designated either ‘approved’, ‘approved with support’, ‘approved subject to conditions’, or ‘not approved’.  The results of the review process will then be moderated and calibrated to develop a consistent national view of the status of local BCF plans. This includes an individual assessment of each plan, as well as meta-analysis that will describe the national picture.

51                    Having an approved plan is only the first phase to be ready to implement in April 2015. The BCF Programme Board has agreed to a Phase 2 of the BCF Taskforce, which will run from the beginning of November 2014 to the end of March 2015. Plans are currently being developed in detail, but will include providing support to those areas with plans that are ‘approved subject to conditions’, or ‘not approved’, to help them to develop a fully approved plan.  NHS England, the LGA, DH and DCLG will also set out the reporting, assurance and accountability arrangements for the BCF in 2015–16.

52                    The Government intends to commission a fuller evaluation of the fund. The overall aim of the independent evaluation will be to investigate whether, how and to what extent the BCF can lead to the delivery of better integrated care and support for older people and those with complex needs, and provide better value for money.  It is envisaged that a broad evaluation approach will be needed, comprising process, outcomes and economic evaluation components.

2.3        The extent to which patient care and support services are provided (a) by NHS bodies (b) others and how has this changed over time

53                    Independent sector providers – some for-profit, some not-for-profit – have long been present in a small way in providing care to NHS patients. The independent sector currently delivers around 6% of total NHS services. This is in line with a steady increase over the course of the past ten years.

54                    Over those ten years, healthcare policy in England has encouraged healthcare purchasers to consider a wider variety of types of provider organisations, including not-for-profit and for-profit independent providers. As a result, for-profit companies, charities and social enterprises all have won more NHS service contracts, including GP contracts.

55                    Our position on who should provide services as between the NHS and the independent or other non-NHS sectors is a pragmatic one. What counts is getting patients the best services. The people who should make the decisions on that are the local clinical staff – in CCGs – who are best placed to understand local needs.

2.4        What types of NHS services are being provided by private sector, voluntary and social enterprises and what is the evidence around quality, costs and outcomes for those services

56                    The independent and voluntary sectors, and social enterprises, all make a substantial contribution to the delivery of high quality local health and social care services.

57                    The independent sector provides a broad range of NHS-funded treatments such as hip and knee replacements and cataract surgery; while the voluntary sector and social enterprises provide services such as NHS hospice and palliative care, sexual health services, alcohol and drug abuse support services and community care.

58                    The provisional 2013–14 Hospital Episode Statistics (HES) data indicates that there were around 450,000 admissions to non-NHS providers for non-emergency NHS services. Commissioners’ spending on independent sector providers is approximately 6% of all NHS expenditure.

59                    In terms of quality, the 2012–13 State of Care report by the Care Quality Commission[4] says that the independent and voluntary sector provides high quality and safe care – often performing better than NHS locations.

60                    We do not consistently collect health outcome data across NHS and non-NHS providers. However, we know that patients are increasingly choosing to use the independent sector  for their first outpatient appointment. In May 2010, around 6% of all first outpatient appointments booked through Choose and Book were with the independent sector, and by May 2014 this had risen to 11.6%.

2.5        What changes there have been over time in the proportion of FT income provided by private patients, the uses to which this funding has been put and evidence of impact on NHS patient care

61                    Since 2005–06, the proportion of private patient income as a percentage of total NHS foundation trust (FT) operating income has fallen from 1.5% to 0.9% in 2013–14. Within this, there is significant variation between FTs in terms of how much private patient income they generate. This is largely based on historical patterns.

62                    Although there was a cash increase from £98.4 million to £389.4 million over the same time period, this has to be seen within the context of a significant overall increase in total FT operating income from £6.762 billion to £41.443 billion.

63                    It is also worth highlighting that private patient income helps to contribute to services for NHS patients by encouraging greater subspecialisation, which means that patients receive higher levels of clinical quality. It also helps FTs financially, as all funds are reinvested in the trust.

64                    Turning to how this funding is used, neither the Department nor Monitor hold information on how this income is used.  The Committee may wish to refer to a publication issued by the Foundation Trust Network (FTN) in September 2014 which seeks to explain how NHS providers utilise their non-NHS income. This can be found at: www.foundationtrustnetwork.org/resource-library/ftn-briefing-non-nhs-income/

65                    Finally, in terms of the impact on NHS patient care. The Department does not hold information on this. However, as noted in the previous section the Care Quality Commission’s 2012–13 State of Care report does highlight that independent providers generally perform better than NHS providers in terms of the safety and quality of care.

66                    This is supported by feedback on the NHS Choices website from 150,000 patients which shows that eight of the top 20 highest rated NHS-funded providers recommended by patients are run by the independent sector. There are no independent sector hospitals in the bottom 20.

2.6        Implementation of the level playing field review

67                    Following publication of the Fair Playing Field Review final report[5], Monitor established a high-level implementation group, of which the Department and NHS England are members, to take forward the report’s recommendations. The group has met several times, and is making good progress on implementing the recommendations of the Report.

68                    Monitor intends to publish a summary in 2015 of how the recommendations have been implemented in the system, along with an evaluation of the impact these have had in promoting a fair playing field for providers.

2.7        The effectiveness of the mechanisms by which resources are distributed geographically in the NHS

69                    The 2012 Act that created NHS England also makes it independently responsible for allocating the budgets for commissioning NHS services. This was done to prevent any perception of political interference in the way that money is distributed between different parts of the country, although the Mandate can set out the high level aims for the allocation process. The current mandate, for instance, requires the allocation of resources to have regard to equal access for equal need, draw on independent advice and take account of the importance of stable funding. Allocation decisions also need to be consistent with NHS England’s legal duties, in particular to have regard to equality of access to and outcomes from healthcare.

70                    We were pleased that the NAO recognised NHS England’s efforts in their recent report[6] on allocations when they said, “The Department and NHS England’s approach to allocating funding for healthcare is generally sound. There have been some improvements since 2011, including greater transparency, and decisions continue to be informed by independent, expert advice.“

71                    NHS England and its Board take their responsibility for allocations extremely seriously.  Since taking on responsibility for allocations policy, NHS England has delivered major changes to improve the way resources are allocated, including introducing a novel approach to pace-of-change which focuses £500 million on those areas furthest below target or with the fastest-growing populations.  Our new approach to adjusting allocations for unmet need has a finer resolution, so CCG allocations will now recognise small areas of affluence or deprivation when setting the overall allocation for a CCG.

72                    Looking ahead, for 2015–16 we are making the GP related areas of the primary care budget available for co-commissioning (either through joint arrangements / pooled budgets or full delegation).  The intention is to create the ability to influence greater integration at a local level and for CCGs to have a greater influence over commissioning decisions in primary care.

73                    For 2016–17, we anticipate developing a place-based funding formula to support the understanding and allocation of funds in respect of all NHS spend for a geographic area.  This will include primary care and specialised care as well as core CCG services.

Allocations policy in general

74                    For 2014–15, NHS England allocated money separately to CCGs for secondary and community care, and to its Area Teams for primary care (pharmacy, medical, ophthalmic and dental), and separately for specialised services commissioning.

75                    In each case, local allocations are based around four key decisions:

•      the baseline (the historic position with some adjustments for changes in responsibilities);

•      the quantum (the overall size of the budget for each commissioning stream set in the context of the Mandate);

•      the target share of resources for each organisation/unit within the commissioning stream in question; and,

•      the pace-of-change policy (the rate at which individual allocations move towards target).

76                    The first of these can largely be taken as a given. The quanta for CCG, primary care and specialised services commissioning are set by the Board of NHS England within the constraint of the overall funding mandated to NHS England by the Department of Health. The allocations process is intended to ensure in each case that each organisation within a commissioning area (a CCG or an area served by an Area Team) gets its ‘fair share’ of the total quantum available; not to determine what level of funding would be required to fully meet all health needs.

77                    To better determine the target share of resources, NHS England carried out a fundamental review of its allocations and identified a number of improvements, which were agreed by NHS England’s Board in December 2013 and put into practice to set the target funding in the allocations for 2014–15 and 2015–16.

78                    The Board agreed a number of significant changes to the approach taken for PCTs, including: moving the basis for the CCG allocation formula to a person-based methodology; strengthening the approach to adjusting for unmet need; and, adopting a policy on pace-of-change for CCGs that explicitly considers the impact of rapidly changing populations.

79                    Historically, 10% to 15% of PCT allocations had been targeted on the basis of disability-free life expectancy (DFLE), on the assumption that a low disability-free life expectancy in an area could be improved by greater access to healthcare.  The independent Advisory Committee on Resource Allocation (ACRA) recommended that the Standardised Mortality Ratio for people under 75 years old (SMR<75), a measure of how many more or fewer people than average die before the age of 75 in each locality (after adjusting for age structure of the local population) would be a better measure of unmet need. This is the same approach which is used for public health allocations. A key advantage of SMR<75 in comparison with DFLE is that the data is available for smaller geographical areas.  This means that allocations based on SMR<75 can more accurately reflect small pockets of unmet need in otherwise healthy areas, or vice versa.  The Board also chose to apply this adjustment to primary care allocations. The Board agreed a 15% adjustment for unmet need in primary care allocations and a 10% adjustment in CCG allocations.

80                    There were also a number of individual changes, particularly to the CCG allocation formula, which are discussed in more detail below.

Allocations to clinical commissioning groups

81                    The CCG fair-shares formula covers £64.3 billion or 66% of NHS England Mandate funding in 2014–15. The current formula is based on advice from ACRA as part of a detailed review in 2013, which made several recommendations to improve the formula to reflect NHS England’s strategies for outcome improvement and inequality reduction.

82                    In determining need, the formula applies a person-based approach, taking in to account:

•      the size of the population;

•      adjusting for need due to age of population (the more elderly the population, the higher the need per head, all else being equal);

•      adjusting for need due to health of population over and above that due to age (past diagnoses and other information about the nature of the local population); and,

•      finally, an adjustment to reflect the relative costs of delivering healthcare due to location is applied.

83                    This formula sets a target for the per capita allocation for CCGs, so target allocations should track population growth.  NHS England is committed to moving all CCGs towards their target allocations; in December 2013, the Board discussed how to balance the risk of destabilising health economies which are over their target allocation by moving too quickly towards target allocations against the benefit to those health economies which are under target.  The Board also considered how under-target economies could manage rapid increases in funding.  The Board decided that the best approach would be to ensure that all CCGs got at least a real terms increase in their funding, but to invest £500 million over two years in moving towards target allocations.  If this were to be continued beyond 2015–16, by 2018–19, only ten CCGs would be more than 5% below their target allocations.

84                    The formula is based on current utilisation of services: due to data constraints, this is based on hospital utilisation data rather than utilisation of health services more broadly.  This is then adjusted for factors that affect utilisation, but are not linked to need, such as proximity to a provider.  However, this still leaves a possible gap in estimating need where need is systematically unmet.  This is recognised as one of the key challenges for a utilisation-based model.  We have already discussed the adjustment for unmet need which is intended to address this challenge.

Other allocations

85                    Resources for primary care, covering primary medical services (GPs), primary dental services, community pharmaceutical services and primary ophthalmic services; and totalling £12.0 billion in 2014–15, are set through a separate formula.

86                    Allocations for the largest element, primary medical services, are based on the Carr-Hill formula. This is largely based on need, reflecting the number of patients registered and age-gender mix of the practice, as well as factors related to the health status of the population.

87                    A distinct component of the overall allocation formula has been developed for dental services, based on an age-cost curve by deprivation index for those accessing NHS dental care, and community pharmacy services, which uses the prescribing formula used in CCG allocations as a proxy for the cost of community pharmacy services.

88                    Specialised services are nationally commissioned to a common standard.  Area Teams have a relationship with providers in their area, rather than providing services for a specific population.  Resources are therefore determined by patient referrals (reflecting ‘need’) and constrained at national level rather than being subject to local allocations.

Ongoing work

89                    Some have suggested that the CCG allocation formula should also take into account population density or ‘rurality’. NHS England has not so far found a robust and evidence-based way of making such an adjustment, but they continue to keep this under review.  Similarly, NHS England continue to monitor the impact of the adjustment for unmet need in primary and CCG allocations.

90                    Currently, the split between primary, secondary and specialised allocations makes it difficult to understand how much the NHS is spending on the population in a given geographical area.  In the longer term, NHS England is considering how to improve the transparency of the allocations in this respect while retaining the recent improvements (described above) to CCG and primary care allocations.

2.8        The impact of competition on the quality of NHS services

91                    Under this Government, competition between providers of NHS services has been pursued on the basis of competition for quality, on the basis of fixed national tariffs. Conventional economic theory would hold that this should act to improve quality as compared to monopolies of provision. There is also some academic evidence that competition between providers leads to an improvement in quality.

92                    There are important caveats. First, the NHS is very complex and the measurement of ‘quality’ is far from perfect. Second, because of this, studies have focused on one or two areas of activity (heart disease, or more recently hip replacements). And third, it is very important not to give providers an incentive to focus on simplistic measures of quality, to improve their market position, while neglecting others, or the bigger picture.

2.9        The nature and extent of management costs in the new NHS structure

93                    Management costs form part of the overall administration cost controls defined and set by HM Treasury at the 2010 Spending Review to ensure that government departments have a consistent approach to recording and controlling this type of expenditure.

94                    The scope of the Department of Health’s administration costs is limited to the core Department, its arm’s-length bodies (ALBs) and the commissioning sector (NHS England and clinical commissioning groups).

95                    The Department has over the last three years (2011-12 to 2013-14) delivered the Government’s commitment to increase the level of health expenditure in real terms. The latest published accounts show that in 2013-14 TDEL spend (Total Departmental Expenditure Limit) increased by 2.6% to £109.8 billion, and 3.9% in real terms cumulatively from 2010–11.

96                    However, the 2010 Spending Review also set the Department the challenge of reducing its total system administration cost by one-third (in real terms) during this parliament. The actual outturn compared with the trajectory set in the revised Impact Assessment for the Health and Social Care Bill in September 2011 is shown in table 5.

Table 5: Administration cost outturn (£ million)

Source: Table 4, Department of Health Annual Report and Accounts 2013–14 (all figures do not include depreciation.)

97                    Administration costs in 2013–14 were £517 million lower than forecast in the Impact Assessment because:

•      the Health and Social Care Act 2012 reforms continue to deliver faster administration reductions allowing for more spending on frontline services;

•      transition/reform related costs in 2013–14 were lower than originally forecast; and

•      contingency factored into the Impact Assessment for potential classification issues between administration and programme expenditure was not needed.

NHS commissioners

98                    The majority of the administration costs lie within the NHS commissioning sector. Outturn in comparison with wider NHS expenditure is shown in table 6.

Table 6: Administration cost nature (£ million)

99                    The Health and Social Care Act reforms have significantly reduced spending on management by NHS commissioners. In 2013–14, NHS commissioners spent 2.0% of recurrent revenue funding on administration, which compares favourably with other international health systems: the OECD reports that in 2012, Germany spent 5.2% of health spending on central administration, while in France the total was 5.8%.

100                In 2013–14, NHS commissioners (NHS England and the 211 CCGs) had a Mandated limit of £2.02 billion for administrative spend, within which NHS England had a limit of £676 million.  Final outturn for NHS commissioners as a whole was £1.90 billion, a saving of £118 million against the Mandated total largely reflecting delays in filling posts in the new organisation and lower transition costs in the context of delays to changes in the reconfiguration of primary care support services.

101                In 2014–15, NHS commissioners have a Mandated limit of £2.14 billion for administrative spend, of which NHS England has a separate limit of £525 million.  The limit for administrative spend is higher in 2014–15 than 2013–14 because it now includes provision for the Quality Premium to CCGs, which is funded from administrative spending.  We expect that the majority of Quality Premium funding will in fact be spent on delivering healthcare (i.e. programme spending), not administration. At the end of August 2014, NHS commissioners are projecting that total administrative spending for the year will be £1.93 billion, excluding the Quality Premium.

102                NHS England is currently implementing an Organisational Alignment and Capability programme to reduce its running costs by a further 10% from 1 April 2015.

2.10    What has been the cost of PFI agreements to the NHS over time

103                A summary of the annual cost of PFI (private finance initiative) unitary charge payments made by NHS bodies (NHS trusts and NHS foundation trusts), covering the 103 schemes in the hospital and acute sector, is shown in table 7.

104                Information on the estimated annual revenue payments for the lifetime of each NHS PFI contract can be found on HM Treasury’s website[7].

105                These estimates are the latest collected from government departments for the year ending March 2013; the health sector schemes are marked as ‘Department of Health (Group)’ and then ‘Hospitals and Acute Health’. The initial capital cost of each scheme is shown in column R and the annual revenue payment in the columns headed ‘Unitary Charge Payment’.

106                The revenue payment figures include not just the financing costs for initial construction but also the costs of all the other services such as building maintenance and support services (cleaning, catering, porterage etc.) provided over the lifetime of the contract. The payments are subject to meeting agreed performance and quality standards and include an annual uprate assumption for inflation of 2.5%.

107                This Government believes that too many PFI schemes were allowed to proceed under the last administration and some were over-ambitious in scope. The focus must now shift to driving through efficiency gains and savings at the many PFI schemes which are now operational. Savings achieved will be retained locally to be reinvested in front-line services.

108                We remain committed to private sector involvement in delivering infrastructure and services and are continuing to take forward investment in health infrastructure with a focus that is now very much on value for money and delivering investments that are financially sustainable.

109                Existing NHS PFI schemes are having their contracts reviewed for potential savings. In June 2013, a code of conduct was agreed with private sector parties involved in the PFI/PPP industry to work together to make savings in operational projects.

110                All future schemes will have to follow the new reformed Private Finance 2 (PF2) model announced in the 2012 Autumn Statement and new stricter appraisal criteria for these schemes will apply so the costs of PFI proposals will not risk a trust’s viability.

Table 7: Aggregated cost of PFI agreements to the NHS (Unitary Charge Payments), 1999-2000 to 2012-13

Source: HM Treasury

Notes:

1. 1999-2000 was the first year a unitary charge payment (UCP) was made.
    
2. This data aggregates the individual amounts of 103 schemes in the hospital and acute sector of the NHS.
    
3. UCPs should not be confused with the capital costs of schemes. The capital value is the total funding requirement for a project as at the date of financial close of individual contracts. It reflects the aggregate debt and equity finance in a project, plus any capital contributions made by the public sector. Unitary charges include payments for ongoing services (e.g. maintenance, cleaning, catering and security) associated with these projects, as well as repayment of and interest on debt used to finance the capital costs.  Unitary charges therefore represent the whole-life cost associated with the projects. The capital costs recorded for PFI projects and conventionally procured projects do not include these ongoing costs.

3         LONGER TERM ISSUES

3.1      The possible funding options for the NHS for the long term, including international comparisons

111                The Government has been able to ensure real terms growth in funding over this parliament, in spite of the stark fiscal challenges we continue to face. NHS funding in England will be almost £15 billion higher in cash terms in 2015–16 than it was in 2010–11. Budgets have not been set beyond 2015–16 and decisions on future funding will be for the next Government as part of the next Spending Review.

112                Rising demands and continued fiscal constraint mean that the NHS - along with many other health systems internationally - faces challenges in ensuring that it remains financially sustainable in the future. The Government believes that the answer to these challenges lies in changing the way services are delivered and keeping people well and independent for longer. While we are always keen to learn from international experience, the principles of the NHS, enshrined in the NHS Constitution, include that it provides a comprehensive service available to all based on clinical need and that NHS services are free of charge, except in limited circumstances sanctioned by Parliament.

113                The Five Year Forward View for the NHS sets out the scale of this challenge.  NHS England, Monitor and independent analysts all agree that growing demand means that if funding remained flat in real terms and no further efficiency savings were made, a gap of £28 billion would open by 2021 between patient demand and resources to deliver services.

114                In the Forward View, organisations from across the NHS have set out their proposal to respond to all three elements of this challenge:

•      On demand, the Forward View sets out an ambitious programme to improve public health and patient’s engagement with their own health: people who are eating well, exercising regularly and drinking moderately are less likely to have medical problems later.

•      On efficiency, the Forward View sets out an ambition to more than double the historical rate of productivity improvement in the NHS and to sustain this improvement to 2021, so that the NHS can do more with the resources it already has.

•      On funding, the Forward View shows that based on the plans for demand and efficiency, the projected gap in 2021 can be closed if funding is between flat real (in per capita terms) and flat as a proportion of GDP.

115                This is an ambitious programme to ensure that the NHS remains sustainable through the end of this decade, but the NHS cannot deliver it alone.  The Forward View is clear that closing the gap in this way will require a new Government to be disciplined in the new policy goals it sets for the NHS; an efficient and effective social care system; and public support for the changes to care delivery which are needed to make these efficiency improvements.

3.2      To what extent is it a realistic option to merge NHS and social care eligibility and funding as set out in the Barker Review

116                The Barker Commission sets out a number of proposals which change the mechanism for funding for health and social care, and to significantly increase Government spending. Within the current legislative framework it would not be possible to merge NHS and social care funding in the way suggested by the Commission. Any change to this would need the introduction of Primary legislation.

117                The Barker Commission sets out eligibility criteria for social care which are broadly similar in definition to those being used to implement the Care Act reforms, categorising needs as ‘critical’, ‘substantial’, ‘moderate’ or ‘low’, with the offer of care and financial support focusing on critical and substantial in both cases.

118                The Commission does not recommend changes to the current NHS eligibility criteria, which are based on being ordinarily resident in the UK.

119                The Government considers that it is already undertaking an ambitious programme of integration of health and social care with the creation of the Better Care Fund, which pools at least £3.8 billion to improve outcomes for the public, by helping health and social care services work together to meet individuals’ needs.

120                Furthermore, the Integrated Personal Commissioning programme (discussed in more detail at paragraph 131) aims to build our knowledge on how all of an individual’s health and social care funding can be brought together, giving people with complex needs and disabilities more control through person-centred care planning and personal budgets. It brings together and builds on work that has already started in the integration pioneer sites, in places that have taken the lead in implementing personal budgets in the NHS and self-directed support in social care. The aim is to improve quality of life, enable people to achieve outcomes that matter to them and prevent crises in people’s lives that lead to unplanned hospital admissions or institutional care.

3.3      The potential impact of the extensive use of personal budgets on the funding and planning of health and social care services

121                We want to give people more control over the health and care services they receive. To that end we have been promoting greater personalisation in how services can be accessed. In essence this means building support around an individual and providing them with more choice, control and flexibility in the way they access and receive care and support.

Personal budgets in social care

122                For a number of years across social care, personal budgets have been in place providing this exact type of independence and control to people and carers, allowing them to make informed choices about how their individual care and support needs are met. We have seen a steady rise in the take-up of these budgets in recent years. Evidence shows that implemented well personal budgets can improve outcomes and deliver better value for money[8][9][10][11].

123                The Care Act places personal budgets into law for the first time, making them mandatory as part of the care and support plan for people with social care needs. From April 2015, everyone will be able to benefit from the increased choice and control that personal budgets provide.

Personal health budgets

124                Personal budgets are well established in social care, but are relatively new in the NHS. Personal health budgets are not about new money but rather about using money that would have been spent on a person’s care differently, in ways that work for the individual. They centre around a care plan which is agreed between the individual (or their carer) and the NHS. They may be spent on services routinely commissioned by the NHS and/or on goods and services that are not, depending on the individual’s needs and preferences. Once the care plan has been  agreed, there are three ways to  manage the  personal budget to deliver the agreed care plan:

•      A notional budget:  the NHS continues to hold the money, and commissions the agreed goods and services on the individual’s behalf.

•      A third-party budget:  an independent organisation holds  the budget and arranges and pays for the agreed goods and services on the individual’s behalf.

•      A direct payment:  the individual or their representative holds  the budget and arranges and pays for the agreed goods and services.

125                Where the NHS continues to hold the personal health budget on the individual’s behalf, the responsible commissioner needs to comply with procurement regulations in the same way as it does when it procures any other NHS healthcare services. Where a third party or the individual (or their representative) manages the budget, the commissioner still needs to be satisfied that it is meeting its obligations under the procurement regulations. This is achieved through the care plan, which sets out how the budget will be used and is signed off by the NHS as being an appropriate way of meeting the individual’s needs. Personal health budgets and the Integrated Personal Commissioning raise issues around the difference between evidence-based commissioning at population level and commissioning at the level of the individual. We will  need to consider these in more detail as we develop IPC and PHBs.

126                The evaluation of the personal health budget pilot programme[12] showed that personal health budgets were cost effective, they improve care-related outcomes (such as being able to carry out activities of daily living and feeling in control) and psychological well-being. Personal health budgets made no difference to health status – but there was evidence of reduced use of hospital which suggests that people were able to manage their condition better, and have fewer crises.   In addition, the national personal budget survey[13], over 70% of people taking part said that having a personal health budget has had a positive impact on their independence.

127                People receiving NHS Continuing Healthcare will have the right to have a personal health budget from October 2014. Although around 60,000 receive NHS Continuing Healthcare, it is anticipated that about 10% of these individuals are likely to receive a personal health budget[14]. Currently the NHS commissions the majority of NHS Continuing Healthcare services from a third party, for example an independent care agency or nursing home and so we anticipate the impact of personal health budgets on NHS services will be minimal for this group of individuals.

128                As personal health budgets are rolled out beyond NHS Continuing Healthcare to others with long-term conditions, this will change: as take-up of personal budgets increases, patients will have a greater opportunity to choose goods and/or services that suit their needs and preferences. In the long term, this is positive for NHS budgets and planning: it will shift money away from NHS services which are not meeting patients’ needs and towards goods and services  that can do so, and it will give NHS commissioners a new form of direct feedback on what  patients need and want.

129                Despite these long-term benefits, there are short-term risks involved in the shift to personal health budgets.  For example, there is a risk of double-running costs in the transition from the old services to personal health budgets.  We are confident that these risks can be managed by CCGs through their normal strategic planning processes, starting with NHS Continuing Healthcare and then, once local systems are robust, extending personal health budgets to others who can benefit. The evaluation showed that personal health budgets result in a switch away from spending on acute care, towards community-based services and support: a switch from unplanned reactive care to a more proactive approach[15]. This is in line with current goals and priorities for the NHS, in particular to prevent unplanned admissions. As personal health budgets are rolled out and their take-up increases, they will need to be included in CCGs’ strategic and financial planning and considered as part of CCG assurance processes.

130                NHS England and DH are currently exploring how to set expectations around eligibility for personal health budgets as they are not right for everyone nor are they right for every type of NHS care someone may need, for example unplanned care (such as A&E attendance or hospital admissions), GP services and medication.

Integrated Personal Commissioning

131                The Integrated Personal Commissioning Programme (IPC)[16], announced in July 2014, aims to bring together all of an individual’s health and social care funding, giving them more control over how this money is used through person-centred care planning and personal budgets. The ultimate aims of the programme are to:

•      Allow people with complex needs and their carers to have a better quality of life and achieve the outcomes that are important to them and their families through greater involvement in their care, and being able to design support around their needs and circumstances.

•      Prevent the types of crises in people’s lives that lead to unplanned hospital and institutional care by keeping them well and supporting self-management as measured by tools such as ‘patient activation’ – so ensuring better value for money.

•      Provide better integration and quality of care, including better user and family experience of care.

132                The programme will run for three years from April 2015 and will give more insight into the potential of personal health budgets and the impact of them on services beyond NHS Continuing Healthcare.

3.4      The potential impact of the Transatlantic Trade and Investment Partnership (TTIP) on the NHS

133                The Department is clear that the Transatlantic Trade and Investment Partnership (TTIP) will not affect the ability of the NHS at local level to decide who should provide services for patients. It will remain up to local NHS commissioners to decide who should deliver services, based on what is in the best interests of their patients.

134                The USA is the largest export market for British goods and services, and a successful TTIP could boost the UK economy by as much as £10 billion each year. As much as £1.6 billion of goods and services are traded between the USA and Europe every day – to which 13 million jobs are linked. TTIP will benefit the EU economy by up to £100 billion.

135                To this extent, the Department believes that health should be included in the scope of the negotiations, to allow our world-class pharmaceutical and medical devices sectors to benefit from the improved access to the USA market that will be secured through the agreement. However, this is not the same as the TTIP having any direct effect on the existing legal and regulatory framework for decisions about whether services should be contracted out or not.

136                The UK’s objective in free trade agreement negotiations, including TTIP, is to maintain commitments in health services that are broadly in line with our existing obligations under GATS, including specific safeguards that protect the right of member states to decide how best to run their public services, including health.  These agreements have not impacted on the ability of governments to provide public services because, although they may allow companies to provide health services in the UK to private consumers, they do not require governments to open public health services to private providers.

137                To further support this, the TTIP negotiations on investment protection and ISDS in the agreement will be negotiated carefully to preserve the right of the Government to regulate in the public interest, while still offering international investors access to justice if they feel they have been discriminated against unfairly.

138                The European Commission through Ignacio Garcia Bercero wrote to John Healy MP reiterating the rights of EU member states to manage their health systems according to their various needs

3.5      Whether longer contracting periods are feasible and whether they would reduce costs and improve the quality and cost effectiveness of service

139                It is for commissioners to determine locally the appropriate duration of the contracts they wish to offer.  NHS England’s contracting guidance already allows longer-term commissioning contracts, and NHS commissioners have in practice used these for many years in specific circumstances. Longer-term contracts currently tend to be used more where there are competitive procurements.

140                Whichever approach commissioners decide to use to secure clinical services, the duration of a contract should only be as long as it needs to be for the commissioner to secure good value, reflecting local circumstances. This equally applies where commissioners decide to take up any existing contractual provision to extend the duration of a contract beyond the original term. The key is for commissioners to consider what is in the best interests of patients and securing value for money, and to be able to objectively justify their individual decisions.

141                Longer-term contracts do appear to offer potential benefits in terms of a stronger focus on health and service improvements sustained over time, with greater certainty and continuity for providers to help achieve this. Longer-term contracts provide more scope for outcomes-based commissioning for populations, year-of-care models and other innovative approaches aimed at achieving better results for patients and greater efficiencies through appropriate long-term incentive and payment structures.

142                Under a longer-term contract, providers may have more scope to make the necessary investment to secure lasting transformation of services – and to achieve reduced costs of finance for such investment. There is also a reasonable expectation that use of longer-term contracts would reduce the administration costs for both commissioners and providers, although each contract would still need to be reviewed and varied as necessary to reflect changes in requirements, demand and central policy.

143                There is also an interconnection between the ability to move to longer-term contacts and longer-term certainty over: firstly, commissioner financial allocations; and secondly, national tariff levels. Monitor and NHS England have been reviewing the optimum cycle for tariff-setting, and greater stability in this area may encourage more long-term contracting arrangements to develop.

144                However, there may be some situations where longer-term contracts are unlikely to be beneficial – where the commissioner identifies only a short-term need for a service or where the up-front costs to providers are low enough for these not to be a deterrent to entering the market.

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