Rationalizing Acute Care Services

Pauline Mistry

• Publisher: CRC Press
• Year: 2018
• ISBN:
  9781315349084
• Edition: 1
• Topic: Medicine
• Subtopic: Public Health, Administration & Care

Rationalization is concerned with making the most effective use of the resources available. In many places where this process is taking place it is plagued with public opposition and misunderstanding. Hitherto rationalization in the acute care sector has primarily been concerned with closing sites closing beds moving beds between services and moving beds from one site to another. This book discusses the need for rationalization in the context of health service reforms and future strategy. It considers recent changes in the health service the case for rationalization health care needs the role of public relations the future of the acute care hospital site and facilities appraisal and the costs of rationalization. The text is essential reading for managers and clinicians involved in acute care services non-executive members of boards and trusts and students of health services management.

1

Summary of changes in the NHS over the past decade

Introduction

In order to place the present rationalization of acute care services in perspective it is essential to understand the changes which have taken place in the National Health Service (NHS) over the past decade, and in particular the NHS reforms of 1990. This chapter describes these changes and their impact on the organization and current operation of the NHS.

For the first 41 years of its existence (1948–89), the NHS was centrally directed and managed. The reorganizations that did periodically take place were designed to improve the organization and management structures and not aimed at improving efficiency or financial performance. The first move in the direction of improved performance was the Griffiths Report of 1983. This introduced general management into the NHS in an attempt to respond to variations in efficiency and the lack of attention to quality.

Throughout the 1980s expenditure on the NHS grew in real terms, but the funding was not sufficient to meet the increasing needs of an ageing population and advances in medical technology. One of the most influential analyses of the NHS in the 1980s was made in 1985 by the American economist, Alain Enthoven¹; he suggested that the pressures which faced the NHS were:

• the prospects for real growth in the level of resources devoted to the NHS were limited
• the NHS would continue to face pressures for increases in service levels due to demographic factors and the increasing costs of new medical technology
• the solution would be to improve the effectiveness of the service within the limited resources available; however, there were barriers to achieving this, namely:
  • – a number of forces in the NHS – in particular its professional staff – made it difficult to bring about change
  • – other than job satisfaction the system contained no incentives, for managers in particular, to deliver better quality care at lower cost. In fact it contained a number of perverse incentives whereby inefficiencies were rewarded by the allocation of greater resources.

The funding shortfall became particularly critical in 1987 and the greatest impact was on acute hospital services. Many district health authorities (DHAs) had to take actions such as closing wards and cancelling non-emergency admissions in order to stay within cash limits. It should be kept in mind that at this time hospitals were provided with fixed budgets regardless of the number of patients treated. Thus the most productive hospitals frequently ran out of funds as expenditures increased according to the number of patients treated.

In December 1987, following much adverse publicity associated with the impact of the funding shortfall, the government committed an additional £101 million to the NHS and the Prime Minister organized a broad review. The result of this review was the White Paper Working for patients, published in July 1989, and after consultation legislated through the NHS and Community Care Act of 1990, and made operational from 1 April 1991.

The 1990 NHS reforms

The main features of these reforms were:

• the separation of the purchaser and provider roles
• the creation of self-governing provider NHS trusts
• the transformation of district health authorities into purchasers of services
• the introduction of GP fundholding
• the introduction of contracts of service between purchasers and providers.

In summary, the reforms involved a transition from an integrated system of health services financing and delivery to a contracting system.

Underlying the reforms was the intent to challenge provider dominance and give greater attention to the needs of the patient and the public by introducing an element of competition into the system. Providers now had to compete with each other for contracts from purchasers, and district health authorities were allocated resources to buy services on behalf of the people living in their area.

The introduction of competition has encouraged providers to increase efficiency and to improve quality. The money follows the patient so income increases only in line with productivity. The separation of purchaser and provider roles evolved gradually over the first few years of implementation, but true competition could only be achieved if all units became trusts. As long as district health authorities were responsible for the financial solvency of their directly managed units, there was little incentive for them to move contracts from these units to other providers.

The first 57 NHS trusts were established in England on 1 April 1991. These included acute hospitals, community services, mental health, learning difficulties, ambulance services, and a combination of all these services. Whereas Working for patients had specified that trust status would only be available for acute hospitals with over 250 beds, it was quickly made clear that trust status was the preferred model. Accordingly a further 99 trusts were established in 1992, 136 in 1993, and by 1994 over 90 per cent of all services had trust status. On 1 April 1996 the last three directly managed acute care units achieved trust status.

Initially the performance of trusts was centrally monitored by the NHS Management Executive. This is now done by outposts of the NHS Executive, organized on a regional basis. Each outpost employs a small number of staff, the majority from financial backgrounds. The outposts are responsible for monitoring the financial performance of trusts, agreeing with them an external financing limit, and approving their annual business plans.

Alongside the district health authorities as purchasers are the GP fundholders (GPFHs). By April 1996 in England there were 3735 fundholding practices involving 13 423 GPs and covering 52 per cent of the population. To begin with, fundholding included a limited range of hospital services, drugs, and practice staff. In 1993 community services were added to include district nursing, health visiting, chiropody, dietetics, and some services for people with learning disabilities and mental illness. Gradually the number of elective procedures that fundholders can purchase has been increased, and as discussed later in this chapter, in April 1996 further changes were implemented to introduce three levels of fundholding.

The allocation of resources

Since 1991 funding has been allocated to district health authorities as purchasers of services on the basis of resident population; not, as before, to the providers on the basis of catchment population. Regional and district health authorities are allocated resources on a population-based formula, which from 1995–96 took account of:

• the age structure of the population
• health and socio-economic indicators from the 1991 census
• the higher costs of providing services in London and south-east England.

Initially the regional health authorities (RHAs) were responsible for making allocations to the district health authorities and family health services authorities (FHSAs). Since April 1996, when the regional health authorities were abolished, allocations are made directly to the purchasers from the NHS Executive.

Budgets for GP fundholders are set by the regional offices. Although there has been some progress on establishing benchmarks for allocations to GP fundholders, based on a weighted capitation type formula, budgets are still largely determined on the basis of historical level of activity for individual fundholders costed at local provider prices. Funds for GP fundholders are managed by the family health services authorities, but funding for hospital and community services is transferred from the district health authorities’ weighted capitation allocations.

The impact of contracting for services

The types of service contracts are shown in Box 1.1. Initially all contracts were block contracts and the development of more realistic contracts has been hampered by weaknesses in both information and costing systems. Many purchasers were also reluctant to enter into more sophisticated contracts; block contracts provided the advantage from the purchaser’s point of view of controlling expenditure. Most contracts are now of the cost and volume type.

Contracts with DHAs were initially priced on a cost per case basis by specialty, with only limited analysis at the sub-specialty and case mix level. Work is now ongoing to develop a common costing approach across the country based on health care resource groups. These are groups of procedures within a specialty which use a similar resource profile, and their development will facilitate cost comparisons between different provider units. Contracts with fundholders are costed and priced for the operative procedures they can currently purchase.

Box 1.1: Types of service contracts

Block contracts

The DHA or GPFH pays the hospital (or other provider) an annual fee in instalments for the provision of a range of services defined in terms of overall workload and costs. Small changes in the number of patients treated does not affect the cost of the contract.

Cost and volume contracts

Payment is guaranteed up to a percentage of contractual workload and, thereafter, made on the basis of actual numbers of patients treated.

Variable

Payment is made on a cost-per-case basis and is used to fund individual treatments outside the terms of a regular agreement. GPFHs make extensive use of this facility.

Extra contractual referrals (ECRs)

These are all treatments for which no contract has been agreed. DHAs keep a reserve to cover their cost and all emergency ECRs are paid automatically. Any consultant can refer a patient to another consultant without seeking prior permission of the DHA. Nonfundholding GPs need to seek approval from the DHA before referring patients out of the local area for...

Table of contents

• Cover
• Title Page
• Copyright Page
• Dedication Page
• Contents
• Preface
• 1 Summary of changes in the NHS over the past decade
• 2 The case for rationalization of acute care beds
• 3 The future of the acute care hospital and the importance of strategic thinking
• 4 Understanding the catchment population
• 5 Analysis of current patient activity
• 6 Projecting bed needs
• 7 Site and facilities appraisal
• 8 The costs of rationalization
• 9 Public relations, communications, and consultation
• 10 Future uncertainties
• Index