1. Supporting GP Consortia
NHS EAST MIDLANDS
Workshop materials
November 2010
CONFIDENTIAL AND PROPRIETARY
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2. Four key issues to solve to get GP commissioning right
Focus today
Control: Ownership over delegated budgets both for improved services and managing performance
Management cost: Balance need for local relationships and scale
Risk: Pool and cap within NHS
Performance: Manage the money and outcomes at practice and cluster level from day one

3. Contents
An approach to management cost
An approach to financial risk

4. 7
GP consortia commissioning costs are projected to be about £28 per head after management cost reduction
£ per head
Management costs
Non-management costs 37 28 17 17
All spend1
Non-GP consortia commissioning costs2
Initial consortia commissioning costsInitial consortia commissioning costs
45% mgt costs reduction45% mgt costs reduction
Final consortia commissioning costsFinal consortia commissioning costs
1 All commissioning spend, i.e., excluding all provision spend and all training spend
2 Commissioning Board, Local Authorities
Note: If GP management costs allowance is calculated using management costs definition, the following commissioning costs would count as “non-management” and be excluded: pay costs for non-managers and for managers paid below the salary threshold (~£30k); non-pay costs of GP commissioning, including relevant proportion of shared services, clinical governance

5. Current NHS commissioning costs are already at the lower end of international health systems
WORK IN PROGRESS
Operating costs as a % of total health costs, 2009
# managers per 250k patients that this funds1
Mexico
New Zealand
United States
France
Germany
Netherlands
Belgium
Slovak Republic
Slovenia
Canada
Austria
Czech Republic
Spain
Korea
Current NHS
Estonia
Finland
Iceland
Poland
Sweden
Hungary
Norway
Italy
1 250k chosen as representative of small PCT. Calculation assumes average all-in pay costs of $75k / £50k for managers
SOURCE: For non-UK countries: OECD 2010 HC7 – expenditure on health administration & insurance; CIA world factbook (population); UK data not in OECD analysis, so for current NHS, £64 per capita mgt spend used: team analysis

6. Larger consortia can invest more in commissioning staff and resources
Larger consortia can invest more in commissioning staff and resources
£20 per head 14
A consortium covering 500,000 lives could fund up to ~120 posts
A minimum size is required for a budget that breaks even on fixed costs (approx. 150,000 lives)
Larger sizes then allow for more budget that can be spent on managers and other resources etc.
How many managers will you need? What roles will they play? E.g.
Accountable officer
Finance director
Medical director
Strategy
Operations (contracts)
etc. 13 12
A consortium covering 250,000 lives could fund up to ~50 posts 11 10 9
A consortium covering 50,000 lives could struggle to cover its fixed costs 8
Management allowance (£m) 7 6 5 4 3 2
£1.6m fixed costs 1
Population
Note: assumes fixed Board costs of £1m, fixed clinical staff costs of £0.6m, and all-in staff costs of £70k per person
SOURCE: McKinsey analysis

7. Suggested questions to discuss1
Is this sufficiently clear?
What are the tradeoffs of a multi-tier arrangement? If you choose to pursue it, what happens at which level? 2 3
What information do you need to make decisions on tradeoffs?

8. Contents
An approach to management cost
An approach to financial risk

9. There are four major sources of financial risk...
Source of risk
Description
Implications
Management risk
Consortia can directly control via continuous performance management
Variation driven by differences in medical prctice
Consortia may mitigate by being larger, if they cover areas with different demand; DH can reduce via allocation formula
Demand risk
Variation due to differences in medical demand in the consortium catchment area
Supply risk
Variation driven by differences in provider structure e.g. Hospital density
Consortia may mitigate by being larger in size, if they cover areas with different provider structure
Intrinsic risk
Variaiton not driven by any distinguishable factor e.g. Random statistical variation
Consortia can mitigate by being larger in size
SOURCE: McK Medical Risk Group

10. …and they will cause deficits in some consortia
…and they will cause deficits in some consortia
Surplus
Deficit
Estimated surplus/deficit for individual GP Practices (2007/08)
GP practices
Percent
Estimated surplus/deficit at GP Practice level is based on ‘fair share’ of PCT budgets (needs weighted population), and share of commissioning spend
Practices are much more susceptible to variations in spend due to their small size, and so have very wide range of performance (surplus/deficits up to +/-30% of budget)
Total deficits are £3.1bn
Example: GP Practice A
Sum of deficits: £3.1bn
Example: GP Practice A, with 10,000 patients and 4 GPs, would have £2m deficit: that’s £0.5m deficit/GP or £200 deficit/patient - - - - - - 60 50 40 30 20 10 10 20 30 40
Surplus/deficit
Percent
SOURCE: DH PBC toolkit 2010/11; DH Exposition Books 2007/08

11. There are four levers that will be used to manage the risk
What this means
Use the right allocation formula
Government must set allocation formula to match underlying needs of population as closely as possible
Never 100% matched to underlying needs, but can be tweaked
Sets context for GPCC operations
Increase scale appropriately
Financial risk falls as consortium size increases
However, it can be tougher to ensure strong mutual accountability in large organisations
Consortia could pool together a contingency in case of problems
Reinsure
Ensure operational excellence
Consortia can cut costs, and thus reduce risk of failure, by ensuring operational excellence
This should be main day-to-day focus of commissioners
SOURCE: McK Medical Risk Group

12. Financial risk falls as consortium size increases
Example: Consortium A of 10,000 lives would have a deficit every 1 in 3 years
Probability of being in deficit by 1% of budget or more
Example: Consortium B of 300,000 lives would have a deficit every 1 in 20 years
1,000
3,000
10,000
30,000
100,000
300,000 1M
Size of consortium Population
SOURCE: McKinsey Medical Risk Group, Monte-Carlo-Simulation based on actual 2008 data of German payor

13. Reinsurance could significantly reduce risk, but at a material cost Example: NHS reinsurance pool for high cost patients set at threshold of 30x average costs
Consortia with deficits > 1% of income
Percent
Example: if consortia covered 30,000 lives, the fraction who would have deficit >1% would be:
35% if consortia retained all the risk
21% if consortia retained 80% of risk
7% if consortia retained 60% of risk
2.4% if consortia retained 40% of risk
0.4% if consortia retained 20% of risk
0% if consortia retained no risk
% of risk retained by GPs
[premium as % of income]
100% [0,0%]
80% [0,9%]
60% [1,8%]
40% [2,6%]
20% [3,5%]
0% [4,4%]
1,000
3,000
10,000
30,000
100,000
300,000
1 Mio
Size of consortium Number of lives covered
SOURCE: McKinsey Medical Risk Group, Monte-Carlo-Simulation based on actual 2008 data of German payor

14. Suggested questions to discuss1
Is this sufficiently clear?
What would be the consequences of a risk coming to fruition, e.g., a deficit occurring? 2
Can you pool together to reduce risk? What would that mean in practice? 3