Financial Considerations figure in option appraisal in two ways, value for money and affordability. Both have elements of subjectivity and our
current thoughts are set out below.
Value for Money
is the test we will seek to apply to which mix of sites to use to create the
LCH/CCH network. The perspective is that of an NHS Trust and their income and
expenditure account.
Affordability is
the test we will seek to apply to whether the LCH/CCH network is able to be
afforded by the NHS. The perspective is
that of a Primary Care Trust, and their funding stream.
Assessment of
value for money is made by assessing benefits against cost. Assessing the
options against the criteria produces a view of how each option ranks in terms
of producing a benefit. The choice of
which one to select as the preferred, value for money, option then has to bring
cost into the equation.
It may be that
the choice is to select the highest benefit option regardless of cost. But it may be that the second best set of
benefits is only marginally inferior to the best - but is a lot cheaper, and is
therefore best value for money.
In terms of
our NHS appraisal of sites, we will be seeking to establish the relative
capital cost of each option, and judge it against the benefits of each option.
Any difference
in capital costs will have an impact on the revenue costs, since the LCH/CCH
network will have to pay capital charges.
Most of the
other revenue costs will, however, be assumed to be neutral as between
sites. Staffing costs, drugs and medical
equipment, food, cleaning, maintenance etc are costs which are likely to vary
with the number of cases treated or the size of the facility, regardless of
where it is located.
The overall affordability of the LCH/CCH concept was set out in the Strategic Outline Case. It will need to be reworked for the Outline Business Case - partly as a matter of course (each stage in the Business Case process requires more detail) but partly because of changes in the policy context.
The following paragraphs are to share our thinking on the
issues involved:
1. How much more
work will have to be undertaken by the new network of LCHs supported by one
CCH?
The Strategic Outline Case estimated by 2010 about 15% more
work overall. We need to check these
projections for reasonableness in the light of demographics and the NHS Plan
targets for waiting lists - plus also our own target to keep people out of
hospital.
Under a new system of Payment by Results, to be introduced
in 2005, the income of LCH/CCH network will
be the cases it treats multiplied by a nationally fixed price per
case. Thus the income is no longer a
matter of negotiation with Primary Care Trusts, and realistic forecasts of
activity are key. 15% more activity
brings 15% more income.
Because of the new 'payment by results’ regime, the cost
base of the new network will have to be constrained to the income levels
forecast in steps 1 and 2 above. The
decision for the managers/planners is how to configure services to live within
that income.
The SOC was predicated on the fact that staffing is an
increasingly scarce resource in the
Instead the SOC models a modest increase in staffing levels
using the extra funding from extra caseload to pay for extra capital charges
(which in their turn pay for extra capital spending on new buildings in new
settings to work more efficiently).
If these calculations are correct, then the CCH/LCH
network is financially viable - i.e. its income can meet its expenditure. The calculations do need to be re-worked for
the Outline Business Case since they will be scrutinised by DoH officials and
potentially HM Treasury.
In particular at this stage of the Business Case process,
what needs to be explored is the relative cost of each site option. As long as the extra caseload can be
achieved, site selection which minimises capital spend is to be preferred to
more expensive solutions - since this would reduce expenditure from capital
charges without reducing income, and thus create a greater margin of safety in
the calculation of financial viability.
5.
But can the NHS afford the total extra
expense?
That is a different sort of affordability. Prior to the new financial regime, the
Primary Care Trusts were required to give their agreement to Business Cases -
exercising a judgement about whether they could afford any extra expense (e.g.
in Acute Care) in relation to the other demands on their budget (e.g. Primary
Care, Mental Health).
Under
the Payment by Results regime, that choice will not be open to them. If 15% more acute work is done - whether in a
new LCH/CCH network or the old Epsom/St Helier reconfiguration - they will have
to pay for it.
Since they can't negotiate what they pay per case, they can
only reduce their total spend by reducing the number of cases that progress to
acute hospitals.
6.
Should we build for 15% more patients?
The
earlier analysis raises two important questions:
·
Which option is likely to give the best chance of
controlling the volume of patients entering hospital for treatment?
·
If the volume of patients treated does not rise by
15% where does this leave the financial viability of the LCH/CCH?
The current view of the NHS is that a LCH/CCH network is
more likely than the current hospital configuration to offer PCTs the ability
to control the volume of patients entering hospital for treatment and the
length of time they stay when they are there.
This is because the LCH network of outpatients and diagnostics closely
interlinked with Primary Care is designed to move patients appropriately
through the system.
If the LCH/CCH does exercise control and as result
the volume of patients did not rise by 15%, then the income of the LCH/CCH
would be less: but the size of facilities which would need to be built would be
less (and so in consequence would capital cost and the revenue impact from
capital charges).
There
is a further policy initiative which alters the historic ground rules. Again from 2005, patients will be able to
exercise choice. This will be over many
dimensions of care, but in the context of the present appraisal the dimensions
that matter will be their choice of hospital.
So,
we are building for a future where either more or less than the current
patients of Epsom/St Helier might choose to use the new LCH/CCH configuration.
Alternative scenarios of the financial viability need to be
modelled.
Our intention
at this stage is to concentrate on
establishing the financial factors which would be influential in choosing
between sites for a
But these assumptions need to be explored in the OBC – so we decide what size to make the new LCH/CCH network (or perhaps, how to create the flexibility to keep the options of size open as we see how the 2005 policy unfold as regards patient choice and payment by results).