Finance Options for new PMS Contract

Transcription

1 Finance Options for new PMS Contract 1. Purpose of Paper This paper outlines the principles in pricing the new PMS contract specification, the four finance options for the pricing of the main contract elements and shows the estimated financial and service impacts. The option adopted will be the contract price offered to PMS contractors in the new contract. It recommends a preferred option and asks PCT executives/senior managers to support the recommended option. It asks for consideration of transitional income relief, the percentage relief to be used i.e. 75% in year 1 and 25% in year 2 over a proposed time period of 2 years. It asks for full executive backing to the contract proposal as potentially this could impact on GP involvement in other areas of PCT. If the recommended option is approved, the recurrent savings produced will contribute to the best value savings target and will be fully realised after the transitional income relief ceases at the end of the 2 nd year. It is expected that these savings will then be available for reinvestment in Primary Care and / or associated Primary Care services that maximise the reduction of health inequalities and strategic plan objectives 2. Background and National Context 2.1. Background The PMS best value project commenced in 2007 and an initial review of the existing contract demonstrated that there were inequities in funding between practices and inequalities in performance of the contract. Commissioners have produced a new PMS Service specification and contract aimed to resolve these issues and ensure the PCT achieves better use of resources in primary medical contracts with better outcomes for patients. The main focus for change was to achieve: Improved Public health outcomes Reduce inequalities Reduce inconsistencies in funding Value for money. New key performance indicators have been included the new PMS service specification aiming to: Be challenging but achievable Ensure incentives are linked to PCT objectives Improve health outcomes Share good clinical practice Be consistent and equitable Page 1 of 29

2 Ensure rewards reflect achievement Value for Money (VFM) Finance has analysed the contract payments for essential and additional services across GMS and PMS practices on a weighted price per patient basis. The aim was to understand potential inequities in individual contracts and inform the value for money of primary medical contracts. The methodology used to ensure a fair and appropriate comparison is attached Appendix 1. The financial benchmarking demonstrated: PMS practices received a higher average funding per patient than GMS practices, however there was also a wide range of funding within PMS and GMS practices: Average PMS cost per patient = 76 (Range is from 65 to 118) Average GMS cost per patient = 68 (Range is from 57 to 82) The above averages include growth monies (PMS) and MPIG (GMS practices). Growth monies awarded to PMS practices and included in the baseline comparison were not the sole cause of the disparities between practices although a contributory factor. When growth was removed from the comparison it was clear that there was still a large range in contract price. Figure 1 based on contract values shows that 8 of the 21 PMS practices received considerably more than the average PMS practice and 5 of the 30 GMS practices receive considerably more than the average GMS practice. This demonstrates that the PCT is not achieving value for money on at least 25% of its primary medical contracts. Figure 1 Page 2 of 29

3 Comparison of Cost per Weighted Patient of GMS and PMS Contractors PMS GMS Avge PMS cost Avge GMS cost Practices Table prepared prior to and exclusive of GMS uplift 2.3. VFM Implications on Service Delivery The benchmarking exercise demonstrated the disparity in contract prices, but it didn t consider the primary medical services being provided and how these impact on wider PCT resources. Some questions remained. Did the payment level affect the quality or range of services provided primary medical services under the contract? Commissioners have explored practice performance under the existing contract and have concluded that there is no correlation between practice performance and price paid per weighted patient. In December 2007 a review of contract payments and services provided by individual PMS contractors. It concluded those practices with higher funding per weighted patient or growth monies weren t delivering innovative services above those provided under a GMS Contract. It should be noted that this is a reflection on how growth was awarded to PMS contracts rather than non compliance by practices. Do the differing payments enable patients to be treated more effectively in primary care and thereby affect the utilisation of other PCT resources e.g. secondary care, prescribing costs? It isn t possible to attribute all commissioning costs to individual practices so this can t be answered conclusively however the table below shows the correlation between Page 3 of 29

4 weighted primary care cost per patient and the actual spend per 0.1 weighted patients in PBC budget areas. The main components at PBC budgets are secondary care and prescribing. The PBC spend is shown at 0.1 per patient to fit with the scale of the graph. This graph shows no consistent pattern between those GMS practices that earn a higher rate per weighted patient in primary care and spend for patients in secondary care and prescribing (blue lines for 30 practices). However there does appear to be a pattern where the highest paid PMS contractors spend less per weighted patient in PBC budgets areas (19 practices pink/purple line). Any number of reasons could contribute to this and no conclusions have been drawn as this is a simplified comparison. For the purposes of this paper the options look at contract values on a lower weighted price per patient than those earned by the outlier practices. However it does raise questions on whether higher earning practices do perform more effectively under the contract. It is recommended that further work is done to: Investigate the correlation on the graph in figure 2 and gain a better understanding behind the figures. Develop a balanced scorecard for practices to monitor performance in the core elements of the contract Figure 2 Page 4 of 29

5 Correlation of Spend on Primary Care Contract Value to PBC Budget Spend per Weighted Patient GMS Cost Per Weighted Patient GMS PBC spend per 0.1 weighted patient PMS Cost Per Weighted Patient PMS PBC spend per 0.1 weighted patient 2.4. National Context - GMS Contract When the new GMS national contract was implemented in 2004 practices were given a minimum payment income guarantee, this ensured that practice income would not be lower under the new contract than the red book. These payments mean that some practices receive higher amounts per weighted patient. However this is being addressed nationally and in and differential uplifts to the global sum have been applied so that the level of MPIG is reduced and the gap between weighted patient prices is narrowed. In addition the DoH has asked for information from PCTs on those practices receiving very high MPIG and the direction points to a complete removal of MPIG Local Perspective PMS Contract The review of PMS contracts was discussed at the north west Primary Care Contracting (PCC)quarterly finance meeting held April 27th. It is recognised that PCTs need to review their contracts and make an assessment of VFM. A number of PCTs nationally have reviewed their contracts and several north west PCTs are about to do the same. The most appropriate costing approach was discussed and the general consensus from PCTs and the PCC was that the global sum equivalent excluding growth was an appropriate basis to measure VFM. This is the method used in option 3. Page 5 of 29

6 3. Principles in Pricing the New Contract Specification The new contract should provide more and better services in line with the PCT pledges that represent value for money and also reduce the inequities in funding between practices. The new contract must be affordable and be financed from the existing envelope of funds Financial Envelope The financial envelope is at prices as shown in table. Table 1 Financial Envelope '000s % PMS Contract Value 2008/2009 8, % Costs to be Paid Separately as per the SFE -2,204-27% Existing Contract Payment for Essential & Additional Services 5,823 73% Add Nationally Agreed Uplift at 0.7% 41 Financial Envelope for PMS Contract 5, Scope of the Contract Specification The contract value will include the following components: o Performance indicators over and above those provided under GMS see section 5. o Additional services opt outs section 6. o Essential and additional services as provided under the GMS contract on a price per weighted patient see section Out of Scope The funding which has been excluded from the scope of the specification and this costing are shown below. These payments equate to 2,204k being 27% of the total primary medical contract payments. Enhanced services are not mandatory under GMS. Though initially to be included in the new PMS contract, these are now excluded from the contract specification. The reasoning for the exclusion is that these will always be flexible, likely to change, could be short term, and/or included within QoF at a future date. Therefore participation and payment for services will be determined outside the contract. PMS practices will continue to be entitled to payments under the GMS Statement of Financial Entitlement (S.F.E.) for o Payments for specific purposes including locum reimbursements, seniority etc. o Quality and Outcomes Framework The current QOF points deduction will not be made subject to the override being made to the QMAS software. Page 6 of 29

7 This equates to 13,050 per national average practice and will be funded from the existing PMS envelope. o Premises and I.T. costs 3.4. Equitable Needs Based Pricing The majority of payments and deductions are costed on a weighted patient basis so the contract value should fund practice to reflect patient need. The total PMS contract payment will be linked to the GMS weighting mechanism (currently the Carr Hill formula). This formula is applied to the raw list of patients to weight for age, sex, list turnover, nursing homes, IMD etc. The weighted number of patients per practice will be multiplied by the price per patient to fund essential services. Any national change to Carr Hill formula will be reflected in the calculation. Additional services opt outs will be deducted on the actual patient numbers within those groups, as will the new performance indicators see section 5. All contractors will be required to opt out of the Out of Hours service. Deductions will be calculated on the same basis as GMS i.e. 6% of the global sum x list weighting. The current PMS deduction of 3.31 per patient is based on raw list numbers. This means contractors who have a higher needs weighting are subject to a higher deduction under GMS than PMS; this is clearly inequitable. The total contract payment for essential and additional services PMS contract after deduction of service opt outs, will be made monthly in twelfths. The payment will be adjusted quarterly for actual list size changes in line with GMS; list tolerances will no longer apply. Payments in relation to performance indicators will be made based on achievement on the appropriate patient groups. All growth monies will be removed from individual practices. These payments were staff related and were not payments relating to innovations in services. These monies have been kept within the overall financial envelope to fund the new PMS contract Impact on Individual Practices There is a wide range of payments to practices and although some PMS contractors will gain from the new contract, others will see a substantial reduction in payments for essential services and additional change. It is proposed that transition payments be used to limit the financial impact on those practices most affected over a period of three years. This should give practices sufficient time to implement income regeneration / cost reduction plans and ensure service sustainability. Page 7 of 29

8 It should be noted that for comparison purposes, income from performance indicators is shown as maximum achievable so income could be reduced further Political impact It has been recognised within the NHS that PCTs generally haven t been achieving value for money from their PMS contracts as discussed in 2.4 & 2.5. Though the PCT is striving to achieve the most effective use of resources it still may have to contend with adverse publicity should medical contractors choose to involve the media. It should be noted that Contractors who will have high reduction in income under the new contract will have gained inequitably from their contract for a number of years whilst providing the same services. Contractors who have gained substantially are well aware that they will see a drop in income under the new contract. These inequities were discussed at the PMS workshop in July The transitional income relief will ensure contractors can sustain services whilst business planning for the future. Some contractors will receive more income under the new contract, which will enable them to invest in their practices Transfer to GMS PMS contractors who do not wish to accept the new PMS contract will be entitled to exercise their right to transfer to a GMS contract subject to eligibility under the regulations Transfer from GMS to PMS It is intended that the PMS contract is offered to existing GMS contractors. However the pricing option chosen and the effect of the transition relief will determine how affordable it is in the short term. This is option 1 in section Introduction of Funding Changes It is recognised that moving too quickly to this position could destabilise practices and so it is proposed that a phased transition over a period of two years be agreed. Although discussions have taken place at the PMS workshops, no firm commitment has been given to time periods or % relief to be applied. Initially different options where the PMS contract was phased gradually for both gaining and losing contractors was costed; however the recent substantial increase to the global sum means that gainers must receive the revised payment immediately. Therefore the costing on transitional Page 8 of 29

9 relief assumes that all losers will receive relief to a certain percentage whilst gainers will receive the new price at contract implementation Costed examples of transitional relief are given for each option applied to all contractors who would lose income. The percentage shown is the percentage of lost income that would be borne by the PCT non recurrently e.g. 75% transition means that the contractor would bear 25% of lost income The revised contract price would be fully implemented by year 3 for all PMS contractors. 5. Pricing the Performance Indicators Commissioners have finalised a list of performance indicators for which additional payment will be given. These have recently been amended to add an additional two stretch target indicators following the national support team recommendations. The remaining recommendations have been excluded from the specification. Commissioners have selected the rate payable per patient in two attainment bands, these being excellent and acceptable performance. No alternative pricing options have been explored Performance indicators have been included in the specification in three ranges excellent, acceptable and not acceptable. There is a different payment rate for excellent and acceptable with no payment rate attached for unacceptable performance The contract will include provisions for performance management where practices do not achieve acceptable levels in these performance indicators Indicators have been placed into four categories: o Clinical quality o Lifestyle and Pubic Health o Access o Infrastructure Most of these indicators relate to data recording, but others are for higher levels of performance over and above the existing thresholds in QOF etc. Commissioners have emphasised that collection of patient data is critical to identification of disease or risk of disease; and is also important for auditing that practices are providing equality of access to services and for targeting interventions The estimated cost in of these indicators ranges between 0 and 345k.and is shown by indicator at Appendix 2. o 100% excellent performance = 345k o 100% acceptable performance = 59k o 100% unacceptable performance = no payment Page 9 of 29

10 5.5. Option 1 offers the new PMS contract to GMS and PMS and therefore GMS practice would also be eligible to income available from achievement of the performance indicators. The cost of GMS contractors also delivering these key performance indicators is an additional 709k. 6. Pricing Additional services Opt Outs Practices can opt of providing additional services under the GMS contract. Under the new PMS contract all practices will be required to provide additional services except where they currently opt out, but all contractors will be required to opt out of out of hours services. Non PMS practices entering into the new PMS contract will not be entitled to opt out of any services, excluding out of hours. In exceptional circumstances the PCT may agree to other opt outs The costing of opt outs under GMS is based on national average lists and income under the old red book. PMS contractors have stated that these would not necessarily reflect the make up of their lists and so where possible the costings have been based on actual patient groups There are currently no PMS contractors opting out of the following services, thus opt out prices haven t been calculated: Cervical Screening Services Maternity Medical Services excluding intra partum care Contraceptive Services Vaccinations and immunisations Services 6.3. The calculation for additional services opt outs are shown below Table2 Additional Service Deduction How deduction is calculated Child Health Surveillance 2.60 Per 0-15 yrs Minor Surgery (cryotherapy, curettage and cauterisation) 0.6% % reduction of weighted price per patient as GMS Childhood immunisations and pre-school boosters Per 0-4 yrs Out of Hours Services 6% % reduction of global sum weighted price per patient as GMS Page 10 of 29

11 6.4. Where opt outs are calculated in accordance with the GMS S.F.E. then any changes to these will also be applied to PMS. 7. Pricing Essential and Additional Services The majority of services provided under the primary medical contracts are within essential and additional services. So it is important that this element is costed to provide value for money for the PCT, but also be a fair payment to contractors and be politically defensible. Four different options have been costed and transitional relief at 90& in year 1, 70% in year 2, 30% in year 3 and 0% in year 4. The financial impact on the PCT and examples of impact on the contractors most affected has been given in each option. The graph in figure 3 shows the estimated increase/-decrease in contract value under each of the options and by contractor. The existing contract value is represented by the pale blue line at 0. All contractors would lose income under option 2, which is the transfer to GMS contract without eligibility to an MPIG (dark blue). Option 1 & 3 are the same for PMS (pink line) and show that some practices would gain income. Where contractors lose income, this loss wouldn t be as marked as under option 2. Option 4 is the most beneficial option to most contractors, and in effect is the same as options 1 & 3, but at a higher payment rate. Figure 3 Summary of Gainers and Losers by Practice for the Contract Options Compared to Existing PMS Contract Values = 0 100,000 50,000 's Gain / 's Lost for options , , , ,000 Option 2 - PMS return to GMS Option 4 - Re-distribute CV's on a weighted patient basis Option 1 & 3 - New Contract to PMS on weighted patient basis Page 11 of 29

12 Comments have been made on value for money and affordability. It should be noted that all costs have been based on the list as at January 2009 and the actual impact on PCT and practice level will vary in accordance with the actual list size. The options chosen are: Option 1 - Offer the new PMS contracts to all contractors including GMS funding based on the global sum equivalent for PMS contractors. Option 2 - PMS contractors transfer to GMS contract funding based on global sum rate Option 3 New PMS contract funding based on Global Sum Equivalent (as option 1 for PMS contractors only) Option 4 - Redistribution of Current PMS Contract Value across PMS contractors funding based on average but distributed to PMS contractors on weighted list Option 1 - Offer New Contract to both GMS & PMS Overview Commissioners would like to offer the new PMS contracts to existing GMS contractors so this has been chosen as option 1. This method calculates the total amount of funding PMS contractors would have received under the new GMS contract by calculating a global sum equivalent; and then applying the average price per weighted patient to the weighted list for each practice i.e. redistributes total funding on an equitable basis. Payments to practices would be made at x weighted list. The global sum equivalent for GMS contractors i.e. the global sum rate of plus MPIG equates to an average of per weighted patient. This provided reassurance that the separately calculated figure of for PMS was a reasonable equivalent to GMS and could be applied to all contractors. Although the PMS contract doesn t mandate services over and above the GMS contract it does provide a mechanism to performance manage contractors, achieve sign up to PCT policy and easier implementation of service enhancements by utilising the key performance indicators. The global sum rate is so the option 1 rate represents a premium of 1.59 per weighted patient / 2.5% above the global sum. If this option were chosen we would need to consider transitional income relief payments to enable contractors to sustain services in the short term. Financial Impact on the PCT The net cost of this option is 383,637 pre transitional relief on losers. Plus it should be assumed that none of the GMS contractors who would lose income under the new PMS would opt to transfer so the total cost would be 484,359. No further analysis data has been included as this option is not affordable recurrently within the overall financial envelope. Table 4 Savings Savings Financial Financial Option 1 Option 1 /(Costs) /(Costs) Option 1 Costing Envelope Envelope PMS GMS PMS GMS PMS GMS Performance Indicators 345, ,517 (345,100) (708,517) Page 12 of 29

13 Essential & Additional 10,916,820 5,318,233 5,317,964 10,918,189 Services 269 (1,369) Growth 714, ,933 0 QOF Points Deduction 154,148 Removal (154,148) 0 Less Opt Outs (191,053) (604,172) (323,803) (647,500) 132,750 43,328 Quality 21,651 21,651 0 Total 5,863,764 10,312,648 5,493,408 10,979, ,356 (666,558) Less Added Out of hours (45,155) (42,279) Opt Outs* (45,155) (42,279) Revised Total 5,818,609 10,270,368 5,493,408 10,979, ,201 (708,838) % diff 6% (7%) Value lost Losers 445, ,722 Value Added Winners (119,819) (809,560) * The amount deductible for contractors not currently opted out of the service that will be required to opt out under new contract. This is removed so it doesn t distort the forecast savings/costs Option 2 PMS Practices Transfer to GMS Overview PMS contractors who do not wish to accept the new PMS contract are entitled to exercise their right of transfer to the GMS contract subject to eligibility under the PMS regulations. It is also an option for the PCT to terminate all existing PMS contracts offering only the national GMS contract and using enhanced services agreements to deliver local innovations. Payments to practices would be made at the global sum rate x weighted list. The contractors would not be entitled to a minimum price income guarantee (MPIG) payment and so this hasn t been included in the costings below. However consideration should be given to transitional income relief if the PCT where to choose GMS contracts as the way forward. These payments would enable contractors to sustain services in the short term. Financial Impact on the PCT This option would deliver the highest recurrent financial savings. However an en masse return to GMS would remove our local contracting flexibilities on the core contract and would not emit a positive political message. The table below shows the 794,519 would be saved recurrently in providing the same level of services. Savings/costs would occur in the following Savings from reductions in contract value for essential and additional services - 131k Savings from the removal of growth payments 715k Page 13 of 29

14 Savings from the increased deduction for out of hours opt outs (PMS contractors have benefited from a lower (unweighted) out of hours deductions than GMS) - 126k It has been agreed that the PMS points deduction will not be made regardless of the option so this will cost an additional 154k. The value of opt outs for those PMS contractors who do not currently opt put of the out of hours service has been removed from this calculation as it distorts the impact on the PCT and on practices. If PMS contractors were required to opt out the saving would have to be reinvested in the PCT provided out of hours services. This amounts to 45k. Table 5 Option 2 Costing Financial Envelope Option 2 pricing Savings /(Costs) Essential & Additional Services 5,318,233 5,187, ,756 Growth 714, ,933 QOF Points Deduction Removal 154,148 (154,148) Opt Outs (191,053) (317,439) 126,386 Quality 21,651 21,651 Total 5,863,764 5,024, ,579 Less Added Out of hours Opt (45,059) Outs* (45,059) Revised Total 5,818,704 5,024, ,519 % diff 14% Value lost Losers 794,519 Value Added Winners 0 * The amount deductible for contractors not currently opted out of the service who will be required to opt out under new contract. This is removed so it doesn t distort the forecast savings/costs. Financial Impact on Contractors All PMS contractors would lose income with this option and it would particularly affect contractors with small contract values. The impact on baseline contract income on practices is as follows: 8 practices would have a reduction of under 10% 4 practices would have a reduction of between 11 and 20% 7 practices would have a reduction of over 20% Examples of the effect on outlier practices is shown in the table 6 below Table 6 Page 14 of 29

15 Impact on Individual Practices of Option 2 Current PMS Baseline Contract Value Baseline Income Reduction/ Increase % Reduction in Contract Value Highest Value Loser 569, ,984 30% Highest % loser 140,691 43,070 31% Highest Gainer Transitional Relief If the PCT were to choose to terminate all PMS contracts and instead offer only GMS contracts the PCT would need to consider transitional income relief payments to enable contractors to sustain services in the short term. There would be sufficient funds released to allow the maximum transition relief within the financial envelope. The cost of transitional relief to the PCT and the income reduction applied to practices is shown below at the proposed transitional % of 75% in year 1, 25% in year 2 and 0% in year 3. Table7 Example Transitional Income Relief Year 1 Year 2 Year 3 Total Value of Losers 794, , ,919 Cash Releasing savings available to fund non recurrent costs % Relief The PCT can fund within Cash Released Savings Transitional Relief Payment to Practices Positive available for reinvestment in Primary Care and / or associated Primary Care services Negative (red) Non recurrent monies to be funded from primary care budgets Cost borne by PMS Contractors 794, , , % 100% 100% 75% 595,889 25% 198,630 0% 0 198, , ,919 25% 198,630 75% 595, % 794, Option 3 - New Contract to Existing PMS contractors on Global Sum Equivalent Average Weighted Patient Page 15 of 29

16 Overview This method calculates the total amount of funding PMS contractors would have received under the new GMS contract for essential and additional services by calculating a global sum equivalent; and then applying the average price per weighted patient to the weighted list for each practice i.e. redistributes total funding on an equitable basis. Payments to practices would be made at x weighted list. The global sum equivalent for GMS contractors i.e. the global sum rate of plus MPIG equates to an average of per weighted patient. This provided reassurance that the separately calculated figure of for PMS was a reasonable equivalent to GMS and could be applied to PMS contractors. Although the PMS contract doesn t mandate services over and above the GMS contract it does provide a mechanism to performance manage contractors, achieve sign up to PCT policy and easier implementation of service enhancements by utilising the key performance indicators. The global sum rate is so the option 1 rate represents a premium of 1.59 per weighted patient / 2.5% above the global sum. If this option were chosen we would need to consider transitional income relief payments to enable contractors to sustain services in the short term. Financial Impact on the PCT The table below shows that 325,200 would be a cash releasing saving with non cash releasing efficiencies of 345,100 achieved through the key performance indicators. A total of 670,300 in recurrent savings. The table below shows how savings and costs would occur: Additional cost of 345k in the new performance indicators Remove growth payments 715k Increased deduction for out of hours opt outs (PMS contractors have benefited from a lower (unweighted) out of hours deductions than GMS) - 133k It has been agreed that the PMS points deduction will not be made regardless of the option so this will cost an additional 154k. Table 8 Financial Envelope Option 3 pricing Savings /(Costs) Option 3 Costing Essential & Additional Services 5,318,233 5,317, Performance Indicators 345,100 (345,100) Growth 714, ,933 QOF Points Deduction 154,148 (154,148) Removal Opt Outs (191,053 (323,803) 132,750 Quality 21,651 21,651 Total 5,863,764 5,493, ,355 Page 16 of 29

17 Less Added Out of hours Opt Outs* (45,155) (45,155) Revised Total 5,818,609 5,493, ,200 % diff 6% Value lost Losers 445,020 Value Added Winners (119,819) * The amount deductible for contractors not currently opted out of the service who will be required to opt out under new contract. This is removed so it doesn t distort the forecast savings/costs. Financial Impact on Contractors 8 PMS contractors would gain income under this option, but 7 practices would see a reduction of more than 20% on contract values. The impact on baseline contract income on practices is as follows: 7 practices would have an increase up to 10% 4 practices would have a reduction of under 10% 1 practices would have a reduction of between 11 and 20% 7 practices would have a reduction of over 20% Examples of the effect on outlier practices is shown in the table 9 below Table 9 Current PMS Baseline % Reduction Impact on Individual Practices Baseline Income in Contract of Option 3 Contract Reduction/In Value Value crease Highest Value Loser 569, ,501 23% Highest % loser 140,691 33,916 24% Highest Gainer 996,191 29,982 3% Transitional Relief Under this option the total loss to contractors would be 445,020 and there would be insufficient cash released to allow the maximum transition relief within the financial envelope. The maximum transition relief that can be offered to practices to stay within the financial envelope is 73%. The PCT would need to consider reducing the percentage relief or adding funding to cover year 1 non recurrent costs. The cost of transitional relief to the PCT and the income reduction applied to practices is shown below at the proposed transitional % of 75% in year 1, 25% in year 2 and 0% in year 3. Table 10 Page 17 of 29

18 Example Transitional Income Relief Year 1 Year 2 Year 3 Total Value of Losers 445, , ,020 Cash Releasing savings available to fund non recurrent costs % Relief The PCT can fund within Cash Released Savings Transitional Relief Payment to Practices Positive available for reinvestment in Primary Care and / or associated Primary Care services Negative (red) Non recurrent monies to be funded from primary care budgets Cost borne by PMS Contractors 325, , ,296 75% 333,765 73% 73% 73% 25% 111,255 0% 0 ( 8,469) 214, ,296 25% 111,255 75% 333, % 445, Option 4 - Re-distribute Contract Values on a weighted patient basis Overview This method aggregates the total PMS contract values for essential and additional services plus 0.7% uplift to prices; and then applies the average price per weighted patient x weighted list for each practice i.e. redistributes total funding on an equitable basis. Although the PMS contract doesn t mandate services over and above the GMS contract it does provide a mechanism to performance manage contractors, achieve sign up to PCT policy and easier implementation of service enhancements by utilising the key performance indicators. The global sum rate is so the option 4 rate represents a premium of 4.67 per weighted patient / 4.75% above the global sum in total 253k. This is higher than the premium under option 3 and will not deliver more services than option 3. As no extra mandatory services are included within this payment doesn t seem to represent value for money. The table 11 below shows that 72,483 would be a cash releasing saving with non cash releasing efficiencies of 345,100 achieved through the key performance indicators; a total of 417,583 in recurrent savings. Page 18 of 29

19 Table 11 shows how savings and costs would occur: Additional cost of 345k in the new performance indicators Additional cost 253k in baseline contract payments Remove growth payments 715k Increased deduction for out of hours opt outs (PMS contractors have benefited from a lower (unweighted) out of hours deductions than GMS) - 133k It has been agreed that the PMS points deduction will not be made regardless of the option so this will cost an additional 154k. Table 11 Financial Envelope Option 4 pricing Savings /Costs Option 4 Costing Essential & Additional Services 5,318,233 5,570,820 (252,587) Performance Indicators 345,100 (345,100) Growth 714, ,933 QOF Points Deduction Removal 154,148 (154,148) Opt Outs (191,053 (323,942) 132,889 Quality 21,651 21,651 Total 5,863,764 5,746, ,638 Less Added Out of hours Opt (45,155) Outs* (45,155) Revised Total 5,818,609 5,746,126 72,483 % diff 1% Value lost Losers 353,522 Value Added Winners (281,038) * The amount deductible for contractors not currently opted out of the service who will be required to opt out under new contract. This is removed so it doesn t distort the forecast savings/costs. Financial Impact on Contractors Over half of PMS contractors would gain income under this option, but 3 practices would see a reduction of more than 20% on contract values. The impact on baseline contract income on practices is as follows: 4 practices would have an increase of 10% or over 7 practices would have an increase up to 10% 2 practices would have a reduction of under 10% 3 practices would have a reduction of between 11 and 20% 3 practices would have a reduction of over 20% Examples of the effect on outlier practices is shown in the table 12 below Table 12 Impact on Individual Practices of Option 4 Current PMS Baseline Contract Value Page 19 of 29 Baseline Income Reduction / Increase % Reduction in Contract Value Highest Value Loser 569, ,104 20% Highest % loser 140,691 29,049 21%

20 Highest Gainer 996,191 77,066 8% Transitional Income Relief The maximum transition relief that can be offered to practices to stay within the financial envelope is 21%. To protect practices to a higher degree the PCT would need to fund this non recurrently for at least 2 to 3 years. The table below gives an indication of potential non recurrent costs. Table 13 Example Transitional Income Relief Year 1 Year 2 Year 3 Total Value of Losers 353, , ,522 Cash Releasing savings available to fund non recurrent costs 72,579 72,579 72,579 % Relief The PCT can fund within Cash Released Savings 21% 21% 21% Transitional Relief Payment to 75% 25% 0% Practices 265,141 88,380 0 Positive available for reinvestment in Primary Care and / or associated Primary Care services. Negative (red) Non recurrent monies to be funded from primary care budgets Cost borne by PMS Contractors ( 192,562) ( 15,801) 72,579 25% 88,381 75% 265, % 353, Recommendation Option Financially options 1 and 4 have been ruled out; Option 1 because it cannot be delivered within the financial envelope and option 4 because it is more expensive than option 3, though providing the same services. Option 2 is the most cost effective, but this isn t recommended because the political consequences may be damaging to the PCT s reputation though this could also be handled positively. It would however damage relationships with the existing PMS contractors. Page 20 of 29

21 Option 3 is the recommended option from the commissioning and finance perspective based on the following: Option 3 will deliver 325k in recurrent cash releasing savings with non cash releasing efficiencies of 345k achieved through the key performance indicators; a total of 670k in recurrent best value savings. The 345k cost of the performance indicators is the maximum payable so it is likely that there would be non recurrent slippage in year which could help fund transitional relief. It will provide funding of essential and additional services across PMS on an equitable needs basis. It provides a premium above the global sum payment as payments would be made at x weighted list. The new global sum rate and gradual erosion of MPIG means that the average GMS rate is per patient. So the average funding per weighted patient would be the same under PMS as under GMS (though under GMS there are still disparities on an individual practice basis). Although the PMS contract doesn t mandate services over and above the GMS contract it does provide a mechanism to performance manage contractors, achieve sign up to PCT policy and easier implementation of service enhancements by utilising the key performance indicators. In this respect the payment premium of 1.59 per weighted patient, 2.5% above the global sum rate of 63.21, could be considered a reasonable price. Transitional relief could be funded up to 73% within the current financial envelope. However it is recommended that transitional relief is proposed: Year 1-75%, Year 2-25% and Year 3-0%. This would leave a shortfall of 8k to be found from existing primary care budgets. The primary care finance team are working to identify potential slippage to fund this and other pressures. The performance indicators if fully achieved would cost 345k, so potential slippage in this area could be used to fund the transitional relief. Achievement of 75% of the performance indicators would give slippage of 86k and be sufficient to cover the transitional relief. It is the primary care commissioners preferred option. The stretch performance measures recommended by the National Support Team have been incorporated into the specification. The table below shows the financial implications to the PCT in Years 1 to 4. Table 14 Proposed Transitional Income Relief Year 1 Year 2 Year 3 Total Value of Losers 445, , ,020 Cash Releasing savings available to 325, , ,296 fund non recurrent costs % Relief The PCT can fund within Cash 73% 73% 73% Page 21 of 29

22 Released Savings Transitional Relief Payment to Practices Positive available for reinvestment in Primary Care and / or associated Primary Care services Negative (red) Non recurrent monies to be funded from primary care budgets Cost borne by PMS Contractors 75% 333,765 25% 111,255 0% 0 ( 8,469) 214, ,296 25% 111,255 65% 333, % 445,020 The impact on practices in Year 1 after adjusting for transitional income 90% is shown in the table below. Table 15 Impact on Individual Practices of Option 3 Current PMS Baseline Contract Value Baseline Income Reduction/In crease Year 1 Impact on Practice after transitional relief 90% Highest Value Loser 569, ,501 12,750 loss Highest % loser 140,691 33,916 3,392 loss Highest Gainer 996,191 29,982 29,982 gain Whilst 7 practices would gain under this option (if achieving maximum under the KPIs); 12 PMS contractors would lose income under this option. However it is recognised by primary medical contractors that the current system isn t equitable and that some contracts don t deliver value for money. Option 3 could then be seen as a very positive option. The major disadvantage in this option is that the identified KPIs would only be delivered under PMS and this will create some inequities. It should be noted that the majority of KPIs in the contract are based on data collection rather than improved quality/targets; however commissioners consider that collection of patient data is critical to identification of disease or risk of disease and is also important for auditing that practices are providing equality of access to services and for targeting interventions The finances have been prepared in considerable detail by type of payment and at practice level. This is to ensure that finance could provide individual practices with a clearly auditable methodology, which can be scrutinised in the principles of transparency and equity. Finance will also provide contractors with detailed financial information to show the financial impact on the individual contractor. Page 22 of 29

23 9. Next Steps The approved contract price will be added to the contract specification that will then be distributed to PMS contractors by the Primary Care Commissioning team. It is expected that this will be discussed in full with LMC representatives before being distributed. The finance team will prepare a pack for each contractor which will include the following: Information on how the contract has been priced The practices current contract value The new PMS contract value The GMS contract value should practices opt to revert to GMS. Details of the transitional income relief and how this will be applied to the practice The finance team will meet with contractors to discuss the details in the pricing and how this will be implemented. It is envisaged that this be done in groups rather than individually. The implementation of the contract is now expected to be 1 st April Joanne Camilleri Head of Commissioning Finance 19 th June 2009 Appendix 1 Methodology and Source of Data The financial comparison was done on the baseline funding, defined as essential and additional services under the GMS contract. The quarterly Exeter contract reports were used to compile the GMS data and for the weighted lists for all practices. It should be noted that there may be large Page 23 of 29

24 variations in quarterly lists e.g. student intakes, so it may be necessary to standardise the PMS weighted list. Table 1 Methodology for Comparison GMS Global sum Add Opt outs MPIG PMS Net Contract Value = Comparable Baseline Divide by Weighted List (Exeter) = Comparable Weighted Cost per Patient Add Out of Hours Deduction Employers Pension Deductions Levy Deductions QOF points deduction Deduct Growth (only when for services over and above GMS) Premises Enhanced Services- (Included assumptions on initial baseline e.g. 2/3 minor surgery) QOF Aspiration and/or Reward PA Drugs PCT administered funds including seniority, locum cover etc GP Registrar funds Other payments (less than 1% of contract value) Previous Non Recurrent Payments Page 24 of 29

25 Rate per Weighted Patient x patient List x percentage achieved Performance Indicator Patient Group Total no of patients 09/10 Rate per Patient Excelle nt Cost for 100% Excellent Achieve ment 09/10 Rate per Patient Accept able Cost for 100% Accepta ble Achieve ment Percentage of patients with disability status recorded. For patients aged up to 50 this need be recorded once, for patients aged 50 and over this should be recorded all in the last 5 years. Need to find a code that states no disability. Dawn Percentage of patients aged 16 and over with height, weight and BMI recorded in the past 3 years Waist circumference for those with BMI recorded in the last 3 years Percentage of patients aged 25 to 65 with work status recorded in last 5 years Percentage of patients aged 16 and over physical activity status recorded in the last 5 years Percentage of patients aged 16 and over with carer status recorded. For patients aged up to 50 this need be recorded once, for patients aged 50 and over this should be recorded in the last 5 years Those Carers identified should be Read coded, and offered a referral, including provision of information Percentage of patients aged 16 and over with blood pressure recorded in the last 5 years Number of Weighted patients per wte 1800 or below all DM23 Diabet es register DM12 Diabet Page 25 of 29

26 DM17 BP5. the percentage of patients with hypertension whom the last blood pressure is 150/90 or less (measured within the previous 9 months) CHD6 the percentage of patients with coronary heart disease in whom the last blood pressure reading is 150/90 or less (measured within the previous 15 months) CHD8 the percentage of patients with coronary heart disease whose last measured cholesterol is 5mmol/l or less (measured in the previous 15 months. Percentage of patients with COPD categorised as having mild/moderate/severe disease-last 15mnths Stretch target to between 95% and 100% of targeted children immunised in accordance with World Health Organisation guidance. To specify which imms check with Jean M Percentage of patients aged 18 and over who were commenced on the Care of the Dying Pathway at home (deaths at home only not nursing or residential care home) and had the recommended 4 categories of drugs prescribed Percentage of patients aged 18 and over who were commenced on the Care of the Dying Pathway at home (deaths at home only not nursing or residential care homes) and were medically assessed within 24 hours of commencement Page 26 of 29 es register Diabet es register Hypert ension Registe r CHD Registe r CHD Registe r COPD Registe r yrs all see d20(3 indicat ors) Percentage of deceased patients aged 18 and over (deaths at home only not see

27 nursing or residential care homes) where the Care of the Dying Pathway was commenced Percentage of patients satisfied with practice opening hours (as per national GP Patient Survey) Percentage of patients satisfied with telephone access to the practice Percentage of patients able to book an appointment more than 2 days in advance Percentage of patients able to obtain a consultation with a GP or appropriate health care professional within 2 working days Pandemic flu Plans and business continuity plans all all all all per practic e d20(3 indicat ors) Total * * There is a small discrepancy in the financial model which costs the KPIs as 345k. This will be investigated though it should not affect the preferred option. Page 27 of 29

28 Page 28 of 29

29 Page 29 of 29