Regulatory fees from April 2013 Final regulatory impact assessment Introduction 1. The aim of this regulatory impact assessment (RIA) is to assess the overall economic impact of the Care Quality Commission s (CQC) proposed changes to its regulatory fees scheme from 2013. The impact assessment accompanies CQC s consultation proposals for registration fees for health and adult social care organisations from 1 April 2013, in accordance with section 85 of the Health and Social Care Act 2008 (the 2008 Act). 2. The proposals cover both minor changes to fees for providers who are currently regulated by CQC together with the proposed levels of fees for primary medical care providers (NHS GPs and NHS walk-in-centres) and independent midwives who will come into regulation under the 2008 Act from April and October 2013 respectively. 3. The purpose of the impact assessment is to identify and assess the overall impact that the consultation proposals are likely to have on regulated providers, HM Treasury (representing the interests of taxpayers), people who use services, commissioners, the public and CQC. 4. In line with guidance from HM Treasury, CQC has carried out a two-stage RIA process. For the first stage, a draft impact assessment was produced in September 2012 alongside the consultation proposals. This document is the full impact assessment which incorporates the responses and additional information that have arisen from the consultation. It is published in conjunction with the CQC response to the consultation and the legal fees scheme. 5. This impact assessment has been produced in line with standard guidance from the Better Regulation Executive (BRE) and HM Treasury, and recognises the Hampton Principles on regulation (HMSO 2005). 6. In line with guidance from HM Treasury, the key criteria for assessing the overall economic impact of the proposals is whether the expected benefits for society as a whole are greater CQC Regulatory fees from April 2013: Regulatory impact assessment 1
than the expected costs. However the impact assessment recognises that the proposals are expected to change both the level and distribution of costs and benefits among regulated providers, HM Treasury, people who use services, commissioners and the public. 7. The fees are intended to apply from April 2013 for all providers that are required to be registered. CQC decided upon levels of fees and structures in the light of consultation and after seeking approval from the Secretary of State. In line with best practice, CQC has indicated that it will carry out a post implementation review of the new regulatory fees scheme within 12 months of its start date. Legal context 8. CQC has powers to set fees for regulated providers under section 85 of the 2008 Act and is required to follow HM Treasury Guidance on Fees and Charges in how it does this. 9. CQC cannot exclude specific regulated providers from paying fees nor can it rely entirely on grant-in-aid funding from the Department of Health. It can only use fee income for its registration function and not for other functions such as monitoring the use of the Mental Health Act. 10. Like all public bodies, CQC is required by government to set fees in order to cover costs. CQC has progressively increased fees towards full cost as activity and cost data has improved while harmonising the fees schemes that it inherited. Background 11. CQC s total budget is 153m, of which 3m is allocated to Healthwatch England. So the CQC element of the budget is 150m (last year: 145m) and around 126m relate to its registration function (last year: 123m). 12. Any costs which are not met from fee income must be funded from grant-in-aid monies from the Department of Health (whose funds are provided by HM Treasury from tax revenues). In 2013/14, fees will generate about 100m (79% of 126m)) and grant-in-aid from the Department of Health will cover the remaining 26m. (The equivalent figure for fees income in 2012/13 is estimated at 93m 76% of recovery against the costs of regulation.) 13. By sector, fees currently cover 93% of costs in social care, 88% of costs in NHS trusts, 75% of costs in independent healthcare and 67% of costs in dentistry and independent ambulance providers. Fees are expected to cover 50% of costs in NHS primary medical care in 2013/14, their first year of regulation. 14. CQC s current regulatory fees scheme for 2012/13 incorporated out-of-hours services providers who came under the regulation of the Health and Social Care Act 2008 from 1 April 2012 but made only minor changes on the previous scheme for existing regulated providers. CQC Regulatory fees from April 2013: Regulatory impact assessment 2
Impetus for change 15. CQC s proposed fees scheme from 2013 will incorporate the last major group of providers to be brought under the 2008 Act with the inclusion of NHS primary medical care (NHS PMS) providers from 1 April 2013. They also provide for independent midwives coming in to regulation in October 2013. If changes are not made to the Fees Scheme then CQC will not be able to collect fees from these groups of providers. 16. CQC s long-term aim for its fee schemes for 2013/14 to 2015/16 is to recover the full costs of its activities relating to registration under the 2008 Act from the fees that it charges providers. Further information on the strategy can be found in the main consultation document, including what CQC means by full cost recovery and the trajectory towards it. The remaining changes within this year s scheme lay the foundations towards this work and underpin the strategic review. They have minimal economic impact on providers. 17. CQC has established a Fees Advisory Panel to engage providers in fee-setting, which held its first meeting in December 2012. From 2013/14 CQC will establish networks to supplement the Fees Advisory Panel, enabling focus on specific sectors or issues as needed. Overview and summary of the impact assessment 18. The expected economic impact of the proposed changes to CQC s regulatory fees scheme can be summarised as follows: 19. NHS PMS providers and independent midwives will be most affected by the proposals because they will start to pay fees for the first time from April and October 2013, respectively. CQC s aim is to set a fee-level which will enable it to recover 50% of the costs it incurs in regulating primary medical care providers from April 2013. The exact level of fee which each provider will pay is determined through the assessment described in paragraphs 33 to 40. 20. A small number of independent healthcare providers who are already paying fees will also be affected by the proposals. Further information on these proposed changes is detailed in paragraphs 41 to 45. 21. Primary dental care providers with between two and six locations will also be affected by the proposals due to a small restructuring of the bandings. Primary dental care providers with 41 or more locations will see an increase in their fees which better reflects the registration costs of inspecting and monitoring multiple locations. Overall, these changes will produce a small reduction in income. This is covered in paragraphs 48 to 57. 22. Some providers will see a change in the naming of the categories and some will also be moved in to different categories to align with groups that provide similar services. The response to the consultation contains more details of this proposal. This impact assessment only considers those providers whose fees will be affected as a result of the category changes. 23. One of the proposals in the original consultation was for an increase in the fees charged to single specialty hospitals. This was analysed in the draft impact assessment. As a result of the CQC Regulatory fees from April 2013: Regulatory impact assessment 3
consultation CQC has decided not to increase the fees for this group of providers this year, though the new sub-category will be retained. Since this means that there is no economic impact on this group, no further analysis of them is required. 24. CQC s assessment (shown below) is split into three sections in order to reflect the differences in impact on: NHS PMS providers. A small group of independent diagnostic healthcare providers. Changes in the structure for primary dental care providers. 25. CQC believes that the wider benefits to society of charging fees to regulated providers outweigh the specific costs that arise to both registered providers and CQC. This will be demonstrated within the main body of the impact assessment. 26. Finally, CQC s proposed fees scheme does not contain direct powers or policies of enforcement. Instead these powers under the Act are set out separately in CQC s Enforcement Policy. Which stakeholders groups are identified? 27. The following groups of stakeholders were identified and are included within the impact assessment: Regulated providers NHS PMS providers Independent midwives Dental providers Single-handed diagnostic providers People who use services Commissioners The public CQC. 28. People who use services, commissioners and the public are not considered further as the impact of the fees proposals on these three groups is minimal. 29. The major impact on CQC is the proposed fees for primary medical care providers. This will generate an extra 8,300 invoices per annum from a current base of around 25,000 per annum. However this will not require an increase in staff or systems and it will be absorbed by current processes. This means that the cost impact on CQC will be minimal and is not considered further. CQC Regulatory fees from April 2013: Regulatory impact assessment 4
What criteria are used to assess the options? 30. Options are assessed according to the following criteria: a. Feasibility of implementing each option. b. Comparative costs and benefits for regulated providers. c. Overall costs and benefits. d. Management of risks. What is the feasibility of implementing each option? 31. The key test of feasibility of each option is whether it is: Simple and straightforward to implement by April 2013 Achievable within CQC s existing capabilities Cost efficient to collect fee income. 32. Since the proposed fees scheme is an extension of the existing scheme a review of all three options has determined that each is equally feasible to implement Fees, costs and benefits for NHS PMS providers 33. CQC estimates that this sector will cost 12m to regulate. This is based on an assessment of the cost of regulation of the primary dental care sector using currently available data. These two sectors are not identical, but they are more closely aligned than any other sector and carry roughly the same number of providers so it provides a reasonable gauge to estimate costs for the primary medical care sector. 34. CQC s policy is to be prudent in recovering a sector s costs in the first year of its regulation. The intention, as in previous years for other provider groups, is to start the process of cost recovery by recovering 50% of estimated costs in the first year. This protects against the possibility of over-recovering and allows time for CQC to monitor the actual costs of the sector. This means that CQC is looking to recover 6m for 2013/14. 35. CQC discussed using locations and patient list size for charging NHS PMS providers in the draft proposals. This discussion is not replicated here, but there were advantages and disadvantages to both. In the end CQC recommended a hybrid model, which was based on the number of locations, but used patient list size as a further differentiation for those providers with just one location. Since the majority of providers fall within this band, the use of patient list size is a significant factor in the fees scheme. It will recover around 6m in fees from this sector. 36. Charging fees was not in itself popular, but CQC has no option but to reject the do nothing approach because it is required to set fees for regulated providers using its fee-setting CQC Regulatory fees from April 2013: Regulatory impact assessment 5
powers under the 2008 Act, in line with HM Treasury Guidance on Fees and Charges. Those who did comment accepted that the hybrid option using both location and list size for determining fee levels for individual practices was as reasonable an option as was possible. This option will be taken forward. 37. This option protects smaller practices as it involves having a structure that accounts for locations where a practice has more than one registered location, but also takes in to account list size where a practice has only one registered location. As a hybrid option this means that it allows variation for the size of a practice with a single location but also allows CQC to align costs with fees through the number of locations. 38. Views were expressed that the scheme gives rise to some individual anomalies, such as the fact that two practices with list sizes between five and ten thousand will pay a combined fee of 100 more than a practice with two locations that could have a smaller list size. CQC acknowledges that this could occur. However any adjustments that correct one issue can easily produce other anomalies. Overall CQC was careful to ensure that any anomalies are small and so do not produce a pressing requirement to alter what is still a model based on a theoretical understanding of the structure of the market and the cost of regulation. CQC will review this model throughout the year and will consult on any changes that will be required in the light of more detailed information and knowledge as part of next year s scheme. 39. One further point to note is that NHS out-of-hours service providers, who came in to regulation last year, will transfer in to this category. That means that their fees will change slightly. Those with one location will be charged at the highest rate for one location, which is 850. This reflects our belief that they bear a similar profile to providers of NHS walk-incentre services and so, though they do not have a list size, the population they serve is likely to equate to that of the largest single location NHS PMS providers. This means that there will be a 50 increase for those at this level. Those with more than one location will see their fees either reduce or stay the same. This affects very small numbers of providers, but we will monitor this through the year to ensure that the charges are proportionate. 40. The structure that will be adopted is shown at Appendix A below and described in greater detail in the consultation document. Fees, costs and benefits for changes to independent healthcare providers 41. Two changes are being proposed in this sector. The first focuses on single-handed, one location diagnostic providers. The second relates to the introduction of independent midwives into the scope of regulation later in the next financial year. 42. The first change is connected to the fact that the existing subcategory of Other in the Independent Healthcare fees category consists of a number of groups of very different providers paying the same fees. The current fees do not adequately reflect the actual cost of regulation for each of the groups. Taken as a whole, cost recovery is low in this sector. This reflects the fact that there are some groups offering care in complex environments which require more work to regulate them. Equally there are some small groups which are paying more than they should for the level of regulation that is required. CQC Regulatory fees from April 2013: Regulatory impact assessment 6
43. A number of providers have highlighted the anomaly of the recovery rate for this sector and CQC have always stated their intention to review this, which we are starting to do this year. The small numbers of disparate providers make this a difficult area to assess accurately as it is very sensitive to changes in assumptions and it also takes time to collect data that can be confidently extrapolated for the whole group. 44. CQC intends to make changes in this area to ensure that providers are being charged fairly. To do this properly requires detailed data, which takes time to collect. The suggested category amendments (which will not affect fees) signal CQC s intention to review fees in this sector and align them more closely with the costs of the disparate groups. There is one small group which is clearly disadvantaged and so we have proposed that their fees are reduced. 45. Single-handed diagnostic providers were brought into regulation at a time when CQC had to re-register all existing providers. At the time of registration very little was known about the group. They were included in the Healthcare Other fee. Over the past year CQC has begun to understand their structure. They typically have a total turnover of 10-20,000, derived from part-time sessional work, from which they currently must pay a fee to us of 1,500, which is more than the cost to CQC of regulating them. We therefore propose to set a reduced fee of 250 where an individual is registered as a provider of only diagnostic and screening procedures and they only have one location,. 46. The final amendment is to ensure that independent midwives are covered by the fees scheme. They will be included as a new-in-scope category in line with the approach CQC has taken for other providers new into the scope of regulation. However they will not be subject to bandings as it is not expected that there will be many who operate from more than one location. Each location will therefore be charged 800, which will be payable on 1 October each year. Those with more than one location will therefore pay a multiple of one location, which is similar to that proposed for dental providers up to five locations. CQC will review the costs of its activities in relation to registration in their first year and then make amendments as necessary following further consultation. 47. There are no more than 200 providers in the two groups affected. Charging fees to independent midwives will increase the fees scheme by around 160,000. Diagnostic providers who are individuals that provide their service from one location will see their fees decrease by 1,250, which will see an overall decrease to revenue of around 250,000. Overall the changes have minimal effect on overall income. The main changes are shown below in Appendix B. Fees, costs and benefits for changes to primary dental care providers 48. In last year s scheme some small adjustments were made to the third and fourth bands of this sector to bring them in line with the first two bands. After 18 months of registration CQC now has a better understanding of both the costs and structure of the dental sector. 49. The original estimate of the cost of regulating the sector was 16m. An extrapolation of current costs suggests that this cost will actually be around 12m, so cost recovery in the sector is 67%. Since this moves the sector along the trajectory to full cost recovery, CQC CQC Regulatory fees from April 2013: Regulatory impact assessment 7
does not intend to make any significant changes to fees this year. The majority of dental providers are registered for one or two locations. They pay 800 per location and this will remain the same for this year. 50. However, with better understanding of the composition of the market, CQC is proposing a change to the structure of the lower bandings, and a change to the fees, particularly in the higher bandings. 51. The proposal is that all providers with up to five locations will have a band each and that the fee will be in multiples of 800. This is because the current ranges mean that the fee charged per unit (location) varies randomly and significantly. The proposed change smoothes out the unit charge and reflects the fact that the unit cost does not change for providers in this group. 52. The next band has been re-configured for six to 10 providers, and the fee raised by 800 to reflect that this is the level at which our costs of regulating providers with multiple locations starts to increase. 53. There are only a handful of providers with between 11 and 40 locations. Their fees remain unchanged, but the upper limit has been reduced from 50 locations as it is considered that the range was too wide and produced too low a unit recovery at the higher end of the band. 54. Only a small number of providers exist with more than 40 locations, and their fees are currently low in comparison to smaller providers and certainly well below the cost of regulation. An increase is proposed for these larger providers to better reflect the registration costs of inspecting and monitoring multiple locations and to balance up the recovery. 55. A small number of providers will see some change, but the overall impact to CQC s income is minimal. The full changes are shown in Appendix C. CQC will continue to monitor costs for this sector over the next year and, with further data, will determine how best to move to full cost recovery in relation to its registration functions. 56. Over 90% of dental providers have only one location. The challenge is to find a way to be able to differentiate size in the same way that is proposed for the primary medical care sector. Any measures that are independently verifiable and easily obtainable will be investigated and reviewed, and CQC sought views from the sector through the consultation as to how this might be achieved. 57. The changes to the bandings will have a minimal effect on fees income. Some providers will see a small increase and others a decrease, which will effectively cancel each other out. 58. Providers of independent ambulance services, who were formerly grouped in the same category as providers of dental services, will not be affected by these changes. They will retain their current fee structure and will be moved to the category Community healthcare services. CQC Regulatory fees from April 2013: Regulatory impact assessment 8
Overall effect on fees and costs 59. The expected fee levels are based on currently available information. Income figures for both financial years are current best estimates and could change over time. Overall CQC receives a level of funding from the Department of Health (DH) that will not change once our budget has been agreed as part of the spending round. This means that if more fee income is collected than has been estimated for the spending round, then DH will reduce its funding to CQC accordingly; lower recovery is unlikely to result in extra DH funding. 60. The effect of the changes will be to increase our fee income by around 6m. Other changes do not make a material difference to income recovery, so overall CQC expects the income recovered from fees to increase to just under 100m from the 2012/13 recovery of 92.7 million. This includes an estimate for a growth in registration the various sectors. 61. The overall forecast income for each category is shown in the table below. Information from last year is restated to accommodate changes to the structure of the fees scheme to allow for direct comparison. There has been an expansion of categories, with independent healthcare particularly being split in to smaller components. Apart from this alteration the only significant increase in fees is due to the introduction of NHS PMS providers into registration. Small adjustments have been made to allow for estimated growth in each of the individual health and social care markets. 2013/14 2012/13 000 000 NHS 19,880 19,600 Care services With accommodation 54,365 53,600 Hospices 546 546 Community social care services Without accommodation 5,173 5,100 Healthcare hospitals 3,550 3,500 Healthcare single specialty services 1,114 1,098 Community healthcare services (inc. independent ambulances) 1,113 1,186 Primary care services Dentists 8,100 8,000 NHS primary medical care (inc. out of hours) 6,000 - New-in-scope Out of hours (moved to NHS primary medical care) - 70 Total fee income 99,840 92,700 CQC Regulatory fees from April 2013: Regulatory impact assessment 9
62. Cost recovery for each category is shown below and has also been restated for the move to the new categories. This raises a number of issues that are discussed below and will aid understanding of the table. Category 2013/14 2012/13 NHS 89.1% 93.8% Care Services 92.8% 98.5% Community Social Care Services 94.7% 98.5% Healthcare Hospitals 86.6% 85.4% Healthcare Single Specialty Services 42.8% 42.3% Community Healthcare Services 80.1% 28.9% Dentists 66.9% 50.0% NHS PMS (out of hours providers in 12/13) 50.0% 50.0% 63. Firstly, the table shows that recovery varies across categories. Our intention, as noted in our soon-to-be published strategic direction, is that we will achieve cost recovery in all categories by 2015/16 and as part of this will ensure that it is regularised across all categories. This approach will require us not merely to raise fees, but to drive efficiency in how we work and ensure that our fees scheme actively supports and strengthens our regulatory model. Reasons for the differing rates of recovery are explored in the following paragraphs. 64. We are keen to understand our costs and their distribution across and within categories. We have developed an activity recording system which allows us to analyse staff time. As we work through our cycle of inspections we will be able to use the data to build up a picture of how our resources are used and directed, which will allow us to underpin our charging mechanisms with increasing data. We already have a reasonable amount of data, but there are areas where more information and understanding of that data is required before we can make decisions on cost recovery. 65. NHS PMS providers come into regulation in April 2013 and so we have only been able to estimate costs. Next year we will monitor costs and the way in which we have structured the scheme, which will allow us to move the sector towards cost recovery. 66. Dental providers are still relatively new into regulation. We have noted that our estimate of their costs has reduced, which has increased the recovery in the sector. Next year we will analyse costs further and continue the move towards recovery. 67. Independent healthcare is split into three categories. Cost recovery for this sector is generally low, but we need to treat the figures with care. The numbers of providers are very low and allocation of costs is a delicate task. Atypical results can have a disproportionate effect on averages. Some of the samples need to have practically 100% of data before we can confidently change fees. However we will be able to take significant steps towards this over the next two years. 68. The NHS is close to cost recovery. The number of providers in this area is low, but the volume of resource across the CQC means that we can be confident about total costs. However the changes to service configuration as a result of the Transforming Community CQC Regulatory fees from April 2013: Regulatory impact assessment 10
Services agenda means that we will need to review the distribution of charges in the next year. 69. The Care services category is also close to recovery. The large volume of providers allows for confidence in the overall costs attributable to this sector. However the distribution of costs between providers using service number is of concern and will be reviewed during the next year. Hospices have been moved from the former Independent healthcare, Other, category into the Care services category. Their cost recovery suffers from the same issues as other independent healthcare categories discussed in paragraph 67. Because their numbers are so small in comparison to care homes, they do not significantly affect the overall cost recovery, but it is important that they are treated in the same way as other groups. 70. In summary, we believe that our proposed fees scheme does not over-charge any sectors and that no sector subsidises another. There is still significant work to do in terms of analysis to move to a scheme that provides for cost recovery while conforming to all the principles. The Fees Advisory Panel will help in this work. What are the legal considerations of the proposals? 71. Proportionality: the consultation proposals are not intended to go further than necessary to meet CQC s aims of implementing a new fees scheme from April 2013, in order to generate fee income. 72. Adverse effects: the consultation proposals are intended to strike a fair balance between the public interest and those adversely affected by the proposal. 73. Protections: the scheme proposals are not intended to remove any protections and or legal rights enjoyed by registered persons, in terms of either those who provide them or those who use them. 74. Legislation: the consultation proposals do not require any amendments to be made to primary or secondary legislation under the Health and Social Care Act 2008. 75. Equity and fairness: the consultation proposals have no implications for minority groups or race equality. The fees scheme was reviewed to identify its impact on equality and human rights which found that a separate, detailed impact analysis is not required. Assessment of competition 76. The scheme of fees will not impact on competition between providers, as it applies equally to providers within each market segment in England. The changes that are being proposed will not have any impact for fees on any other registered provider type or sector. CQC Regulatory fees from April 2013: Regulatory impact assessment 11
Consultation 77. CQC carried out its consultation for a period of 12 weeks running from Friday 28 September to Friday 21 December. All providers and key stakeholders were notified of the consultation documents, and they were published on CQC s website. 78. An analysis of consultation responses has been undertaken and used to inform decisionmaking on the scheme of fees. Further information is published on our website at www.cqc.org.uk alongside this final regulatory impact assessment and legal scheme. Post implementation review of impact 79. Following the consultation and implementation, CQC will carry out a post implementation review of the impact of the fees scheme within 12 months of its start date. This review will form part of CQC s next consultation on its fee proposals for 2014/15. Summary 80. This paper has reviewed the recommended option for charging primary medical care providers. It also recommends a fee level for independent midwives, a small change to fees for a specific group of independent healthcare providers and small changes to fees and structure for primary dental care providers. Conclusion and recommendation 81. This impact assessment recommends that CQC should consider setting fee levels based on a mix of location and list size for NHS PMS providers; by single location for independent midwives and that the other proposals for independent healthcare and primary dental care providers are adopted. 82. Any final decision on which basis to set fees for the affected providers will be made following the end of the consultation and an analysis of consultation responses. Declaration 83. I have read the impact assessment and am satisfied that the likely impact of the scheme has been identified, set out in an informative way and that the benefits justify the costs. David Behan Chief Executive CQC Regulatory fees from April 2013: Regulatory impact assessment 12
Appendix A Fees for primary medical care (GP) providers Estimated No. of Bands Providers in Band Locations List Size 0, <=5,000 3,185 550 1 Fee per Band >5,000, <=10,000 2,788 650 >10,000, <=15,000 1,206 750 >15,000 270 850 2 N/A 635 1,200 3 N/A 131 1,600 4 N/A 39 2,000 5 N/A 24 2,400 6 to 10 N/A 26 3,000 11 to 40 N/A 11 6,000 >40 N/A 8 15,000 Appendix B Fees for independent healthcare providers Changes to certain independent diagnostic healthcare providers Currently and to remain for all Providers other than Defined Diagnostic Providers Single Handed, One Location Diagnostic Providers Locations Fee Fee 1 1,500 250 2-3 3,000 4-6 6,000 7-10 12,000 N/A 11-15 24,000 >15 48,000 Independent midwives Band Fee payable Locations One location 800 Additional locations 800 for each location CQC Regulatory fees from April 2013: Regulatory impact assessment 13
Appendix C Fees for primary dental care providers Locations Current Structure: 2012-13 Structure: 2013-14 No. of Providers in Band Fee per Band Locations No. of Providers in Band Fee per Band 1 7,326 800 1 7,326 800 2 624 1,600 2 to 3 753 1,600 3 129 2,400 4 38 3,200 4 to 10 88 4,000 5 24 4,000 6 to 10 26 4,800 11 to 50 12 10,000 11 to 40 11 10,000 51 to 100 5 24,000 41 to 99 6 30,000 >100 2 48,000 >99 2 60,000 CQC Regulatory fees from April 2013: Regulatory impact assessment 14