Commissioning transition to cost £1.2bn

19 January, 2011 | By Simon Lewis

The transfer of commissioning to consortia and the NHS commissioning board will cost £1.2bn in the next two years, according to the Department of Health’s impact assessment of the Health and Social Care Bill.

The DH estimates that “the future cost of commissioning will be £1.3bn less than existing costs”.

The expected savings mean that the benefits will outweigh the costs of transition by 2012-13.

An additional paper to the impact assessment says that the reforms will lead to at least 15,800 redundancies across PCTs, strategic health authorities, arm’s length bodies and NHS leadership and the DH. The total cost of the redundancies is estimated at £772m.

The assessment predicts that there will be an average of £1.06bn of annual savings made over 10 years due to the reduction in the cost of commissioning.

The DH factors in no costs or benefits for this year, but around £600m will be spent on the transition in each of the next two financial years.

The DH estimates existing costs for primary care trusts commissioning arms as £1.93bn for staff costs and £2.01bn for non-staff costs. While it expects that the annual “commissioning budget running costs” will fall to £2.63bn by 2014.

Non-staff costs for the transition to commissioning consortia are estimated at £323m, or £2.1m per primary care trust. This includes £950,000 per PCT for the transition of IT and £650,000 on double running costs during the changeover.

The impact assessment also outlines the key risks of the reforms to commissioning.

These are: “GP consortia not having the capacity and capability to engage with and deliver clinical commissioning; Potential conflicts of interest between GP consortia as providers and commissioners of patient care; Potential higher transaction costs as we change the number of organisations commissioning services; The ability of GP consortia to manage risk; The ability of GP to deliver the potential financial savings outlined above.”

An impact assessment for the establishment of the new role for Monitor as an independent economic regulator estimates that this transition will cost £29m.

Readers' comments (9)

Anonymous | 19-Jan-2011 9:41 pm
GPs cost less?Money well spent? I don't think so.... In 30 years of NHS management I have never seen such a brain drain of talent being paid to leave the sinking ship. I wonder how many will need to be re hired to sort out the future mess. Why are Ministers so arrogant to ignore the views of the vast majority. It beggars belief.All I can say is I am glad I am at the end of my NHS career and not the beginning. I have always been an optimist but I am now a retireing cynic!
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SJ Burnell | 20-Jan-2011 11:33 am
No doubt, SHA's & PCT's became too costly with too much 'Waste" & are a step too far from Patients but they have many talented Assets to be lost. I'd be amazed if the above figures are proven to be accurate estimates. What about the costs to the taxpayer of redundant staff not getting new jobs quickly? No way will the private sector hire 16,000 more staff? What about the then idle fixed assets like buildings, computers, etc? What about the costs of GP's going along a steep learning curve (experience = failures + extra costs)? I guess its so dramatic because the politicians know that only a crisis will deliver their agenda (not manifesto). But, if its going to happen, then we have no choice but make it work as well as it can as quickly as it can.
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SJ Burnell | 20-Jan-2011 11:43 am
BTW: looks like a lot of angst for £1billion p.a. out of cost of Commissioning over 10 years (<1% of NHS) if it does not also produce far, far bigger savings from the cost of Delivery. Will it?
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calum paton | 20-Jan-2011 1:56 pm
Is the DoH unaware of the high school-level concept in economics of 'opportunity cost' What is the 'opportunity cost' of implementing these reforms? And what is the opportunity cost of re-inventing the wheel of strategic planning/commissioning, when it is discoveered that GP groups need their heads banged together?...and so on...and so on...

He who is ignorant of history is condemned to repeat it....
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Anonymous | 20-Jan-2011 2:27 pm
It is hard to be charitable towards AL, when as a tax payer I see a chunk of my hard-earned NHS salary being recycled into my NHS colleagues' redundancy pay-offs and unemployment benefit.

Maybe we should all buy shares in IT? -- from the figures for each PCT stated above, it looks likely that they will be the winners.
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Anonymous | 20-Jan-2011 8:46 pm
PCTs cost £1.9bn. Commissioning is only part of this cost so how can this REDUCE BY £1.3bn with 300-400 consortia? It doesn't add up.
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Anonymous | 21-Jan-2011 10:23 am
Before pulling down a fence, it's a good idea to find out why it was put up in the first place!
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Anonymous | 21-Jan-2011 1:09 pm
The figures also fail to take into account the loss of potential savings that might have been achieved were it not for the next premature reconfiguration of the NHS!
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Danny Batten | 23-Jan-2011 7:56 pm
Having looked at the Impact Assessment I am struggling with the numbers presented in the article above. Firstly, let’s take the £1bn annual saving, the only apparent relevance of this number is that it represents the government’s target of a 30% reduction in admin costs, it is not a costed reflection of the actual savings to be made from switching to the new system. It is in fact merely an aspiration and should not be used as a reflection of the decrease in costs from the Health Bill reforms.

Secondly I do not believe we have enough detail of the costs of the new system to really clarify how much of a saving will be made. In the IA we are given a figure of £3.59bn as the baseline for the ‘commissioning arms of PCTs’ but this includes areas such as public health and of course the areas of commissioning that are going to the Commissioning Board. Without a clear breakdown of the current costs of these areas, how can we truly assess the savings compared to the new system. We need to know the costs of public health and the amount that will be transferred to Local Authorities (therefore not a saving), we need to know the costs of commissioning the services that GPs will take on and the costs of commissioning that the Commissioning Board will take on. Without an understanding of the cost of the NHS Commissioning Board we cannot analyse the true savings/costs of the new system.

One other interesting point within the IA is the note that it is expected that 50-70% of current PCT staff will move to the new organisations. Now if we take the mid-point of 60% (as they have in the IA) and presume that we can take this as a proportion of total staff costs for PCTs, we are left with staff costs of £1.16bn for GP consortia. Now we are told in the Operating Framework that GP Consortia will receive between £25 and £35 per patient for commissioning, which equates to £1.28bn-£1.79bn. Now if 60% of current staff do transfer to the consortia then they are left with a maximum of £630m to pay their non-staff costs, bearing in mind that PCTs spend more on non-staff costs than staff costs and have greater economies of scale than GP consortia then it appears that these numbers do not add up.

From what I can see this leaves three possibilities: 1) the Commissioning Board is going to absorb a sizable proportion of these staff, in which case presuming a 50/50 split of staff and non-staff costs is representative across the NHS, we can assume that if they take £0.5bn of staff, the board will be at least a £1bn organisation; 2) the GP consortia will be hiring staff on substantially worse employment benefits than the current PCTs; 3) the DoH is severely underplaying the amount of staff that will need to be made redundant. It is of course a distinct possibility that all three are correct.

Either way it shows that we still do not know enough about this new system to truly understand its costs or benefits and the DoH does not appear to be in any rush to enlighten us.
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