Bigger consortia safer from risk, say consultants

David Flory’s came as new research has made the case for commissioning consortia to pool their costs and risk.

In analysis shared with HSJ, consultants McKinsey and Company found that larger consortia will be able to invest more in staff and resources and will be less vulnerable to the financial risk of patients with relatively rare but expensive conditions.

The analysis suggests that if there were as many as 500 consortia across England each covering populations of around 100,000, one in five would overspend their budget each year, due to their inability to absorb the costs of patients with high cost conditions.

However, consortia covering populations of 300,000 – just below the average size of a primary care trust – would have a much lower risk of being thrown into deficit by high cost patients. Just one in 20 of those larger consortia would overspend.

McKinsey partner Ben Richardson said commissioners need to be aware of the “need to balance” between scale and localism. He said that while there is a need for “personal relationships” in commissioning, “the scale that is required for commissioning acute services, management cost and risk is much larger than anticipated so far”.

The Department of Health has not given guidance on the size of consortia. However, at HSJ’s leadership forum last week, Mr Flory indicated that they may be larger than was expected.

He said: “We are at the stage where GPs are working out for themselves with practices and consortia how they want to come together. It feels to me that we are moving towards the place where they are fewer and bigger.”

McKinsey’s presentation said consortia fixed costs of £1.6m –  largely to pay for a board – would mean smaller consortia would “struggle”. Assuming a management budget of £20 per head, a consortium would have to cover around 150,000 people to break even.  

Mr Richardson said that there was an “emerging model” where general practices belong to smaller clusters within a large consortium which has “the benefits of both scale and localism”.

He said: “Pulling this off will require getting the relationships right and sorting key questions about governance, managing performance and risk, and having the information needed to enable this. But getting it right could allow GPs to have the greatest impact on improving the quality and productivity of services.”

McKinsey estimated commissioning management costs would be £28 per head for consortia, taking into account current PCT functions that will be performed elsewhere and the 45 per cent cuts underway in PCT costs.

The analysis showed commissioning management costs in the NHS are “at the lower end of international health systems”. Such costs made up 3 per cent of total health spending in 2009, compared to 5 per cent in Germany.