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Published: 31/10/2002, Volume II2, No. 5829 Page 14 15

Health resource groups are the NHS's new currency.Are they a road to greater efficiency or a recipe for financial chaos?

Paul Smith reports

The proposed financial system underlying the government's much-vaunted patient choice philosophy was launched with very little fanfare. There was no speech from health secretary Alan Milburn. There was no press conference. In fact, for the media there was only an off-therecord technical briefing in the bowels of the Department of Health and just eight journalists showed up.

The irony is that proposals laid out in Reforming NHS Financial Flows will - according to the NHS Confederation - have the same seismic impact as the internal market reforms of the early 1990s.

Out will go block contracting.

In will come payment for the work providers actually do, and it will be based on a new health currency which is to lie at the heart of the NHS - healthcare resource groups. Of course HRGs, defined as groups of activities which consume similar resources, have been around in the NHS since 1992 and are Britain's answer to the diagnosisrelated groups developed in the US. In this country, they have been traditionally used to work out how efficient trusts are in the care they provide, based on how much it costs them to provide an individual HRG.

By paying providers a fixed tariff rate for HRGs they carry out, one of the stated aims of the Department of Health's policy is that trusts will improve efficiency because it means they can keep the money they earn by providing services under the tariff rate. This will also act as an incentive for trusts to boost their activity levels, with beneficial effects on the service's huge waiting lists.

Under the proposals, just a handful of HRGs will be used from next year and all are based around treatments where the waiting lists are longest - like cataract operations and hip replacements. This is a tiny proportion of the 572 HRGs in place for inpatients, plus those covering outpatient treatment.

The NHS Information Authority - which admits it is facing a 'significant'workload over the coming months - is also developing HRGs covering mental health, learning disabilities, radiology, chemotherapy, critical care, pathology and special palliative care.

The question is whether using HRGs, and the tariff system which they will support, will impact on efficiency and activity levels as officials hope.

Anna Dixon, lecturer in European healthcare policy at the London School of Economics, says: 'I think you have to look at what has been happening in other countries very carefully.You can take Germany as an example.

'It is introducing a similar system, but then it doesn't have waiting lists.Denmark is the most obvious comparison because it has similar problems, and initially there was little increase in efficiency simply because the tariff price was set too low.

'There was minimal incentive in the system for patients to be transferred outside their local health communities because the money that organisations got back for the care they provided wasn't great. That has changed, the tariffs have been set at a higher level and you are beginning see more movement.

'Clearly one of the most important elements will be the tariff rate in this country. The price will be important in determining what effect it is going to have.

'The other issue [about the effect of the policy] is the speed at which the system is introduced.

In Portugal, they took a gradual approach - with only 20 per cent of their budget tied up with commissioning based on diagnosis-related groups. The degree of risk to a provider's finances wasn't sufficient to change their behaviour.'

On the question of rates of the new tariffs, Reforming NHS Financial Flows says it will be set around the 'average NHS reference costs' - with adjustments for inflation and regional variations.

This may seem sensible because most NHS providers are within plus or minus 5 per cent, according to the DoH.

But even the DoH has concerns about the robustness of the current system.HRGs, it says, 'have room for improvement and revision'. Because this 'cannot be done quickly the initial focus will be on addressing the most urgent and important problems'.

In practice this will mean revising existing HRGs, looking at reference costs data, and improving data collection and analysis that goes with it at all NHS bodies.

As one senior trust manager told HSJ: 'If the data is not robust and the HRGs are unsound and the tariffs high, then it could cause financial chaos. If the tariffs end up too low, then it simply will not do what the DoH wants it to do.

The thing is, though they are improving NHS reference costs leave a lot to be desired.'

The private sector is also concerned.A spokesperson for the Independent Healthcare Association says: 'I think it is widely accepted that the reference costs in the NHS bear little or no relation to the real costs.We hope that the HRGs [and the tariff prices] which emerge from this process reflect the commercial reality.

'Given that ministers have accepted that patients should be able to choose the providers of their care, it is important that we can compete on a level playing field without the tariffs being set artificially low.' l A critical situation: funds fear prompts pilots The NHS Information Authority is to pilot health resource groups for critical care services because of fears that the new tariff-based financial regime could leave them with insufficient funds.

The costs of critical care are currently reported on a cost-per-day basis and are separate from the main body healthcare resource groups.But the Department of Health claims that when commissioners are allowed to switch to alternative providers, there will not be the resources to 'reimburse' them fully for the critical care they end up providing.

In the short term, the tariff for each HRG will be adjusted to take on board the extra costs they involve.However, the authority is set to launch a series of pilots to develop HRGs solely for critical care.

The Modernisation Agency is also working with other stakeholders on developing a new commissioning framework for England's 29 critical care networks.

Ginny Edwards, the agency's national programme director of critical care, says: 'The problem has always been that these services can be extremely high cost and low volume.Because primary care trusts have a very busy agenda with many other issues to deal with, we hope this is one way to prevent [critical care services] from being overlooked.'

www. doh. gov. uk/ nhsfinancialreforms