TO The rise of the salaried GP threatens the national contract and the red book. Should we care, ask Richard Lewis and Steve Gillam

Support for the national GP contract and the so called 'red book' of GPs' fees and allowances, which has been in operation since the early days of the NHS, appears to be at an all-time low.

The general practice committee of the British Medical Association is consulting on the future shape of primary care and seems ready to countenance radical reform to the contract. Some siren voices are suggesting that the national contract is as good as dead and some go as far as to suggest that all GPs will soon be salaried (although ministers have been careful to state that the independent contractor status of GPs will remain an option for those who want it).With a third wave of personal medical services pilots imminent, many GPs are voting with their feet.

But the national GP contract, with its foundation on the independent contractor status of GPs, has been a feature of the NHS since its inception. It has allowed GPs to remain largely outside the tightening grip of local NHS management, at least in relation to their role as providers of primary care. The growth of PMS pilots poses an important question - if the national contract and the infamous red book are doomed, should we care?

How the GPs' contract works The national contract is negotiated through a joint committee structure of the BMA and Department of Health. This system has a number of important features:

It delivers personal pay to GPs and reimburses practice expenses (consequently, it is known as a 'cost-plus' contract).

It allows the total expenditure on general practice to be cash-limited and planned.

The system is geared to deliver an agreed income and expenses to the 'average' GP - actual remuneration will vary considerably among GPs.

Over or under-payments in relation to the agreed national sum are adjusted in future years.

The national contract pays GPs through a range of measures. A national resource pool for general practice is established. This pool comprises all practice expenses incurred by GPs (assessed by a national sample of practice accounts), together with a sum equal to the intended annual net income (IANI) for each of the GP principals providing NHS services. IANI is subject to the doctors and dentists review body and, based on its recommendation, the government decides upon an appropriate uplift each year.

The translation of the national pool into pay for individual GPs occurs through a complex system of fees, allowances and reimbursements that delivers both personal pay and practice expenses.

1Expenses incurred in relation to practice staff, premises or computing are reimbursed directly by the health authority. Other expenses and GP income are indirectly reimbursed through the fees and allowances claimed by GPs. The red book is a piece of industrial archaeology famed for its bureaucratic complexity, notwithstanding significant computerisation of claims procedures over the last five years. GPs and their staff make a wide and sometimes bewildering array of claims (box 1).

Some payments, such as basic practice allowance and seniority payments, are 'fixed'. They do not relate to activity or performance and are received simply by virtue of being on an HA list. Other payments, such as capitation fees and deprivation allowances, are related to the number of patients registered on doctors' lists and, therefore, reflect notional workloads (these are age-weighted for greater workload sensitivity). Items-of-service payments - such as those for minor surgery, contraception services and medical maternity care - are, in contrast, directly related to selected types of general practice activity. The final group of payments are 'performance-related' and linked to public health policy aims. These are conditional on GPs meeting targets for cervical cancer screening and childhood immunisation and establishing disease management and health promotion arrangements.

The national contract is therefore built up of very different types of remuneration, each with its own distinct incentives. In particular, GPs must balance the income generated through the registration of patients with what they receive from providing defined services and meeting targets. Too few patients will generate insufficient income, while too many patients may generate a high income though the practice does not have the capacity to meet present needs. Identifying an ideal balance is no simple task as it will depend on the population served and the skill-mix employed within a given practice.

However, it is clear that a wide variance in registered patients per GP principal exists. In the inner city it is not rare for an individual list to reach 3,500 (the maximum allowable) even though the average in England is around 1,800.Therefore, the decisions a GP makes about their practice, as well as external factors such as prevailing local costs, will lead to very different levels of personal income and clinical time available per patient.

The national contract also presents interesting dynamics between the delivery of remuneration to GPs collectively and individually. For example, the contract sets fee levels that (based on estimates of activity) will deliver sufficient resources to cover the practice expenses of all GPs and their intended net income. Inevitably, individual GPs may receive amounts that are more or less than actual expenses or intended income. This presents a financial incentive for individual GPs to economise on practice expenses or, less charitably, to minimise services provided.

PMS differs from general medical services in a number of fundamental ways:

Contracts for services are negotiated locally between HAs or primary care trusts and local service providers.

Resources are transferred from the national pool to form local budgets.

Services can be contracted from new types of provider (such as trusts and nurses).

Currently, GMS and PMS systems are operating side-byside with a complex arrangement for transferring resources between them. This raises a question of how successful this co-existence can be. Will the growth in PMS generate unintended outcomes and fatally destabilise GMS?

The removal from the national pool of an increasing number of GPs has the potential to destabilise the GMS payment system, particularly if the GPs leaving had remuneration significantly higher or lower than the average. In fact, analysis of the first wave of pilots showed a remuneration profile almost identical to that of the average and, in any case, PMS resources have to date been transferred out of GMS at the actual (rather than average) level.

3Nevertheless, as the GMS pool shrinks, the ability of its balancing mechanism to smooth out variability between GPs reduces.

PMS has introduced a significant number of new salaried doctors (not replacements for existing GMS doctors).These new posts have been funded from overall growth and not from within existing GMS resources.

However, they may still have an impact on the national GMS pool (box 2).New doctors will register patients, many of whom (if not all) would have previously been registered with GMS doctors. At a local level, this may disadvantage neighbouring GMS practices as their list sizes, and therefore their incomes, fall. Unless there is a commensurate reduction in practice expenses, which are likely to be fairly fixed in nature, the profitability and personal drawings of these practices will fall. However, there is, paradoxically, a beneficial effect on GMS GPs collectively. The reduction in GMS earnings of the neighbouring practices will mean that the GMS contract as a whole undershoots its target levels of remuneration, and future fees and allowances will be adjusted upwards to compensate. In this scenario, PMS would result in many GMS GPs earning more for no additional work. Clearly, the GMS payment mechanism needs adjustment. However, it may be difficult to separate out the exact impact of these salaried GPs to allow this adjustment to take place.

The indirect reimbursement of average practice expenses under the red book provides an incentive for efficiency in the management of the practice. GPs are likely to gain if they can reduce their expenses to below the average. However, GMS is less effective in channelling resources to patient groups with particularly high needs.

GMS practices actually face a financial disincentive to register certain groups (such as refugees or people with mental illness) as their resource requirements are likely to be significantly greater than the income they generate.

This presents a practical problem to policy makers and an ethical and financial problem to GPs. GMS local development schemes have been introduced in an attempt to address this problem. However, these schemes require hospital and community health services resources - usually in short supply.

Benefits for practices PMS is better able to target resources to areas of defined need, and local contracts can be structured to deliver incentives to provide appropriate care. In particular, the funding and employment of salaried GPs within PMS pilots represent a significant input of additional resources with no adverse impact on the earnings of existing PMS principals.

As a result, practices may expand their list and range of services, increase their leisure time or a combination of the two (box 2).The efficient use of additional salaried GPs depends on the stipulations of the local contract. Analysis suggests that, so far, PMS contracts have lacked sophistication and have not focused on improved financial efficiency.

4The mixture of payment methods under GMS does little to allocate resources according to need or to reflect accurately workload. Capitation payments are weighted for age and sex of patients, but the system for adjusting payments to reflect the impact of deprivation has been widely criticised as imperfect.

5Inner city GPs often claim that the high needs and diversity of their patients are not properly reimbursed.

In fact, analysis suggests that inner city areas are often among those most heavily resourced in terms of fees and allowances per capita.

6However, in the inner city total GMS resources may be high, while at the same time individual practices may be receiving very different shares of this cake.

The GMS payment system appears too labyrinthine to encourage equity of resource distribution. PMS is not necessarily a panacea for this. By using historical remuneration as the starting point for local contract negotiations, PMS imports resource inequities directly from GMS. However, PMS budgets (which are in the public domain through HA accountability mechanisms) make public the disparity in income per patient served between practices serving ostensibly similar populations. One HA has calculated that there is a threefold variation in income per patient under PMS. This must be unacceptable if patients are to receive a uniformly high quality of service and health service professionals a fair reward for providing them. PMS increases the transparency of the inequities of the GMS system and, by doing so, must increase the pressure for its demise.

The ultimate solution So how might an equitable allocation of resources in primary care be achieved? Perhaps the ultimate solution is a weighted, capitation-based system that allocates resources to HAs and PCTs according to need. Currently, primary care is the only element of general health service allocations which falls outside this discipline. Under this system, HAs and PCTs would be responsible for commissioning primary care in accordance with need and as part of a wider strategy for total health services. PCTs could offer opportunities for salaried practice, but this model would not exclude the continuation of independent contractor status for those GPs who want it.

The Medical Practices Committee, the body that centrally controls the size of the GP medical workforce, would have its role taken over by local players who are increasingly expected to lead workforce planning in the NHS. Such a radical change would signal the end of the national GP contract. However, the prognosis for the red book looks poor in any case. Government and the profession must ac t quickly to ensure that an ordered change takes place. The worst of all worlds would be a chaotic breakdown of the old regime. Yet a compromise between national and local approaches appears to be emerging. New guidance on the third wave of PMS pilots has indicated that all local arrangements must be consistent with a new national contractual framework out soon.

Key points The long-standing method of paying GPs through a complex system of fees and allowances is under review.

The proposed expansion of personal medical services pilots and an increase in the number of salaried GPs could destabilise the current system and lead to perverse outcomes.

The introduction of a weighted capitation system allocating resources to health authorities and primary care trusts according to need might ensure equitable distribution of funds.

Box 1.

GMS fees and allowances

Payment type Examples of payments

Fixed allowances Basic practice allowance

Seniority payments Patient-related payments

Capitation per patient (age-weighted) Deprivation allowance

Item-of-service payments Minor surgery

Medical maternity care Contraceptive care Performance-related payments

Cervical cancer screening High/low targets

Childhood immunisation High/low targets

Box 2.

Potential impact of salaried PMS GPs Salaried GP in practice X funded from national growth funds

Local impact

Average earnings of principals in practice X increases as contract value increases to reflect higher performance.

Principals in practice X increase patient contact time or shift activity to sub-specialist areas.

Neighbouring practices experience reduction in list size and drop in income (fewer patient-related and item of service payments).

National impact

Reduction of GMS earnings of neighbouring practices will cause an underpayment against the national GP contract.

Future fees and allowances will be increased to all GPs to compensate for underpayment.

Workload of non-neighbouring GMS practices remains the same but income increases.


1 Dean J. Making Sense of Private Finance (2nd ed).

Oxford: Radcliffe Medical Press, 1994.

2 Jenkins C. Personal medical services pilots - new opportunities. In Lewis R, Gillam S. Transforming Primary Care - personal medical services in the new NHS. London: King's Fund Publishing, 1999.

3 British Medical Association (GMSC) Technical Steering Committee. Exercise carried out by the health departments. 1998.

4 Lewis R, Gillam S, Gosden T, Sheaff R. Who contracts for primary care? J of Public Health Medicine; 1999; 21 (4): 367-371.

5 Worrall A, Rea J N, Ben-Shlomo Y. Counting the cost of social disadvantage in primary care: retrospective analysis of patient data. BMJ 1997; 314 (7073): 3842.

6 .Health policy and economic research unit. The relative incomes of general practitioners. London: British Medical Association, 1998.

Richard Lewis is visiting fellow and Stephen Gillam is director of primary care, King's Fund.