Annex A > Chapter 6 - Funding and Resources > UBHT's funding after 1991
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UBHT's funding after 1991
44 After the introduction of the purchaser-provider split in 1991, the UBHT negotiated contracts [64] with its purchasers on an annual basis.
45 Mr Nix stated that he, as Director of Finance, and representatives from the individual clinical directorates were involved. He stated that the aim was to make certain that the various directorates had `ownership' of what was required by the contract and also to ensure that the directorates could achieve what the purchasers were seeking. [65] Ms Deborah Evans [66] confirmed this process. She stated in her written evidence to the Inquiry:
`In the period October to December each year most of the contracting discussions would happen at the level of a clinical directorate or sub-directorate and a contract manager from the Health Authority, often with a manager from the central UBHT contracting support team sitting in. Between January and March each year discussions would also take place at Executive Director level between the Health Authority and each Trust to discuss the overall balance of additional funding between specialities and Trusts and to address any so far unresolved delivery issues at specialty level.' [67]
46 Mr Nix explained that the UBHT was required to negotiate with around 500 different purchasers, ranging in size from the Avon Health Authority (AHA) [68] involving a contract in the region of £100m, to a local GP fundholder, where the amount involved could be £50. [69] The major purchasers however, during the period from 1991 to the end of the period of the Inquiry's Term of Reference, were the district health authorities rather than GP fundholders.
47 Table 3 below sets out the UBHT's income revenue as a trust from 1991-1995, and the income of the Directorate of Surgery. It also shows the income, where it has been possible to identify it separately, of paediatric cardiac surgery and paediatric cardiology.
Table 3: UBHT income revenue 1991-1995
(All sums shown are as shown in the UBHT budget statements at the cash value of the relevant year)
48 In the early 1990s, block contracts [70] for a fixed sum were the principal form of contract. Such contracts provided security of income to trusts. However, Mr Nix stated that they carried the risk that the numbers of patients would outstrip those that had been assumed when the agreement had been negotiated. [71]
`Bristol and Weston Health Authority (and subsequently Bristol and District Health Authority) used "sophisticated block contracts"as its main type of contract. These were arrangements within which the purchasing Health Authority paid a fixed contract sum for access to a defined range of services or facilities. Indicative patient activity targets were included with some identification of case mix. This type of contract was the most common form in use across the NHS, particularly in the acute sector.' [72]
50 Ms Evans explained that, initially, the emphasis was on a `steady state' that protected the newly established providers:
`The national contract pricing requirements ... had the effect that if a Health Authority wished to switch a number of cases away from one hospital and buy them at another one, it would be difficult to realise enough cash to buy the equivalent service elsewhere. It was theoretically possible to require Trusts to release the relevant semi-fixed and fixed costs although this would take two or three years to achieve. There were also national regulations about "periods of notice" required if Health Authorities wished to reduce the value of their "contracts" with a Trust by a significant sum. These values were not always precisely stated at national level, but it was local practice to give 12-18 months' notice for sums over £100, 000.
`The difficulty in switching tranches of work from one hospital to another, or from hospital to primary care settings, had the effect of focusing attention either on remodelling services within an NHS Trust or on ways of developing services using the marginal annual increase in funding to the NHS.' [73]
51 Mr Baird stated in his written evidence to the Inquiry:
`There was a lot of over-simplification initially. For example, every operation had an average sum of money attached to it, and the system of accounting did not take the complexity of the procedure into account. We dealt with Finished Consultant Episodes (FCE's) rather than patient admissions, discharges and deaths which we had had before 1991. Dealing in FCE's had the effect on hospital activity of counting a patient twice if, for example, the patient was admitted to hospital under a physician and later transferred to a surgeon. The contract money for operations was not given to surgery to share out to cover the support services, eg anaesthesia. The clinical support services such as anaesthesia, pathology, radiology, etc were funded by central top-slicing, as were the Finance Department, the IT Department, general works and buildings maintenance, hotel services and so on.
`Consultants continued to compete for funding for their areas of work, although the routes to gain funding were different - there were still winners and losers. Winners included complex, low volume work such as cardiac surgery and bone marrow transplants which received investment to aid their development. Losers tended to be the high volume, low cost work which was locked tightly in contracts. Long waiting lists have already been a powerful lever for growth money.' [74]
52 Mr Nix stated that within the UBHT there was no system of cross-charging between services, as this was considered to be costly to administer. Clinical support services were allocated a share of income based on an agreed formula that was reviewed annually. [75]
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Footnotes
[64] Although the term `contract' was used, these were in fact service agreements with no legal force
[65] WIT 0106 0024 Mr Nix
[66] Executive Director of Avon Health Authority, formerly Director of Contracting of Bristol and District HA
[67] WIT 0159 0013 Ms Evans
[68] Established with effect from 1 April 1996, following the merger of the former District Heath Authority and Family Health Services Authority
[69] WIT 0106 0024 Mr Nix
[70] Block contracts operated on the basis that the provider agreed to provide a specified service (e.g. accident and emergency services) to a purchaser. They may be compared to `cost and volume' contracts (a specific number of patient episodes at a specified price) and `cost per case' (the cost of one specific patient or patient episode of care)
[71] WIT 0106 0175 Mr Nix
[72] WIT 0159 0012 Ms Evans
[73] WIT 0159 0011 Ms Evans
[74] WIT 0075 0009 Mr Baird (emphasis in original)
[75] WIT 0106 0188 Mr Nix