The value for money of ISTCs

Civitas, 13 August 2009

Last week, when discussing the quality of care provided by ISTCs in relation to a briefing issued by the BMA, a run-through of value for money was promised.  So here goes.

It should be said, the BMA are entirely right to raise questions here.  Any taxpaying citizen should be. ISTC contracts were negotiated centrally by the Department of Health and were, to put it mildly, generous.  In an ensuing world of patient choice, where providers now should be paid per case for each patient that chooses their service, ISTCs were given block contracts (the very type the NHS, in electives, was otherwise being told to move away from), usually of five years.  These were based on pre-defined levels of clinical activity, according to what each PCT said they would need to cut waiting times.  Crucially, also, they were ‘minimum take’, i.e. payment was guaranteed for each year of the contract term regardless of the actual activity carried out.  Payment, also, averages 11.2 per cent above the NHS equivalent cost.

Utilisation rates have not been up-to-scratch.  In some cases it is 100 per cent and value for money (at least on the terms of the contract) is more assured; but in some it is far, far, below.  For the period Feb 08-Jan 09 total contract utilisation in wave one ISTCs was 87 per cent (ranging from 111 per cent in Shepton Mallet to a meagre 51 per cent in Manchester) from a total contract value of £275 million.  In other words, the NHS paid some £35 million for work that was never carried out.

Now, there are various reasons why this may be so.  The level of integration between ISTCs and the local health economy has inhibited patient referrals (the Healthcare Commission reports a significant number of inappropriate referrals, up to 38 per cent for some ISTCs); there remains a reluctance on behalf of some GPs to refer to the independent sector; in some cases there is a lack of communication and information flows between ISTCs and NHS providers, particularly in dealing with complications; there is often hostility from local managers and clinicians to ISTCs (as seen in the anecdotal evidence reported by the BMA); and a lack of PCT engagement.  In some cases, too, the DH simply got the contract volumes required by local health economies wrong.

There is, of course, a whole host of perverse incentives at play for the ISTC providers themselves.  As Ali Parsa, CEO of Circle, that runs three ISTCs, has said of the minimum take clause: ‘Block contracting is never going to deliver results.  Imagine buying 80 per cent of a restaurant’s meals beforehand.  The food’s never going to be that good until each individual customer can demand quality for themselves’.  He has a point – even if quality in ISTCs is, as we saw last week, pretty good.  Particularly given another bonus to many ISTC schemes: that the NHS is obliged to buy back buildings used by ISTCs at capital value, if contracts are not renewed (an estimated cost of some £200m).

This is one side of the coin.  The other, however, also should be noted.  First, with regard to the 11.2 per cent uplift and buy-back clauses, there is a sound case to be made that this is necessary to create a level-playing field in a mixed health economy.  The private sector does not have access to some of the luxuries enjoyed by NHS providers – pensions and capital costs in particular – so if they are to compete an uplift is probably required (though, given their greater efficiency, it would be interesting to see what prices could be negotiated if the tariff was flexible… what could ISTCs bid at?).

Second, value should always be assessed not just looking at cost, as the NHS tends to do, but actually looking at value, which may be expressed simply as clinical (or health) outcomes + patient satisfaction / cost.  And cost should also include inflation; NHS inflation is notorious for being way above the rest of the economy… is it the same in the independent sector, where productivity is generally higher?  So, in other words, if outcomes and patient satisfaction are better in ISTCs; if inflation is lower; if less revisions and re-admissions are required than in the NHS; then their value automatically increases.  This is not often factored in and it should be; an agenda which is wholly consistent with the new, Darzi-instigated, focus on quality.

Third, the ISTC programme always had two aims.  One to increase capacity, and fast.  Two – to put it bluntly – to give NHS providers a kick up the backside; ‘spurring NHS providers to increase their responsiveness to patients’ in the words of the 2004 DH policy document.  If the second has happened, if the mere presence of ISTCs have caused NHS providers to take a long hard look at themselves and drive efficiency and performance like never before – and in a way that wouldn’t have happened without them – then their overall value (not just internal value) to the NHS increases dramatically.

But has this happened?  As yet, little rigorous studies have been carried out.  But there is anecdotal evidence of NHS providers reporting a sudden falls in waiting lists; of sudden increases in throughput; of sudden reconfigurations of service; of managers being able to have conversations with clinicians previously unheard of; and, not least, of a fall in very expensive spot-purchasing from the private sector to keep waiting times within targets.  Particularly, in Plymouth NHS Trust from the Peninsula ISTC; in Southampton University Hospitals Trust from the Southampton ISTC; and in Yeovil NHS Foundation Trust from Shepton Mallet ISTC.

Yet unfortunately, despite much ministerial rhetoric of the impacts, the galvanising effect ISTCs were supposed to have has not – as the Health Select Committee said way back in 2006 –  ‘has not been quantified’ with the result ‘it is impossible to assess whether ISTC schemes have in practice proved good value for money’.

The evidence remains equivocal.