Operating framework is ambitious but fails to convince on commissioning

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Jennifer Dixon argues that the NHS chief executive's first major report outlines a well-argued agenda for health service reform, but warns that commissioning may remain too weak.

NHS chief executive David Nicholson unveiled his first major report on the health service this week with the publication of the Operating Framework for 2007/8. The report sets out the priorities for the health service over the next financial year and is admirably lean and, on the whole, well argued. It sets out the pathway of reform clearly, restates the priorities for the NHS (no change from last year – a relief all round) and outlines what the various types of NHS organisations must focus on in the next financial year.

Amid rising levels of debt in the health service, the framework sets a new target of producing a £250 million budget surplus by March 2008, as well as setting a benchmark for hospitals to treat patients within 18 weeks by the same date. But away from the headline performance targets there is a strong emphasis on building a system that is self-improving so that change is driven locally, in particular by frontline staff. The desire to change the structure of the service in this way is so that 'the reforms do not get reduced to a set of contracts or transactions'.

What many people looked for in the report, however, was whether the Department of Health would scrap Resource Accounting and Budgeting (RAB) for NHS trusts as recommended by the Audit Commission last summer. The principle of RAB means that if a trust reports a deficit in one year, its income is reduced by that amount the following year. The trust not only receives less income the following year, but also carries forward the original deficit onto next year's balance sheet – effectively, a double deficit.

Those hoping for change have been left disappointed. 'Not yet' was the answer, but the DH ensured it 'will look again at the case for reversing the impact of past-RAB deductions on the delivery of financial balance in 2006/07'. This is hardly surprising – to announce a reversal at this stage of the financial year would surely send the wrong signal to NHS trusts who might be tempted to relax financial discipline at any sign of unusual seasonal generosity by the DH.

However, if 'look again' is to have impact in 2006/7, then this must mean a further statement will be made early next year. The total cost of writing off historic debt, according to David Nicholson who was quoted in the Guardian this week, is estimated at £600 million. This is perhaps a small price to pay to help achieve the financial balance that the health secretary has promised to deliver, and to quell the mounting number of crisis headlines.

Many NHS trusts currently reduce debt at year-end by using their working capital budget; this will all change. At the end of 2006/7 cash brokerage will be replaced by loans, the repayment of which is to be made by the relevant trust generating a surplus. From 2007/8 capital allocations are replaced by a new borrowing and loan regime similar to that operating in foundation trusts.

Wherever it comes from, the 'resource buffer' needed will have to be found from within the NHS – in part from loans to the total value of the overall surplus (if there is one), in part from a final call on working capital budgets before they close down, and in part from somewhere else to be determined. As trusts race to achieve financial balance and even to create a surplus, it will be important to keep track of the impact on patient care, especially in the three months ahead.

The most important section to scrutinise in this report is that on commissioning – the function that has the most potential to change the structure of the service and, as everyone knows, is seriously underdeveloped. Primary care trusts (PCTs) are urged to implement meaningful practice-based commissioning – no news here. They are also asked to prepare a development programme to address gaps in skills – again, nothing new. PCTs can, through the commissioning services framework procurement programme, contract management tasks to third parties – we know that too. This offers real hope that commissioning can be boosted – let's hope this part of the reform agenda stays on track and is not killed by the excessive bureaucracy of third-party contracting. More interestingly, there is a restatement of freedoms outlined earlier this year, 'PCTs have a right to use a range of agreed care and resource utilisation techniques (for example, utilisation review and prior approval)' and guidance on this will be available later this month.

Potentially, using techniques such as prior authorisation and utilisation review is sensible – all PCTs are guardians of public resources and need to be much better at scrutinising their use. But the thought of PCTs applying prior approval techniques and undertaking utilisation reviews when they are unused to analysing utilisation data meaningfully is worrying. These techniques ultimately proved to be unpopular with health maintenance organisations (HMOs) in the United States, partly because clinical decisions were often overridden by the HMO payer, partly because of the bureaucracy and cost involved, partly because of delay in care while decisions were pending, and, pertinently for the NHS, because of the infringement on patient choice. They were so unpopular in fact that there was significant provider and consumer 'pushback', involving legal challenge, to outlaw some of these practices; gatekeeping in HMOs was reduced significantly across the United States from the mid-1990s. Set alongside the growing use of these tools is the obvious lack of accountability of PCTs to the people they serve and the fact that most of us are captive recipients of PCTs' commissioning choices, by virtue of where we live, all of which means potential problems loom.

There is no easy answer. Renewed attempts to improve the local accountability of the decisions PCTs make (possibly using a membership idea similar to that in foundation trusts) are unlikely to be effective enough to improve services significantly or to ameliorate difficult decisions on spending or on utilisation of care. And there are currently no plans to allow patients choice of PCT. The best one could hope for is that commissioning will improve rather than limit care: that is, that there will be better commissioning of more preventive care targeted on groups prone to avoidable hospitalisation (DH guidance is pending), rather than the easier-to-achieve route of denying less cost-effective care to identified individuals.

More fundamentally, the model of commissioning is still one that is centrally run and performance-managed, albeit with contracts to a few third parties around the edges. The question has to be 'is this enough to give the required weight?' Probably not is my guess, although let's see how it develops over the next two years. After that, depending on the prevailing political will and mandate, expect more competitive challenge to be introduced.

This article originally appeared in Insight, The King's Fund update, December 2006