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Investing in general practice

February 2003

Chapter 5 : Investing in primary care services
5.1 This chapter sets out how the new contract will:
(i) bring unprecedented guaranteed UK-wide investment to primary care over a three year period, raising total spend by 33 per cent from £6.1bn to £8.0bn

(ii) recognise the differential workload associated with the needs of different patients, and the costs arising from different practice circumstances, through the new Carr-Hill resource allocation formula

(iii) provide a guaranteed level of resources, and allow practices flexibility in how they spend the resources received, through global sum payments on the basis of the Carr-Hill formula from 2004/05. Transitional protection of income will also be provided

(iv) support the growth of enhanced services without destabilising existing payments for Local Development Schemes, GPwSIs, delivering improved access, and local incentive schemes, through a funding floor in England of £315m in 2003/04, £518m in 2004/05, and £586m in 2005/06. Comparable funding arrangements will apply in the other countries

(v) provide for a range of other payments for specific purposes

(vi) change the ways in which funds flow between the Health Departments, PCOs and practices, to support these new arrangements

(vii) improve GP pension arrangements.

Additional investment
5.2 If the GMS contract is accepted by the profession, UK expenditure on primary care will rise from around £6.1bn in 2002/03 to £8.0bn in 2005/06, an unprecedented increase of 33 per cent. About two-thirds of the increased investment will be spent on rewards for higher quality.

5.3 This expenditure covers all practices including PMS practices. The English and Scottish Health Departments are considering the basis on which increases in PMS income will be calculated in future. There are no PMS practices in Wales or Northern Ireland.

Gross Investment Guarantee
5.4 Under the old contract, the Doctors’ and Dentists’ Review Body (DDRB) made recommendations about changes to the GMS feescale needed to deliver an Intended Average Net Income (IANI) for GPs, based on the expected level of expenses incurred by GPs.

5.5 Overestimation of GP expenses and other factors have also led to overpayment of GPs according to the old contract methodology. According to the DDRB’s 2001 report the debt amounted to £7,214 per GP. The latest Technical Steering Committee (TSC) work shows this figure is now £6,688 per GP. This figure would have been progressively clawed back under the old contract. The transition from the old contract to the new will see the debt written off. On the basis of the balancing mechanism which the DDRB has operated since 1983, the amount of debt written off would represent 2.4 per cent of net income in 2003/04, 1.5 per cent in 2004/05, and 1.2 per cent in 2005/06.

5.6 The new contract will move away from this complex structure of IANI, expenses and the balancing mechanism and its associated problems. Under the new contract the concept of the intended average net remuneration for GP principals will disappear. Instead, increases in resources from 2003/04 will be based on an intended overall level of investment in primary care for doctors. The main ways of increasing investment beyond 2005/06 will be through uplifts to the global sum, increases in quality payments and enhanced services but there could also be increases in other funding streams.

5.7 The new contract will provide a Gross Investment Guarantee that the resources promised in this document will be delivered. To ensure delivery of this the pricing of the contract could be adjusted. The level of investment in will be monitored by the TSC, which will in future include the NHS Confederation and Northern Ireland representation. The information from the TSC will be used to inform negotiations between the Health Departments and the GPC on the future pricing of the contract.

5.8 The TSC will also oversee a new UK-wide annual survey of GP workload beginning in 2003/04. The TSC will monitor factors including workload, skill mix, resource use, GP net incomes and expenses and will inform future levels of resourcing for primary care, future DDRB awards for general practice and the development of the Carr-Hill formula.

Investment in enhanced services
5.9 The TSC monitoring will include investment in enhanced services which will also be performance-managed by Strategic Health Authorities (or their equivalents) to ensure effective and appropriate deployment. Given that the purpose of the guaranteed expenditure floor is to develop new services, any spend on enhanced services where these are currently being funded from GMS monies (excluding LDS) will not count towards the Gross Investment Guarantee. The floor includes significant new investment to be spent on developing new services at the primary and secondary care interface, and on managing demand in primary and secondary care by resourcing the shift of services from secondary to primary care. It will reward innovation.

5.10 PCOs will be required to consult their constituent local practices, LMCs (or their equivalents) and Patient Forums (or their equivalents) about the level of investment they propose to make on enhanced services, and how it will be used in line with the PCO’s strategic objectives. Were the PCO not to develop adequate plans for developing enhanced services in primary care the Strategic Health Authority (or its equivalent) will intervene to ensure that the guaranteed floor is not breached and is spent for the purposes intended.

GMS allocation formula
5.11 Under the existing contract, practices receive per doctor payments such as the basic practice allowance, capitation fees and item of service payments. The current arrangements have meant that:
(i) casemix is not adequately reflected

(ii) differing practice circumstances are not adequately taken into account

(iii) resources follow the distribution of doctors rather than patients and their needs

(iv) resources are lost if the number of doctors in a practice reduces

(v) practices do not have security of income

(vi) changes in skill mix are not encouraged

(vii) practices have insufficient financial incentives to provide high quality care.

5.12 The introduction of a global sum payment, combined with new rewards for quality, will address these flaws. A new GMS resource allocation formula, developed by Professor Roy Carr-Hill of York University, will provide the basis for allocating funds for global sum resources and for quality payments.

5.13 The Carr-Hill formula, a report of which is published separately in supporting documentation takes account of six key determinants of practice workload and circumstances:
(i) patient gender and age for frequency and length of surgery and home visit contacts

(ii) patient gender and age for nursing and residential home consultations. The research which lies behind the formula shows these to be an average of 1.43 times higher than (i) by age and gender band

(iii) morbidity and mortality

(iv) newly registered patients, who generate around 40 per cent more workload in the first year than the average

(v) unavoidable costs of rurality, to take account of population density and dispersion

(vi) unavoidable higher costs of living through a Market Forces Factor applied to all practice staff. In particular, this will compensate for those additional costs involved in delivering services in areas such as the south east of England.

5.14 The formula is to be applied using a common methodology across all four countries to calculate the global sum and the quality payments in line with the scorecard arrangements described in chapter 3 - read more here. The calculation of the relevant global sums will not impact on the distribution of resources across the four countries. These resources will continue to be allocated on the basis of the Barnett formula.

5.15 Separate adjustments for Scotland will reflect the specific circumstances of practices in Scotland. The continuing need for these adjustments will form part of the review of the formula. There will be an off-formula adjustment recognising the particular circumstances of practices in London. An adjustment may also be required in Northern Ireland in the light of statutory equality impact assessments under section 75 of the Northern Ireland Act 1988. As more comprehensive data become available it is intended to review the need for such adjustments. The weightings associated with each factor, including the adjustments in Scotland, are shown in the supporting documentation. Applying the indices together to a practice’s population creates a practice weighting. In Scotland, references to the Carr-Hill formula and weighted populations will be based on the adjustments made to take into account these specific circumstances.

5.16 To calculate practice entitlement under the global sum, the list size adjusted for list inflation will be multiplied by the practice weighting. At present, most of the current fees and allowances on each GP list are scaled back by six per cent to take account of list inflation - the practice registered population is around six per cent higher than the Office for National Statistics (ONS) population estimates. This unfairly penalises those areas of the country where list inflation is lower. A more equitable method will apply in future as practice list size information becomes more accurate. Each PCO population will be scaled back to its own census population estimate. PCOs will then scale back the practice lists, taking into account the PCO average list inflation, rather than the national average.

5.17 A further additional need is the treatment of temporary residents and the provision of immediately necessary and emergency treatment. This additional need is reflected in the global sum (see chapter 2 - read more here).

5.18 Further unavoidable costs may arise in certain geographical areas, where the physical location of the practice or distance from other healthcare providers means that the practice provides a wider range of services. These will be addressed through additional support for the most isolated and remote practices. This support will be provided by the PCO according to local practice needs.

5.19 Although we believe the formula to be robust, given the available data, it will inevitably not be a perfect model of the future workload and of the costs that practices may face. When dealing with practice size populations it is very unlikely that any formula could wholly accurately predict demand, due to random fluctuations.

5.20 The formula will be revised in the light of more timely and accurate data being available. Beyond 2005/06, we anticipate that the additional needs adjustment will take account of new practice-level information on disease prevalence following collection of data in the quality framework. Practices will therefore wish to ensure accurate reporting of prevalence in their disease registers given that this could affect future entitlement under the global sum and quality payments.

Global sum payments
5.21 The global sum includes provision for the delivery of essential and additional services, staff costs, locum reimbursement including for appraisal, career development, and protected time. Provision for uplifting non-medical staff costs as a result of the principles of Agenda for Change has been, and will continue to be, included in the arrangements for revising the global sum.

5.22 Resources will be allocated to PCOs which, in turn, will be obliged to allocate resources to practices in accordance with UK-wide arrangements guaranteed in law. An average UK practice, with an average practice weighted population, [8] will receive £300,000 in 2004/05, an average per patient of £53 and £305,000 in 2005/06, an average per patient of £54. It is important to recognise that there is a balance between the money allocated through the global sum and the likely potential for achieving higher rewards within the quality and outcomes framework. When assessing the impact of the new contract, practices should take into account not only the resources they are likely to receive through the global sum, but also the substantial potential income from the delivery of quality and the provision of enhanced services.

5.23 The global sum will be allocated to practices on the basis of the Carr-Hill formula from 2004/05 as part of the introduction of the practice-based contract. The formula will be implemented in full from 2004/05 to ensure the principle of equity applies at the earliest possible opportunity.

Transitional protection
5.24 The formula inevitably has a significant redistributive effect at PCO and practice level, given the shift from largely doctor-based allocations to patient needs-based allocations. However, it is vital that the process does not destabilise existing practices. Those areas which have been under-resourced under the existing funding arrangements will for the first time receive a fair entitlement to GMS monies.

5.25 To allow PCOs and practices to manage the impact of this, transitional protection will apply from 2004 on an individual practice basis. Practices will be asked to submit details of their 2002/03 income on fees and allowances during 2003/04, in the form of a standard template, and validation checks will be carried out by PCOs. This will enable the calculation of the initial baseline against which transitional protection will be assessed.

5.26 This initial baseline will be adjusted to take account of quality preparation and aspiration payments to determine the final amount. In order not to disincentivise the achievement of higher quality, the transitional support will assume a modest baseline level of aspiration payment throughout the three year period. This will be set at 100 points for 2004/05, 150 points for 2005/06 and 200 points for 2006/07. As a consequence, those practices achieving higher quality payments will continue to be rewarded, as quality achievement payments will be excluded from the transitional protection calculation. The amount of transitional support will be adjusted for the cost of opting out from additional services and out-of-hours.

5.27 Transitional protection will be provided until March 2007 when it is anticipated that adjustments arising from the review of the formula, including the impact on any further transition, might be implemented.

5.28 PCOs will be given an initial allocation of resources on the basis of the data they submit early in 2003/04. Sums of £297m and £197m have been put aside for 2004/05 and 2005/06 respectively. Practices will be reassured that this is higher than the total level of support that we believe is necessary, on the basis of current data, given that it does not take account of quality aspiration payments. The principles of the Gross Investment Guarantee will apply. If, for example, there is a need for additional transitional protection beyond the amount set aside, any underspends on quality or the unified budget could be used to increase the spend on transitional protection. The GPC will be fully involved in working up these precise arrangements.

5.29 Under the modelling of the total resource envelope it has been anticipated that full transitional protection will be available in 2004/05, and a modest reduction in 2005/06 and 2006/07.

5.30 Replacing some of the existing fees and allowances with global sum payments from 2003 could create losers next year; require a separate transitional protection scheme; reduce the overall across-the-board pay award to GPs; and increase the risk of late payments given the need to make rapid changes to the GP payments systems. To avoid these problems, in 2003/04 fees and allowances will be uplifted and practices will also gain from substantial investment in modernisation including additional income arising from quality preparation payments, improvements to the seniority scale, the write-off of existing GP debt and increased investment in enhanced services.

5.31 The global sum will be calculated quarterly to reflect changing practice circumstances and paid monthly. PCOs will supply the relevant practice level data every three months to centralised systems which will make the calculations in each country.

Other PCO-administered resources
5.32 PCOs will also receive funding for improved seniority payments, golden hellos, maternity, paternity and adoptive leave and sick leave. Practice entitlement to these payments is non-discretionary for the PCO. These resources will be administered by the PCO and drawn down by practices as a supplement to their global sum.

5.33 The designated area allowance, specific rural and remote payments and inducement payments will be replaced. The initial development of practices in greenfield sites will be supported through new money provided through the unified budget. When the new practice is financially viable it will be funded through the global sum.

Funding flows
5.34 To support the arrangements set out in this section, and give confidence to GPs that the pricing of the contract is fixed and not subject to PCO discretion, the entitlements will be guaranteed, including, where appropriate, in regulations or legal determinations. While it is expected that funding flows in Northern Ireland will, in time, involve the use of unified budgets, the present systems and structures are unable to accommodate this. In the interim, for the purposes of the GMS contract, the principles set out above will equally apply in Northern Ireland albeit via different funding structures.

5.35 A total sum in respect of GMS services will be allocated to each PCO as part of an enlarged unified budget allocation. This allocation method will replace the existing arrangement whereby PCOs draw down money from the Health Departments according to the fees and allowances paid, and will be provided for in primary legislation. Spend on the component parts will then be monitored by the reconstituted TSC. PCOs will be responsible for administering the GMS budget locally.

Quality
5.36 PCOs will receive full funding from the Health Departments allocated on the basis of the Carr-Hill formula, such that they can afford to pay all practices for achieving high quality. They will be responsible for distributing this element of their budget and will be required by law to pay practices the fixed reward per point described in chapter 3. In this way, the existing ‘GMS pool’ arrangements, whereby high overall payments to GPs can lead to a reduction in GMS fees and allowances, will end.

Premises
5.37 Separate allocation arrangements will apply to premises. Under current arrangements, GPs receive premises payments through a variety of routes. Notional and actual rents and ongoing rents for vacated premises are funded from the centrally managed and locally paid non-cash limited GMS budget. Cost rents, improvement grants and grants to surrender leases are funded by PCOs from their cash-limited unified budgets. At present, all premises payments to GPs are paid out as revenue with the large majority paid recurrently.

5.38 Under the new GMS contract, all premises funding will form part of a single fund in each country from 2004/05, subject to primary legislation. This fund will operate alongside the global sum and the quality framework. The arrangements for distribution of these resources into the NHS will be reviewed.

5.39 In England, a lead PCT within each Strategic Health Authority (or its equivalent) will hold the resources for premises on behalf of all PCTs within the Strategic Health Authority (or its equivalent). Decisions on the distribution of these funds to individual PCTs will be subject to joint arrangements with the Strategic Health Authority (or its equivalent) holding the ring.

5.40 Existing spend, and additional funds needed to support new projects that have already been agreed between practices and PCTs, will be guaranteed to PCTs as a baseline. This will ensure that allocations match existing spend of individual PCTs, their future investment needs, and their capacity to deliver. This baseline will be uprated annually for property cost inflation. These baselines are being prepared with the Valuation Office Agency.

5.41 Decisions on allocating growth monies to PCTs, over and above existing commitments for growth, will be taken jointly by the PCTs with the Strategic Health Authority (or its equivalent) holding the ring and supporting how the lead PCT determines allocations to PCTs based on local priorities and PCT needs and capacity as set out in their Strategic Service Development Plans. This arrangement will be similar to the responsibilities Strategic Health Authorities (or their equivalents) have for strategic capital investment in hospitals.

5.42 Once agreement has been reached for a programme to go ahead, the funding will be allocated recurrently to the PCT to meet the revenue consequences of new capital investment in GP premises. Any capital charge liability that arises from direct PCT involvement in the development will need to be recognised. This will provide GPs and the private sector with assurances on funding being available to support premises developments agreed by PCTs and Strategic Health Authorities (or their equivalents).

5.43 The lead PCT arrangement in each Strategic Health Authority (or its equivalent) will be developed for prioritising new investment in 2003/04, and to meet the revenue consequences for it from 2004/05 onwards.

5.44 The existing SFA provisions for premises costs will be replaced. Under the new funding arrangements, PCOs will have greater flexibility in funding premises to allow, for example, investment in premises to facilitate delivery of an extended range of enhanced primary medical services. Under the new contract, there will be a system of rules which set minimum standards for new or refurbished buildings and guidance which offers support to PCOs on costs by setting benchmark costs rather than limits.

5.45 A first tranche of premises flexibilities was introduced in January 2000 and those that involve payments to GPs are met from a mix of funding sources. The second tranche set out in the framework agreement will be introduced from April 2003. Following introduction, costs for use of all flexibilities that involve a payment to GPs will initially be met from the existing GMS non-cash limited funding stream.

5.46 Separate arrangements will apply in Scotland, Wales and Northern Ireland because of their different NHS structures and funding arrangements.

Dispensing and stock order
5.47 Issues relating to dispensing, stock order and CSSD will be addressed by a separate expert group including GPC representation to consider future potential changes. The negotiating parties will be scoping the feasibility of introducing a stock order system in England and Wales similar to that which exists in Scotland and Northern Ireland. The group will report by September 2003. The money to fund doctor dispensing will form a separate source of funding outwith the global sum. The current payments system will continue but with higher payment rates to reflect the transfer of reimbursed dispenser costs from the global sum and the intention to separate dispensing payment arrangements from those for GMS.

Pensions
5.48 GPs’ pensions are calculated under a career earnings method rather than a final salary scheme. Each year of pensionable income is increased by an uprating or dynamising factor on a cumulative basis. The uprating factor is currently based on year on year changes in the Intended Average Net Income (IANI). An accrual rate is then applied on retirement age to the individual GP’s total uprated career earnings to provide an annual pension entitlement. In addition, a tax-free lump sum of three times the annual pension is payable. Once a pension is being paid, it is uprated annually by retail price inflation.

5.49 Many GPs believe that their current pension arrangements are unsatisfactory. In particular, they are concerned that:
(i) pensions are unfair relative to the pensions that consultants receive given their respective NHS earnings

(ii) their pensions do not take account of all NHS earnings, unlike the pensions of their PMS counterparts, and some locum work is not superannuable

(iii) practice manager partners are excluded from the scheme, as are staff who work for not-for-profit GP out-of-hours co-operatives which provide services to the NHS

(iv) the uprating factor is not based on changes year on year in all NHS earnings

(v) differences between how officer and practitioner pensions are calculated can militate against the development of portfolio careers.
These concerns will be addressed under the new GMS contract.

5.50 As a result of the increased investment guaranteed under the new contract, average practice income will rise. It is not possible to state how much that rise is likely to be, given that the future ratio of profit to expenses is unknown and the concept of IANI will disappear. The pensions changes that will be made will mean that, over time, the total percentage increase in pensions should exceed the percentage increase in net income, because of the change in the definition of pensionable earnings. The additional spend on pensions is in addition to the Gross Investment Guarantee.

Definition of pensionable pay
5.51 If the profession accepts the new contract, the definition of pensionable pay will be broadened. Under the new GMS contract, it will include net profits derived from the payments made to GPs in the respect of NHS work in the following circumstances:
(i) delivering services as a GMS or PMS provider, excluding work delegated to others

(ii) delivering services under delegation directly from GMS or PMS providers, including locum work

(iii) board, advisory or other work including delivering services carried out under employment with PCOs or other NHS bodies

(iv) work carried out as NHS services under the collaborative arrangements with Local Authorities

(v) practice-based work carried out in educating or in organising the education of medical students, undergraduate, vocational and postgraduate training funded through national levies or otherwise

(vi) certification under the requirements of Schedule 9 of the NHS (General Medical Services) Regulation 1992 as amended and the Scotland and Northern Ireland equivalents
This definition will be kept under review. This will ensure that it can be expanded to cater for unforeseen future developments.

5.52 The change will provide new incentives for GPs to engage in delivering a wider range of NHS services. It will also enable certain GP co-operatives to become NHS bodies for the purposes of pensions regulations. NHS work undertaken by GPs for commercial organisations will not be pensionable, in line with wider Government policy.

5.53 In response to concerns raised by the GPC, regulations will also shortly be laid to enable GP locum earnings to become pensionable retrospectively back to 2002/0

Calculating superannuable profits
5.54 GPs will make monthly payments on account to the Pensions Agency for their employer and employee superannuation contributions. When the practice accounts have been finalised, the practice accountants will produce a certificate of NHS profits in specified form to be forwarded to the Pensions Agency with any balance in payment.

5.55 From 1 April 2004, we expect that all practice employers’ and employees’ contributions will be allocated to practices when responsibility for the full costs of employers’ contributions, including pensions indexation costs, is devolved to NHS employers.

Uprating (dynamisation) factor
5.56 It is essential that practitioners have certainty about the factor that will be applied at the point in time when they are contemplating retirement, and yet the abolition of IANI necessarily means that the actual year-on-year change in earnings cannot be known in advance. Equally, practitioners reasonably expect that increases in earnings that accrue under the new contract will be fully reflected in the uprating factor as soon as is feasible.

5.57 The uprating factor is currently based on the year on year percentage increase in IANI. IANI will disappear as a concept and a new method will be needed. We intend that the uprating factor, moving forward, should be based on the year on year percentage change in all pensionable earnings from NHS work (the aggregate of net NHS pensionable income, divided by the number of practitioners), adjusted by the TSC annually to allow for the shift towards less than full-time working. The TSC will also rebase the uprating factor on 1 April 2004 to ensure that the transfer of out-of-hours work does not depress the uprating factor.

5.58 Aggregated net pensionable NHS GP income will be derived from the employers’ contributions. The uprating factor will never be less than one.

Pensions flexibilities
5.59 In line with good human resource management practice, three new pension flexibilities will also be introduced to facilitate portfolio careers for GPs who may wish to work at some stage as salaried GPs and independent contractors or in other NHS service:
(i) service before becoming a principal practitioner. Under the current arrangements, this service is treated in whichever of the following ways achieves the better outcome:
- as a separate officer (ie employed doctor) pension, or
- by conversion of the service into a GP pension through increasing the GP pension proportionately
Under the new contract, a further option will be available which is to treat the income from this service as GP income and uprate it in the normal way. It is anticipated that in certain circumstances this additional option is likely to be of benefit to part-time GPs

(ii) salaried service concurrent with GP service. This is currently treated as officer service and pensioned separately (if more than one year). Under the new contract, a second option will be introduced which is to treat this income as GP income and uprate it in the normal way

(iii) when a self-employed GP becomes salaried. The practitioner pension will continue to be uprated, and not just index-linked to the retail prices index, as now

(iv) purchase of added years. Under the current arrangements, where the purchase of added years takes place before the doctor becomes a self-employed GP, it is possible that this purchase will cause total pre-GP service to exceed 10 years. In that case, the option to convert this service to GP service (explained in (i) above) does not apply and the pension has to be taken as a separate officer pension. Under the new contract, a second option will be introduced which is to convert the final officer salary during the added years purchase into a pay credit and then to uprate this immediately along with GP pay.

5.60 The improved flexibility set out in clauses (i) to (iv) above will apply to the pensions of GPs who retire from 1 April 2003.

5.61 In PMS, active non-practitioner providers are eligible to join the NHS pension scheme. To ensure flexibility and equity of treatment with PMS, the same flexibility will apply under the new GMS contract.

8. An average practice, with a list of around 5,500 patients, with around three whole time equivalent GP principals and average population needs and service delivery costs.