MediClever Internal Analysis

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1 1/19 MediClever Internal Analysis UK Healthcare System Draft November 11, 2005

2 2/19 T.O.C. 1. Executive Summary UK Background Demographics Politics Economics Healthcare System General Organizational Overview Providers Expenditure Funding Market Medical Device Total Value Opportunities Reimbursement... 18

3 3/19 Notes: All figures are in US Dollars.

4 4/19 1. Executive Summary UK s comparative health spending per capita is lower than the EU average with plans to increase substantially over the next few years and top EU spending per capita. Long term reimbursement options seem to be difficult to achieve and most current reccommendations focus on short term solutions.

5 5/19 2. UK Background 2.1. Demographics The United Kingdom of Great Britain and Northern Ireland (UK) is made up of four constituent countries, namely: England, Scotland, Wales and Northern Ireland. UK population in 2001 reached nearly 59 million, distributed as follows: England: 83% Scotland: 9% Wales: 5% Northern Ireland: 3% Most people live in the cities (over 89% in 1995). Around 12% of the population live in the capital, London. Other principal cities, with populations in excess of 500,000, include Birmingham, Leeds, Glasgow and Sheffield Politics General The UK is a constitutional monarchy. Queen Elizabeth II has been Head of State since 1952, although the running of the country is undertaken by the democratically elected government. Legislative power rests with Parliament, which has two chambers: House of Commons: 646 democratically elected MPs (members of the parliament). House of Lords: 730 hereditary and life peers. Elections take place at least every five years for the House of Commons based on constituencies. The Prime Minister is the leader of the majority party in the House of Commons. The Prime Minister appoints the cabinet of ministers. The UK has been a member of the European Union since 1972, but does not participate in the European Monetary Union, which began on 1 January 1999.

6 Healthcare Market Related 6/19 Healthcare system continously serves as a hot political issue: The NHS is the biggest employer in the UK and is a monopoly is providing healthcare services. As such, it is always at the focus of the political debate. Increased government spending: As stated in the Government s budget of 2002, expenditure on the NHS will rise from 96B in 2002/03 to more than 155B in 2007/08 1. Assuming a continous 83% share of public funding from total UK healthcare expenditure 2 and a 3% annual growth of GDP, this will cause healthcare spending to rise from 7.7% of GDP to 10.7% of GDP. Consequently, UK s healthcare system will become the most exspensive one within the EU (EU average: 8.5% of GDP) Economics GDP in 2003: 1,799B. Per capita: 30,156 The unemployment rate is one of the lowest in Europe, and inflation remains at very low levels. 1 Source: United Kingdom, Healthcare System, Epsicom business intelligence, September 2004, pg See Espicom projections at: Outlook: United Kingdom, September 2004, pg. 3.

7 7/19 3. Healthcare System 3.1. General The total UK public expenditure on health and personal social services, matches the general population distribution in the UK. It is split as follows: England: 80% Scotland: 11% Wales: 6% Northern Ireland: 3% 3.2. Organizational Overview DoH (Department of Health) Sets the standards for healthcare services and their prices, secures sufficient funds from overall government spending and allocates them on a formula basis to the PCTs. NICE (National Institute for Health Improvement) Sets standards for the delivery of health care services and recommends use of new medical devices. Although NICE s recommendations are not legally binding, NHS Trusts and PCTs will rarely divert from them. Healthcare Commission Responsible for enforcing the standards set by NICE, for the delivery of health care services. DHSCs (Directors of Health and Social Care) 4 regional directors that coordinate the work of the 28 SHAs. SHAs (Strategic Health Authorities) 28 local NHS management authorities, linking between the DoH and NHS by locally implementing national plans and monitoring performance of PCTs and NHS Trusts. PCTs (Primary Care Trusts) Local organizations, accountable to their SHA: Provide primary care services (GP, dentist), thus serve as the NHS s gatekeepers. NICE DoH DHSCs [4] SHAs [28] Healthcare Commission PCTs NHS Trusts NHS Foundation Trusts

8 8/19 Commission primary and secondary care services for their community. PCTs are now at the centre of the NHS, receiving 75% of the NHS budget. NHS Trusts Self-governing hospitals or groups of hospitals, earning revenue for the secondary care services they provide (in-patient, day-surgery, out-patient). These services are commissioned or purchased - on behalf of patients by PCTs. NHS Trusts employ most of the NHS workforce (consultants, doctors, nurses, hospital dentists). NHS Foundation Trusts Elite hospitals may have the opportunity to gain limited structured financial independence from the DoH. Hospitals that are classed as elite have been rated by the Commission for Healthcare Audit and Inspection (CHAI) as attaining 3-star performance (the highest performance rating).

9 9/ Providers Hospitals General The UK had approximately 4.5 hospital beds per 1,000 population in the mid-1990s. This is one of the lowest levels in western Europe. Source: WHO Regional Office for Europe health for all database During 2003, this number dropped to 4.2 hospital beds per 1,000 population. Public In 2003, over 95% of UK s 249k hospital beds belonged to the NHS. Their distribution matched the general population distribution in the UK. It is split as follows: England: 78% Scotland: 13% Wales: 6% Northern Ireland: 3% Private There are approximately 230 independent medical/surgical hospitals in the UK. Five main groups: General Healthcare Group Ltd.: 2,300 beds. BUPA: 1,800 beds. Capio Healthcare UK (formerly Community Hospitals Group): 90o beds. Nuffield Trust Ltd: 1,700 beds. HCA (formerly PPP Columbia Healthcare Ltd): 550 beds.

10 10/19 These five groups account for just over 60% of all private hospitals and a combined share of approximately 65% of total private beds. It is noticeable that there has been some vertical integration between the insurance function and hospital ownership in UK private health care market, with both PPP and BUPA establishing networks of preferred providers. These networks constitute a major change in the private hospital sector in recent years and could have significant implications for smaller non-affiliated hospitals. The take-up of this restricted insurance policy has been high and as these two companies dominate the insurance market, those providers excluded from the networks could see a significant reduction in admissions. This shift, taken together with the strong incentives offered to private specialists and consultants to encourage them to refer their patients to a preferred provider, could result in independent hospital closures. By mid-1998, 4,000 of the 20,000 privately practising consultants had signed up to the BUPA partnership which may account for as much as 50% of all private work GPs Public The first point of referral for all non-emergency cases in the UK is the GP. Patients may select a GP of their choice, although choice is restricted within geographical areas. Patients who require more specialist care will be referred by their GP to a hospital consultant. There are around 53 million such referrals each year in the UK. Source: United Kingdom, Healthcare System, Epsicom business intelligence, September 2004, pg. 44. The NHS is the main employer of GPs in the UK. Since its establishment, GPs have been self-employed professionals who provide services to the NHS under contract. This independent contractor status gives GPs considerable autonomy. The terms and conditions of the GPs contract with the NHS are negotiated nationally between the doctors representatives and the government. The latest version of this contract (1990) introduced some major changes. It was designed to increase patient choice by requiring practices to provide more information about their services; to make their terms of service more explicit; and to relate payments more closely to performance.

11 Private 11/19 There is very little privately financed primary care in the UK. Successive user opinion polls have revealed a high level of satisfaction with NHS GP services and so there is little scope for private practice to address perceived failings of the NHS, such as lengthy waiting times for elective surgery in the hospital sector. A recent innovation has seen the appearance of private primary care centres located at certain London mainline railway stations, offering immediate consultations for a standard fee of 35. These are designed to address the needs of busy working people who experience difficulty making normal GP appointments but are, so far, on a very small scale Expenditure Total UK health expenditure in 2002: 139B (7.7% of GDP) 3. The following graph depicts comparative health expenditure data as a proportion of GDP from As of 2002, the UK has improved its ranking compared to other EU countries, but is still well below the EU average (8.5% of GDP). Total expenditure on health care as % of GDP in the WHO European Region, 1997 or latest available year Source: WHO Regional Office for Europe health for all database 3 Source: United Kingdom, Healthcare System, Epsicom business intelligence, September 2004, pg. 10.

12 12/19 The UK s relatively low expenditure on healthcare as a percentage of GDP, is also reflected in the average expenditure per head, indicated in US dollars at purchasing power parities. It shows that the UK level of expenditure, at 1,347, is substantially below that of Germany (2,339), France (2,103) and the EU average (1,743), but is only marginally less than Italy (1,589), Sweden (1,728) and Finland (1,447). Total expenditure on health care in US $PPP per capita in the WHO European Region, 1997 or latest available year Source: WHO Regional Office for Europe health for all database

13 13/19 The expenditure ratio between public and private expenditure is one of the highest in Western Europe, with 83% public and 17% private (for 2004) 4. The graph below depicts data for 1997: 4 Source: United Kingdom, Healthcare System, Epsicom business intelligence, September 2004, pg. 10.

14 14/19 Public (government) health care expenditure as % of total health care expenditure in the WHO European Region, 1997 or latest available year. Source: WHO Regional Office for Europe health for all database

15 15/ Funding Public The budget for the NHS is set annually as part of the overall public expenditure planning process. In 1996/ % of gross spending on the NHS in England came from general taxation ans 12% came from national insurance contributions. Government PCTs: The DoH allocates a total fund to each PCT (with oversight by the Advisory Committee on Resource Allocation), which decides how to spend the fund on its provided services. The total fund for each PCT is calculated utilizing a formula that accounts for the size and demographics of the local population and other factors. However, each PCT does not necessarily receive its target allocation of funds, but is adjusted to reflect the funds that it has received in the past. PCT NHS Trusts: Currently - Block Agreements : Service agreements disregarding amount and quality of services rendered. 2005/2006 HRGs 5 : Payments to NHS Trusts will take into account standard national tariffs of specific care activities (or care packages) actually delivered. Money is not actually transferred from the PCT to the NHS Trust, but rather transferred to the NHS Trust directly from the DoH. NHS Trusts Medical Device Vendors: High-volume commodities: PASA (NHS Purchasing and Supply Agency). Others: Direct negotiations with vendors with or without a tender Private In addition to general tax-based funding, 17% of total healthcare expenditure came from the private market. Fewer than 11% of the population have some form of private medical insurance through 25 private medical insurers (non-profit providents or commercials). Market shares (%) of private insurance companies by subscription income: 5 Healthcare Resource Groups (HRGs) are a tool for classifying patients into a manageable number of groups of cases that are clinically similar and that require similar levels of healthcare resources for diagnosis, treatment and care. HRGs have been developed in the UK by the NHS Information Authority, with input from UK clinicians, to reflect clinical practice and patterns of service delivery. Other countries have developed similar tools, often called Diagnostic Related Groups (DRGs).

16 16/19 In addition, some of the private expenditure originated from out-of-pocket spending in the form of payments for private medical care, payments for long-term care and copayments for pharmaceuticals, dental and ophthalmic services.

17 17/19 4. Market 4.1. Medical Device Total Value 6 Total value of UK medical equipment and supplies: 4.7B (4 th globaly) Per capita expenditure: 80 (15 th globaly). Percentage from total health expenditure: 3.5% Percentage from GDP: 0.3%. Expected growth: 5.2% per year. 5.8B in 2009 or 96 per capita Opportunities The Acute Hospital Portfolio report, published in June 2003, found that average occupancy in NHS beds was 95%, rising to 97% for medical and rehabilitation beds. This level is considered to be too high. The report concludes that Trusts could make more efficient use of their existing beds by reducing the length of stay for some routine surgical patients and through faster diagnosis, treatment and discharge for emergency medical patients. This would reduce bed occupancy and make more beds available. In some trusts, though, the root of the problem is insufficient beds. The move towards a HRG based system has important implications for the current Trust Financial Regime. In particular, the intention is to move to a system in which Trusts are able to retain surpluses they earn if they are able to provide services at lower costs than the tariff rate, while meeting quality standards. 6 Source: Medistat Outlook, Espicom Business Intelligence: United Kingdom, September 2004, pg. 2.

18 18/ Reimbursement Long Term Submit a request to form a specific HRG code. Currently, there are 550 HRGs 7 and this number is not very likely to change. Strive to increase value of existing relevant HRG so that it will cover the use of relevant device. Add the procedure to the Tariff Supplement. Sign reimbursement contracts with the private funds Short Term Pass-through payments 8 are additional payments for use of a particular device, technology or drug that can be made to providers over and above the relevant tariff reimbursement. PCTs and providers must agree the basis for pass-through funding in advance of its use. For any pass-through payment arrangements, the following criteria and conditions should apply: The pass-through arrangement should be fixed for a maximum period of 2 years only from the date at which the pass-through funding arrangement first applies (this could be mid-way through a financial year). The earliest date this could apply is 1st April PCTs should inform DH through the Financial Flows mailbox of technologies where the pass-through payment applies. PCTs should have regard to the existing cost effectiveness evidence including any NICE guidance, HTA assessments, DES evaluation reports or other relevant national guidance. The price to be attached to the pass-through funding should be agreed in advance and the price should only relate to the additional costs associated directly with the device or technology and its use relative to the cost of the alternative treatment. If appropriate, the device, technology or procedure should be included on the NICE list of Interventional Procedures. 7 Department of Health, Implementing Payments By Results Technical Guidance 2005/06, July 2005, pg Department of Health, Implementing Payments By Results Technical Guidance 2005/06, July 2005, pg. 21.

19 19/19 PCTs should have due regard to the procurement arrangements for these drugs, devices, technologies or treatments identified as being 3suitable for pass-through funding. Requirements: Strong clinical and economical analysis Enthusiastic support from leading physicians willing to submit requests to their PCTs. Advantages: Quicker and cheaper than establlishing a nation-wide reimbyrsement mechanism. Disadvantages: Contract expires after two years. Requires separate negotiations with each PCT.

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