The government’s overarching ambition with GP commissioning is to align financial responsibility with clinical decision making. Its vision is of GPs who make decisions for both their individual patients and wider community that hinge on getting the best quality and value for taxpayers’ funds.

There are many challenges involved, including finding the right quality of GP leadership and level of management support for consortia, but getting the finances right will also be crucial.

The first challenge will be allocating money to the consortia. The coalition government has made clear that it wishes to see funds flow where need is greatest, based on the ‘prospective burden of disease’ and that practice level budgets will be calculated.

At present there are two broad methods of allocating resources for hospital and community health services in the NHS: to PCTs using a weighted capitation formula based on a PCT’s share of the population adjusted for age and need; and within PCTs to commissioning practices using a new person-based allocation formula introduced in April 2010.

Until now, commissioning practices have been given ‘notional’ not ‘hard’ budgets because it has been recognised that previous methods of allocating resources have not been accurate enough in predicting future costs.

For commissioning practices therefore, the PCT has taken on the financial risk of overspends on behalf of the practices on its patch. Furthermore, commissioning practices, and indeed PCTs, have always been cushioned from moving quickly to their targets by the ‘pace of change’ policy, which limited the amount of funding that could be redistributed between areas each year. It is not clear whether this pace of change will be accelerated for new GP commissioning consortia or the extent to which they will inherit the financial position of the host PCT, i.e. significant deficits in some cases.

The next challenge will be deciding what services the consortia take financial risk for and then ensuring sufficient scale, to mitigate the impact of rare, costly diseases or treatment. In the United States, physician groups that have taken on capitated budgets have also purchased stop-loss insurance against these sorts of random events. The equivalent in the NHS would be risk pools with other consortia, but it is not clear whether consortia budgets would therefore need to be top sliced to create this.

Another approach would be to exclude certain treatments or events from the budget, as happens in the United States. Physician groups have often handed the financial risk of transplants or caring for premature babies back to the health plan (the insurers).

The government’s consultation document on commissioning suggests that certain services might be excluded from consortia budgets, for example maternity or specialised services. Treatments that involve very expensive drugs also might fall into this category – the creation of a central cancer drug fund though the creation of a central fund partly suggests that consortia might not have to face the risk of paying for rare and expensive cancer treatments (but the fund will have to meet demand for this to be done equitably).

Getting the balance of financial risk right is crucial. Consortia need to be responsible for the financial risk that they can control, and this means all the healthcare that emanates from the GPs’ surgery or is within the control of primary care. There is nothing in the detail of the plans so far – beyond the fact of moving the commissioning function down a level from PCT to GP consortia – to explain how this will happen more effectively than it has happened until now.

There are examples of local PCTs and GP practices having successfully demonstrated that they can use data to help clinicians manage chronic diseases more effectively, manage referrals to reduce inappropriate outpatient visits and unnecessary trips to A&E. The difficulty has been to scale up these good examples across England.

Effective commissioning therefore needs to engage individual GPs, to persuade them to change their referring or prescribing behaviour. Part of the solution to this may hinge on using financial incentives within the consortia, but the details of this have yet to be worked out.

The successful physician groups in the United States have ensured that good primary care performance by individual physicians is rewarded and that the financial benefits of reducing referrals at the group level are ploughed back into the organisation, for investment in infrastructure and as bonuses for physicians.

Policy makers here face something of a dilemma: with NHS budgets so tight, it will be tempting to redistribute consortia savings more widely, but this will reduce the financial incentives for GPs to co-operate with commissioning. It remains to be seen how far GPs will respond to the non-financial incentives of good commissioning: better co-ordinated, good value care for their patients.

With no major funding announcement, George Osborne’s 22 June Budget could have been very dull for the NHS – in truth levels of personal taxation set in the set-piece affair are usually the only items of interest for the service; the main action normally takes place in autumn’s pre-Budget report. However, two of the chancellor’s proclamations will have led finance managers to check not only their personal finances, but also the impact on their organisation.

Chancellors rarely give with one hand without taking with the other, and so it proved for the NHS. While it gained on the swings of the planned two-year freeze in public sector pay, it will lose on the roundabout of the 2.5% hike in VAT from next January. Of course it’s hard to say how much the freeze will save the service, though we know that each 1% rise for staff on agenda for change (AFC) contracts costs around £300m a year.

The impact of the increase in VAT to 20% is clearer. According to the King’s Fund, it will cost £200 to £300m a year – not dissimilar to the cost of the 1% rise in employers’ national insurance contributions planned by Gordon Brown’s government, which will not now go ahead (though David Cameron plans to press on with his proposal to create a cancer drugs fund using the money that would otherwise have been spent on NI increases).

With potentially similar sums being taken out as being saved, it would be tempting to say the Budget has roughly no overall impact on the NHS, but (as said above) there are other costs to be considered, as well as expenditure avoided (every 1% uplift in salaried doctors’ pay costs £100m a year, for example).

Leaving this aside, one question remains – will the pay freeze apply to the increments for which most staff on AFC contracts are eligible every year? NHS Employers have played a straight bat on this question, saying only that they would be discussing the matter with the government soon. However, we know the potential cost of increments is significant – in its submission to the NHS pay review body for the current year Employers said 70% of AFC staff would be eligible for incremental pay rises in 2010/11 and this would likely add 1% (£300m) to the pay bill.

The chancellor reiterated his commitment to protecting frontline NHS spending and increasing it in real terms, but this has set him at odds with some of his own backbenchers. Some, including Tory grandee Lord Lawson, came out recently to call such protection untenable when other departments were being cut by 25%. It will be interesting to see if such opposition develops as we go through the comprehensive spending review, the results of which will be announced on 20 October.

The Budget wasn’t the only show in town as health secretary Andrew Lansley continues to expand on his vision for the NHS in England. Again, this left more questions than answers – answers that should be supplied in the upcoming white paper, due in the ‘coming weeks’ according to the taciturn Department of Health press office.

The main questions surround the plans for GP commissioning consortia, some of which were raised in a recent report by six national healthcare organisations, including the King’s Fund, the Nuffield Trust and the Royal College of General Practitioners. Estimates on their number vary from 150 to 600, putting the average number of GPs in a consortium at between 240 and 60. Would these numbers be workable – even 50 or 60 GPs offer ample scope for infighting or disagreement. Even so, many GPs will be happy to be led by the enthusiastic few, some of whom will be veterans of GP fundholding, probably organised into a board. Will a chief financial officer sit on each of these boards? Certainly, with each consortium potentially in receipt of hundreds of millions of taxpayer pounds proper governance and financial stewardship will be vital. Where will the Audit Commission stand in all of this – will each consortium have an external auditor? The answer to all these questions should be ‘yes’, but it illustrates the level of detail that must be worked through.

How will funding be allocated to the consortia? We currently have a funding formula that allocates money to 150-odd primary care trusts, but there are questions over whether it will be sufficiently robust to fairly apportion funds to smaller populations? There is an alternative – the ‘fair share’ formula used to allocate indicative budgets to practice-based commissioners, but even the Department of Health has acknowledged this is not without its failings.

What happens if consortia overspend? Or underspend? Will there be a top-sliced pool, perhaps held at a regional level, to cover overspends? Will there be financial incentives, or even clear directions in the operating framework, to underspend? Will there be a failure regime for GP consortia?

Providers will also have many questions for the future. At the recent NHS Confederation conference, the health secretary spent a lot of time addressing the future of payment by results. ‘If the peak of Everest is a payments system that supports precisely what the commissioners are looking for and that patients need on every occasion, then I’m afraid we’re still at base camp’, he said.

The future system would have benchmark pricing, allow contracts to run along care pathways and switch between primary and secondary care (no mention of community care or mental health, but I am sure this was an oversight). It would focus on ‘outcomes not episodes’ and incentivise quality. ‘I want to see a system that rewards performance and is tough on poor quality – a payment system that works for clinicians and patients, rather than the other way round – a system which stimulates innovation,’ he added.

There’s a lot of work to get through to make Mr Lansley’s vision a reality by April 2012, the implementation date he has reportedly given to Department officials. At the confederation conference the message on timing appeared contradictory, with Mr Lansley insisting there be no delay, only for NHS chief executive Sir David Nicholson to later firmly pooh-pooh notions that it could be achieved in less than two years.

Many interpreted this as a gaffe by Sir David; others that he was standing up to his new boss. But perhaps it was a twist in the time-honoured good cop/ bad cop routine, enabling the civil servant to keep managers onside – remember 46% of the 2009/10 management costs are due to be cut by 2011/12. Ouch. But will such swingeing cuts be achieved at a time when so much support will be needed for the new commissioning groups, particularly in the areas of finance and governance? What the government saves on the swings it might have to spend on the roundabouts.

 As spring turns to summer, most people’s thoughts will turn away from the election and its aftermath to the weather, summer holidays, the weather, the World Cup and the weather. Inside the air conditioned offices of Whitehall, civil servants and policy wonks will be working hard on delivering the coalition’s health policies.

Almost a month after they received their ministerial portfolios, the coalition health team will be pretty confident they know what they are doing – especially as many of them had the health brief in opposition. In Simon Burns’ case he was a health minister in the Major government. But what about the rest of us?

In terms of funding and the impact of the new government’s efficiency programme, we know there are two important dates. First, George Osborne’s first Budget on 22 June, and second, the comprehensive spending review (CSR), which is likely to report in the autumn, possibly at the same time as the pre-Budget report. The CSR will likely set out health spending for the next three to five years and, as health secretary Andrew Lansley has hinted, whether the NHS in England will be required to generate efficiency savings greater than the £15bn to £20bn that has already been targeted. In the meantime, the coalition has committed to real terms increases in health spending for each year of the Parliament and to cut administration costs by a third.

Policy-wise, we know that reconfiguration plans are on hold, Strategic health authorities are likely to be downgraded and primary care trusts may get directly-elected representatives on their boards. GP commissioners could be offered hard budgets rather than the current indicative sums – a move that could increase management costs.

Like all new governments the Conservative – Lib Dem coalition is going over Labour’s policy documents with a fine tooth comb. This includes the current year’s operating framework, policy on payment by results (PBR), management costs, programme budgeting and costing. (It should be said that all statutory regulations and guidance remain in force while the ‘update’ is taking place.) But given the wafer thin differences between the Conservatives, the Lib Dems and Labour on PBR, for example, how much will really change when the government’s own tariff policy documents and guidance begin to appear?

Some interesting embellishments of the coalition’s health policy have emerged. The proposal to make Monitor an economic regulator with some influence over price setting, for instance, is an attention grabber, particularly as there will be an independent board set up to (among other things) allocate resources to commissioners. Will the Department of Health sit in the middle squaring the circle between funding and prices? There are even unconfirmed reports about wholesale changes to the GP contract – scrapping PMS and GMS in favour of a new contract held centrally by the new NHS board.

The new regime at the Department is also keen to be seen as transparent. That is how it explained why it published on 2 June the McKinsey report into the fiscal future of the NHS. Why now, one might ask? The report is the best part of a year old and Mr Lansley has rejected its recommendations because they set a top-down agenda. The previous government, which commissioned the report, had also binned the consultants’ proposals.

Is the health secretary saying, ‘Here are examples of things I don’t want you to do’. Or, a cynic might ask, does Mr Lansley want local health economies to take the ideas, toss them around for a bit and then make them appear to be their own?

Either way, the NHS would appreciate some clarification and the end of this nudge-wink style of management.