Development of a Registration Fees scheme across provider markets

26 March 2010

Background

CQC has the power to set fees across all the provider markets which will be registered in 2011 and beyond (c.45,000 providers)

The proposal for NHS providers for 2010/11 is complete

The consultation on the interim fee structure for adult social care and independent healthcare providers for 2010/11 is commencing

This presentation is to discuss the strategic fee scheme options to allocate and recover costs post 2011.

Ernst & Young have been appointed to develop:

- overarching fees scheme for 2011 and beyond

- including market analysis of impact of the scheme

- cost model

Where we are today

Strategic assessment

Strategic assessment

► Exploration of other regulators approaches to fees

► Joint Ernst & Young/CQC workshops on fee scheme options

Cost assessment

Cost assessment

► Assessment of costs associated with registration, compliance and enforcement

► Map costs and activities

Market analysisMarket

analysis

► Segment the market and carry out trend analysis to understand potential changes in the provider base

Options analysis and scenario

simulation

Options analysis and scenario

simulation

Stakeholder engagementStakeholder engagement

Model amendments and preferred option selectionModel amendments and

preferred option selection

► Populate data and make amendments to the model functionality once tested with real data

► Explore the sensitivities of the different options and certainty of cost recovery

► Meet a cross section of ‘voices for’ and ‘voices in’ the market to discuss broadly discuss fee scheme options

► Make amendments from stakeholder feedback

► Rate and score options → agreement of preferred option

Build model and final report

Build model and final report

► Clean options and extend functionality for the selected option where required

► Write final report

Jan

April

Today

Analogous research

Seven organisations were reviewed:

The Audit Commission

Ofsted

The NHS Litigation Authority

The Environment Agency

Financial Services Authority

The Civil Aviation Authority

ABPI

Detailed profiles of their fee scheme structures are in Appendix A

Market segments

Hospitals

(Ind/NHS)

Community provider

(Ind/Vol/ NHS PCT)

NHS GP practices

Dental Provider

(Ind/NHS/Mixed)

Hospitals(Ind/NHS)

Independent private

practice by NHS

consultantsWalk in centresSecure

provision

(Ind/NHS)

Care Homew/o nursing

(Ind/NHS(LA)/Vol)

Non residential care (in

community)

Urgent Patient Transport

(Ind/NHS/Vol)

Planned Patient

Transport(Vol/Ind/NHS)

Care Home(Ind/

NHS(LA)/Vol)

Hospitals(Ind/NHS)

Secure provision

(Ind.NHS)

Mental HealthAmbulance

Services

Primary Medical Services

DentalOther

AcuteCommunity

Health Adult Social

CareLearning

Disabilities

NHS Blood and Transplant

Health Protection

Agency

NHS Direct

Doctors currently in

private practice

Out of hours services

Prison services

Immigration and detention

services

This diagram is still under construction and will be finalised once all data has been collected. The adult social care elements for mental health and learning disabilities have been accounted for in adult social care. Therefore only the healthcare elements are shown under mental health and learning disabilities in this diagram.

Segmentation of the overall CQC market by service provision was undertaken to understand the current and future state of this market.

Decision criteria

Qualitative CriteriaPerceived Legitimacy Level of acceptance of fee scheme and understanding of

its structure in the marketSimplicity CQC ability to implement and maintain the Fee Scheme

Degree of incentivisation Extent to which scheme promotes desirable behaviour

Quantitative CriteriaDegree of change % change in fee levels of providers from current interim

scheme Recovery of CQC costs Certainty of cost recovery depending on a number of

scheme characteristics related to external factors.

Accuracy of cost allocation

Estimate of how close recovered costs match costs across and within market sectors

Stability The extent to which the fee scheme leads to a change in the provider base

Building blocks

 Structure

Imposition mechanism

Cost recovery*Cost drivers

One fee structure and one annual fee for all markets (e.g. based on a percentage of turnover)

Multiple fee structures by market segment (e.g. different fees by Acute, ASC, GPs)

One fee structure for all markets with charges broken down by CQC activity at different rates (e.g. lower rate for registration but higher rate for variation)

Multiple fee structures with charges broken down by CQC activity at different rates for each market (e.g. lower rate for registration but higher rate for variation in social care only)

Multiple fee structures by provider type with one annual fee (e.g. Different fees for major acute, teaching, DGH)

One fee structure and one annual fee for all markets (e.g. based on a percentage of turnover)

Multiple fee structures by market segment (e.g. different fees by Acute, ASC, GPs)

One fee structure for all markets with charges broken down by CQC activity at different rates (e.g. lower rate for registration but higher rate for variation)

Multiple fee structures with charges broken down by CQC activity at different rates for each market (e.g. lower rate for registration but higher rate for variation in social care only)

Multiple fee structures by provider type with one annual fee (e.g. Different fees for major acute, teaching, DGH)

Fee with early option payment discount

No discount

Fee with late payment penalty

Fee with early option payment discount

No discount

Fee with late payment penalty

Direct costs

Over-heads

1. 50% 1. 50%

2. 75% 2. 75%

3. 100% 3. 100%

Direct costs

Over-heads

1. 50% 1. 50%

2. 75% 2. 75%

3. 100% 3. 100%

Risk profile (e.g. Based on the risk profiles created for each market –compliance risk framework)

Gross costs

Annual turnover

Number of locations

Specialty

Number of beds

Activity

Staff WTE

Public / private / social

Profile( e.g. track record, year of establishment)

Risk profile (e.g. Based on the risk profiles created for each market –compliance risk framework)

Gross costs

Annual turnover

Number of locations

Specialty

Number of beds

Activity

Staff WTE

Public / private / social

Profile( e.g. track record, year of establishment)

Quality incentive Provider

protection

Incentivise best performers by reduced fees (e.g. no claims discount)

Penalise the worst performers and distribute the collected funds between the best performers

No incentive

Incentivise worst performers by charging a lower fee to allow them to invest in improvements

Incentivise best performers by reduced fees (e.g. no claims discount)

Penalise the worst performers and distribute the collected funds between the best performers

No incentive

Incentivise worst performers by charging a lower fee to allow them to invest in improvements

No fee for SME entities

No charge based on provider legal status (e.g. charity) or importance to local health economy

Cap of fees based on operating costs (e.g. fee based on a ratio on costs of the provider)

No SME protection

SME protection for certain markets (e.g. social care)

No fee for SME entities

No charge based on provider legal status (e.g. charity) or importance to local health economy

Cap of fees based on operating costs (e.g. fee based on a ratio on costs of the provider)

No SME protection

SME protection for certain markets (e.g. social care)

* Given current employment practices (ie staff employed on permanent contracts) most costs cannot be changed in the short term. We have therefore assumed all costs directly related to registration to be fixed. We suggest that costs are allocated as either:

Direct costs: costs directly related to registration activities (e.g. staffing)

Overheads: the share of indirect costs required to support registration activities (e.g. HR, IT etc)

The Fee scheme could choose to recover only direct costs, overheads or both..

The first two options are based on achieving straight line recovery

Option 1 - The simple approach (% of turnover)Option 1a - The simple approach taking into consideration market segment sensitivities and locations

Fee Structure

One annual fee per provider, ie, not broken down by registration, compliance, enforcement

One structure for all markets

Cost Drivers Turnover

Incentive scheme

None

Other fee schemes

This is similar to the approach adopted by the Association of British Pharmaceutical Industry (ABPI) except the ABPI have a fee for registration and charge an annual fee based on two tiers of % of turnover.

Fee Structure

One annual fee per provider, i.e. not broken down by registration, compliance, enforcement

Fees are split by segments (e.g. Dental, GPs, Acute)

Cost Driver Cost drivers for all sectors are the same: turnover and location.

Incentive scheme

None

Other fee schemes

This is similar to the OFSTED approach in terms of charging per location and the Financial Services Authority Approach in terms of banding providers by type and setting fees based on % of turnover.

The second two options are based on maximising the accuracy of cost allocations

Option 2 - Fees broken down per CQC activity, using a risk based approach.

Option 2a - Fees broken down per CQC activity using a risk based approach. In addition to option 1 enforcement charged as ‘pay as you use’

Fee Structure

Fees are broken down by: a flat fee for registration by segment a combined fee for compliance and enforcement by segment based on risk and turnover.

Cost Drivers

Cost drivers for all segments are the same: turnover and risk rating

Incentive scheme

No incentive.

Comparability to other fee schemes

This is similar to the NHS Litigation Authority Approach of setting fees based on the risk profiles of providers.

Fee Structure

Fees are broken down by: a flat fee for registration by segment an average fee for compliance by segment a ‘pay as you use’ enforcement fee

Cost Drivers

Cost drivers for all segments are the same: turnover and risk rating

Incentive scheme

No incentive.

Comparability to other fee schemes

Similar to the NHS Litigation Authority Approach but also including the Environment Agency and Civil Aviation Authority Approach of setting fees based on activities.

The last option is a based on incentivising good performance

Option 3 –

Fees broken down per CQC activity using a

risk based approach

Enforcement charged as ‘pay as you use’

Direct financial reward for top performers

Fee Structure Fees are broken down by: A flat fee for registration by segment An average fee for compliance by segmentA ‘pay as you use’ enforcement fee

Cost Drivers Cost drivers for all segments are the same: turnover and risk rating

Incentive scheme

Fee reduction on compliance only for top performers, calculated as a % of the fee a particular providers is supposed to pay (e.g. 1% for good performers, 2% for excellent).

Comparability to other fee schemes

Similar to the NHS Litigation Authority Approach using risk profiles and in setting discounts based on achieving CNST standards but also including the Environment Agency and Civil Aviation Authority Approach of setting fees based on activities.

Implementation Issues

  Turnover data

Availability

Extracting non-registerable activity

Year on year movements

• Risk data

• Availability

• System for new providers – measuring risk associated with dentists, GPs and private ambulance providers

Risk of over recovery – new registrations in year paying fees

CQC recovering through incumbents – risk over recover.

Stakeholder approach

Provider Advisory Group and specific provider association meetings (voice of the market)

Telephone interviews and meetings with individual organisations in each segment (voice in the market)

To test options in broad terms, explore views about strengths/weaknesses, compare differences between sub-segments and voices in and for the market.