GP consortiums must learn from US experience, says expertBMJ 2011; 342 doi: https://doi.org/10.1136/bmj.d3720 (Published 13 June 2011) Cite this as: BMJ 2011;342:d3720
All rapid responses
The report by Lawrence Casalino (1) is a welcome addition to the
discussion regarding GP commissioning and the management of financial
risk. The author notes that between 1995 and 2000 there were an unusually
large number of bankruptcies among GP groups which had taken on a
capitated budget (1). What has not been mentioned is that there was a
reason behind the health insurers desire to pass on risk to GP practices.
The reason is something called the health insurance underwriting
cycle which was discussed within the insurance industry in the 1980's (2)
and formally presented in a paper published in 1991 (3). Basically this
cycle of insurance profit and loss has been operating from the early
1960's and arises from a cycle of poorly understood and sudden increases
in real health care costs (after adjusting for inflation) such that total
healthcare costs suddenly increase by around 6% (4-9).
The above research has suggested that this cycle also operates in
Australia, Austria, Canada, England, Scotland, Northern Ireland, Wales,
Ireland, Switzerland and probably elsewhere. In the UK it also manifests
as a cycle of surplus and deficit which is independent of funding and
appears to mainly involve medical emergency admissions.
Financial risk arising from pure statistical randomness in healthcare
is, in its own right, very high (10-13). This additional systematic risk
which leads to a typical 10% step-like increase in medical emergency
admissions had two such occurrences in both 1990 and 1998 in the USA (7)
was the most likely cause of the cluster of bankruptcies noted above.
It behoves all concerned to be aware that health care costs are not
behaving in a simple demographic driven manner but show large and
unexpected increases in cyclic manner. The next of these cyclic
'outbreaks' is due somewhere from 2012 to 2015 and if history repeats
itself will be preceded by several years of lower than expected costs when
all concerned will be congratulating themselves on the success of their
efforts to 'contain' costs...... to be followed by a sudden slide into
Hence, in health care, timing is everything.
1. Casalino L (2011) GP Commissioning in the NHS in England: Ten
suggestions from the United States. Nuffield Trust, London.
2. Kipp R, Cookson J, Mattie L (2003) health insurance underwriting
cycle: Effect on health plan premiums and profitability. Milliman, USA.
3. Gabel J, Formisano R, Lohr B, Di Carlo S (1991) Tracing the cycle
of health insurance. Health Affairs, 10(4):48-61
4. Jones R (2010) Unexpected, periodic and permanent increase in
medical inpatient care: man-made or new disease. Medical Hypotheses 74:
5. Jones R (2010) Can time-related patterns in diagnosis for hospital
admission help identify common root causes for disease expression. Medical
Hypotheses 75: 148-154.
6. Jones R (2010) The case for recurring outbreaks of a new type of
infectious disease across all parts of the United Kingdom. Medical
Hypotheses 75(5): 452-457.
7. Jones R (2010) Nature of health care costs and financial risk in
commissioning. British Journal of Healthcare Management 16(9): 424-430.
8. Jones R (2010) Trends in programme budget expenditure. British
Journal of Healthcare Management 16(11): 518-526.
9. Jones R (2009) Cycles in emergency admissions. British Journal of
Healthcare Management 15(5): 239-246.
10. Jones R (2011) Unanswered questions from the trends in
international bed occupancy. British Journal of Healthcare Management
17(7): in press
11. Jones R (2008) Financial risk in practice based commissioning.
British Journal of Healthcare Management 14(5): 199-204.
12. Jones R (2008) Financial risk in health purchasing Risk pools.
British Journal of Healthcare Management 14(6): 240-245.
13. Jones R (2008) Financial risk at the PCT/PBC Interface. British
Journal of Healthcare Management 14(7): 288-293.
14. Jones R (2009) The actuarial basis for financial risk in practice
-based commissioning and implications to managing budgets. Primary Health
Care Research & Development 10(3): 245-253.
15. Jones R (2009) Emergency admissions and financial risk. British
Journal of Healthcare Management 15(7): 344-350.
Competing interests: The author provides consultancy to health care organisations.