Dorrell claims changes are a long-term cure

NHS market: Many GP fundholders are unable to buy more effective health care as Dorell moves to extend contracts

The Government yesterday made the biggest single set of changes to the NHS market since its introduction in 1991, telling health authorities and fundholders to move to longer-term three-year contracts and making it easier and quicker for GPs to refer patients to hospitals with which they do not have contracts.

The moves are part of measures that Stephen Dorrell, Secretary of State for Health, said would release at least pounds 40m for patient care over the next few years, cutting forms by 175,000 annually and reducing the paper sent out to the NHS by 1 million pages a year.

They came as the Audit Commission, the NHS watchdog, yesterday attacked GP fundholding, saying urgent action was needed to cut its contracting costs.

The changes will remove some of the most fiercely competitive and bureaucratic elements in the new system, cutting red tape that has swallowed doctors' and managers' time in annual contract negotiations and in chasing up bills for treatment.

In the most important change, accepted by Mr Dorrell yesterday, the NHS is being told to move to longer-term contracts, cutting the time and effort need for annual negotiations and making it easier for hospital doctors to become involved in strategic changes to services.

The change should not mean "cosiness and collusion" but should produce the longer-term relationships seen in the private sector, in which "buyers work with suppliers to deliver improvements for customers", an efficiency scrutiny said.

Also, the system for extra-contractual referrals, where GPs send patients to hospitals with which they do not have a contract, is to be simplified.

The changes should cut pounds 12m a year from the pounds 22m system, giving patients "a swifter response", reducing delays in treatment and forcing health authorities and GPs to work more closely, the report said.

Another pounds 18m should be saved by 1999 by changing the way GP fundholders contract with trusts, in part by automating invoicing.

That will cost up to pounds 60m to install but should save about pounds 30m a year; another pounds 10m is to be saved by cutting the amount of information the executive collects from the NHS and the number of management letters it sends out.

Harriet Harman, Labour's health spokeswoman, said that the changes "lifted the lid on the mountain of bureaucracy in the NHS" but asserted that the package would cut only pounds 40m from the pounds 1.5bn cost of the internal market.

"Unless they change the system, their hopes of cutting bureaucracy are futile," she said.

Mr Dorrell said that the exercise would "streamline and strengthen" the contracting system while tightening up on the new management system, which even Labour frontbenchers agreed had needed to be strengthened.

Karen Caines, director of the Institute of Health Services Management, said the changes were welcome but "long overdue".