That system is mightily complicated. A patient enters an acute hospital. After treatment and discharge the patient's notes are processed by the hospital and classified as falling into a particular 'tariff'. The tariff is a block or chunk of hospital care with includes the particular treatment and a period of care. The tariffs come in standard packages, and these packages are not disaggregated so as to distinguish between the different types of care delivered by the hospital.
The tariff is then paid for by the local primary care trust. This is where the system becomes perverse. If the patient has to stay longer than the tariff for his or her particular condition the PCT is billed for the extra days. But if the patient is discharged inside the tariff period the hospital keeps the full payment. And acute hospitals are anxious to discharge elderly patients if there is a viable alternative to avoid bed-blocking. They are, after all, the service's 'loss leader'.
One route out of acute hospital has been to the local community hospital to provide convalescence closer to the patient's home and family. But if a person is referred to a community hospital before the end of the tariff period, the PCT finds itself paying both for the service at that community hospital and for the unused period of the tariff at the acute hospital. The acute hospital, meanwhile, is already devoting the time and care freed up by the early discharge to a new patient complete, eventually, with his or her own tariff.
I illustrate the problem from my own constituency. The Craven, Harrogate & Rural District (CHARD) PCT has ruled patients may not be transferred from an acute hospital to a community hospital within a 35-day period precisely to escape having to pay for community hospital care while the tariff is still running at the acute hospital. The only exception is a transfer within 48 hours, because in those circumstances it has to pay only 60% of the normal tariff.
The PCT has decided to halve the number of beds available for patients at the two community hospitals in my constituency. The problem is that staff will have to be redeployed elsewhere (quite a time-consuming matter) and they cannot be brought back without going through the full recruitment procedure. So the capacity of the community hospitals is being reduced, casting doubts on whether they would be able to meet previous peak demand even if the funding issue were solved by 'unbundling' the tariff so that money could follow the patient.
It is a fair bet that the CHARD rules will soon apply across the whole of North Yorkshire when the four local PCTs merge on 1 October to form the fourth-biggest PCT in the country. Thirteen community hospitals will be affected.
Of course this does not spell the end of community hospitals - only a minority of hospital users are bed users and diagnostic services sit well in local institutions - though some nursing homes can now offer sophisticated treatments themselves. Continuing care services will increasingly look to treat patients outside hospitals.
But there is a crisis here and now, and experience shows that making savings is much harder in practice than on paper. No wonder social service directors are watching the NHS's travails with deep apprehension - they are the ones who will have to pick up the pieces.