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21 Mar 2007 : Column 269WH—continued

Ministers should be worried if their purview of what is going on in ISTCs is so insufficient that the Healthcare Commission should have to make such remarks.

The British Medical Association rightly demands a

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How is that being achieved? The Royal College of Surgeons is unhappy with the evidence of outcomes from ISTCs and specifically cites orthopaedics.

We have talked about research and training in connection with ISTCs and specialist centres, but another externality must be patient choice. I am afraid, however, that such choice is still being overlooked, even though all politicians like to talk about promoting it. We have had the rather bizarre situation of the Department of Health issuing edicts to PCTs telling them that they must use the private sector more, and ISTCs are, of course, encompassed within that. We have heard reports that PCTs have felt obliged to use ISTCs, when patients might choose to use other centres.

On 22 February, the Health Secretary said of orthopaedics that she did

and that is particularly pertinent in the context of patient choice and how patients might choose a specialist centre rather than an ISTC.

Simon Stevens, who will be well known to the Minister as an adviser to the Prime Minister, said that

Does the Minister feel that the time has come to vest the setting of the NHS tariff with an independent economic regulator, given its importance and its relevance to today’s debate?

We need to sort out the tariff to safeguard our internationally renowned tertiary centres, and that is the business of the Department of Health’s Casemix service. Healthcare resource groups are needed to support the tariff system that underpins payment by results. The current version of HRGs, which has been running since October 2003, is subject to a major review, and we expect HRG4 to be in operation by April. Where are we on that? Will HRG4 be introduced as planned next month? Will tariffs approximate to the reference cost index and thus provide relief for many specialist centres?

In particular, will we have more tariffs? Will the HRGs be narrower so that we can remove some of the bluntness to which my hon. Friend the Member for Newbury referred? We use the tariff system to apportion costs to particular procedures, and sharpening that blunt instrument by narrowing HRGs would give us a solution to many of the issues that the right hon. Member for Oxford, East rightly raised. That is the wish of the Specialist Orthopaedic Alliance, and I very much hope that the Minister is listening carefully to it.

10.26 am

The Minister of State, Department of Health (Andy Burnham): Let me say at the beginning that there is not a great deal that divides us on this issue. I pay tribute to my right hon. Friend the Member for Oxford, East (Mr. Smith) on the way in which he introduced his remarks and, more generally, on the excellent way in which he has campaigned on this issue. As I told him in
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the debate a couple of weeks ago, which he has mentioned, I accept that there are genuine issues here, and we need to work with the five specialist orthopaedic hospitals to get them right so that we have a sustainable solution going forward.

Like my right hon. Friend, I have a great respect for the five specialist orthopaedic hospitals. As my hon. Friend the Member for Wigan (Mr. Turner) has said, my constituency, like his, is served by Wrightington, Wigan and Leigh NHS Trust. I also recently visited the Royal National Orthopaedic hospital in Stanmore. Without a shadow of a doubt, those are first-rate international hospitals with excellent reputations. In all that I do as a Minister, and in all that the Government do to refine and improve the payment-by-results process, we must always have at the forefront of our minds the principle that payment by results must support and nurture that excellence and allow it to continue, which is very much my motivation in taking these matters forward.

I agree with my right hon. Friend that there has indeed been significant progress in orthopaedics in recent years, not least on waiting times, and I shall come to that later in the context of independent sector treatment centres, to which several hon. Members have referred. My right hon. Friend has mentioned the new facilities at the Nuffield orthopaedic centre, which are indeed excellent. Many specialist Orthopaedic hospitals raise funds from voluntary contributions, and I saw the excellent facility at the Royal National Orthopaedic hospital in Stanmore, which has first-rate sports facilities and helps to rehabilitate people and make them more active.

I know, therefore, that our orthopaedic hospitals are being improved through a combination of investment. At Stanmore, however, I also saw some of the outdated buildings and facilities that my right hon. Friend has described. I therefore understand the need to resolve the finance issues, so that those excellent hospitals can plan for the future and bring the necessary investment to the parts of their estate that need it. My right hon. Friend has described orthopaedic hospitals as a precious national resource, and I agree.

May I say a few words about the principles behind payment by results, because it is important that we put them on the record as the context for today’s debate? The fundamental principle behind the system is that hospitals should not be paid simply for existing, but for the quality of what they do. That way, people will choose to use their services. I argue strongly that the payment-by-results system has brought transparency to NHS funding and is placing a renewed emphasis on improving and increasing productivity. As I have said, it has brought an emphasis on quality as well.

The hon. Member for Westbury (Dr. Murrison) has asked about financial management in the NHS, on which the Public Accounts Committee touched this week. I hope that he accepts my argument that payment by results and the tariff systems have brought much greater financial rigour to the NHS, which has allowed a spotlight to be shone on finances across the country revealing overspending and inefficiency. That will lead to some uncomfortable questions about the sustainability of certain parts of the NHS estate. I did
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not hear him question whether the payment-by-results system is wrong in principle—I think he said that it was fine. I point out gently that it is bringing renewed clarity to NHS finances and enabling parts of the system that have traditionally tolerated inefficiency or overspending to face up to that and to take the necessary steps to address it.

Dr. Murrison: I am slightly concerned that there is a degree of complacency implicit in what the Minister has just said. I hope he accepts that the tariff system is by no means perfect. A great deal of this debate is concerned with one of those imperfections.

Andy Burnham: I accept that point, and I think that I began by saying as much. I am surprised that the hon. Gentleman has made no reference to the document that the Department published last week, “Options for the Future of Payment by Results”. If he had read it, he would have seen that some very honest and searching questions are being asked about the matters being discussed today. There was a detailed section on specialist hospital services that put forward some options for further refining and improving the tariff structure to address precisely the issues eloquently raised by my right hon. Friend the Member for Oxford, East, my hon. Friend the Member for Wigan and the hon. Member for Newbury (Mr. Benyon). There is no complacency on my part, and I shall address those issues specifically.

I want to put on the record some of the fundamentals of payment by results so that they are understood and that people know why the system is being refined progressively and introduced into the NHS. It would, of course, be impractical to have a price for every single procedure or diagnosis that might be recorded when a patient is cared for by the NHS, which would result in about 15,000 prices. For that reason, we set our price list and the national tariff at a more aggregate level. The main tariff currency or unit of payment are health care resource groups, of which there are about 550. They are designed to be clinically coherent and to contain items of broadly equal value. The price for each group is calculated on the weighted average of the different procedures and diagnoses. In other words, we acknowledge that a group might contain a mix of lower and higher cost procedures.

For a typical provider treating a typical mix of patients, that approach works well. It will make a surplus on some procedures, but a loss on others—to be fair to the hon. Member for Westbury, he said that a moment ago. The price is never exactly right for any one procedure, but the surpluses and deficits even out, so that over a year the provider is fairly rewarded for the mix of services within the group. However, we have always acknowledged that for specialised services the swings-and-roundabouts approach has its limitations. If we took no further action, providers doing more of the complex work would be disadvantaged. We accept that point entirely.

I shall address head on the point made by the hon. Member for Newbury and repeated by his Front-Bench colleague. I think that it is a little unfair to describe the tariff system as a blunt instrument, because there are specialised tariff top-ups for a defined list of specialised orthopaedic procedures and diagnoses. Those are aimed
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at health care resource groups that contain a mix of complex and more routine work. Perhaps I can provide examples of such procedures—hip and knee revisions requiring a bone graft, shortening of bones, re-amputation at a higher level, correction of congenital deformity, or shoulder or arm infections owing to internal prosthetics. The top-ups recognising the complex nature of such work are set at 70 per cent., so if, for example, a hip replacement revision required a bone graft, the tariff would increase from £7,185 to £12,215. Those top-ups are paid to not only single speciality trusts, but all trusts that carry out such work. That might reassure my hon. Friend the Member for Wigan.

Mr. Benyon: Does the Minister agree that there is a serious discrepancy in a large number of treatments carried out by such centres that are not catered for by the special top-up figures that he has mentioned?

Andy Burnham: I accept that there are still gaps between the full cost of work and that the current system does not reflect the full cost of some of the more specialist work carried out by the five hospitals being discussed today. As the hon. Gentleman will know, however, transitional arrangements are in place to cover the cost and losses that those hospitals face as a result of doing that work. A general set of transitional arrangements is available to all hospitals under the payment-by-results system. Further to that, a further top-up is available to specialist orthopaedic hospitals, although that is not the concern of my hon. Friend the Member for Wigan. We recognise the point that the hon. Member for Newbury has made.

In a moment I shall come to the question asked by the hon. Member for Westbury about healthcare resource group 4, which will take the system a further step forward and improve accuracy and refinement in the targeting of payments. I hope that that will form the basis of a more lasting and durable solution for the five specialist hospitals being discussed today. We are looking at interim arrangements before moving on to a better solution for those hospitals.

Dr. Pugh: The Minister has objected to the description of the tariff as a blunt instrument and has said that he wants to refine it, but one wonders how long that process of refinement will take. I am not aware of any other society with a similar system where the tariff settles down for good. What is his reaction, therefore, to the suggestion by the hon. Member for Westbury that there should be a permanent mechanism for resolving tariff difficulties, rather than simply responding to Adjournment debates from time to time?

Andy Burnham: I am coming to that point.

A durable solution is needed. Hon. Members have asked about international experience, and I shall touch on that point now. We commissioned a report from the London School of Hygiene and Tropical Medicine to compare the approaches to activity-based funding in eight countries to see what lessons we can learn. The key finding was that there is no single correct answer to which we should all aspire. All the countries in the study supplement their basic tariff payments with funding provided through other means—a kind of top-up or supplementary payment.

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Although the terminology and detail differ, there is significant similarity between those approaches. Germany’s approach of allowing certain services or specialties to be excluded from tariff if they meet certain criteria is not unlike our pass-through payments, through which commissioners can make additional funding available if certain criteria are met. Those criteria include the use of new technologies or the provision of high-cost services in a limited number of centres.

Some countries pay surcharges, not unlike our own top-up payments, and others provide funding for education and research separately from tariff, as we do in England. The hon. Member for Southport (Dr. Pugh) might want to take a further look at that revealing piece of work, which shows that other countries do not have perfect systems and that many of them are grappling to find a sustainable solution to this problem. However, it provides a basis for a way forward, and some of that is reflected in the document that we issued last week.

I recognise the role that my right hon. Friend the Member for Oxford, East plays as the chair of the Specialist Orthopaedic Alliance. Like the hon. Member for Southport, I believe that he has played an extremely valuable role in bringing these issues to our attention. We have worked with the main providers of specialist services on introducing measures that ensure that their work is fairly rewarded. For the 2005-06 tariff, we worked with the Specialist Orthopaedic Alliance when considering the arrangements for orthopaedic services and agreed procedures for which an additional top-up was payable, some of which I have mentioned. As the top-up was closely targeted on few procedures, it was very high at 156 per cent. The prices of other services within the tariff were reduced pro rata so as not to over-compensate for less complex activity. We also agreed a list of tariff exclusions for treatments that take place at unpredictable intervals or have an exceptionally high cost and cannot therefore be easily priced for tariff purposes. Such treatments are paid for at locally agreed prices.

For the 2006-07 tariff, we again consulted the Specialist Orthopaedic Alliance about how best to ensure that services are fairly rewarded. It advised that we should widen the range of procedures for which top-ups are payable, which led to a reduction in the specialist orthopaedic top-up to 70 per cent. With the alliance’s help, we also reconsidered the list of exclusions and consequently increased income for providers of specialised orthopaedic services.

Those arrangements have been rolled forward for 2007-08. We have also explicitly recognised that few NHS providers in England have orthopaedics as a sole specialty, which means that they are unable to spread any of the financial risk of their orthopaedic work across a broader range of services. A few specialist providers of children’s services face the same problem. With that in mind, we arranged with the strategic health authorities for a review of the impact of payment by results on the income of specialist providers. The review recommended limiting to 4 per cent. the gap between providers’ incomes under previous local prices and their incomes under the current national tariff. As a result, two specialist orthopaedic providers, Robert Jones and Agnes Hunt
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Orthopaedic and District Hospital NHS Trust in Shropshire and the Royal National Orthopaedic Hospital NHS Trust, will receive more than £3 million in additional support in 2007-08, which will be funded by the commissioners of their services.

Dr. Murrison: The Minister has suggested that there are only two groups of specialist hospitals to which those circumstances might apply—children’s and orthopaedic hospitals—but will he accept that there are one or two others? The Royal National hospital for rheumatic diseases in Bath is a tertiary centre and faces many of the pressures that we have discussed.

Andy Burnham: That hospital faces many of the issues that we are discussing, and the options section in the payment-by-results document is not confined to orthopaedic and children’s services, but research within the Department suggests that the problems that are being aired this morning are felt most keenly in those two sectors. That is why such attention is being paid to those services, but I do not rule out the idea that the problems are felt more broadly across the NHS. The measures that I have described have helped to cushion the immediate issues, but—this should answer the point made by the hon. Member for Southport—we need a payment currency for the longer term that better differentiates between routine and complex work. We need to calculate a tariff that more fairly rewards specialist services and ensures that there is less need for additional measures, thereby nurturing excellence.

Mr. Andrew Smith: I welcome the Minister’s commitment to sorting this out, but these problems have been evident for a long time and have not been resolved so far. I urge him not to underestimate the corrosive effect that the constant medium-term black hole that looms ahead of hospitals has on morale and on their ability to plan for the future. He should set a deadline by which the longer-term issues will be sorted out, so that hospitals can look to the future and not have to read bland SHA assessments that simply say that they are financially unviable while another part of his Department assures us that their financial viability is going to be sorted out.

Andy Burnham: My right hon. Friend makes a fair point. Of course, we cannot simply hold out hope that everything will be sorted out and take the approach that, “There’s jam tomorrow.” I understand his point exactly, and I was about to discuss healthcare resource group 4, which will address whether a permanent black hole exists. An updated version of HRG4 has been developed that offers several potential benefits. There are more groups, so there is greater granularity, to use the jargon, which allows more precise alignment of costs. We had hoped to introduce the new version in 2008-09, but that would not be consistent with our commitment to publish a tariff by December and allow the NHS a period of road testing before tariff publication. We will, therefore, introduce version 4 in 2009-10. That might disappoint my right hon. Friend, but we will continue to work with the Specialist Orthopaedic Alliance in the intervening period to get these matters right. The judgment is always about not
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rushing to introduce a new system that we might later regret or realise that we should have taken more time over. That was the conclusion of the Lawlor review on the implementation of payment by results: we should take time to get things right.

I come to my right hon. Friend’s point about how uncertainty affects the ability of organisations to plan, think ahead and fulfil ambitions. On my visit to the Royal National Orthopaedic hospital at Stanmore, I was truly impressed by the commitment, enthusiasm and professionalism of the people whom I met. They were clear about what they want to achieve for the hospital. I understand the connection between the lack of a durable solution and aspirations for the capital redevelopment—potential private finance initiative redevelopment—of that estate.

That takes me directly to a point raised by my hon. Friend the Member for Wigan about our local trust and foundation status. He rightly pointed out that the issue had an impact on the trust’s plans to gain foundation status the last time around. It would not, perhaps, be right to put it any more strongly than to say that it is an issue that the trust has to monitor and prove that it can resolve if it is to pass through the gateway and receive foundation status. I understand entirely the points that have been made about the need to resolve and get some permanence about these issues so that specialist and excellent organisations can continue to develop.

Dr. Murrison: We now understand that HRG4 will not be rolled out until 2009-10, but the supplement that the five hospitals that we have been discussing enjoy runs out in 2008, so that leaves 12 months in which there might be no supplement or prospect of amending the tariff because it relies on HRG4. What will happen in those 12 months?

Andy Burnham: I again refer the hon. Gentleman to the document that was published last week, in which paragraphs 3.33 to 3.40 address the issue directly. It states that, in the light of the delay to the introduction of HRG4,

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