5 Securing value for money in the
new NHS market
27. The Department believes that the introduction
of GP consortia with responsibility for commissioning health services
will create incentives for clinicians to ensure commissioning
decisions provide value for money and improve quality of care.
We heard mixed views about the benefits of GPs' engagement with
commissioning. Dr Gordon said GP commissioning was the only real
way to align GPs' incentives with those of hospitals. While there
were currently too few GPs with the necessary skills in commissioning,
there was time to address this.
Dr Gerada said the Royal College of General Practitioners had
estimated a cost of around £300 million in GP time alone
as a consequence of the reforms and that GPs' involvement in management
would take them away from understanding the needs of their patients.
28. On the provider side, the Department told us
that in the future the main mechanism for ensuring trusts provide
value will be the setting of prices for services. This will be
the joint responsibility of a new economic regulator - which will
collect information from NHS providers, including the private
sector, about their costs - and the NHS Commissioning Board.
29. Pricing for NHS services is generally on the
basis of a fixed national price, known as the tariff. The tariff
is currently set on the basis of the average costs incurred by
all providers. The
Department said it would like to move to a pricing structure based
on the most efficient provision in the market, but would not do
so until it could be assured that providers could deliver within
that price as a large number of providers would fail if prices
were set based on the lowest cost provider in the country. The
viability of the provider side had to be considered as one of
the criteria for deciding where to set the tariff. 
30. Under the proposed reforms, the tariff will become
a maximum price. Commissioners and providers will be able to agree
a lower, local price if they can demonstrate that the quality
of the service will be maintained, through setting clear quality
standards and monitoring performance against them.
In subsequent correspondence addressed to NHS chief executives,
Sir David Nicholson and his deputy, David Flory, have indicated
that this flexibility for providers to offer services to commissioners
at less than the mandatory tariff price is not intended to signal
a move to price competition.
The Department said it expected that for most of the activity
commissioned, the maximum price would be paid. The incentive to
GP commissioners to negotiate a lower price would be that this
would create more resource for them to spend on other things.
Similarly, Foundation Trust providers would have an incentive
to deliver services more efficiently because this would deliver
a greater surplus, enabling trusts to invest, borrow or improve
services for patients.
However, under the Department's plans to set prices according
to the most efficient providers in the market, it is hard to see
how GP commissioners could get a better price by shopping around.
31. As well as price, the Department said there were
a number of different operational pressures on Foundation Trusts
which force trusts' boards of directors to take full responsibility
for the proper and best use of the resources that they earn from
their contracts. These pressures were: the Accounting Officer
responsibility held by the chief executive of each Foundation
Trust; contractual arrangements, in which commissioners would
have a deep interest in value for money; patients' choices and
the public's views.
56 C&AG's report para 2.4 Back
Qq211-212, 233 Back
Qq 73, 74, 76, 77, 82 Back
Qq 50-53 Back
Department of Health, 'Dear Colleague' letters from: a) Sir David
Nicholson to all NHS chief executives, Equity and Excellence:
Liberating the NHS - Managing the Transition (Annex B), 17 February
2011 (Gateway reference 15594) and b) David Flory, Publication
of the final 2011-12 Payment by Results tariff package, 18 February
2011 (Gateway reference 15607) Back
Qq 63-70 Back
Qq 78-81 Back