National Health Service Landscape Review - Public Accounts Committee Contents

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.[56] 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.[57] 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.[58]

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.[59]

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.[60] 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. [61]

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.[62] 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.[63] 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.[64] 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.[65] 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.[66]

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.[67]

56   C&AG's report para 2.4 Back

57   Q225 Back

58   Qq211-212, 233 Back

59   Q44 Back

60   Q67 Back

61   Qq 73, 74, 76, 77, 82 Back

62   Qq 50-53 Back

63   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

64   Qq 63-70 Back

65   Q58 Back

66   Qq 78-81 Back

67   Q48 Back

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Prepared 27 April 2011