4 Pricing |
future changes to NHS pricing
46. Monitor and NHS England are now jointly responsible
for the NHS payment system.
The Committee's report on last year's accountability hearing emphasised
the importance of the setting of the tariff, and recommended that
Monitor attach a high priority to this new area of its remit.
47. Monitor's written evidence provides the following
summary of their proposals:
Our proposed national prices for 2014/15 are
broadly similar to those in 2013/14, having been adjusted only
for efficiency (4%) and inflationary factors (e.g., the increase
in drugs prices) to ensure some predictability of income for providers
while we develop the longer term strategy.
However, we have made changes in two important
areas for 2014/15 based on our engagement with the sector. Following
a review of the marginal rate rule for emergency admissions, we
made significant changes to the way baselines and re-investment
plans were determined locally, with commissioners held firmly
to account for the first time. Local health economies will also
be able to adopt alternative payment approaches where this is
in patients' interests, as long as they do so transparently and
have engaged constructively on the available options.
48. Monitor states that its proposals for the payment
system in 2014/15 are designed to help commissioners and providers
over the coming year address the strategic challenges facing NHS
care in their localities in three ways:
by offering more freedom, to encourage the development
of new service models;
by providing greater financial certainty to underpin
effective planning; and
by maintaining incentives to provide care more
49. Monitor state that currently there are problems
with information on costings:
To fully redesign the payment system to underpin
a sustainable NHS we need reliable evidence about the likely impact
of innovation in service delivery and quality, complete information
about provider costs and patient outcomes. Unfortunately, the
quality of information available at the present time is generally
poor. We therefore decided to keep the tariff largely the same
during the first year for which we had pricing responsibility.
The stability this offers ensures that we have adequate time to
consult on any changes and to test the impact of any proposed
However, although we chose not to make significant
changes to the tariff, we have chosen to define a set of principles
for the sector to use when thinking about integrated care and
explained the significant flexibility they have within the existing
rules, provided they are open and transparent about how they are
using that flexibility.
50. Looking forward to the 2015-16 payment system,
Monitor report that they are "considering changes to the
payment system" as well as "developing a shared long-term
strategy with NHS England.":
The spending settlement for 2015/16 requires
a comprehensive analysis of opportunities for using the national
tariff to signal where greater efficiency is possible, through
productivity improvements or shifts in the way care is delivered.
In particular, we are addressing the misaligned system incentives
for urgent and emergency care and the proactive co-ordination
of health and social care for vulnerable and ageing populations.
51. The Committee
does not believe that this record constitutes an adequate response
to its recommendation in last year's Accountability Report that
Monitor should attach a high priority to its work on the tariff.
The Committee believes that that the current tariff arrangements
often create perverse incentives for providers and inhibit necessary
52. The Committee
therefore repeats its recommendation from last year that Monitor
should attach a higher priority to its work on this subject and
further recommends that Monitor and NHS England should initiate
a formal joint process for a prioritised review of the NHS tariff
arrangements with the objective of identifying and eliminating
perverse incentives and introducing new tariff structures which
incentivise necessary service change. The Committee requests that
Monitor submits a report of this process to the Committee before
30th June 2014.
53. In our evidence session with Monitor, we returned
again to issues of "cherry picking". In oral evidence
to the Committee, Adrian Masters discussed two different ways
in which 'cherry picking' might conceivably occur. Firstly, in
relation to and concerns that the providers might choose to treat
only less complex patients who were therefore less costly to treat,
Adrian Masters told us that local flexibilities should enable
commissioners to re-negotiate prices if this were to emerge as
In the usual bundle, for which there is a usual
price, that assumes a mix of different patients with different
types and degrees of complexity. If the commissioner feels "I
am not actually sending the patients with that full range of complexity
to this local provider", again the commissioner can negotiate
and agree a lower price because "I am not sending you all
the people assumed in that bundle. I am sending you less complicated
ones so I want a lower price." That is totally open for the
commissioner to negotiate....
54. While Dr Masters suggested that that flexibility
should cover most cases of 'cherry picking', he stated that Monitor
were conducting further research into claims that providers are
more likely to make a surplus on elective care than other types
of care, and use that to cross-subsidise other parts of the service:
"Therefore, they are saying, if some of the elective care
is going elsewhere, "without that surplus, we can no longer
cross-subsidise other parts of our service". In connection
with the Committee's inquiry into Public Expenditure, Anita Charlesworth
of the Nuffield Trust pointed to the example of maternity services
as a type of care that is generally perceived to be loss-making.
Everyone in the NHS says you lose money on normal
maternity. Women have to have babies and it costs money to deliver
those, so it can't be sensible to price the system where everyone
loses money on maternity. If you are a big teaching hospital,
you make money on certain types of, say, cancer care, and so you
can cross subsidise. If you do not offer that other service, then
you are just left picking up the pieces, but you have to deliver
the care. When we had quite high growth rates you could cope;
these sorts of things were not ideal but they did not really bite.
We need to get much better at making sure that we understand cost
and that we price according to that.
If we do things such as systematically underprice
maternity, we will lead to people being in difficulty who might
be perfectly efficient. Equally, if we overprice some bits of
complex surgery, we will make people look very good financially
when actually they could be very inefficient. That does not help
the system overall; it means that where the problems emerge may
not reflect what is underlying them. So I would like much more
focus on getting the prices right.
55. Dr Masters told us that "Over time, we need
to improve the quality of the costing, so that the prices more
accurately reflect the costs. That, again, is an exercise we have
started working on as to how we can get better costing information
and better reflect the cost in the prices."
continues to be reported to the Committee about "cherry picking".
As we recommended in our report on Public Expenditure: it is important
that payments to providers reflect the costs of treatment, and
that the payments system is able to distinguish accurately between
different types of case. It should be a priority for NHS England
and Monitor to work to develop a payments system which reflects
this requirement.The Committee welcomes the fact that Monitor
has acknowledged the need to improve the quality of the costing
on which prices are based; improved cost information is a key
part of the wider tariff review proposed by the Committee, which
would also assist in the elimination of "cherry picking".
Emergency admissions tariff
57. The marginal rate rule for emergency admissions
was introduced in 2010-11, with the intent of slowing the growth
in emergency admissions. Under the marginal rate rule, trusts
are only paid at 30% of the usual NHS price (tariff) for emergency
admissions above a baseline set in 2008-9, with commissioners
retaining the other 70% in order to enable them to invest in better
Monitor provided the following summary of their recent work on
the marginal rate rule:
We reviewed the marginal rate rule for urgent
and emergency care during 2013 and decided to retain it albeit
with new flexibilities for local circumstances. In partnership
with NHS England we have sought to make local commissioners more
accountable for the way any retained funds from the marginal rate
are spent. We will evaluate the impact of this when making decisions
about the tariff for 2015-16. We are also researching the cost
structures of the urgent and emergency care networks set out by
the Keogh Review to inform the design of new payment approaches.
58. During the oral evidence session, Monitor explained
some of the perceived advantages and disadvantages of the marginal
Broadly speaking, I think the marginal rate rule
has done the kind of job we wanted it to....It has helped control
the rate of growth in emergency admissions, and it has directed
attention by commissioners and providers in how they can work
together to keep people well and supported outside hospital and
to discharge them better one they have been in hospital....
Can I add, though, that it does have two problems?
The first is, while it has incentivised hospitals to reduce the
rate of growth in admissions, there are clearly problems if there
are unavoidable admissions and they are not getting paid enough
for them...we have had trusts in difficulty because of that. The
second problem is that, if the 70% which is held back from the
hospital is not being spent effectively to either prevent attendance
at A&E in the first place, or to get them out once their treatment
is complete, then you have further pressure on the hospitals,
and I think most of us would agree that it is not all being spent
as effectively as we would like.
59. The Urgent and Emergency Care review, published
in November 2013, states that NHS England expects to make "significant
progress over the next 6 months" in developing new payment
mechanisms for urgent and emergency care, in partnership with
60. The Committee
has heard that the marginal rate rule, while it has the potential
to act as a lever to reduce levels of emergency admissions and
improve care outside hospitals, also carries the risk of pushing
trusts into financial difficulty where admissions are unavoidable.
Monitor also told us that the proportion of funding retained by
commissioners "is not all being spent as effectively as we
would like". Changes have been introduced this year to allow
for revised baselines, and to ensure that money retained through
the application of the rule will be spent transparently and effectively,
to enable more patients to be treated in community settings. We
will seek an update on progress in this important area from Monitor
and from NHS England later in 2014.
Mental health tariffs
61. Evidence received during the Committee's post
legislative scrutiny of the Mental Health Act 2007 in 2013 suggested
that the continuing use of block contracting in mental health
services made them "much easier to cut", and that introducing
a payment by results system for mental health might be beneficial.
We questioned Monitor about what progress had been made in this
area to date, and they reported that while work is now ongoing
to collect activity and cost information and to set quality information
for mental health 'clusters', this work is revealing wide variations
in both cost and clinical practice. This means that, in Monitor's
view, "it is going to be quite a while" before national
prices can be agreed in this area. Meanwhile, Monitor are advising
those working in this sector to use clusters and to increase their
understanding of their own activity and clinical practice, and
use this to negotiate locally on prices.
62. Since our accountability hearing in November
2013, there has been considerable debate about differences in
cuts to the tariff price paid to the acute sector and the non-acute
sector, with critics arguing that this has the potential to undermine
the Government's commitments to achieve parity of esteem in mental
health. We will explore these issues more fully in our inquiry
into Children's and Adolescent Mental Health Services.
told the Committee that "it is going to be quite a while"
before national prices can be established that will enable the
introduction of a well-based tariff in mental health. Since our
accountability hearing, concerns have also been raised about differences
in the changes being made to the prices paid for care in the acute
sector and the non-acute sector. These changes raise important
questions about the relative priority of acute and non-acute care,
and undermine delivery of the objective of parity of esteem between
mental and physical healthcare. The Committee will return to this
issue in our inquiry into Child and Adolescent Mental Health Services.
50 Monitor (AMO 0010), para 4.23 Back
Health Committee, Tenth Report of Session 2012-13, 2012 Accountability Hearing with Monitorpara
Monitor (AMO 0010),para4.27-4.28 Back
Monitor website, Regulating Prices for NHS Funded care Back
Monitor supplementary information (AMO 0013), para 2.2 Back
Monitor (AMO 0010), para 4.29-4.30 Back
Public expenditure oral evidence, 20 Nov 2013, Q166 Back
Public expenditure oral evidence, 20 Nov 2013, Q195 Back
Monitor (PEX 0018), 4.1 Back
Monitor supplementary information (AMO 0013), para 2.3 Back
NHS England, Urgent and Emergency Care Review, 13 Nov 2013, p28 Back
Health Committee, First Report of Session 2013-14,Post-legislative scrutiny of the Mental Health Act 2007,
August 2013, para 35 Back