Feature / Clear way ahead?

Not all news is really new. Anyone working in NHS finance is all too familiar with ministers’ tendency to re-announce ‘new’ money. And so it seemed with the ‘new policy’ announcement by health secretary Andy Burnham in mid-September. Payment by results had to ‘do what it says on the tin – pay more for better patient experiences’, he said. A ‘powerful new financial framework’ would link payment to levels of patient satisfaction.

But hang on. Don’t we already have a ‘new’ framework doing exactly this? The CQUIN system (commissioning for quality and innovation) required local organisations to agree schemes for 2009/10 centred on four domains. These included safety, effectiveness (including clinical and patient reported outcomes), user experience and innovation.

With 0.5% of PCT allocations tied to these schemes, this is clearly a financial framework linking payment to patient satisfaction – although there may be some arguments about the description ‘powerful’. In truth the announcement amounted to confirmation that CQUIN is likely to pick up pace next year, requiring real improvements, not just data collection, and accounting for a slightly bigger chunk of contracted expenditure.

No, the real news came in the revelation that later this year – presumably end of November  or start of December – the Department of Health will unveil a national tariff covering not just the usual one year but four years. For finance staff, that is a hold-the-front pager.

Mr Burnham said this multi-year tariff would cover the remainder of this spending review period and all of the next.

‘It will begin the process of showing how we realise [NHS chief executive] David Nicholson’s challenge of finding £15-£20bn of savings over the next spending review period,’ he said. ‘The multi-year tariff will set out the scale of the efficiency and productivity challenge year-on-year, building up over time with the most demanding savings coming later.’

The tariff would give the NHS ‘certainty and a longer run at the challenge,’ the health secretary said. ‘It also gives us time to make what can still feel like a counter-intuitive argument to some in the service that quality and prevention are the best routes to financial sustainability.’

What Burnham didn’t say

Although this is a significant announcement, there are probably more questions about what the health secretary didn’t say. ‘The most demanding savings coming later’ presumably hints at higher efficiency requirements in the tariff uplift (although ‘uplift’ may be a misleading term) in the later years. However, it could be read as the cumulative efficiency challenge getting harder as time passes.

There are lots of other questions too. ‘There is no doubt that a multi-year tariff has the potential to give the service some stability and certainty going forward,’ says Andy Hardy, chairman of the HFMA PBR group. ‘But we really need to see the detail around this to understand the full implications.’

Finance directors in a virtual focus group contacted by the HFMA were nearly unanimous in welcoming any improved certainty in planning for the next few years. ‘It will help with planning and strengthening the size of the problem, which may help to get engagement and deliver the required financial performance,’ said one FT director.

A PCT finance director underlined this point about helping to crystallise the extent of the efficiencies that will be needed. ‘A four-year tariff will help the various parts of the NHS understand the scale of efficiencies they need to achieve, particularly if there is also another extended pay settlement,’ he said. ‘Neither of these will actually help to meet the financial challenge, but at least it will be clearly defined.’

Saving staff time in having to ‘constantly quantify the impact of any changes’ was also highlighted as an advantage, particularly given the tendency in recent years for changes to be made post road test and for local flexibilities to be imposed late on in the contracting round. And a number of finance directors suggested the enhanced stability would also help with service line management. ‘Having a set tariff will allow long-term profitability analysis to be undertaken, which will lead to more strategic challenges being made on particular services and sustainable solutions developed,’ said an FT director.

A trust director added there would be benefits for service line reporting, with a fixed tariff producing more stability in service line income between years. ‘When tariffs change you need to explain the changes to clinicians and the credibility of the tariff is often questioned by them because of the constant changes,’ she said.

However, finance directors also gave caveats to their support for the change. For a start tariff only provides half the picture – the income side for trusts. And even here, for many there would still be major uncertainties around other income streams such as research and training. PCTs would also need an indication of likely allocation levels – one can only presume there will be no further progress towards target allocations in a flat cash scenario.

Without understanding the likely cost pressures, the ability to plan firmly would still be compromised. The need to understand the approach on pay awards was flagged by almost every finance director in the group (see box). One added that an understanding of pension contributions and Clinical Negligence Scheme for Trusts premiums would be useful.

Finance directors also pointed out that PBR rule changes could have as much impact on income levels as the tariff prices themselves. So, will the return to a combined daycase and inpatient elective tariff from next April – announced last month – last for the four years of the multi-year tariff? Would outpatient procedures be confined to the ‘limited number of high volume healthcare resource groups’ trailed last month?

As to other structural or scope changes, chemotherapy is to be introduced in 2012 and renal dialysis in 2011 – one of the new best practice tariffs being developed. While this might involve a simple transfer from local prices to tariff, other scope changes could have an impact on existing tariffs. Would trim points – triggering excess bed day payments - stay fixed? Some managers have suggested the whole area around paying for excess bed days should be looked at in the push to reduce length of stay and find efficiencies. Would all these type of changes be off-limits for four years? Perhaps as important would be an indication of plans for the market forces factor. Would the 2% cap on increased income introduced with the new MFF stay in place?

Managers also said they needed to understand more about the role of reference costing in the context of a multi-year tariff. Currently improvements in actual clinical practice, coding and simple activity recording feed into the tariff through the reference cost process – albeit with a three-year delay.

‘Given the problems with the move to HRG4, a tariff in place for four years could lock in other problems,’ said one PCT director. ‘We have learned that data recording improves over time when this leads to increase in income. I’d be concerned that assumptions around improved recording would need to be built in.’ An FT director said there were already known anomalies with the national tariff. ‘Unless resolved these could be built into prices for four years,’ he said.

Costing quality

There may also be an impact on costing practice. The Department is reviewing the quality and uses of reference costs but if annual reference costs were not being used to refresh the national tariff for the next four years, it is possible reference cost quality would suffer – particularly as the Department could be moving towards using a sample of patient-level costing sites to inform tariff developments.

Perhaps the final message from the HFMA focus group was for a sense of perspective. Knowing efficiency targets within tariff for the next four years will make the challenge more explicit, but it will not on its own deliver the required efficiency savings.

‘The main efficiency gains for the NHS won’t come from reducing tariff prices as less than 50% NHS expenditure is on acute tariff-based services,’ warned one FT director. ‘The danger is that too much emphasis will be put on this area at the expense of looking at best practice (which may be at a higher price) or clinical effectiveness.

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