News / Darzi could lead to ‘pricing signals’ in 2009/10 tariff

Lord Darzi’s Our NHS, our future review will have an important influence on the development of payment by results and could lead to tariff changes as early as 2009/10.

A succession of Department of Health officials underlined the importance of the health minister’s review at the HFMA’s national payment by results summit, run in partnership with the Department at the end of last month.

There have been some suggestions that Darzi’s likely proposals – involving centralising of some services and localisation of others – could be at odds with the incentives in the national tariff system. But John Holden, deputy director of NHS finance and responsible for payment by results strategy at the Department, insisted there was no problem. He said that Darzi was ‘completely consistent’ with the development of payment by results to date, although the proposals could mark a change in tone and emphasis.

Bob Alexander, the Department’s director of NHS finance, acknowledged that the national tariff would have to respond to the vision laid out by Darzi. ‘Payment by results is a means to an end,’ he told the conference. ‘So if the objective changes, for instance, we need to support Lord Darzi’s findings. Payment by results must be able to move with that development.’

Mr Holden stressed the significance of the review to the NHS. ‘Whatever we do, we can’t ignore the juggernaut that is the Darzi review,’ he said. ‘Only the NHS Plan comes close in terms of the all-encompassing reach of the review.’

He admitted that the need to respond to Darzi was one reason why the Department had not set out a whole detailed programme of work on payment by results as part of its recent response to last year’s consultation on future options. And he added that it was possible that the Darzi proposals could have an impact on the tariff in 2009/10. ‘It will probably be too early to pick up on the detail of Darzi,’ he said. ‘But if he reports in June, we could send some pricing signals to indicate direction of travel.’

The use of pricing signals, or adjusting tariff rates ‘normatively’ to incentivise a particular response, is expected to be a key tool in delivering the Darzi vision. Normative pricing is already used in a small way – for instance, by front loading outpatient tariffs in the first appointment to discourage unnecessary follow-ups. But Mr Holden suggested that there would be greater use of such signals in payment by results after Darzi. He said other sensible guesses included: a tariff for community services, incentives for quality, pricing to support a shift out of acute settings, and a tariff for long-term conditions.

All the Department’s speakers emphasised that payment by results was no longer peripheral but mainstream to the NHS. And as part of this, Mr Alexander said, the NHS needed to plan for volatility.

He said the Department was ‘acutely aware’ of the relative interaction of the different components of the NHS finance system that include the tariff, non-tariff income and funds for research and training. There was no intention to destabilise organisations unnecessarily. ‘But the tariff and other aspects will continue to develop, so you need to be able to cope with volatility,’ he said.

Mr Alexander all but ruled out any rebasing of tariff income when HRG4 is introduced as the new tariff currency next year. It is unclear how HRG4 will change providers’ income, but significant swings are possible. However, Mr Alexander said there were ‘no plans to look at this’.

Chris Watson, deputy director of NHS finance responsible for payment by results development, reinforced the point. ‘We need to get better at managing volatility and we need mechanisms for that, rather than thinking of rebasing,’ he said.


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