News / Department denies maximum price agenda

The Department of Health has attempted to quash the suggestion that it was encouraging a return to price competition in the NHS.

NHS deputy chief executive David Flory, speaking exclusively to Healthcare Finance last month (February issue, page 16) insisted there was ‘no policy to move into price competition in 2011/12’. This was underlined by chief executive Sir David Nicholson in evidence to the Commons public accounts committee.

But amid continuing concerns about the potential impact of price competition on service quality, the Department last month issued further clarification of the ability to set tariffs below nationally set prices, included in the 2011/12 operating framework. An annex to a letter from Sir David to the service on the current transition addressed the issue head-on.

‘Services subject to tariff will continue to compete on quality; there is no question of introducing price competition,’ the letter said.

Again the Department stressed the new flexibility was ‘not intended to facilitate a move towards price competition’ but would only be used in ‘exceptional circumstances’. It said commissioners using this flexibility would be responsible for ensuring quality of services bought was ‘at least equal to, if not better than, services purchased at full tariff price’.

The Department denied it had reversed its policy and was merely clarifying existing, unamended guidance amid incorrect media reporting. ‘There is no U-turn because we never intended to introduce price competition,’ a spokesman said. ‘Anyone can see it is difficult for the government to U-turn on a policy it inherited from the previous administration and which it has not amended since coming into office.’

However, the inclusion of a statement in the 2010/11 operating framework to move towards tariff as a maximum price was widely seen as attempts by the then Labour government to match pledges being made by the Conservative opposition as they geared up for the 2010 election.

Doctors’ union the BMA has raised concerns that price competition would lead to a race to the bottom in terms of service quality. A spokesman said: ‘It is all well and good David Nicholson saying there is no question of introducing price competition – this is not what is in the bill. Clause 103 says Monitor and the NHS Commissioning Board have the power to set a maximum national price for the provision of some services. The BMA wants the bill amended to explicitly preclude price competition.’

The finalised guidance has moved away from references to ‘tariff as a maximum price’, talking instead of variations to tariff and stating that ‘tariff is a fixed price’. It stresses that variations must be agreed between commissioners and providers and approved by SHAs before being implemented.

A possible example of an acceptable variation is extending the marginal rate approach for emergency admissions across more areas of activity, using a variety of baselines to incentivise outcomes. But reducing tariff payments in return for guaranteeing greater volumes of elective activity would not be permitted.