News / Department: no return to price competition

The Department of Health has rejected suggestions that it is reintroducing price competition in 2011/12.

The payment by results draft guidance, published at the end of December, and the new operating framework outline a new ‘flexibility for providers to offer services to commissioners at less than the published mandatory tariff price’.

But in evidence to the Commons public accounts committee inquiry into NHS productivity, NHS chief executive David Nicholson suggested too much was being read into this flexibility. 

‘We have a national tariff system. I think we should be very cautious about price competition in healthcare … The international evidence seems to show that, if you introduce price competition, you can get to a place where quality suffers.’ He added that the new guidance, first flagged up in the 2010/11 operating framework, only introduced the ‘ability’ for prices to be set below tariff.

In an exclusive interview with Healthcare Finance, deputy chief executive David Flory underlined that the guidance made it clear it would only happen in exceptional circumstances. Tariff as a maximum price, through a unit price cut or a marginal rate above an agreed threshold, ‘must not affect quality, choice or competition’, the guidance said. It was ‘not intended to herald the development of price competition’.

Mr Flory dismissed suggestions the policy would be used to manage market entry and exit. ‘There is no policy to move into price competition in 2011/12,’ he said. Flexibilities within tariff needed to be balanced with the need for a ‘consistent, rules-based system’.

There were big changes in the draft PBR guidance – a net price reduction of 1.5%, based on an efficiency requirement of 4% and inflation of 2.5%. Setting tariffs below the mean and changes to a trim point floor of five days for long-stay payments mean 2% of efficiencies are embedded in prices.

Best-practice tariffs have also been expanded  into areas such as renal dialysis and primary total hip replacements. Hospitals will also not receive payment for emergency readmissions within 30 days of discharge following an elective admission. All other readmissions within 30 days of discharge will be subject to locally agreed thresholds.

The guidance called on PCTs to work with providers, GPs and local authorities to reinvest the savings in reablement and post-discharge support.