News / The fine print

While the tariff proposals for 2017/18 and 2018/19 appear to give the service what it’s asked for, the impact could be significant, as Seamus Ward reports

At first glance, the proposed two-year tariff for
2017/18 and 2018/19 gives the service two of the things it has asked for most over the past few years.

 A multi-year tariff to promote stability – check. A move to HRG4+ to ensure prices better reflect the cost of delivering services, particularly more complex cases – check.

But, while NHS organisations have broadly welcomed the proposals in the initial engagement, there is some disquiet about the impact they will have as currently configured.

Initial engagement on the proposals, produced by NHS Improvement and NHS England at the beginning of August, ended just after Healthcare Finance went to press. The proposals were accompanied by a plethora of supporting documents from a workbook containing draft prices to the release of the tariff grouper software. But it was the move to the two-year tariff and HRG4+ that caught the eye. There will be further testing and engagement through the autumn, with the statutory consultation taking place before the end of the year.

NHS Improvement and NHS England are trying to walk the line between making desirable improvements in the tariff and destabilising the service. And, in making a move to introduce HRG4+ a year after it was postponed over fears that it would create too much volatility for providers, they will offer some mitigation.

Overall, the national bodies’ impact analysis shows that the proposals would change the operating revenue of 52 NHS providers (27%), by more than +/-1%. For the other 144 trusts, the change would be +/- 1% or less. NHS Improvement and NHS England are considering whether and how to mitigate revenue volatility, particularly for the most-affected providers. The engagement document added that they were not considering introducing a marginal rate for specialised services between 2017 and 2019.

The changes to proposed prices would result in increases in maternity (£221m or 8.3%) and emergency medicine (£132m, 6.5%). The biggest decreases would be in non-admitted consultations (£233m, 4.4%) and interventional cardiology for acquired conditions (£115m, 12%).

The statutory consultation will include a two-year tariff with a price list for each year, as well as currencies, national variations and rules that would apply to both years. The price differences would reflect changes in inflation, efficiency, Clinical Negligence Scheme for Trusts premiums and service developments.

A spokesperson for NHS Improvement and NHS England, said: ‘The introduction of a multi-year tariff will provide NHS organisations with greater certainty and stability on the amount they will be paid for the care they provide over a longer period.’

There would be no need for a separate consultation on a tariff for 2018/19.

‘This stability will help the NHS provide patients with high-quality, sustainable care, whilst also encouraging innovation and transformation in how health services are provided,’ the spokesperson added.

‘Moving to a multi-year tariff will give providers and commissioners critical financial information earlier than ever before. This greater certainty will help providers and commissioners make robust investment decisions, and support their joint plans on how best they can deliver services to patients.

‘We see this change as a continuation of work on strengthening the payment system, so that it does more for patients, and promotes better financial management among NHS organisations.’

However, NHS Improvement and NHS England said they would not be able to alter the tariff once it has been set, even if issues arise during the period. The next statutory consultation would be on the 2019/20 tariff and any change before then could only be made with the introduction of a new tariff following a consultation.

One finance manager told Healthcare Finance that while, overall, the move to a two-year tariff was a good thing, he had concerns about the fixed nature of the tariff. Some things that could affect costs could not be foreseen – a new national policy, for example, or a new fast-tracked drug.

‘As the tariff is so complex, I’m worried that there’s something there that hasn’t been tested or there’s an unintended consequence that has a major impact that they will not have the ability to fix,’ he added.

The national bodies propose to use phase 3 of the HRG4+ currency design, which was first used in the 2014/15 reference cost collection. (It proposes to use this data as the basis for the two-year tariff prices.)

Last year they proposed to introduce an earlier version of HRG4+ in the current financial year, but it soon became clear that it would produce big swings in prices for some services, including orthopaedics.

While it appears that there is less variation in phase 3 than in phase 2, there are still some significant swings. For example, two specialist orthopaedic trusts would have the largest falls in nationally priced revenue (around 4% in both cases). In response, the tariff-setting bodies said they were considering options to limit financial volatility as a result of introducing HRG4+ or because of inadequate costing data.

NHS Confederation senior economic adviser Paul Healy said: ‘Our members are asking how committed the centre is to the two-year tariff. If HRG4+ increases the level of volatility, they would expect policies to be changed mid year.’

He believes that HRG4+ will increase the prominence of coding, but said the function will have to ‘step up’ to ensure trusts are paid accurately for the care they provide.

‘In the latest audit of reference cost data, 50% of providers had material inaccuracies in their submissions. If that trend continues, we’ve got to be careful about how sophisticated we make the system. We might need to improve costing data first.’

To complement HRG4+, NHS Improvement and NHS England proposed a number of changes, including updating top-up payments for specialised services and removing the interventional radiology best practice tariff.

There would be four new national prices – for cochlear implant procedures, complex computerised tomography scans, complex therapeutic endoscopic gastrointestinal tract procedures and photodynamic therapy. The first three were due to be introduced in 2016/17, but held back following the decision to postpone the adoption of HRG4+.

There would also be changes to the maternity pathway (see box below).

Top-ups for specialised services would change following the introduction of the more granular HRG4+ phase 3, together with new definitions for specialised services (prescribed specialised services – PSS – flags outlined in May) and the adoption of University of York recommendations on refining payments for specialised services.

Moving straight to PSS flags would increase the total value of specialised top-ups from about £320m to £415m. This increase is due to the introduction of top-ups in several new areas (including cancer, respiratory and cardiac) totalling £100m, as well as a £21m increase in neurosciences, partly offset by a fall in spending in other top-ups areas. Paediatrics and orthopaedics would see significant reductions.

Clearly, provider finances would be destabilised so that the national bodies have proposed to ‘transition’ to these services over a four-year period, with 25% of the proposed shift in income implemented in 2017/18.

Proposals to change outpatient follow-up payments have proved particularly controversial, with one finance manager describing them as ‘barmy’. The nationally mandated price would be removed and replaced with local agreements on a single payment for all outpatient follow-ups.

The consultation’s rationale for the change is that providers currently have no incentive to reduce inappropriate attendances or to move to new ways of delivering follow-ups, such as by phone. The block payment could incentivise the reduction of unnecessary attendances. ‘It may be unsafe as it could encourage trusts to discharge patients too quickly,’ said one finance director.

While the initial engagement has now ended, providers and commissioners alike will welcome the transparency it has afforded them. But, as ever, the devil is in the detail.

Maternity moves

There are concerns that proposals on changing maternity payments could be contrary to national policy on choice.

The maternity pathway currently includes three stages: antenatal, delivery and postnatal. Antenatal and postnatal have different payments, reflecting greater levels of complexity (and thus cost). These are known as standard, intermediate and intensive.

NHS Improvement and NHS England said they collected casemix information in 2015 that suggested more cases were allocated to the intermediate and intensive antenatal pathway than had been assumed. In response, while keeping the same funding level, they have proposed to change the relative weightings between standard, intermediate and intensive antenatal prices.

This will be achieved by updating the casemix assumptions, increasing activity at intermediate level from 27% to almost 39% and
intensive level from 7% to 11%, while reducing standard level from 65.5% to 50%.

The national bodies said engagement on the change last year showed significant support, though a planned three-level payment structure for the delivery phase is not ready to be introduced.

The NHS Confederation’s Paul Healy (above, right) said there was good evidence for making the change, but it could have the unintended impact of 

reducing choice. ‘You have to ask where the money is going,’ he said.

‘The broad intention in maternity is to give choice, but if a technical change puts more money into high-risk services, and incentivises trusts to provide them, does that run contrary to the national policy objective?’