HFMA: variable element must cover additional costs

The API will go live in the new financial year, bringing to an end two years of a block contract-based temporary financial regime. The new payment system will apply to all secondary healthcare services within an integrated care system (ICS), and for services with a contract value of £30m or more delivered across ICS boundaries.

A fixed element will be set based on an agreed level of activity and is likely to use block contract payments for the second half of 2021/22 as a starting point. A variable element will pay for additional elective activity above the levels agreed in system plans and will also adjust for the achievement of quality criteria included in best practice tariffs (BPTs) and the CQUIN incentive scheme.

Referring to the association’s response to the consultation on the 2022/23 national tariff system, HFMA policy and research manager Sarah Day (pictured) said finance managers were keen to capitalise on the system working during Covid-19, which had been partly enabled by the simplified financial regime. ‘It is hoped that the aligned payment and incentive approach (API) will retain the benefits of that, while supporting the return to a more structured payment system,’ she said.

There was general support for the approach on fixed payments, although the association warned this must not become a ‘mysterious block amount for an unknown level of activity’. While NHS England and NHS Improvement have not prescribed a specific method for setting the fixed element, they have previously indicated that the aim is for the fixed element to reflect local costs of delivery for a realistic, agreed level of activity.

However, the association has raised concerns about the level of the variable element for elective activity, which is proposed to be set at 75% of national unit prices, adjusted for the market forces factor. This is an increase on the 50% level proposed to be used last year before the introduction of the approach was delayed. But the association said it would be ‘insufficient to cover any activity contracted out by trusts to the independent sector to address the backlog of care’.

The association also opposed the use of variable element to adjust for achievement of BPT and CQUIN metrics. Echoing comments from practitioners to NHS England and NHS Improvement during engagement events last year, it said the payments associated with BPT and CQUIN were too small to warrant the additional work to reconcile the variable element.

The association also highlighted the continued importance of recording robust activity and cost data, which improved under the earlier payment by results national tariff system. ‘We support the proposed payment approach and welcome the move away from activity-based payment as it will support collaborative working,’ the association’s response said. ‘However, activity and costing data must remain at the core of the approach.’