Feature / The main event

Department of Health director of NHS finance Bob Alexander talks to Steve Brown about the key changes – and their intended impact – within the national tariff for 2010/11.

The NHS is big news and big politics. Hardly a day goes by without some issue hitting the headlines. So it is perhaps surprising that confirmation of the final tariff and payment by results rules for 2010/11 in the last week of February passed without a ripple in the national media pond.

It is surprising because this is no mere technical accounting exercise of interest to the anoraked accounting masses, but a key driver for NHS performance over the next year. The tariff is what makes significant amounts of money flow round the system. Getting it right has a direct impact on local health economies’ financial health and, therefore, on the delivery of healthcare to local populations.

But it also aims to provide incentives to get health economies to tackle some of their biggest challenges – rising emergency admissions, for instance – and to encourage the delivery of higher quality and better value care.

If the significance of the tariff’s publication – following a road test period in late December and January – was lost on the nation’s media, the same cannot be said of the NHS finance community. This is vital information that will have a material impact on their plans over the coming 12 months and beyond. Organisations already know the external economic situation means they face difficult times ahead. The tariff starts to put real numbers to these challenges.

Bob Alexander, director of NHS finance at the Department of Health, is also under no illusions about the importance of the tariff. ‘The tariff is the big ticket item,’ he says. ‘It has significance on both sides of the [commissioner/provider] fence, particularly at this time.’ He was due to give the keynote address to the HFMA’s payment by results summit, run in conjunction with the Department of Health, at the beginning of March. And he gave Healthcare Finance an insight into the key changes in the tariff and tariff rules for 2010/11.

Role of the tariff

The English service is the only UK service to adopt a national tariff. Wales and Scotland see a tariff as inappropriate for their ‘single system’ way of working. But while England is talking more and more about co-operation and joint working within health economies, Mr Alexander is clear that ‘the tariff’ – an expression he prefers to ‘payment by results’ – will continue to have a key role. ‘A tariff mechanism is here to stay,’ he says.

But he says that doesn’t mean it won’t change. He believes the tariff is rightly organic and will need to be reviewed over time to ensure it is aligned with the ‘reality of the [economic] circumstances’ and to support the delivery of specific policy goals. He shrugs off early criticism that the tariff was more about payment by activity than payment by results.

When it was introduced, increasing activity to reduce waiting times was a key policy priority. The goals have been achieved and the tariff played a key part. And while the service can’t be allowed to let these access standards slip, the priorities are now in other areas – a twin drive to improve quality and productivity – and so the tariff needs to be refocused. Far from a policy U-turn, Mr Alexander argues this is a legitimate refining of a key tool to deliver the next stage in reform.

But he offers words of caution. While he believes the tariff can and will be tweaked as it develops, it is not the only driver of change. ‘The tariff is not the answer to everything,’ he says. ‘There will be times when it is the right mechanism, times when it might be the right mechanism and times when it simply isn’t.’

So what of 2010/11? One of the more significant changes is the return to a single tariff for elective admissions and day case activity, after the creation of a separate planned same day (PSD) tariff for 2009/10.

The PSD tariff had aimed to encourage the transfer of procedures previously done as day cases into outpatient settings – in line with the policy of delivering care in more appropriate settings that better meet the needs and interests of patients. But the tariff was non-mandatory for outpatient procedures in 2009/10 and, if applied, would have created significant pressures for some PCTs.

‘We had to do something to respond to some of the comment from the field over the introduction of HRG4 for 2009/10,’ he says. ‘The [PSD tariff] was a positive idea. But it might have been a step too far at that point.’ This reversal of approach – blamed on the patchy collection and coding of outpatient procedures – has been greeted with frustration from organisations that have just made the investment to collect the necessary data.

Mr Alexander makes no apology. The PBR guidance issued with the tariff makes it clear that ‘the collection and coding of outpatient procedures is essential to enable PBR to support the development of ambulatory care in future years’. Mr Alexander says that, putting the tariff to one side, accurate coding information is surely vital for organisations looking to manage these services, justifying any investment.

So could the PSD be in line for a rapid return in 2011/12? Mr Alexander refuses to commit. ‘This is an area we are bound to be expected to explore again and again,’ he says. ‘And we would like any view we take to be based on stronger underpinning information than there was before.’

Best practice tariffs

Best practice tariffs are another stand-out change in the 2010/11 PBR regime. Four best practice tariffs – cataracts, gall bladder removal, fragility hip fracture and stroke care – are launched with renal dialysis waiting in the wings for 2011/12. The basic thrust is that best practice care attracts a premium over non-best practice care – although best practice payments could be higher or lower than national average costs.

Trusts have some concerns about the costs of evidencing best practice, but Mr Alexander says the direction of travel is clear. Expect more best practice tariffs in future years. ‘I genuinely think that one of the great challenges for us will be to determine the pace at which we can move other services onto a best practice footing,’ he says. And he adds that best practice tariffs also represent a ‘great opportunity’ for the NHS.

Without doubt the headline-grabbing change in this year’s PBR framework is the adoption of a marginal rate for emergency admissions above the 2008/09 outturn activity level (at 2010/11 prices). Mr Alexander accepts that this is a departure from a key original building principle of the tariff – that all activity attracts the same price – but says the approach has a specific goal in mind. ‘With the introduction of a marginal rate we want to encourage people to come together to alter the amount of work people do,’ he says. He admits it is a relatively blunt instrument, although it is pretty targeted – only on the emergency side and not including maternity.

A 30% marginal rate for emergencies may provide challenges in terms of covering costs in lots of disciplines, but some managers say that activities such as trauma will be significantly short-changed. However, Mr Alexander is clear that ‘this is not a rewarding strategy, it is a don’t do it strategy’.

By providing disincentives for providers and commissioners – strategic health authorities will hold the remaining 70% in strategic funds – the undisguised aim is to force them to make real headway on understanding the causes of rising emergency admissions and then do something about them. And while there is still money in the system, the time is right. PCTs have 5.5 % growth in 2010/11 and this can be channelled into establishing more appropriate treatment options.

Doubts about penalties

Privately some providers have questioned whether penalising providers for a failure in PCT-controlled demand management will be fair or effective. But Mr Alexander is adamant that controlling demand or channelling activity to more appropriate settings is an economy-wide issue. Hospital clinicians need to be working with primary care colleagues to understand flows, improve referral practice or improve pathways, and the incentives – or in this case disincentives – need to encourage this behaviour.

‘We are doing something that encourages people to do the dialogue in a more driven way than we have done in the past,’ he adds.

There is no question of this policy taking the side of commissioners. ‘PCTs shouldn’t be getting off the hook,’ says Mr Alexander. ‘We expect SHAs to actively move on the 70% and use it appropriately – for instance, supporting the transition of what needs to happen to support necessary treatment in the most appropriate settings.’

Managers are currently focused on next year – the challenges of 2011 and beyond, when the service’s ‘flat real’ settlement kicks in, are unlikely to be the main concern. But many will be wondering about the almost throwaway remark in the operating framework that ‘after 2010/11, we shall move to a position where national tariffs represent the maximum price payable’.

If marginal rates conflict with the original design principles within the tariff, this could be seen as ripping up the rule book and returning the NHS to annual price negotiations.

But Mr Alexander suggests this is not on the agenda. The Department ‘does not want to get into wholesale price negotiation’, he says, but adds that some price differentiation ‘is not inconsistent’ with a system that is more focused on quality and outcomes. The overriding principle, he suggests, is that the tariff should not be an obstacle to developments that would benefit patients. ‘I could see a scenario where it is in the interests of a provider to offer a lower price that enables a PCT to invest in something complementary that wasn’t in the tariff,’ he says.

But he adds that while there is a clear direction of travel to explore this further, the thinking is still in its very early stages.