News / News analysis: Uplifting insights?

NHS England and Monitor have followed through on their promise of a year of stability for the payment system by publishing early details of their first tariff for 2014/15. A national tariff ‘engagement document’ spells out their intended approach ahead of formal consultation in the autumn and a planned final, firm publication in December. The document outlines the intended approach – that national prices will be broadly set at present levels, adjusted for inflation and efficiency, and the rules will remain the same. Comments are requested by 9 July.

In delivering the planned way forward in June, NHS England and Monitor have responded to NHS calls for a much earlier release of tariff information. As part of last year’s preparations for the 2013/14 tariff, a sense check of the tariff – the sharing of a draft tariff with only a small number of organisations – got under way in September. A broader road test began in December and final publication of the firmed-up tariff came at the end of February, ahead of an April start date.

NHS organisations have long complained that the tariff has been published too late to support real contract negotiation and planning. So the earlier publication ticks that box. But there are compromises that will inevitably have differential impacts for different commissioners and providers.

The engagement exercise is billed as the ‘main opportunity to contribute to the development of the 2014/15 national tariff proposals’, so that any issues can be addressed before the formal consultation, allowing the December publication to be adhered to.

Monitor managing director of sector development Adrian Masters described it as an opportunity to ‘test responses to some proposals which we believe will help providers and commissioners deliver better outcomes’.  Emphasising that now is the time to engage, rather than later in the year, NHS England chief finance officer Paul Baumann added: ‘We urge the sector to engage fully with our proposals.’

The key element of the approach is to keep prices stable. Usually, the tariff would be based on the ‘most recent’ reference costs. The 2013/14 tariff, for example, was based on 2010/11 reference costs. But for the 2014/15 tariff, there will be no update for the newer 2011/12 reference costs.

A small number of healthcare resource group (HRG) changes will be made – informed by relative costs across these HRGs in the 2011/12 reference costs – but in broad terms the 2013/14 tariff will be rolled forward with a simple uplift to reflect cost inflation and projected efficiency gains.

Monitor has highlighted significant variations from year to year in some  HRG costs. It has said the quality of data may be one of the factors behind this variation. ‘Organisations tell us this variation is destabilising and hinders long-term planning,’ the engagement document says. While it says it is looking at options to improve cost data, the ‘rollover’ aims to keep prices stable and ‘provide additional certainty for the sector’.

It is a compromise many will understand, but which will create localised problems. Kevin Ross, deputy chairman of the HFMA Payment by Results Special Interest Group, welcomed the early notification. ‘There’s no doubt that this is the sort of timetable that would enable health economies to plan for the following year with greater confidence and, with all the other system changes, some stability makes sense.’

But he warned that the rollover approach would increase financial pressures in some organisations. ‘This may be particularly challenging for specialist providers,’ he said. ‘Updating for reference costs each year means that tariffs should reflect the use of new technologies and practices. Some specialist providers rely on revised tariffs to reflect any associated cost changes in adopting these – even if there is a lag.’

Mr Ross said that applying a deflator – recognising cost uplifts and efficiency requirements – to all tariffs across the board would produce pockets of pressure.

The document gives a lot of detail on how the two bodies would calculate the level of inflation and efficiency requirement built into tariff prices. With key aspects of inflation assumptions not yet available, it does not fix the level of inflation, but it enables practitioners to draw some reasonable conclusions.

Based on current expectations for pay settlements and non-pay, non-drugs inflation and previous years’ uplifts for other elements, overall inflation might be expected to be 2.5%-3%. And the document suggests an efficiency factor in the range of 3% to 4.5%.

Part of the point of the engagement document is to seek views on these assumptions and approaches, but these figures would imply a tariff cut of between 0% and 2%. This compares with a 1.1% cut in 2013/14.

As a higher profile is given to tariff enforcement, the guidance also attempts to tidy up what is and isn’t allowed in terms of tariff variations (there are accompanying papers on both enforcement and variations – pictured). Perhaps the most significant variation to tariff is the 30% marginal rate applied to emergency admissions above a baseline.

With the scheme in review, this is perhaps the missing piece in the jigsaw to enable commissioners and providers to start planning for 2014/15 with some certainty about the likely financial impact.