News / Tariff option risk transfer does not address affordability gap

Monitor and NHS England’s original draft tariff, published in November last year, set a 3.8% efficiency requirement, which, with 1.9% cost uplifts, would have seen prices lowered on average by 1.9%. However, it also proposed a new 50% marginal rate for specialised services alongside an increase in the emergency admissions marginal rate.

With more than 51% of providers (by share of supply) objecting to the tariff calculation method, the tariff was withdrawn and the two bodies have produced a revised offer for providers.

The new enhanced tariff option (ETO) is estimated to be worth an extra £500m for providers than the original tariff proposals. The key enhancements are a reduction in the efficiency requirement to 3.5% and an increase in the specialised services marginal rate to 70%.

For organisations that do not opt for the enhanced offer, the default position will be the 2014/15 tariff until it is superseded, potentially after the original 2015/16 has been through a Competition and Markets Authority referral. However, providers choosing this option would not be eligible for CQUIN payment worth 2.5% of contract value. Providers were given until
4 March to make their choice.

‘The original tariff proposals included an efficiency requirement of 3.8%, which compares with some assessments of achievable efficiency of 1.5% to 2%. This has created an affordability gap for 2015/16,’ said HFMA policy and technical director Paul Briddock.

‘Previous years’ tariffs have also included similar high efficiency requirements. However, trusts have already achieved the easily gained efficiencies, and options such as income growth – used in the past to supplement cost improvements – are no longer an option.

‘In addition, activity and staffing pressures mean further cost reductions in some areas are just not possible without changing clinical service models – which cannot be achieved overnight. The challenges facing trusts are clear when you look at the increasing number in deficit.’

The enhanced tariff option ‘addresses in part some of providers’ concerns’, he added. ‘However, it simply passes an element of the problem back to commissioners. The HFMA is concerned the ETO proposal is still concentrating on where the affordability gap will sit, and does not address the real issue of fully closing the gap. There is a danger that the failure to address the issue of affordability will undermine local relationships – between different types of provider and
between commissioners and providers.’

Mr Briddock acknowledged the complexity of the tariff-setting process, but said the impact of this year’s tariff problems on local planning had to be avoided in future.

‘Engagement with the sector about tariff plans has to be early enough to allow for meaningful discussion and change without threatening the planning timetable,’ he said. And he added that the ‘national tariff is not the right place to be having discussions about the affordability of services’ – a point made in the HFMA’s original response to the tariff consultation.

The NHS Confederation said it was important to ‘have clarity on the arrangements for 2015/16 as soon as possible’.

‘This was always going to be a tough year and continuing uncertainty would make it an impossible one,’ said its chief executive, Rob Webster. While the interim proposals needed careful consideration, he suggested they offered ‘a better balance of risk for many local systems and between national and local commissioners’. 

He also called for lessons to learnt, with a structured dialogue enabling providers, commissioners and others to ‘engage fully in the co-design and road testing of arrangements’.  ‘Where this doesn’t happen, we see the damaging consequences,’ he said.

Tariff options