Comment / Tariffs need to work in more than theory

Tariff guidance allows some flexibility between commissioners and providers. But too much flexibility could erode the benefits of a rules-based system

One of the main advantages of payment by results is that it provides a rules-based system. Of course there will be fluctuations. We know the tariff can change from year to year as the underlying cost data changes and as a result of national adjustments for cost improvement and inflation assumptions. We also know that over-arching rules, introduced to deliver specific policy goals, may have a dramatic impact on income.

But operating in a rules-based system means there is some certainty on both sides – commissioning and provision. That provides a foundation for longer term financial planning. For example, it gives providers confidence around income streams, so they can plan capital programmes or pump prime pathway changes to ensure services improve and stay focused on patient experience.

We also live in the real world. Tariffs have to be affordable. There is no point in a provider washing its hands of a local health economy’s financial challenges and simply shouting ‘the tariff is the tariff’. As Department of Health deputy chief executive David Flory said at the start of the year, we need to balance flexibilities against the need for a consistent and rules-based system.

The government’s response to the recent NHS listening exercise puts a heavy reliance on tariff, both in terms of supporting integrated care and in eliminating the potential for cherry picking of less complex cases by private sector operators or other providers.

The Department has previously talked of developing tariffs for community services and, in last month’s report, about tariffs for integrated care and whole pathways.

The first pathway tariff for maternity care is already well under development and is expected to be introduced in some form next year.

In looking to protect against cherry picking of services, the government has highlighted the need to set tariffs that take account of the clinical complexity of the cases undertaken. One reading of this might mean tariffs that recognise the full costs of emergency work – and the capacity needed to be maintained in case of emergencies. 

While timescale will be an issue for all these developments, few would argue with them in theory. But they also need to work in practice. Given the integration of community services with acute and mental health providers in many parts of the country, new tariffs for old block contract community services or whole integrated tariffs would align incentives with the policy of changing pathways and moving services into the community. But, for some, of equal importance to expanding the scope of tariff is getting the existing tariff working in full.

PBR guidance allows for wide-ranging flexibilities around the use of the tariff. The HFMA’s Payment by Results Special Interest Group is looking into how these flexibilities are being used. Certainly anecdotally, there are indications that we are seeing increasing use of caps, collars and even block contract arrangements.

We are in challenging economic times. We need to drive hard on quality and productivity and affordability is vital. Flexibilities make sense right now and some level of flexibility will probably always make sense. But too much flexibility will erode the benefits of having a national tariff – in particular undermining providers’ ability to plan for anything beyond the next 12 months.

The danger is that we have a tariff that looks great on paper and works in theory, but in practice is more worked around. 

Andy Hardy is chairman of the HFMA’s Payment by Results Special Interest Group