News / Trusts urged to be on guard over impact of tariff on SLM

NHS trusts should be cautious when acting on service line management (SLM) information following the introduction of HRG4, the new tariff and changes to the market forces factor.

The advice comes amid fears that some individual business units, set up by trusts under the SLM initiative, may move from being in profit under the current tariff to deficit under the new arrangements once the new financial year begins.

One source referred to the issue as ‘a car crash’ and finance managers have raised concerns about how to explain the reasons for the change in profitability to clinicians.

Some feared that gains made in clinical engagement could be lost if clinicians became disillusioned if expected incentive payments did not materialise.

However, trusts have been told that SLM is still relevant and they should not be distracted from the initiative’s goals.

Monitor policy director Robert Harris (pictured above) insisted trusts should not lose sight of the importance of reducing costs, particularly in a tightening health economy. ‘This doesn’t stop you addressing the costing side of the equation, irrespective of whether it’s HRG4 or 3.5,’ he said.

Costs and income could be analysed separately, said Professor Harris. ‘The tariff is not a reflection on your cost of production; it’s a reflection on the amount the system is prepared at a given moment in time to pay you.

‘I would argue that trusts should focus on getting their cost of production sorted so that it is reliable and robust. If enough organisations do that effectively, it will feed into the Department of Health’s reference cost data, which of course drives future tariffs and will therefore improve the relevance of tariff.’

Professor Harris added that it may be prudent for trusts experiencing these problems to be cautious when making ‘near term’ incentive payments to business units under SLM.

‘I would suggest that if there is so much fluctuation, so that you go overnight from making money to losing money, it’s probably best you don’t go the whole nine yards on incentive payments,’ he said.

‘You have to play a slightly longer game. Because the tariff may change, you need to introduce a deferred distribution of those profits. You don’t want to release money out of the system if the rules are going to be changed overnight.’

Some foundation trusts were operating internal banking systems that retained profits centrally. These were earmarked for future spending by service line.

‘This plays particularly well with clinicians whose units have generated the profits and who want reassurance that they shall be able to draw down on this funds at some point,’ said Professor Harris.

HFMA chairman Bill Shields said SLM remained vital for trusts. However, he added: ‘I don’t think it necessarily follows that we should take investment or disinvestment decisions purely on this basis when the tariff is still a developing mechanism. The tariff will become more accurate as its detail and scope increase over the coming years.’