News / Waiting for Darzi

The need for payment by results to deliver the recommendations of the Darzi review may explain the limited signals about future steps for the national tariff policy

The Department of Health’s response to the consultation on the future of payment by results has been a long time coming. And, given the seven months it has been in the making (even allowing for the 280 plus responses received), there is less about the future of this key policy than might have been expected. However, a couple of key messages do emerge.

The first is that the Department remains committed to the introduction of a new tariff currency from April 2009. The other is the over-riding influence of the ongoing review by Lord Darzi – with any future payment by results policy needing to fit with the as-yet-unpublished findings of the health minister’s investigation.

The Department appears to confirm that a tariff based on the new version of healthcare resource groups – HRG4 – will be introduced from next April. The greater granularity in HRG4 is seen as a major improvement on the cruder, more general groupings used in version 3.5, which forms the basis for the current tariff. It will underpin the drive to introduce more services in community settings by setting tariffs for parts of the patient pathway such as diagnostics and chemotherapy – also known as unbundling.

The backing may help to dispel rumours that the Department is getting cold feet over the currency switch. Some finance directors had suggested that concerns over the robustness of an HRG4 tariff might lead to a further delay. Under the timetable for publishing tariffs early for road-testing, the 2009/10 tariff would be based on reference costs for 2006/07. This was the first year HRG4 was used for reference costs and there have been concerns that unfamiliarity with the new groupings and inconsistency in the application of the underpinning codes and classifications might undermine the new tariff’s accuracy.

The Department has indicated, however, that HRG4 remains on next year’s menu. ‘We will continue to work towards the implementation of HRG4 from 2009/10 while taking into account the concerns of respondents,’ it said in the response document. In fact, the Department said two-thirds of respondents on this point were positive, with three out of the four clinical bodies that responded also being in favour. Concern about the quality of the 2006/07 reference costs, however, was highlighted by 55 respondents.

The main issue raised in the consultation was the need for a clear timetable for producing and testing the 2009/10 tariff. Respondents also worried about whether they would have time to assess the financial impact of the switchover. They called for better communication with clinicians and for 2007/08 reference costs data to be used to inform the tariff. They also wanted the Department to mitigate the risks to organisations and services.

This last issue could be addressed by some form of transition period for HRG4. An HFMA survey of finance directors at the end of 2007 suggested that nearly half of trusts and foundation trusts were anticipating reduced income as a result of HRG4 – with the financial shifts being significant and potentially destabilising in many cases. Two-thirds of trust finance directors called for a transition of two years or more.

Other than acknowledging that respondents raised the issue, however, the Department is virtually silent on the issue, saying only that it ‘remains committed to clearly communicating its timetables and carrying out road-testing to support the calculation of the tariff each year’.

The other key message from the Department is the importance of the Darzi Review, which has stressed the importance of local, integrated care and raised the prospect of single-site polyclinics. There have been some pressure groups – Keep Our NHS Public, for instance – that simply claim Darzi’s vision is incompatible with a market built on competition and driven by payment by results. The Department would, clearly, refute this strongly. It acknowledges, however, that ‘the future development of payment by results must support the findings emerging from Lord Darzi’s Our NHS, our future review’.

Nigel Edwards, policy director at the NHS Confederation, suggested that the need to take account of Darzi was the most likely explanation for the limited nature of the Department’s road map for payment by results. ‘Darzi would require some fairly major looks at the tariff,’ he said, ‘bundling up as well as unbundling, for instance. It could need a step change in payment by results.’

The Department goes no further than saying that complying with Darzi will mean ‘developing a tariff that supports the localising of care where possible and the centralising of treatment where necessary’. Whether this means more than encouraging larger specialist centres through the top-up system and community alternatives to hospital services through unbundling is not clear.

Hospitals already have concerns about unbundling – in terms of not knowing what is included in the tariff to start with and of how moving part of the pathway could affect their own cost base. The Department gives no clues to a way forward but admits it needs to examine the effect on casemix of shifting care out of hospitals.

The Department is not planning a further payment by results document setting out its thinking on the range of areas to move the policy on. Instead, as wider policy or service announcements are made, the implications for payment by results will simply be highlighted. Payment by results has been the key policy in recent English reforms. Whether this new approach marks a lowering of profile for the initiative or an acceptance that it is now mainstream NHS business remains to be seen.