Comment / In defence of the tariff

Why do we have the national tariff? Many finance managers may well have asked themselves this question while working their way through the more than 100 pages of tariff proposals and impact assessment published by NHS Improvement and NHS England during August.

It is hugely complex, with different payments for elective and non-elective activity, best practice tariffs, marginal rates, top-ups for specialised services, special arrangements for high-cost drugs, and devices and rules governing variations and for services without actual national prices.

In England, it is crucial to the way money flows around the health service – yet other UK nations appear to cope without it.

There is also widespread acceptance that the current tariff in England is not fit for purpose. It was born at a time when the service wanted to incentivise acute activity to reduce waiting times and lists. Now the focus is on new models of more integrated care, which in many cases will involve moving services into community settings or delivery in different ways, making greater use of modern technology, for example.

Current incentives not only fail to encourage these changes, but trusts could find themselves at a financial disadvantage when they pursue them. Recent years have seen many areas sidestepping tariff arrangements in favour of simpler payment approaches and developing risk-sharing arrangements to mitigate the impact of tariff.

Add into the mix the fact that tariff prices are based on cost data that enjoys a poor press and relies on coding that has been shown to be inconsistent across different providers, and you might make a case for abandoning the whole project.

But that would be to ignore the huge benefits that the tariff has brought to the NHS. As a side benefit, it has reinforced the need for robust cost data (although informing local decision-making remains the main driver for improved costing). And it has improved the simple act of counting and coding activity, which has benefits and potential benefits way beyond tariff systems.

But the core benefit is that it has to be right to have a transparent link between services delivered by a provider (and, increasingly, the outcomes) and the money paid.

Without this link, how can healthcare providers or commissioners plan for sustainable services, cope with changes in activity levels and cost, or move from one model of provision to another?

The danger is that the tariff gets the blame for the current financial problems facing the service. In reality the core problem is the mismatch between available funding and the demand for services.

Impose an unrealistic efficiency requirement on tariff prices (as has been the case in years before the current year) and you shouldn’t be surprised when an equivalent sized hole opens up in provider finances.

Although 2016/17 has seen a more realistic efficiency ask of providers, the plans for 2017/18 show that the tariff is still being used as a balancing tool – the block proposals for outpatient follow-ups being an obvious example. Again it is not the tariff approach per se that is at fault.

The tariff is nowhere near the finished product. It is clear its initial ‘activity times price’ structure doesn’t work for all services. Non-elective and critical care activity payments have to take account of capacity, and year-of-care and capitation models will make more sense for patients with chronic conditions. And we need more sophisticated mechanisms to link payment to outcomes and to share risk.

But we should resist the temptation to blame the tariff for not addressing a financial problem outside of its control.

We will come out of the current financial challenge – or at least the extreme intensity of it – and when we do, the service will benefit from having a more sophisticated payment system that links money to the services and outcomes delivered.