Feature / Location, location, location

New tariffs for clinical placements in NHS organisations aim to end cross-subsidisation between training and healthcare funding and drive up training quality. Health Education England’s Chris Jeffries talks to Steve Brown


The funding of training in the NHS needs to be reformed. On that point there is near universal agreement. There is widely suspected cross-subsidisation between funds meant for training and those intended for delivering healthcare. But over the past decade or more, review after review has failed to deliver change.

In the main, these attempts have been halted by concerns over the instability that would be introduced for hospitals providing the existing training. However, as of 1 April, Health Education England has taken on its full responsibility for co-ordinating education and training in the NHS. And alongside the new body, there is the start of a long awaited tariff system for clinical placements.

Until 2013, funding for clinical placements for undergraduate and postgraduate training has been based on historical agreements. The Commons health select committee summarised the current arrangements as ‘anachronistic and anomalous’ in its Education, training and planning report in May 2012. And it provided a succinct explanation of the need for reform. ‘Payment is only partially based on student or trainees numbers; it is not linked to quality; it is unjustifiably inconsistent between different professional groups, parts of the country and types of provider; and there is an almost total lack of transparency about how it is spent,’ it said.

Addressing concerns

Change has finally arrived, initially in the form of tariffs for undergraduate medical placements in secondary care and non-medical placements. The transition to tariffs started from 1 April this year and will be followed next year by further new tariffs for postgraduate medical training. The changes will finally address concerns that, in some organisations, training funds are subsidising healthcare and vice versa. But the changes do more than this.

‘It’s all about improving and assuring the quality of training,’ says Chris Jeffries, interim managing director of Health Education England North West and former HEE finance transition lead. ‘It also gives us a more effective mechanism for changing where students are trained.’ This last point is important. If the service is to move to delivering more services in the community, its workforce will need to train in these settings.

A system where funding follows the student at more than just some form of marginal rate is an essential foundation for this. ‘Seventy per cent of medical students stay in the area in which they have trained,’ says Mr Jeffries. ‘And at the junior doctor level, between 82% and 90% stay and get a consultant or GP job.’

Describing these statistics as ‘quite compelling’, he says the new funding system will provide a useful tool in ensuring the NHS has access to the right skills across the country.

For undergraduate placements, trusts will eventually receive £34,623 per student, adjusted up or down by the market forces factor (MFF) to reflect the unavoidable higher costs of operating in different parts of the country. This compares with historical contracts that can trace their financial values back to a self-declaration of costs by trusts at the onset of the internal market in 1990, when the service increment for teaching (SIFT) funding stream was established in its current form.

At that time, Mr Jeffries says self-declared costs ranged from about £9,000 per student to £140,000. An impact assessment of the new tariffs by the Department of Health says that leaving the historic contracts in place (based on facilities funding and a roughly £10,000 placement fee) would still mean a range of payments per student funding rates of between £10,000 and £90,000. Non-medical placements will now attract £3,175, again adjusted by MFF. These non-medical placements to date have broadly received no funding, with the former strategic health authorities using their own discretion about funding local placements. 

On top of these changes, next year will see further tariffs for postgraduate training. At present, trusts receive 100% of basic salary for trainees in foundation year 1 and specialty year three and above, supplemented by a small payment to cover non-pay costs (£2,000 and £2,800 respectively). Foundation year 2 and specialty training years 1 and 2 attract 50% of basic salary plus £2,800. Under the new system, all posts will be funded at the 50% rate alongside a placement fee or trainer’s grant of £12,000.

Stakeholder engagement

The new tariff rates have been calculated following a cost collection exercise in 2008 involving 21 providers across three strategic health authorities – a level of stakeholder engagement missing from earlier attempts to develop tariffs. This exercise suggested that in broad terms undergraduate medical placements were overfunded, while postgraduate medical and non-medical placements were underfunded.

According to some reports, in overall terms – taking account of the previously unfunded non-medical placements – cost of multi professional education and training (MPET) exceeded funding by about £800m. But no additional funding is being made available nor any transfer of funds from the payment by results tariff pot.

However, the redistribution of resources within this overall pot presents clear challenges for some organisations. ‘Inevitably if you introduce a standard tariff, there will be winners and losers,’ says Mr Jeffries. According to the impact assessment, a big bang approach to just the undergraduate tariff would lead to 50 providers losing income, 263 gaining and 58 facing no change. Of the losers, just 24 would be more than £2m worse off. Looked at another way, 18 would lose 1% or more of their total provider income, with just two providers losing more than 2%.

When you add in all the changes, including the move to postgraduate tariffs from 2014, it is a similar picture – 91 losers compared with 268 winners, with 12 no-changers.

While the winners outweigh the losers, it is the scale of losses that some organisations face that has necessitated a phased introduction of the tariffs. The biggest absolute loss for a single organisation is about £15m, with a small number also expecting losses approaching the £10m mark.

There are also challenges for smaller organisations, where the change may not be huge in absolute terms but where the loss represents a big proportion of turnover.

Transition measures

A transition package has been put in place.  ‘We’ve consulted widely and agreed that no provider should lose funding greater than 0.25% of their total provider income, or £2m if that is a lower sum, in any year,’ says Mr Jeffries. Transition times for different organisations depend on the current funding position and the size of turnover.  This means a 12-year transition for the biggest loser – the corollary of which is that it will be several years before other providers feel the full extent of their gain.

Mr Jeffries says there are already mechanisms – broadly using local development agreements – to help training commissioners ensure the quality of training provision. But he says that the transition period will also enable HEE to work with the gaining organisations to ensure that increased funds are spent on education and that the right infrastructure is in place.

Mr Jeffries is clear that the tariff prices are a starting point, rather than being fixed for the long term. The costing and assumptions behind the tariffs can improve.

For example, the range of costs for postgraduate medical training, submitted in the sample cost collection, showed a significant variation regarding the amount of time a trainee spends training and delivering services to patients. According to the impact assessment, postgraduate deaneries report that on average F1 and F2 students spend 20% of their time delivering services rather than studying. The current funding arrangements (pre-tariff) imply a service contribution of 0% and 50%. And this compares with average provider reported levels of 83% and 73%.

This is likely to reflect different approaches to costing as much as real differences in service contribution – perhaps understandable given that there has been no requirement to separately cost training provision. As part of the reference costs exercise, providers have to date assumed that training income equates to the costs of training, and have simply netted off training income from their cost quantum before allocating costs to service activities.

This is now changing. As part of the 2013/14 collection, it is anticipated that providers will have to cost education and training. Costing templates to support this collection, developed initially to support the pilot cost collection to calculate opening education tariff prices, are available via the HFMA costing website.

‘It is important that finance directors and costing teams plan how to do this. We recognise it is a new activity, but it is important that people prepare and don’t just leave it until next year’s collection exercise,’ says Mr Jeffries. ‘Look at the detail and perhaps buddy up with one of the pilot sites or use local finance director groups. It’s a really interesting professional challenge.’ He says HEE can put finance directors in touch with other organisations if they need help.

Under the current costing-tariff timetable, 2013/14 reference costs would inform the 2016/17 tariff, so the first full costing of education and training could lead to revised tariffs within three years.

As part of the move to tariffs, HEE will also carry on work started by the Department to look at the currency, turning the current simple per student or salary support approach into a series of education resource groups (ERGs). These clearly borrow their name from the healthcare resource groups that make up the existing acute care tariff.

The move could lead to the introduction of greater granularity, more closely matching tariff payments to the specific costs incurred with different stages of training. For example, there could potentially be a separate ERG for undergraduate medical year 1, rather than a straight per student rate paid regardless of the training year. This work is ongoing.

Payment issues

The other side of the training coin is who pays for it. To date, the overall budget for education and training has effectively been top-sliced from the Department’s budget before allocating budgets to commissioners. But a levy system has been proposed to encompass all organisations that benefit from staff trained by the NHS.

While this would effectively involve a circular flow of funds within the NHS, with fees collected added back into the overall NHS budget, it would enable other beneficiaries – private sector providers – to contribute. Further detailed work would be required before such an approach could be taken to raise the central budget.

Mr Jeffries has been closely involved with education and training since 2001, when he became director of finance of the Greater Manchester Workforce Development Confederation. He is retiring this summer, but is pleased to have contributed to getting the new tariff system in place. There is more to be done – extending tariffs to primary care placements for example. But the framework is now in place. He believes the system provides a fairer playing field for providers and more equitable funding matched to the costs of placements. But the overriding benefit is a better trained workforce.

‘If we don’t pay on this basis, what levers do we really have to influence the quality of education?’ he says.