News / Call for collaboration to meet 2014/15 tariff challenge

25 October 2013

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By Steve Brown


NHS managers have warned of an extremely challenging year in 2014/15 after Monitor and NHS England unveiled a 4% efficiency requirement as part of their tariff proposals.

The 2014/15 tariff will be the first to be set by the two bodies, having taken over responsibility for the payment system from the Department of Health.

Although they had outlined broad plans at the start of the summer, they released their firm proposals for formal consultation at the start of October.

The pre-summer engagement document had already confirmed a year of stability, with national tariffs based on current year prices rather than the latest reference costs. It also promised a rules-based approach to all services, not just those with national prices, and encouragement for local health economies to develop local payment approaches to enable better integration of care. So the key announcement in October was around how prices will be adjusted.

A 4% efficiency requirement mirrors that in the previous two years and is offset by an uplift of 2.1% to reflect cost increases related largely to pay, drugs and capital. This means that on average prices will go down by 1.9%.

However, further cost uplifts to reflect inflation in the clinical negligence scheme for trusts have been targeted at specific healthcare resource groups, which means that, on average, prices for services covered by national tariffs are 1.6% lower than this year.

Paul Briddock, chairman of the HFMA’s Payment by Results Special Interest Group, welcomed the approach on stability and the focus on flexibility. But he said the 4% efficiency requirement would be ‘extremely tight’. 

The FT Network said the ‘larger than expected’ 1.6% cut to prices – this year’s were set 1.1% lower than 2012/13 – could lead to £500m more cuts in frontline services.

‘Trusts were assuming that tariff price reductions would be no greater next year than this,’ said Chris Hopson, FT Network chief executive. ‘Giving more money to commissioners at the expense of providers increases risk significantly where it most counts – at the sharp end of NHS service delivery.’

He said that the £500m had to be used to reduce demand for trust services or to come back to trusts to recognise increased demand.

Mr Briddock said there were also pressures on commissioners, particularly given the increasing transfer of funds to social care.

‘What we need to see is commissioners and providers working together in a mature and positive way,’ he said. ‘My worry would be if organisations simply used rules-based contracts to pass the problem on to other parts of a health and social care economy.’

NHS Confederation director of policy Johnny Marshall agreed on the need to work together.

‘The nature of the challenge now facing the health service means that only a joined-up approach between providers and commissioners can possibly deliver the changes and improvements the service needs and that patients deserve,’ he said.

The marginal rate emergency tariff, which was reviewed over the summer, will remain in place. However, activity baselines, over which the 30% marginal rate applies, may be revised if increases are outside providers’ control.

Monitor examined a number of scenarios as part of its impact assessment, including providers achieving the 4% efficiency gain and only achieving 3%. Monitor concluded the ‘majority of providers would remain financially viable’ under both scenarios.

In fact, if providers missed the efficiency requirement by 1% this year and next (the 3% scenario), 45% of providers could be in deficit with a small aggregate deficit at the national level. But this ‘significant deterioration’ in providers’ financial positions would be cushioned by providers’ cash balances, which might reduce the number of deficit providers to 8%.

In October, Monitor also outlined savings opportunities that could help close the £30bn funding gap NHS England has estimated could exist in 2021 if services continue to be provided in the same way. Monitor identified up to £18bn of savings by improving productivity of existing services (up to £12.1bn), delivering the right care in the right setting (£4bn) and developing new ways of delivering care (£1.9bn).

Further savings could be realised by redirecting resources to prevention and early diagnosis or rebalancing spend between different diseases. There may also be non-recurrent savings from wages and selling unused estate.