News / Local prices ‘trumped’ by need to meet budget

27 September 2013

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By Steve Brown


The pressure on local commissioners to balance annual budgets could be acting as a barrier to improving patient care, according to research by Monitor.

Local arrangements currently cover about £40bn of health services – more than the £29bn covered by national prices.  Existing arrangements include activity-based contracts with local prices, block contracts and combinations of the two approaches.

However, the report said that the need to keep within budget often ‘trumped’ local price setting arrangements.

‘Sometimes the need to balance the budget in any one year can detract attention from efforts to look at improving the quality of care achieved from the budget available,’ the report said.

It highlighted the use of mid and end-of-year financial settlements with providers – not related to the original contract value – to ensure the contract value fit within the financial envelope.

In other cases, locally agreed activity-based prices were bypassed by reverting to block contracts part way through a year. There were also examples of commissioners being reluctant to enforce penalties in contracts to avoid exacerbating providers’ financial problems.

The report highlighted the need for providers to collect and to share far better data on quality and costs to inform discussions with commissioners.

It said the lack of strong contracting skills in some commissioners also limited their ability to get best value.

NHS England and Monitor are already exploring options around multi-year budget allocations or greater flexibility around annual budgets to help commissioners take a longer term view. The two organisations are also looking at how standard contract sanctions and incentives could be redesigned.

The research has been used to inform the proposed tariff rules and guidance for 2014/15, which were due to be released for formal consultation after Healthcare Finance was published. 

Image removed.A new national tariff document, which moves away from the use of the ‘payment by results’ description, is clearly being positioned as a rule book for all contract activity, not just those with national prices.

Adrian Masters, managing director of sector development at Monitor, told Healthcare Finance that tariff development would be at a ‘manageable rate’.

However, he added that for incentives to be effective, the ‘influence of informal subsidies’ had to be addressed.