News / Monitor: funding stability and tariff key to fair playing field

By Steve Brown and Seamus Ward

More lengthy funding settlements for commissioners and less tariff volatility are the leading recommendations of Monitor’s fair playing field review, out last month.

A fair playing field for the benefit of patients, published at the end of March, recommends not extending corporation tax to NHS providers and suggests that ‘cherry picking’ of less complex care cases will be addressed by a more accurate tariff. It also identifies a major role for commissioners in ensuring equal access for all providers.

The 10-month review, which made 30 recommendations, was set up last May to identify the issues that disadvantaged different providers, whether from the NHS or the independent sector. Monitor said more than half the recommendations would help the voluntary sector, while others were aimed at helping both the public and private sectors in equal measure.

The review examined 19 distortions across three categories of issues that potentially had a significant impact on patients: participation, cost and flexibility distortions. In the participation category, which looked at barriers to providers, the review recommended that the NHS Commissioning Board (now NHS England) fix commissioners’ funding for longer than a year from April 2016, while Monitor should aim to reduce year-to-year tariff volatility. This would allow commissioners and providers to plan for the longer term and make strategic decisions.

The review also called for NHS England to encourage greater flexibilities on contract length. One-year contracts, while appropriate in some circumstances, can make it difficult for providers to raise capital and form partnerships. They could also indirectly raise costs – for example, the cost of rented accommodation.

It added that NHS England should accelerate the development of standardised currencies and better cost data in clinical areas where the lack of both is hindering the bundling or unbundling of contracts. This would support integration. Monitor should also publish by October a plan to improve cost collection in mental health and community services, as well as assessing the feasibility of patient-level costing for all acute care.

Perhaps more controversially, in the cost distortions category, the review recommended changes in the VAT regime. It said the government should review whether some public sector organisations should remain eligible for VAT refunds and should report on whether VAT be extended to some charitable NHS-funded healthcare providers by the 2014 Budget.

On corporation tax, Monitor said it found no ‘evidence of any impact on patients arising from differential liabilities’. There should be no change to the current regime.

Cherry picking or the treatment of patients with less complex needs for the same price would be addressed through the tariff, the review said. Monitor and NHS England now have responsibility for developing the national tariff and will work to improve future tariffs by more accurately reflecting true costs. In addition, commissioners are able to reduce the price paid to providers whose contracts exclude patients who are more expensive to treat. However, it accepted this flexibility is currently rarely used.

It recommended Monitor should set out a timetable by the end of this year for establishing more cost-reflective reimbursement of NHS-funded care. Commissioners should specify the casemix covered by contracts and reduce the price paid to reflect any exclusion criteria.

The review also recommended the Department of Health set out how it will implement a more risk-reflective cost of capital for public sector providers by April 2014.

In an immediate initial response, the Department said some recommendations, such as those on VAT and cost of capital, would ‘require further consideration over the next few years’.

Monitor chief executive David Bennett said all providers had advantages and disadvantages, but commissioners would be a key player in levelling the playing field.

‘A key conclusion of our review is that the extent to which patients get access to the best possible provider is often determined by how commissioners go about their job. As the role of commissioners changes, Monitor will support them to do the best job they can for the people who use the NHS,’ he said.

The report was welcomed generally. Foundation Trust Network chief executive Chris Hopson said it was ‘helpful’ with ‘sensible ideas’ and he backed longer term funding for commissioners and longer contracts. But he added: ‘We hope Monitor and NHS England note the clear statement that tariffs should reflect the costs of providing care. The 30% marginal tariff rate in emergency admissions is a very obvious example of where this principle needs to be quickly adopted.’

HFMA president Tony Whitfield said: ‘Better cost data is key to many of the recommendations around fair playing field. It should reduce tariff fluctuations and facilitate bundling and unbundling in contracts. And alongside a more granular currency, better cost data should mean more accurate prices that reflect the complexity of work undertaken, giving some protection against potential cherry picking. 

‘Better cost data will also help us to understand the true costs of emergency care and the intensity of resources needed to provide them reliably, seven days a week.

‘There is good work going on with costing – at Monitor and at the HFMA – and we need to build on this to ensure improvements are as rapid as possible.’