Market forces factor revisions considered

by Steve Brown

14 May 2020

NHS England and NHS Improvement have started to think about how the market forces factor could be revised in future to better reflect unavoidable cost differences between healthcare providers.

The MFF is used to adjust allocations to commissioners in proportion to these cost differences. In theory, this means local areas can commission the same level of care regardless of unavoidable costs incurred by providers, including those related to land, buildings and staff. The index is also used in the national tariff to adjust prices paid to local trusts.MFF.image l

Changes were introduced in 2019/20 to refresh the data used – the first refresh in 10 years – and to introduce a number of changes to the way the calculation is made. There was concern at the time that introducing the revised MFF could lead to significant step changes in target allocations and prices. To counter this, the changes are being phased in using a five-year glide path with 2020/21 being the second year in this glide path.

However, NHS England and NHS Improvement are already thinking about further revisions. It has conducted a short survey of members of its Payment Systems Advisory Group, which includes HFMA representation, seeking views on how frequently the data used within the MFF calculation should be refreshed. It is keen to find the right balance between stability to enhance planning and reflecting the most recent data on organisations’ cost bases.

While the survey offered a range of options from annual refreshes to a refresh once every five years, some practitioners think any refresh should be aligned with tariff cycles, with tariffs increasingly set for more than a single year. The survey also sought views on the glide path that should be used if a revised MFF was introduced.

There are also some specific issues that the two bodies are keen to consider including how land value is reflected in the MFF calculation. The MFF is supposed to reflect the fact that it can cost trusts more to acquire land in certain areas, which will in turn incur higher capital charges. However, with different valuation approaches used across the country, including modern equivalent value approaches, the values of land reported in trusts’ books may not always be indicative of the costs they currently face in delivering services.

The survey sought views on whether changes are needed. And if they are, would it be better to remove the land index altogether, to replace it with a different index that does not use trusts’ own reported data, or to use a different approach?

The group has also been asked for views on possible changes to the MFF to reflect differences in organisations’ costs due to outsourcing of facilities management costs. This can have a different impact depending on whether the services outsourced are delivered onsite – using staff from the local employment market – or delivered remotely.

Again, NHS England and NHS Improvement are keen to understand the relative benefits between making no adjustment, making a rough estimate and collecting a new more detailed dataset from all trusts.