National tariff signals start of new payment system

The publication, on the eve of the new financial year to which it will apply, comes after a second consultation made a small number of key changes to the way funding will flow to providers as part of new system arrangements.

The tariff documentation ushers in the new aligned payment and incentive scheme, which will apply to all contracts between members of the same integrated care system and to intra-system deals worth £30m or more.

Under API, providers will be paid a fixed sum to cover an agreed level of activity – including 104% of elective activity delivered in 2019/20 – taking account of any transformation plans. While the aim is for the fixed element to reflect the local cost of delivering the included services, initially it is likely to be based on the block payments paid in the second half of 2021/22. It will also include funding for best practice tariffs, CQUIN incentive payments and some high-cost items.

A variable element will then adjust this payment for under- or over-achievement of elective activity levels to support the elective recovery process. Following the second consultation on tariff plans, a marginal rate will be set at 75% of the national tariff or unit price for both over- and under-delivery. The variable element will also adjust for actual attainment of best practice tariffs and CQUIN metrics and the levels of advice and guidance given to primary care to help reduce outpatient appointments.

The national tariff also includes unit prices for interventions and treatment episodes – counted in a range of currencies including healthcare resource groups, outpatient attendances and contacts. While the mandatory national tariff is no longer the centre piece of the payment system, the unit prices will continue to be used both to inform the setting of the fixed element and in adjusting payments as part of the variable payment element. Sub-contracted activity to independent sector providers will also be paid using unit prices. They may also be used in contracts outside of API, where there are contracts between systems below the £30m threshold.

Tariff prices are based on cost data from 2018/19, which uses the HRG4+ phase 3 currency design. These costs are adjusted for inflation and efficiency, with a 2.8% inflation uplift used for 2022/23 alongside a 1.1% efficiency requirement. These adjustments take no account of Covid-19 related costs, with additional funding for Covid-related costs delivered outside of the payment system.

Systems have been reminded that, under the tariff rules, any alternations to the API arrangements need to be approved by NHS England and NHS Improvement and the locally determined prices template has been updated to enable this to be used for applications. This might include changing the variable rate used for elective activity.

The HFMA has broadly backed the move to API as a way of building on the system working that developed during the Covid-19 response. However, in its response to the re-consultation on the tariff at the end of February, the association raised some concerns about the decision to harmonise the marginal rate used in the variable element for under- and over-activity – the original plan had proposed a lower marginal rate for underperformance. Although the HFMA acknowledged the logic in this step, it said that finance practitioners were concerned that the payment approach was beginning to resemble the former payment by results (PbR) system.

‘Providers have suggested that this potentially puts more financial risk on them and there are also concerns about the continued level of counting and monitoring involved in a system that was supposed to be stepping away from so much bureaucracy,’ said Sarah Day (pictured), HFMA policy and research manager. She added that while the starting point of using 2021/22 block contracts for contract values made sense, the fixed payment must over time move to reflect local costs of delivery for a realistic, agreed level of activity informed by robust local cost data.