Last week Monitor and NHS England announced that, due to the number of objections raised against their proposals for the 2015/16 tariff, implementation of the new tariff would be delayed. Just over 1 in 10 clinical commissioning groups (CCGs) submitted an objection as did, by share of service, three quarters of relevant providers (or by number of providers, 37%). Two common provider concerns were: the level of efficiency savings required of providers (3.8%) and the proposals for a new marginal rate for specialised services.

According to the Health and Social Care Act, the next step would be a referral to the Competition and Markets Authority (CMA). Taking this step seems unlikely, and probably unwise. The underlying dispute is not the detail of the tariff-setting process, but the financial problems in the NHS.

In essence, the majority of providers cannot see how they will meet their service requirements for 2015/16, and balance their books with the proposed tariff and commissioning intentions. But equally, commissioners can’t see how to balance their books if activity trends continue to rise and the price paid doesn’t reduce. There simply isn’t enough money in the system for business as usual.

The tariff plans crystalise this problem but they didn’t create it, and nor will changes to the tariff solve the problem. As the Health Select Committee pointed out in several reports, tariff reduction is not an efficiency saving – it’s a system for determining where responsibility for efficiency savings lie. Actual savings only come from real changes in the volume and mix of care provided, and the cost of delivering that care (drugs, staff etc).

The most depressing thing about the debate on the tariff is seeing the NHS turning against itself. The only way out of the current dire financial situation is for commissioners and providers to come together, develop a shared plan to improve productivity across their community and agree how to manage risk. This probably won’t fully bridge the gap in 2015/16 – it is difficult to see how the system can get through without some further cash injection. But without the shared accountability for the financial challenge, system-wide deficits will grow, not reduce. This points to a fundamental fault-line in the current payment system; it’s too short term – annual price setting serves no-one and operates too much as a zero sum game, creating winners and losers. 

Alongside the proposals for the 2015/16 tariff in December, Monitor and NHS England also published their plans for the longer term development of the tariff. These included new ways of paying for urgent and emergency care, and ‘year of care’ payments for looking after patients with, for example, long-term conditions. The plans are very sensible and offer the prospect of a more coherent system which recognises the unique challenges in a public health system. But these changes probably can’t be delivered in full for at least five years. Over that same five years, the NHS will continue to experience unprecedented tight funding, even if the new government commits to the additional £8bn set out as the minimum required in the NHS Five year forward view.

Providers and commissioners therefore need to come together to agree how to manage risk and share responsibility for efficiency in the intervening period. The CMA can’t do this. The tariff is important but it should be the by-product of a shared programme of work on efficiency. The evidence on Payment by Results shows that these type of payment systems have an important role in improving transparency and accountability.

Evidence also shows us that payment systems may provide some incentive for improved productivity, but policy makers and others almost always over-estimate the positive power of payment reforms to improve health systems. At this point, we should probably carry on with the 2014/15 tariff and ask the service to focus on the underlying challenge of working together to manage demand and cost pressures across their health economy.  

Anita is Chief Economist at the Health Foundation

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