The challenges in setting the national tariff for 2015/16

In this second blog we discuss some of the pressures that the NHS faces and how Monitor takes them into consideration when it sets the national tariff.

The NHS faces pressures from a number of sources. Costs are rising because of a combination of:

  • growing numbers of patients that need care
  • those patients often suffering from multiple conditions, affecting both their physical and mental health
  • the cost of meeting safer staffing requirements

At the same time, while the NHS has not been subject to the spending cuts applied to other public services since the financial crisis, its budget has only been increasing in line with inflation (economists call this flat in ‘real terms’) – making the cost pressures listed above harder to meet.

Together, these conflicting pressures result in an equation that cannot balance if funding stays flat and the NHS doesn’t change.

It's an equation that cannot balance if funding stays flat and the NHS doesn’t change. But the NHS is trying to move the equation back towards balance in three main ways: by doing the things it does at the moment more efficiently; by doing similar things in different ways; and by doing completely different things.

As far as doing similar things in different ways is concerned, there is a lot of agreement across the NHS about what could be done differently to meet the changing needs of patients better and more efficiently. For example, making sure patients with more than one condition have all their regular hospital check-ups on the same day, instead of spreading visits for each condition over several days, could save patients time and make their life a lot easier, and at the same time cut out a lot of cost.

Doing completely different things means designing new and better ways to care for patients efficiently, or introducing really successful designs from elsewhere (See the NHS five year forward view published this week).

Helping to bridge the funding gap

Although the national tariff cannot balance the equation completely by itself, there are ways it can help the sector bridge the gap between cost pressures and a flat budget in real terms.

Firstly, the national tariff can directly press providers to manage their costs, because it determines how much they are paid for the different services they perform. For example, in recent years, prices in the national tariff have been set below the average cost providers reported for these services. This policy was intended to encourage providers to deliver care more efficiently, in line with the challenge set out by former NHS England CEO Sir David Nicholson of finding 4% savings annually between 2010 and 2015.

Secondly, the national tariff can influence not just providers but also commissioners to behave differently. That’s because prices and payment approaches in the tariff (such as “pathways” that pay for the entire course of care a patient receives) inform commissioners’ decisions about what services to commission to meet the population’s needs. They can incentivise commissioners to seek new arrangements that get patients the care they need at better value.

Thirdly, the national tariff includes rules and principles that support commissioners and providers in working together to find new ways of delivering the care that the local population needs.

A careful balance

However, the national tariff must be carefully balanced to encourage these positive trends without adding unduly to the pressures the sector faces already. Providers’ finances have been deteriorating and they may not be able to achieve recurring annual efficiencies at levels they’ve achieved in the past. At the same time, commissioners will need to divert some of their budget to the Better Care Fund next year and there is uncertainty about what benefits would be realised through the Fund. Additionally, many providers and commissioners are still figuring out how best to work with each other; Monitor needs to be very mindful of the frontline realities when setting and enforcing the rules of the national tariff.

While it might seem that a lot of this is about money, it is really about how to provide the care patients expect from the NHS in the light of the very real challenges that the service is facing. All parts of the NHS – patients, providers, commissioners, clinicians, regulators such as Monitor and others – will need to work together to make the best of what is undoubtedly a challenging situation.

Next week’s blog will describe how Monitor engaged with the various players in the sector to inform the national tariff for 2015/16 and what we heard from them.

This entry was posted in developing the NHS payment system, finance, national tariff, NHS, patients, pricing development and tagged , , , , , , , , , , , , . Bookmark the permalink.

2 Responses to The challenges in setting the national tariff for 2015/16

  1. Out of curiosity – when might we say the 2015/16 consultation guidance be published please?

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    • Following extensive engagement with the sector through our Tariff Engagement Documents, we have received many helpful comments and inputs. We are taking the time to look very carefully at this feedback, so our proposals can reflect as well as possible what we have heard from the sector. We currently propose to publish the consultation notice later this month, and our aim remains to complete the consultation before the end of December.

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