The Department of Health will postpone plans to introduce a new payment by results tariff next year if it cannot prevent it from financially destabilising specialist hospitals.

David Flory, director general of NHS finance, performance and operations, told HSJ: ‘It would be irresponsible of us to move to a new system if we did not understand it or if we didn’t understand why some of the changes in money flows happened.’

Checks on the new “HRG4” hospital tariff, which was supposed to better recompense hospitals that provide specialist treatments, found that it actually penalised them.

Asked if he was confident those problems would be ironed out by January, when the DH is due to publish the tariff ready for the financial year 2009-10, Mr Flory said: “I don’t have enough evidence yet to take a view on confidence. We continue to work it through the service and we are making progress.

“The aim is to have something that is well tested and well understood and implemented from next year; that is our objective.” A final decision on whether to go ahead will be announced in the operating framework, expected next week.

Delay welcomed

The department’s caution will be welcomed by NHS managers.

A spokesman for Great Ormond Street Hospital for Children trust said: “We would definitely prefer implementation to be delayed, based on the information currently available. We fully support the intentions of the new tariff but it hasn’t yet been developed to a point by which it recognises the additional cost of specialist care.”

The DH will be particularly concerned to avoid any unnecessary instability after the chancellor’s pre-Budget report last week earmarked the NHS for a share of£5bn of public spending cuts in 2010-11.

Cost cuts

Mr Flory said the DH had not yet agreed with the Treasury what the health service’s share would be or how it would be calculated.

If the£5bn was shared across government departments in the same way as previous efficiency targets, the health share would be£1.3bn, almost the same sum as will be left over if, as expected, the NHS is told to spend just£400m of its£1.7bn surplus next year.

Mr Flory said: “We are in dialogue with the strategic health authorities and NHS about what people are looking to draw down for next year. When that work is complete we will be able to set out our expectations about how much of the surplus will be drawn down.”


The limit on surplus spending will come as the health service prepares for much lower funding growth from 2011. The pre-Budget report said average growth across the public sector would be 1.2 per cent.

King’s Fund chief economist John Appleby warned: “That figure includes spending on social security and benefits, which will be very hard to manage in a recession, so the NHS’s share could actually be less.”

He said the health service could expect real terms growth of less than 1 per cent.

Once NHS-specific inflation was factored into that, the effect could be a resource cut. Some health service organisations are already facing financial difficulties. The six month financial figures for 2008-09 show that 11 organisations are forecasting they will overspend this year, compared with just four in July.

Under control

Mr Flory said he was “disappointed” but he was confident this would be brought back under control by the end of the financial year. One cause was the recent rise in GP referrals, he said.

The biggest deterioration was in London, where£20m has been knocked off the forecast surplus for the year. It is now£300m.

NHS London director of finance Paul Baumann said: “We saw a slight deterioration in the financial performance of a small number of trusts but this is to be expected as the demand and costs of treating patients tend to be higher during the autumn and winter months.”