The payment by results tariff system could tip England’s elite teaching hospitals into deficit and damage the country’s medical research industry, their chief executives have warned.

The Shelford Group, which represents 10 of the most prestigious English teaching hospital trusts, with a combined turnover in excess of £7bn, told HSJ that the failure of the payment system to take into account the complexity of care they provide would have serious consequences in coming years. The group warned that damage to its trusts’ finances would undermine their ability to work with industry on new treatments.

Cambridge University Hospitals Foundation Trust chief executive Gareth Goodier said the group, named after his village home in health secretary Andrew Lansley’s constituency, had formed last October.

One member, Imperial College Healthcare Trust in London, has run into serious financial problems and is predicting a £30m deficit this year.

Asked if the other nine trusts could find themselves pushed into the same position as Imperial, Dr Goodier said: “The Shelford Group feels that in time we will all be in trouble unless the tariff is fixed, once and for all.

“There is a big question mark over the healthcare resource group system and its level of specificity that needs to be addressed nationally.”

Shelford Group chief executives

  • Sir Ron Kerr, Guy’s and St Thomas’ Foundation Trust
  • Gareth Goodier, Cambridge University Hospitals Foundation Trust
  • Tim Smart, King’s College Hospital Foundation Trust
  • Mark Davies, Imperial College Healthcare Trust
  • Sir Andrew Cash, Sheffield Teaching Hospitals Foundation Trust
  • Julie Moore, University Hospitals Birmingham Foundation Trust
  • Sir Jonathan Michael, Oxford Radcliffe Hospitals Foundation Trust
  • Sir Robert Naylor, University College London Hospitals Foundation Trust
  • Sir Leonard Fenwick, Newcastle upon Tyne Hospitals Foundation Trust
  • Mike Deegan, Central Manchester University Hospitals Foundation Trust

By establishing the tariff as an average price across England, the system favours those providing less complex treatments, he said.

This is despite some attempts by the Department of Health to rectify the problem through the currency underpinning the tariff or via “top-ups” paid for specialist services, such as spinal surgery.

Dr Goodier pointed to one example from his trust where a leukaemia procedure is paid at less than a sixth of what he believes it should be.

He described the levelling effect of the tariff on Shelford Group trusts. “There is a risk that we develop a very cheap healthcare system, but we lose the biopharmaceutical industry,” Dr Goodier explained.

“Unless the tariff is reviewed for the large academic centres the biopharmaceutical industry will suffer, because those hospitals are suffering. We have appealed to the Department of Health and they don’t seem to understand it as we understand it.”

Sir Leonard Fenwick, chief executive of Newcastle upon Tyne Hospitals Foundation Trust, said there was “every risk” that England’s global position in medical research and innovation “will fall away” if the tariff position was not changed.

He told HSJ this could happen during the course of NHS chief executive Sir David Nicholson’s efficiency drive, which aims to make £20bn of savings by the end of 2014-15.

He said: “Public expectation is that centres of excellence are supported and acknowledged. We are anxious that there is a fixation on redistribution and dumbing down. We do sign up for the tariff, providing the complexity of the caseload is acknowledged. Does the NHS in England strive for excellence or a level playing field?

“The archetypal teaching hospital in London and elsewhere has been looked on with suspicion for many years.”

Dr Goodier said that with flat budgets planned until at least 2015, a “disproportionate” amount of quality, innovation, productivity and prevention savings had been “shoved into hospitals”.

He told HSJ that in the absence of more money, dealing with the problem meant “a redistribution within the NHS budget”. There were two ways of doing this, he said: relatively small adjustments of payment around case-mix complexity or “getting into the issues around productivity in the community sector”.

Dr Goodier said: “What I get anxious about is the large part of the spend in the community where there is still no service level reporting, no business intelligence. It worries me that we are changing pathways based on very poor evidence. It is an article of faith that it is cheaper in the community.

“[Tesco proved] it is cheaper to run supermarkets than cornershops. I believe in care closer to home but in times of austerity it’s important to know the business principles and cost effectiveness of decisions you make.”

With budgets decreasing, Dr Goodier also said some hospitals “should not be in the training game”. He said: “We need to have an academic system where district general hospitals are allied to trusts like Cambridge but some should be considered to be service hospitals [alone].”

A DH spokeswoman said in many cases there already were separate prices for procedures, which reflected complications or co-morbidities. The extra costs of specialised activity were recognised through “top-up” payments.