Commissioners may be given a “financial incentive” not to designate large numbers of NHS services for extra regulatory protection, future sector regulator Monitor has suggested.

Under the government’s health reforms, commissioners will be able to single out local services that would need to be protected in the event that their provider got into financial difficulties.

Providers of “commissioner requested services” will be subject to tougher licencing conditions. If one becomes insolvent, a “special administrator” will be appointed to run the services temporarily, while establishing a long-term solution to keep them going.

Monitor’s consultation on provider licencing, published today, states that it is “considering the case for providing some form of financial incentive for commissioners to designate services as CRS only where necessary”.

One option for doing this would be to levy higher “risk pool” charges on those commissioners who designate more services as CRS, it explains. Monitor plans to require all commissioners and CRS providers to pay annually into a risk pool, which would fund the costs of maintaining services if a provider failed financially.

“Our intention is to design the levy on providers and on commissioners to reflect the underlying risks that they pose to the system,” the consultation states.

“For example, it might be reasonable to have a higher levy on commissioners that have designated a higher volume of services as CRS, as they may be more likely to call on risk pool funds.

“Similarly, it might be reasonable to have a higher levy on those providers that are perceived to be more likely to enter financial distress, as they are more likely to impose a cost on the risk pool.”

An “attraction” of this approach is that it would encourage commissioners “where possible to reduce their reliance on single providers”, it adds.

Asked if this approach risked placing additional strain on providers that were already financially struggling, Monitor chairman and interim chief executive David Bennett said: “It’s always the case where you have any form of insurance – which is in effect what this is – that you face that challenge: those who have to pay the highest insurance premium may sometimes be the ones who can least afford it.”

Monitor would want to consider what “degree of risk premium” it should include in the levy, he suggested. The regulator wanted to “reward those who have not got into a risky position”, but it did not want to “create regulatory-induced failure”.

The regulator will consult on its risk pool charging “methodology” later this year, the licencing consultation states. It adds that secondary legislation is needed to require commissioners to pay into the risk pool, and this will be subject to a separate Department of Health consultation.

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