NHS hospitals face a limit on the number of patients they will be paid to treat next year, HSJ has learned.

The Department of Health is considering capping the number of patients each hospital trust will be paid in full for treating. Patients over the threshold will be paid for at “marginal cost” - for example, at just half the standard tariff price.

The key thing people are grappling with is how you give more strength to the commissioning side without allowing commissioners to absent themselves from demand management

HSJ understands the department is also looking to make any increase in the tariff contingent on meeting quality and innovation (CQUIN) targets, rather than simply increasing the baseline as it has done in previous years.

The volume caps are likely to be set at the number of patients the trust treated this year or last. They will mean that although the DH might report a “headline” increase to the tariff of around 1.2 per cent, acute providers could face cash cuts in the average income they receive for each patient.

The move would respond to concerns that any attempt to simply cut tariff prices will be met by a surge in acute activity because primary care trusts have had little success in stemming the increase in the volume of patients treated in hospitals.

A source close to the discussions told HSJ: “The key thing people are grappling with is how you give more strength to the commissioning side without allowing commissioners to absent themselves from demand management.”

Audit Commission head of health Andy McKeon said research it is due to publish later this year would show acute

trust income had risen in line with the increase in financial allocations to PCTs, suggesting very little had been left over to invest in alternative forms of care.

He said: “In setting the tariff you have to take account of the likely growth of activity in the coming year. In 2008-09 the tariff rose by 2.2 per cent, but trust income rose by around 6.5 per cent, which was exactly what PCTs had extra to spend.”

The changes to the tariff are being considered as Monitor this week issued a fresh warning that a number of foundation trusts still had “an unrealistic view as to the extent of the risk and challenges they face”.

Earlier this year Monitor asked foundation trusts to revise their “downside scenarios” in light of the deterioration in the public finances.

In numbers

1.7% -Baseline increase to the tariff, 2009-10

0.5% - Extra tariff increases in 2009-10, contingent on meeting CQUIN

0% - Proposed increase in the baseline for 2010-11

1.2% - Proposed extra tariff increases for 2010-11, contingent on CQUIN

50% -Proposed “marginal” price trusts will be able to earn on patient volumes over the cap

In a memo issued to foundation trust chief executives, finance directors and chairs this week the regulator said a number of foundations were still “viewing increased activity and payment for this activity as a route to financial mitigation”.

Some of the downside scenarios presented to Monitor show foundations running up deficits as their income stagnates.

For example, East Kent Hospitals University Foundation Trust’s draft downside scenario - unusually published in its board documents - shows it expects a surplus of £9.6m next year if its income increases by 1.2 per cent. That will reduce to £9.4m if its income freezes. If that freeze continues for another two years, the foundation expects to have a deficit equivalent to 1 per cent of its income by 2012-12, which will double the following year.

A sample of draft downside scenarios seen by HSJ shows that even on assumptions Monitor may consider “over-optimistic”, most foundations are planning significant cuts in their costs and staffing levels over the next three years.

The trusts’ cost improvement programmes are aiming to shave 5-8 per cent off costs every year for the next three to four years - with the aim of saving the £15bn-£20bn the DH has called for up to 2014.

At each organisation chief executives and finance directors have told HSJ around two thirds of this will need to come from pay and a reduction in staffing levels.

NHS hospitals are hoping the bulk of the required headcount reduction will come from natural turnover and recruitment freezes.

But some are preparing to announce voluntary redundancy schemes and to opt out of national pay deals and frameworks.

HSJ understands that strategic health authorities are examining the viability of “clearing houses” for NHS staff who have been laid off by hospitals but could be redeployed elsewhere - for example in community services - with the aim of avoiding staff being made redundant, only to be re-employed elsewhere.

NHS Confederation policy director Nigel Edwards said such clearing houses - which would need to pool or centrally fund the cost of payment protection and retraining - would ideally cover other public sector employers. That would be difficult because of the range of terms, conditions and pension rights that would need to be accommodated.

Tariff cap may limit some trusts’ ability to survive the recession