NHS England has warned that some of Monitor’s proposals for securing fairer competition between NHS and independent sector providers could “put the continuation of certain services at risk”.

The warning came in NHS England’s response – released this afternoon – to the regulator’s review of potential barriers to a “fair playing field” for all would-be providers of publicly funded healthcare.

Monitor’s fair playing field review, published in March, concluded that NHS providers’ ability to claim back VAT on outsourced services gave them a “cost advantage”, allowing them to offer services at lower cost than they would otherwise have faced.

It also noted that NHS providers were all largely able to borrow from government at the same rates, regardless of how much risk an individual provider was carrying, whereas lending to private or voluntary sector providers “regularly varies according to their level of risk”.

The regulator called on the Department of Health to “review whether certain public sector providers remain eligible for VAT refunds”, and to “publish how and when it will implement a risk-reflective cost of capital for public sector providers, by April 2014”.

However, NHS England policy director Bill McCarthy has warned that these two recommendations could increase price volatility for NHS care, and put some services at risk.

In a letter to Adrian Masters, Monitor’s managing director of sector development, Mr McCarthy wrote that “the full consequences of a shift in system costs between providers and commissioners would have to be reflected in tariff and other funding calculations”.

He continued: “The impact of this would be to increase tariff variability… and potentially put the continuation of certain services at risk.”

Mr McCarthy argued that the overriding consideration for any action taken in response to the review should be the need to maintain overall levels of spending on patient care, adding: “We would therefore be unable to support any measures that would increase financial instability and risk increasing the overall cost of healthcare.”

He suggested that it would be essential to assess and fully understand the potential impact on the health system before any changes were made to the VAT or cost of capital regimes, to “ensure that there is no deleterious impact on patient outcomes”.

Mr McCarthy added that NHS England also had “serious reservations” about Monitor’s call for a DH sponsored review of the effectiveness of NHS commissioning, to be started by April next year.

He wrote: “We have serious reservations… about the proposed timetable in your recommendation which would not allow the new commissioning system to bed down before reviewing its performance. It would be premature to conduct such a wide-ranging review before the new organisations have been able to demonstrate their capabilities.”

NHS England felt it would not be a reasonable expectation to start such a review before autumn 2015, he added.