Private hospitals could see a steep cut in their income from NHS funded services under draft prices proposed for 2016-17, Monitor has warned.

  • Private providers and orthopaedic specialists could be among hardest hit by proposed changes to tariff prices
  • Draft relative prices for 2016-17 show steep cuts for orthopaedic services
  • Changes due partly to plan for a new tariff design would better reflect higher costs of complex patients

An impact assessment by the regulator of its early proposals for next year’s tariff says they would cut the nationally priced income of independent sector providers by 7 per cent. This would make private providers among the hardest hit by the proposals. For 90 per cent of NHS providers, the draft prices would change operating revenue by less than 2.5 per cent.

The projected impact on private providers is due to steep cuts in the draft prices for orthopaedic services, which make up a disproportionate amount of private hospitals’ income from NHS patients.

The three NHS trusts in England that specialise in orthopaedic services would be hit even harder by the draft price changes, with their revenue falling by more than 7 per cent, the Monitor paper adds.

The price and income shifts set out in the impact assessment are the result of two changes Monitor proposes to make to the tariff in 2016-17. The first is to use NHS reference costs data from 2013-14 – the most recent data available.

The basis for setting a tariff price is the average cost to NHS providers of delivering the service, but the reference cost data on which current prices are based comes from 2010-11 and 2011-12.

However, the bigger proposed change is a move to a long awaited new design for the tariff, called “HRG4+”, which is intended to more accurately reflect the higher costs of treating complex patients.

Work on the 2016-17 tariff is at an early stage, and the finally proposed prices may differ significantly from the draft prices. The Monitor impact assessment says the “large price changes in orthopaedics are similar to price changes we observed in our draft prices last year, but eventually decided not to implement due to stakeholder concerns”.

It continues: “Last year the expert working group that advises us on orthopaedics prices, and other stakeholders, did not think those draft prices accurately reflected the cost of these services. We are working to understand the underlying reasons for orthopaedics price changes, including considering whether further adjustments would be appropriate.”

David Hare, chief executive of the NHS Partners Network, which represents independent sector providers, told HSJ: “Our view is that nothing has changed since last year. There will still be question marks over the accuracy of those prices.

“When Monitor publish their final prices - either at the end of this year or early next year - we would hope that they would again be listening to feedback from the experts and ensure those prices are smoothed out, rather than seeing that degree of volatility in the prices.”

The pricing proposals published in the past week still leave some significant questions for NHS finance directors. In particular, the pricing authorities are waiting until the outcome of the autumn spending review before finalising their views on the “efficiency factor” that will be imposed on providers through the tariff.  

They have also yet to outline their proposals for the pricing of specialised services next year – an area of contention that figured prominently in the provider revolt over 2015-16 prices.