NHS pricing authorities will require all providers to deliver another 3.8 per cent in efficiency savings next year, while tweaking the controversial “marginal rate” for emergency admissions to ease the financial strain on smaller hospitals, HSJ can reveal.

Under the marginal rate rule, hospitals are paid just 30 per cent of normal prices for all emergency admissions above 2008-09 levels. However, the national NHS “tariff” for the coming financial year, which will be put out to consultation by Monitor and NHS England later this afternoon, proposes to increase this rate to 50 per cent.

A consultation document seen by HSJ suggests that this will “help to address some of the financial challenges for smaller hospitals where emergency admissions are a significant share of their activity”.

Meanwhile, the tariff will also introduce a new marginal rate rule that requires all growth in “off-tariff” specialised services above “an agreed base level” to be reimbursed at just 50 per cent of normal rates. HSJ understands that the proposed baseline will be predicted levels of activity for the current financial year.

The document says the health service “faces a series of major challenges to address” in the coming year, including expenditure on specialist services, which was “significantly over budget for 2013-14 and is currently growing at an unsustainable rate”.

Hospital sign

A new marginal rate rule would aim to address some of the financial challenges facing smaller hospitals

“The relatively rapid rate of activity and cost growth in acute services without national prices, particularly specialised services, has led us to introduce a new national variation and local price setting rule to the effect that the risks associated with expenditure above an agreed base level are shared equally between providers and commissioners,” it continues.

“This rule has been designed to encourage commissioners and providers to work together to ensure that activity growth represents good value.”

The challenge of rising demand is compounded by “an NHS settlement that contains only a small real terms increase, following several years of low growth in funding” and “upward cost pressures, particularly relating to staffing”, the consultation adds.

While the 3.8 per cent savings target is fractionally lower than the 4 per cent annual savings targets that have been applied to prices in recent years, the consultation acknowledges that it is a “challenging target”.

However, it adds that “our analysis – based on data from acute providers – indicates it is appropriate”.

“This reflects our expectation that 2015-16 will require a further exceptional effort from all parts of the sector, to respond to the financial challenge,” it states.

NHS England chief executive Simon Stevens last week told the Commons public accounts committee that the payment system would be “rebalanced” to help smaller trusts.

The NHS Five Year Forward View, published last month, said “the latest quarterly figures show that larger foundationtrusts had EBITDA margins of 5 per cent compared to -0.4 per cent for smaller providers”.

The proposed change to the marginal rate for emergency admissions is a move towards addressing this disparity, as non-elective admissions typically comprise a larger proportion of income for small district general hospitals than they do for large teaching hospitals.

However, it is unlikely to end the clamour for further reform of the controversial rule.

A recent report by the National Audit office noted that between the introduction of the rule and late-2013, emergency admissions had increased in 62 per cent of trusts.

It added: “Case study trusts told us that demand is increasing, and it is not always possible to discharge patients into the community in a timely way.

“All the acute trusts we spoke to told us that payment for emergency admissions did not meet their costs. In practice, payment at the marginal rate may not give commissioners strong enough incentives to make alternative community care available.”