London teaching hospitals have turned down an offer from NHS England to pay just a quarter of their previous allocation for highly specialist treatments.

The £62m fund, known as “Project Diamond” by the London trusts, used to be provided by the Department of Health and covered the increased cost of highly specialist treatments.

However, the DH announced in June that it would no longer be funding the work because its approach to research and development across the NHS had to be “fair to all trusts across the country”.

The DH said that NHS England would now be responsible for providing “part of the funding” while it worked with Monitor to change the tariff for specialised services.

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Project Diamond funding was used to cover the increased costs of highly specialist treatments

Since June NHS England has been in discussion with trusts to negotiate how much of the funding it will continue to pay.

NHS England has offered the trusts 25 per cent of the allocation they received in 2013-14, which they have rejected.

Sir Robert Naylor, chief executive of University College London Hospitals Foundation Trust, is representing London chief executives in the Project Diamond discussions.

He told the trust’s February board meeting that the group of London trusts had recently been offered “approximately 25 per cent of last year’s allocation, which has been unanimously rejected by the trusts concerned”.

Sir Robert added that since the beginning of the financial year there had been “considerable difficulties” in identifying who is responsible for negotiations over the funding “in view of the separation of responsibilities between the Department of Health and NHS England”.

The trusts argued that the funding allocation is already factored into their budgets for 2014-15, and that some will be likely to fall into deficit if the funding is not forthcoming.

Sir Robert said: “The unresolved position with regard to Project Diamond in London and a similar situation in out of London teaching hospitals is likely to be a substantial contribution to the deteriorating financial situation for providers.”

The proposed tariff for 2015-16 had included a 50 per cent marginal rate for specialised services above the 2014-15 activity levels. The tariff was rejected by the sector.

HSJ revelead yesterday that the chief executives of Monitor and NHS England had written to all NHS providers to lay out details of a new tariff offer that trusts can sign up to on a “voluntary” basis for the coming financial year.

Under the voluntary tariff proposals, providers will be paid 70 per cent of normal rates for all specialist activity above 2014-15 levels. This change is understood to be worth up to £170m to providers of specialist care.

The combination of the proposed marginal tariff for specialised services and the loss of Project Diamond funding could force University College London to adopt a cost improvement programme of 9 per cent, Sir Robert said, before the new offer was made.

He said this is “more than double that achieved in recent years”. He added: “This position is clearly untenable and appears to be reflected across the major teaching hospitals both within and outside of London.”

Sixteen trusts received a share of the £62m fund in 2013-14.

London trusts describe their £50m share of the funding as Project Diamond. However, £12m of allocations were also given to six trusts outside of London including Newcastle upon Tyne Hospitals and University Hospitals Birmingham FTs.

NHS England declined to comment because negotiations are ongoing.