Published: 24/10/2002, Volume II2, No. 5828 Page 5

The proposed introduction of national tariffs has the potential to undermine the financial stability of trusts and primary care trusts, the NHS Confederation has warned.

Policy director Nigel Edwards warned that 'a very rapid move without arrangements for managing this would be disastrous'.

A briefing paper produced by the confederation argues that trusts providing care at rates significantly above the tariffs, should receive specific grants channelled through PCTs or direct to trusts themselves in a bid to smooth the transitions required.

Mr Edwards said the policy would only work if the reasons for cost differences between trusts were both understood and amenable to management action.

The Department of Health has acknowledged the concerns, stressing trusts and PCTs will be given time to bring down higher costs 'probably' through a threeyear transition period to a uniform price tariff starting from 2005-06.

The confederation is also concerned that tariffs could create perverse incentives. It claims the system of linking funds to activity 'incentivises' admission for conditions which 'can and should' be managed on an ambulatory basis.

'Payment and activity targets for conditions like asthma and heart failure will need to be capped and even have penalties for high rates of admission, ' its briefing paper says.

Several commentators said the new system will only work if the robustness of the quality of data around reference costs and the way activities are coded are improved.

Healthcare Financial Management Association chair John Flook said: 'We have got to move for April and there will be considerable pressure on finance and information staff to implement the changes needed and improve their accuracy - especially for health organisations that will have traditionally struggled to push costs down. I think the incentive is already there.'

With the removal of funding for trusts which fail to deliver the activity commissioned by PCTs, the DoH said the risks have to be managed carefully when service-level agreements are being drawn up.

'There is the likelihood of disputes when PCTs and trusts are negotiating over baseline activity levels, ' Mr Flook said. 'And I think... SHAs [will have to] deal effectively and quickly with them should there be any stand-off between the two.'

Though the system is designed to penalise financially providers who cannot provide care at, or below, tariff rates, he said trusts should be prevented from going to the wall by schemes like franchised management and the work of the Modernisation Agency.