Monitor has signalled the end of block contracts currently used to fund NHS mental health providers as part of a major shake up of the national payment system due to be introduced next year.

In a pre-consultation paper on the national tariff for 2015-16 - released today - the regulator said it wants the mental health clustering system to become the main driver of prices.

It has also proposed developing a new set of mental health “currencies” as part of any future payment system.

The pre-consultation paper stated: “We expect providers and commissioners to use the adult mental health cluster currency for payment, unless they develop an alternative approach in accordance with the applicable rules, and to submit reference costs data based on the clusters.”

Mental health service payments should be transparent and in the best interests of patients, it added.

“We do not believe this can be done through simple block contracts,” the paper said.

“We propose to confirm existing rules for determining local prices for mental health services, including the requirement to report on the basis of care clusters.

“We will also develop supplementary guidance to help providers and commissioners move to payment models that better support the above expectations.”

Currently, mental health providers use 21 care clusters to categorise patients according to the severity of their condition and the services they might need.

These are used to set prices and feed into the minimum mental health dataset designed to underpin a national payment system.

The paper provided a clear indication of the direction Monitor wants to see the mental health sector take, and follows years of delay and doubt over the development of payment by results for mental health services.

The development of such a system has been beset by delays and fears over the quality of the data.

The Royal College of Psychiatrists has questioned the evidence base for clusters, saying the system had yet to demonstrate it was “reliable or valid”.

Care minister Norman Lamb said: “These proposals show encouraging progress towards payment systems for mental health that reward great results for patients and ensure mental health is treated equally to physical health.

“This will drive up standards in mental health by making sure the money goes where it is needed to give patients the best possible care.”

According to the pre-consultation paper, Monitor and NHS England are also due to ditch the controversial differential tariff deflator for mental health, which effectively cut mental health budgets by 20 per cent more than the acute sector in 2014-15.

Monitor is now proposing setting a single efficiency factor across all healthcare sectors, ranging from 3 to 5 per cent.

This will be based on acute prices because Monitor said current data does not allow it to estimate differences “with sufficient accuracy”.

The regulator said it would “engage with the sector” and produce guidance to help ensure local prices reflect costs, promote improvements and balance financial risk between providers and commissioners.

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