HSJ EXCLUSIVE Government reverses decision to cap allocations under payment by results

Published: 18/08/2005, Volume II5, No. 5969 Page 7

The Department of Health has reversed its decision to cap expected allocations for 34 primary care trusts due to face the largest losses under payment by results. As a result those PCTs have been ordered to pay outstanding bills.

PCTs that purchase elective procedures from trusts whose reference costs were more than 20 per cent lower than the national PbR tariff will now receive full funding to cover their cost hike.

DoH finance director Richard Douglas wrote to strategic health authority chief executives and finance directors and foundation trust finance directors last week to tell them he had reversed his February decision to cap extra funding to affected PCTs.

The decision follows extensive lobbying by SHAs, foundation trusts, foundation trust regulator Monitor and the NHS Confederation. A decision by at least one PCT to 'pass on' its debt to hospital trusts by withholding payments representing the extra costs is also likely to have been taken into account.

The DoH decided in January to delay full roll-out of PbR to emergency and unscheduled care until 2006-07 because it could not balance the books by some£1.5m.

However, the service still faced a£637m cash shortfall this year as the amount of elective activity priced higher than the national tariff outweighed the work priced below it. In February the DoH agreed to meet the bulk of the gap via extra central funding for PCT allocations, but a£73m shortfall remained which Mr Douglas said could not be covered by the DoH due to 'pressure on national budgets'.

It emerged that 34 PCTs were to bear the brunt of the shortfall after Mr Douglas decided to cap PCTs' compensation for trust price hikes under the tariff at 20 per cent.

And it soon became clear that a handful of PCTs would sustain large losses. London's Southwark PCT was the worst hit - it suffered a£4.5m hole in its allocations due to the cap. According to its finance director, Malcolm Hines, this was 'purely because' of the trusts from which it has to buy the bulk of its acute activity.

'Two thirds of our acute budget is spent at a foundation trust, Guy's and St Thomas', and PbR early implementer trust King's College Hospital trust - That is£150m a year spend. The combined effect was sufficient to push us over the 20 per cent cap limit imposed as both trusts' reference costs were sufficiently below the national tariff, ' Mr Hines explained.

He said if the cap had not been removed, the PCT would have passed on its loss to the trusts. He added that other PCTs were considering similar action.

'If the cap had been upheld, then we would have charged our loss of income against the trusts' gains in transitional funding... A similar policy was being considered across other London SHAs.' Acute trusts with lower prices than the tariff receive transitional funding over four years until they hit tariff rates.

South West Peninsula SHA had also been disproportionately hit, with East Devon and Mid Devon PCTs losing out by a total of over£5.5m.

However, East Devon PCT deputy finance director Mark NevilleSmith said the trust did not withhold payments 'because we wouldn't let services for our patients suffer because of an arbitrary decision to cap our allocations', but instead informed the DoH it would not achieve financial balance because of the cap.

Mr Douglas's letter says no further adjustments will be made to help trusts or PCTs through the transition to the tariff, and orders invoice backlogs to be 'actioned immediately'.

'Managing local cash pressures by shifting the problem to the Department [of Health] or other NHS bodies will not help, ' he warned.