The Department of Health could be heading for a re-run of the chaos that saw the publication of the 2006-07 payment by results tariff just one week before the start of the financial year.

A draft tariff for 2009-10 is being road tested in secret in the West Midlands, but sources suggest it is so inaccurate it is causing trust income to fluctuate by up to 18 per cent.

The new draft, known as HRG4, introduces several hundred additional procedure codes in a bid to recognise the extra costs of specialist and teaching hospitals, which provide more complicated treatments.

But the results from the West Midlands trial have been described as "perverse": district general hospitals have gained while specialists have lost out.

A circular from the Foundation Trust Network last week said the introduction of the new tariff was "in jeopardy". Causes for concern included "growing lack of transparency in the tariff-setting process" and "lack of skills and experience in the DH's payment by results team".

Destabilising errors

NHS finance sources told HSJ the errors were so great they would be "destabilising" if implemented without correction. The tariff covers more than£22bn of hospital activity.

The DH had planned to publish the new tariff alongside the operating framework in October. But last week it said the tariff would not be available until 8 December. Finance directors think even this might not allow the DH time to correct and recheck problems uncovered in the West Midlands.

One source told HSJ it would be better if the DH postponed the new tariff for another year rather than "re-run the fiasco" of 2006-07.

The tariff for that year was first published at the end of January 2006 but then withdrawn as it contained "material errors". The corrected tariff was only published one week before the start of the new financial year, giving trusts and PCTs no time to plan for its impact.

An independent report for the DH by Harrogate and District foundation trust chief executive John Lawlor blamed the errors and chaos on the "seriously squeezed" time-scale for testing the tariff and "significant staff shortages, lack of experience and high turnover" in the DH team responsible - all concerns now highlighted again by the Foundation Trust Network.

Learning lessons

Network director Sue Slipman told HSJ: "We are nervous and apprehensive about the implementation of HRG4 and are concerned that the DH might not have learned the lessons from the Lawlor review.

"If there are problems then in order not to put vital service providers at risk there will have to be transition payments."

The next two years are set to be turbulent for teaching and specialist trusts with the start of a new tariff-based system for funding medical student places, and changes to research and development funding. Finance directors are talking of an impending "triple whammy hit", with London expecting to lose up to£450m a year.

A DH spokesperson said: "The actual prices that will form the basis of the HRG4 national tariff are still being finalised. The process involves a wide range of NHS stakeholders to ensure [it] continues to provide a transparent, rules-based system for payment for activity."

See DH faces turmoil over tariff regime