Reports of tariff’s death are greatly exaggerated

Recent analysis has shown something that has been happening for some time: the move away from traditional activity based payment models. This isn’t unexpected. In fact, NHS England and NHS Improvement published a discussion paper four years ago, highlighting how evidence supported the need to reduce the dominance of fee for service in the NHS payment system.

It seems that many organisations are following the recommendations of the national bodies. They were encouraged to consider different ways of paying for services suited to patients in their patch. Not all of these seem to be in line with the directions of travel set out by the national bodies, yet they are designed to achieve the same purpose of better integrating care.

Some have concluded that this means the end of the national tariff and predicted that the system will now revert to widespread block contracting. This view is mistaken and there are three main reasons why tariff remains important in the future.

More than a price

Firstly, let’s make the meaning of tariff clear. Many see it only as the list of national prices for mostly hospital services, referred to as Payment by Results. This is, however, only one part of the NHS payment system and a more accurate understanding of tariff should include the full range of rules and guidance with which services are paid.

A more accurate understanding of tariff should include the full range of rules and guidance with which services are paid.

This includes setting the principles for any local deals and supporting the different approaches used in mental health and community services. There are also significant variations to national prices, whether to reflect best practice, marginal costs or local market forces.

The role of tariff is defined by the Health and Social Care Act (part 3, chapter 4). National bodies must publish a national tariff document to set out rules and prices of services provided for the NHS. However, the political uncertainty in Westminster might prevent any new legislation to change this any time soon.

Tariff essentials

Secondly, we shouldn’t assume most NHS organisations want to completely move away from national prices, which still account for the majority of money spent in the NHS. Many are frustrated with barriers from misaligned incentives, yet most of the irritation stems from the imposition of an efficiency factor that, in recent years, has reduced prices across the board. This has been necessary to make budgets balance for the purposes of cost containment, but isn’t something inherent to the tariff.

Preventing price competition has always been intrinsic to setting a national tariff. Establishing national prices, based at least nominally on average NHS costs, should inhibit a race to the bottom and stop providers cutting their price in order to attract new business. Instead, providers are theoretically incentivised to be efficient compared to the average, yet it is this aspect of the tariff that has been weakened most by cost containment.

The real challenge for the system is improving the clinical logic of the tariff, so that behaviour can better link to prices.

Block contracting is less precise and if employed too far can store up the risk that providers are left delivering services exceeding the price of a contract or perhaps worse being paid for services not being delivered.

The process for setting national prices has engaged many clinical and management stakeholders in the process. However, the last four years have been characterised by disagreement among commissioners and providers.

The real challenge for the system is improving the clinical logic of the tariff, so that behaviour can better link to prices. This means paying more for what we want and covering the real costs in delivering these services. It seems unrealistic to think this challenge would be best met by all prices being negotiated locally, which in some cases would seem inefficient.

Enablers on the way

Finally, another reason is to ensure we don’t lose progress in a number of initiatives linked to the tariff. For example, a lot of work is already underway to improve our understanding of NHS costs, with the introduction of what is known as patient level information and costing systems.

Moving to a granular understanding of what each patient costs would be a big enabler to transformation

For long, we’ve relied on data that uses wildly varying average reference costs. Moving to a granular understanding of what each patient costs would be a big enabler to transformation, providing important data to support procurement and to manage staff.

It’s driven though by the need for a better evidence base on which to set prices and rolling the strategy out to mental and community services could enable a better understanding of costs in these settings to support a shift to new models of care.

Keep calm and carry on

We pushed for a move to a multi year tariff because we believed it could unlock bolder reform about how services should be funded, as evidenced by local areas developing a multiplicity of approaches and this space has been created by not having to annually negotiate prices.

There are some services for which a national price makes sense and some in which it doesn’t.

Nonetheless, what works in one place will not always work in another. In particular, there are some services for which a national price makes sense and some in which it doesn’t. As long as the system remains flexible and responsive, it shouldn’t be an issue for different arrangements to be made within an all encompassing national tariff.