Monitor  published a discussion paper about its methodology for setting nationally determined prices for 2015/16.

The paper has three objectives:

  • To set the scene and highlight the decisions Monitor will need to make about how to set the tariff.
  • Get views on its proposals for the key decisions for 2015/16 national prices; these decisions are about currency design, the approach to modelling prices and the framework for setting the efficiency factor.
  • Collect evidence – this is an opportunity for the sector to provide views and supporting material on matters where we are currently constrained by a lack of evidence, in time for us to give them proper consideration in this review.

The Health Foundation’s response

In our response we look first at the role of the National Tariff Payment System in supporting efficiency improvement within the NHS in England. We then consider the price setting process before moving on to discuss the longer term case for reform of the system.

Setting the efficiency factor

The English National Tariff Payment System has an important role to play in shaping the incentives for providers of health care to deliver productivity gains and efficiency savings within the NHS. Part of this, is setting an efficiency factor which is applied to tariff. However, if prices are set too low there is a risk that providers will be unnecessarily destabilised, quality will be put at risk and genuine productivity improvements missed as providers seek to balance their budget with short-term cost cutting. We think it is important that when setting the efficiency factor for 2015/16, Monitor recognises the impact of Better Care Fund and considers how this will be managed.

Calculating national prices

Providers and commissioners require a stable and predictable financial environment so that they can plan ahead with confidence – uncertainty over prices militates against the delivery of productivity improvements and service innovation. The move to keep relative prices broadly stable for 2014/15, using the 2013/14 prices as the basis for setting the tariff, rather than new reference cost data was welcome in this respect. If there is to be a major reform of the system in 2016/17, we would strongly encourage Monitor and NHS England to begin preparing for this, and engage stakeholders, at the earliest possible stage.

The case for longer term reform

The consultation response also sets out a case for longer term reform. It is crucial in doing this work that there is long lead-in period for such reforms and early engagement with providers and commissioners so that they can plan accordingly and influence the shape of the reforms.