Health and Social Care Bill

Debate between Lord Davies of Stamford and Baroness Thornton

Tuesday 6th March 2012 Lords Chamber

[Baroness Thornton]

My Lords, we now move on to pricing. We believe that setting the national tariff is a matter of policy and that it should be set by a Secretary of State, not Monitor. That is the main thrust of these amendments. Amendment 201A is about setting the national tariff as a matter of policy. Amendment 201B proposes that regulations to the national tariff must state how the prices and methods were determined, that any proposed change to the national tariff will be subject to proper evaluation and testing, and that there must be evidence of consultation between the Secretary of State and Monitor. Amendment 201C states that the national tariff should not be allowed to vary in relation to different descriptions of provider. Amendment 201D states that where a commissioner of a health service receives an offer from a service provider who is licensed by Monitor at a price below the national tariff—I am sorry; that is my noble friend’s amendment. I beg his pardon. Then there are a whole set of amendments which seek to delete clauses—Amendments 211A, 214A, 214B and 214C—because if the Secretary of State is setting the national tariff, these clauses are unnecessary.

At present, the national tariff is set by the Department of Health, often in ways that are mysterious, probably less than optimal and without sufficient consideration of unintended consequences, and often without enough testing. Nevertheless, we remain firmly of the view that price setting is such a fundamental part of the system that it has to remain the responsibility of the Secretary of State and the Department of Health. We do not have an answer as to why you would give such a potentially potent policy lever to the regulator. I should be grateful if the noble Earl could explain that. Why keep price control with Monitor? I should be interested to hear what he has to say. I am sure that we would all agree that the key point is that we get tariffs right. We therefore seek to insert the need for proper consultation and transparency in the tariff-setting process. I beg to move.

[Lord Davies of Stamford]

My Lords, I shall speak to Amendment 201D in my name. I tentatively proposed this in Committee as a probing amendment. I bring it forward now much more seriously because I have been reinforced in my belief that this is a necessary amendment by everything that has been said. My belief has also been reinforced by the support of a number of colleagues, including explicitly by my noble friend Lord Warner, to whom I am grateful.

It has been clear from our debates that the Government’s intention is that there should be two price regimes in the NHS—one for services for which there is no national tariff and one constituted by the national tariff itself. Services that are outside the national tariff will be contracted for on the basis of a tender offer and good value for the taxpayer or customer. I have no quarrel with that, and the Government have clearly stated that they intend to achieve contracts on the basis of the right reconciliation of quality and price. I argued in Committee—and I am sure that I was right —that that constitutes price competition. The Government do not like the phrase “price competition”, but I am not interested in semantics or the party-political reasons that may lie behind their semantic choices; I am interested in the reality, which is that commissioning services on that basis is entirely rational, and I have no quarrel with it.

The problem arises in relation to the national tariff. The Minister set out the position clearly in his response to me on 13 December. He said,

“we want a system of fixed prices”,

and then stated that,

“the tariff would not be a maximum price”.—[Official Report, 13/12/11; col. 1229.]

In other words, the tariff could not be varied either upwards or downwards; it would be an immutable price. I regard this as extraordinarily irrational and perverse, and I hope that I can persuade the Government to think again. It has at least four problems.

First, if there is an immutable price, you may not be able to pay for certain services that are required and are of the quality necessary for patient outcomes. The Government have recognised that point at least. Indeed, Clauses 124 and 125 appear to address that because they make it clear that there is scope for an agreement between a commissioner and a provider to be approved by Monitor at a price above the tariff. The wording in Clause 124(5) and Clause 125(3) is identical, except for the words “approve an agreement” and “may grant an application”, and states:

“Monitor may approve an agreement”—

or “grant an application”—

“only if, having applied the method under section 116(1)(d), it is satisfied that, without a modification to the price determined in accordance with the national tariff for that service, it would be uneconomic for the provider to provide the service for the purposes of the NHS”.

That makes it clear that it is possible for the commissioner to pay more than the tariff in those exceptional circumstances, with the consent of Monitor, and of course I approve of that, but it is not possible for the commissioner to approve less. That is an extraordinary state of affairs.

I can quite understand why the Government do not want to write into the Bill that it will not be possible for a commissioner to accept a lower price. That would not make the slightest sense. It would be all over the tabloids in headlines. Instead, it is disguised in the language of parliamentary drafting as being a power that would exist only if it was uneconomic for the provider to provide the service for the purposes of the NHS. You can never argue that it is uneconomic to provide a service at a higher price. The amendments provide only for the circumstance in which the commissioner finds it necessary to pay a higher price than the tariff to secure the patient services which the commissioner is procuring.

That is the only one of the four problems raised by that approach to a national tariff which the Government appear to have addressed. The second is that in many cases, it may be possible to provide the same quality of service at a lower price, but the Government are excluding, a priori, from the beginning, outright, in principle, any possibility of that happening. That makes no sense. We and the Government surely agree that the NHS budget will always be under great pressure, that there must be financial discipline in the NHS, and that when there are opportunities to secure the same quality at a lower price it should be the obligation of commissioners to achieve that. My amendment does not go so far as to create an obligation—I was more hesitant than that—but at least there must be the possibility for commissioners, if they see an opportunity, to procure that service at a lower price and save money for the benefit of patients and the National Health Service as a whole.

The third and fourth problems created by government policy in this area are perhaps a little more subtle. The third, which I mentioned in debate in Committee, is that if you deny the possibility of bids coming in at a lower price for any given service, you deny the possibility of ever investigating or having insight into the process of price formation in that sector of activity. You simply do not know to what extent the prices you are working on—the prices you are accepting—contain an unnecessary level of cost and overheads, or the extent to which you are not getting a good bargain. In my view, you should not be sleeping at night if you are a commissioner and you do not know how prices are formed, whether you could be getting a better price and, if so, what that better price would be.

The fourth problem created by the Government's approach to this up until now— I live in hope that they may change it in the light of this debate—is that it dampens or may even be fatal to innovation in this area of the National Health Service. I think we are all agreed in principle that we should encourage innovation, but there is no point in any prospective provider spending time and money on developing a better approach to solving a problem or a new technique for diagnostics, therapy or what have you, which has the same quality and outcomes, or even better, which could be delivered at a lower price, because the price is fixed. You can only come up with the same price because you are not allowed to be given a contract if you tender at a lower price. That makes no sense, so I must press the amendment again.

I emphasise, as I did in Committee, that the amendment is in no sense prescriptive. It does not force commissioners to take the lowest price. There might be an argument for forcing commissioners to take the lowest price where quality remains the same, but I have come up with a much weaker amendment. It is purely permissive. It provides for commissioners, where they wish to and where Monitor approves—so there is a double check, a double brake on the mechanism—to accept a lower price. It is extraordinary that they are not allowed to do something which all of us in every other field of economic activity would feel to be the rational thing to do.

My noble friends on the Front Bench have made the point several times that there are many situations in which it would not be sensible to take the lowest price in an NHS context. One of them I described in some detail in Committee, so I do not need to go over it too much tonight. There is no doubt that in any field of economic activity where overheads or fixed costs are a high proportion of the total costs there is a temptation or opportunity for predatory pricing. If the fixed costs are a very high proportion of the total costs, then anyone who has the capacity to make a one-off offer can come in with an offer which may be at a substantial premium to variable costs and therefore very attractive to him if he has spare capacity. It would be much lower than the full cost and therefore very tempting but it might be very dangerous for the customer—the commissioner in this case—to accept because it might undercut and perhaps destroy the capacity on which he relies on a long-term basis. Clearly, no one is going to provide services at below full cost on a long-term basis. Therefore, there is always a danger of predatory pricing in healthcare and we must be alert to it. There is no question about that.