National Health Service (Licensing and Pricing) (Amendment) Regulations 2015

Lord Prior of Brampton Excerpts

Tuesday 1st December 2015 Lords Chamber

Moved by

[Lord Prior of Brampton]

That the draft Regulations laid before the House on 2 November be approved.

Relevant documents: 9th Report from the Joint Committee on Statutory Instruments, 14th Report from the Secondary Legislation Scrutiny Committee

[The Parliamentary Under-Secretary of State, Department of Health (Lord Prior of Brampton) (Con)]

My Lords, I am grateful to the noble Lord, Lord Hunt, for his interest in this matter, and I know he has great knowledge through his work at the NHS Confederation, in healthcare and as a Minister. Naturally, I am disappointed to understand from his amendment that he feels that the draft regulations are fundamentally unfair and in contradiction to the assurances given by my predecessor, my noble friend Lord Howe. I will take this opportunity today to reassure him—I hope—and wider stakeholders that this is not the case.

I want to begin by giving some context to the regulations. They seek to rebalance the objection mechanism that exists within the statutory processes of setting the national tariff for healthcare services. They increase the objection percentages for clinical commissioning groups and relevant providers of services. They will also remove the prescribed objection percentage for providers weighted according to their share of the supply in England of such services as may be prescribed.

Everyone knows the scale of the financial challenge facing the NHS. That is why the Government have committed to investing £10 billion by 2020-21 to fund the NHS’s own plan for the future, with £6 billion frontloaded in the first two years of the six-year period.

Along with the implementation of a range of provider support measures we have available, this will help to ensure the health and care system remains on a sustainable footing over the longer term. But as Simon Stevens made clear in the Five Year Forward View, the NHS must play its part in delivering these efficiencies.

Delivering a financially stable NHS is a key priority for the new chief executive of NHS Improvement, Jim Mackey, working closely with the department and NHS England to support the system at a local level to deliver the transformational changes needed to drive efficiencies.

Nevertheless, we do not underestimate the challenges facing the system from an increasingly ageing population with more complex needs, which I am sure all noble Lords are aware of. This is why we support the ambition of the Five Year Forward View set out by NHS England to ensure we protect the model of universal coverage free at the point of delivery for future generations.

But to realise this vision, we need to support the whole health system. This will not be easy, but this principle lies at the heart of the regulations, which we believe will ensure sufficient stability and timeliness in publication of the national tariff but also ensure that as much as possible of the additional funding that this Government have provided for the NHS reaches patient services, rather than being tied up in processes or reinforcing acknowledged barriers to transforming health and care.

Let me give noble Lords some background to the regulation—where this refers to statutory duties, I will use the name Monitor rather than NHS Improvement. The Health and Social Care Act 2012 introduced a new independent, transparent and fair pricing system that requires Monitor and NHS England to collaborate to set prices and further develop new payment models across different services. The intention of this system was to create a more stable, predictable environment, allowing providers and commissioners to invest in technology and innovative service models to improve patient care.

Monitor has the specific duty of promoting healthcare services that represent value for money and maintain or improve quality. It achieves this by working with NHS England to regulate prices and establish rules for local pricing and flexibilities. NHS England defines the “units of service” for which prices or rules will be specified. Units of service include, for example, the pregnancy-related services that a woman may need through antenatal, delivery and postnatal care, with levels of payment aligned to clinical factors—often complexity. At all stages, Monitor and NHS England have to agree elements of the tariff with each other.

The Act also includes a statutory basis for providers and commissioners to raise formal objections to the methodology that Monitor proposes for calculating national prices rather than the price itself. It is vital that tariff proposals reflect wider views across the sector but, as NHS providers acknowledge:

“The ultimate responsibility for setting NHS tariffs must lie with Monitor … and NHS England as the statutory price-setting bodies”.

Following comprehensive engagement with commissioners and providers, Monitor is required to publish a final draft of the national tariff and allow 28 days for commissioners and providers to consider the proposals. Commissioners and providers may formally object to the proposed methodology for calculating tariff prices for specified services. This draft instrument seeks to amend regulations made in 2013. Those regulations exercise a duty to prescribe two objection thresholds and a power to prescribe a third. Thus, under the current rules, Monitor will calculate the following after the consultation: the percentage of commissioners objecting; the percentage of providers objecting; and the percentage share of supply held by the objecting providers, which allows the objections of providers to be weighted proportionate to the nationally-priced services.

Each threshold is currently set at 51%. If any of these are met, the unexpired tariff remains in force. Monitor cannot publish the national tariff and has to either put forward alternative proposals and publish them for consultation, or refer the method and the objections received to the Competition and Markets Authority.

I shall now explain the outcome of the two tariff processes that took place in 2014-15 and 2015-16 under these new arrangements. No objection threshold was met when the first proposed national tariff was consulted on in 2014-15 and the tariff was published on time. For 2015-16, the objection tariff mechanism was triggered as the share of supply objection threshold was met as 73.7% of providers by share of supply objected. As a result, the unexpired 2014-15 tariff remained in place.

A key motivation for providers’ objections to the tariff proposals was the efficiency requirement of 3.8%. A further significant trigger for formal objections related to a variation to the payment of national prices for specialised services rather than the underlying method for the price, which is the only ground on which objections can be made. As a result of the objection mechanism being triggered, the 2015-16 tariff was not published and the unexpired 2014-15 tariff remained in place at a potential considerable cost to the health service.

Following further engagement, a large majority of providers agreed a local variation to the 2014-15 tariff prices while a minority have continued to be paid the unvaried 2014-15 tariff prices. Overall for 2015-16, this has meant an additional cost pressure estimated at £0.5 billion. We cannot afford this and any repetition would ultimately affect patient care and prevent crucial investment in front-line care. This cannot be right. It would also distract the system from implementing the five-year forward view which would place the NHS on a sustainable footing.

The objection mechanism is intended to be a process that is triggered in exceptional circumstances. When the thresholds were prescribed in 2013, it was made clear in the Explanatory Memorandum:

“The Department also intends to review the objections thresholds in due course once the new system beds down”.

The circumstance that national prices in the tariff are set predominantly for acute care rather than mental health and community services means that objections from acute providers then carry most weight in calculations against the share of supply threshold. While the larger acute providers have perhaps exercised their own role in using the objection mechanism in a broadly reasonable manner, the share of supply mechanism cannot fairly reflect the balance of wider interests across the healthcare sector. This should not be read as the Government placing less value on the crucial role played by the acute sector, but as a greater emphasis on the interests of the NHS as a whole. Indeed, we welcome the role that the acute sector is playing in new collaborative roles within its health economies.

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[Lord Kakkar (CB)]

My Lords, I declare my interest as chairman of University College London Partners, an academic health science centre which has a number of important providers. The Minister made a very important point about the five-year forward view and the need to encourage new models of care working that ensure collaboration beyond institutional boundaries —and, indeed, to go further and look at new models of funding, including those of accountable care organisations. With a view to a potential journey towards more effective commissioning, and therefore more intuitive constructing of a tariff to support general acute services and more specialised services, will the proposals that the Minister brings to the House today aid that journey? Will looking at these regulations in the way proposed help institutions to work more effectively together, recognising the opportunity to look at tariffs that focus on pathways of care rather than individual segments of care, so ensuring the Government’s objective to ensure that valuable resources committed to the provision of healthcare are used most efficiently? There is a recognition that there will have to be greater attention to these matters as we go forward, and every opportunity should be used to ensure that that objective is achieved. One of the most important is the approach to setting the tariff and, therefore, these regulations.

[Lord Prior of Brampton]

My Lords, as always in these debates, we have had some pertinent and useful contributions. I shall take some of the points raised in reverse order. On the very important point raised by the noble Lord, Lord Kakkar, a profound change is happening in how we will deliver care over the next five years, which will be very much more based around a system rather than the institution. I think that the noble Lord, Lord Hunt, would agree with that; we will move from a payment-by-results system that has been very much based around individual pieces of care delivered in acute hospitals, to other payments systems, such as a capitation system or a whole pathway system. That is going to happen.

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[Lord Hunt of Kings Heath]

My Lords, I am very grateful to all noble Lords who have taken part in this interesting debate. We perhaps went rather wider than the terms of the regulations. I agree with the Minister that payment by results was brought in essentially to drive through reductions in waiting times by providing the right incentives. By and large that has been very successful, but we are moving, and this is a very good thing, into thinking about systems and how they work. There is a clear need to develop a funding mechanism to ensure that there are proper incentives for system-wide working, and I absolutely agree with that.

However, I also agree with the noble Lord, Lord Warner, my fellow former Minister. Looking at the Five Year Forward View, it seems to me that essentially we are moving again to a planning model but we are still stuck with the 2012 Act, and the two do not seem to mesh together. The Minister is struggling with these regulations because they are trying to operate a system that is still based on payment by results, when in essence we are trying to incentivise people to work together to produce a much more effective system and that is very difficult. If he were to tell me that the NHS amendment Act was to be brought forward, I think he would find a warm welcome in your Lordships’ House, but perhaps I dream too far.

I say to the noble Lord, Lord Patel, that I do not disagree at all with his idea of an independent commission; the funding challenges facing health and social care warrant that kind of independent consideration. I say to him, though, that all the work done by the King’s Fund and the Nuffield Trust suggests that if you could maintain real-terms growth at 4% a year, which is the historic annual real-terms growth of the NHS, we would get a pretty good system without some of the pressures that we are facing at the moment. It is not a question of having to increase money to the NHS and social care hugely, but it needs some increase or we will be faced with the kind of problems that we have at the moment. The Barker commission, which was sponsored by the King’s Fund, shows some of the thinking that one might ask a royal commission to go into.

My noble friend Lord Turnberg mentioned the particular challenges of highly specialist providers, which of course are very much tied into the area that he knows so well: our whole R&D effort in this country and the link with the life sciences. While I understand the language of domination by specialist providers, we need to recognise that the link that these very same providers have with R&D and the life sciences is crucial to this country and to the lead that we often have in these areas. We have to be very careful not to undermine their financial viability because of the general financial challenge.

I am delighted that the noble Lord, Lord Warner, is working on, chairing or leading this work on specialised services, and I am sure he is right that we need to have much more effective commissioning. I certainly accept that that is likely to lead to a rationalisation of specialised services, which will not be universally popular. However, if we can show that by doing so we get more bang for our buck, getting better specialist services, and that they are a better investment, clearly, that has to be followed through. I hope that we will see the outcome of that work within the next few months.

I have no problem at all with putting more resources into mental health and community services—I entirely understand that. However, the regulations are a pretty poor show, and in effect disfranchising the providers, who get 96% of the tariff income, is not the way to go forward. However, I am very grateful to the noble Lord, Lord Prior, for what he said. I take his commitment to rebuilding the confidence, as he described it, of providers in the system, as a very strong one. He did not quite go as far as I would have wished with regard to endorsing the open book approach. Does that mean that that is still being considered, or has it been rejected? Can I take anything from that?

[Lord Prior of Brampton]

I will have to defer to Jim Mackey, the chief executive of NHS Improvement. It would not be fair for me to answer that question.

[Lord Hunt of Kings Heath]

I am sure of that, my Lords. I will just say to the Minister that I hope the spirit of this debate will be conveyed to him and NHS Improvement. I certainly have been very impressed by the chief executive’s words since his appointment, and of course the chairman, Ed Smith, commands great respect and authority, not least for the work he has done on behalf of Birmingham University, for which those of us in the city are very grateful.

With that, I thank all noble Lords who have spoken. The point has been made, we look forward to a better approach in the future, and I hope that the spirit of the proposal regarding early consultation and an open book process will be acceded to. I beg leave to withdraw my amendment to the Motion.