Submitted by Mike Birtwistle on 14-03-2011

The ability of providers to compete on the basis of price as well as quality has become totemic in the debates on NHS reform.  Health pundits and Labour alike leapt on the suggestion that the tariff would only be a maximum price, arguing this would herald a return to the price competition of the mid-nineties, resulting in a law of diminishing returns in quality whilst transactional costs rocket.

For their part, the Liberal Democrat leadership eager to point to the Government ‘u-turn’ on the issue as evidence of the influence they wield in Richmond House. This may not have been enough to placate disgruntled activists and win their conference vote, but expect to see plenty of similar claims in the weeks to come.

The Department of Health has protested that the intention was never to allow providers to undercut the tariff and that the wording of the Bill simply provided legal scope to continue what is already common practice. There is probably some truth to this. Local providers and commissioners have always varied costs to reflect local circumstances, particularly as the financial year end approaches. In any case, under the Any Willing Provider model, suppliers would be free to continue providing services at tariff price and patients would continue to be free to use them (and why would any provider undercut by offering services at a lower price than they have to, given that under patient choice lower prices cut your income but don’t give patients any extra incentive to chose you?).

This is more a case of the Department of Health learning a valuable political lesson.  There is plenty of NHS practice that remains unwritten: the difficulties arise when you try to clarify it, opening up what is often considered ‘normal’ behaviour to outside scrutiny.  The challenge for ministers is that, with the legislation of the scope, ambition and complexity of the Health and Social Care Bill, there will be plenty of such behaviour to codify.  If you throw all the pieces in the air, then people will inevitably debate where and how they should fall.

So, the debate on price competition is a microcosm of the communications challenge surrounding NHS reform.  Yet, I can’t help wondering whether it somewhat misses the point.  A discussion about whether tariffs are a maximum or national price is all very well if all NHS services are on tariff.  But they are not.  Vast swathes of NHS activity remain off-tariff.  Even in secondary care, where tariffs have been pioneered, there are many hundreds of exclusions, including for cancer drugs, complex surgery, transplants and burns.  Mental health, which is the largest area of programme expenditure, remains entirely off-tariff.

Why is this?  The challenge is that tariffs are difficult to calculate.  For example, the National Audit Office  has pointed out that we don’t yet even know how many patients receive chemotherapy at any one time, let alone how much it should cost to deliver it.  We can count the cost of the drugs, but have little idea about the activity.  And this is in cancer, one of the better organised areas of service.  The Department of Health has only just begun to consider tariffs for community services, despite the consensus that delivery of more services in the community is critical to meeting the productivity challenge.

Without a tariff, a service is commissioned on a block contract.  Such contracts give little incentive to improve quality or productivity and they make patient choice difficult to deliver.  What is more, they lapse into a negotiation on cost – the practice that all the political parties can agree they dislike.  So the current debate – although an interesting example of the political challenge facing the health reforms – spectacularly misses the point.  There is a very real technical challenge to be overcome if providers of every health service are to be able to compete on the grounds of quality.  Politicians on all sides better hope it can be overcome.