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 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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The share of supply element of the objection mechanism has allowed larger acute providers to use the objection threshold as a veto to protest if and when they disagree with a particular aspect of the method, or changes to the pricing system outside the method. We also consider that more certainty on pricing is needed in advance of each financial year for the benefit of all providers and commissioners. Therefore, in order to avoid future potential for disruption and consequential cost to the taxpayer and the system, the objection thresholds and share of supply have been revisited to provide a process that is as fair and stable as possible for all NHS providers and commissioners.
We consulted on our proposals to change the objection thresholds, including the option of removing the share of supply threshold, and increasing the objection percentages for clinical commissioning groups and relevant providers to either 66% or 75%. The department made particular efforts to contact by email all commissioners, all relevant providers and their representative bodies. We received a total of 221 responses to the consultation from a range of stakeholders within the four-week period. This is a positive response rate and we thank everyone who took the time to respond.
Some 46% of respondents to our consultation, including many commissioners and mental health providers, agreed with our proposal that the objection mechanism should be revised to provide greater clarity in the system ahead of the coming financial year. The NHS Confederation said:
“We recognise the practical necessity to improve the processes around the objection mechanism”,
along with reservations about the need for significant improvements in engagement within the system. Some 52% of respondents opposed this proposal, the majority of whom were providers, with 123 responses. Respondents argued for delay before making any change. There were also further calls for more timely and deeper engagement with and transparency on tariff proposals.
The tariff development process is still evolving, and Monitor and NHS England continually evaluate how to improve their processes, including engagement, and will work to continue this going forward. We welcome the proposals put forward by sector representative bodies about improving engagement. I will return to that point later in my remarks. We considered in detail all responses to the consultation, including new proposals. For example, we considered and then discounted proposals to create a more complex form of the share of supply threshold, which would have been even more difficult to calculate accurately.
The Secondary Legislation Scrutiny Committee has informed our debate with a thorough report. Its conclusion draws attention to the opposing views held by the department and the major providers. It is precisely that difference of views which I seek to explain here. We recognise that a number of providers feel strongly that their opportunities to object should be left unchanged, but we believe that the regulations will ultimately strike the right balance for the interests of the NHS as a whole, including those of patients and particular types of institution.
However, our main concern must be the financial sustainability of the overall system to ensure the collective system focus is on delivering the vision set out in the Five Year Forward View. Our focus must be on securing a tariff settlement for 2016-17 that is fair to the NHS as a whole, that supports the implementation of the Five Year Forward View, and that is reached in enough time to be effectual for the coming year. NHS England has indicated that if there is a repeat of the 2015-16 process, there could be a negative impact on planned investment in areas such as mental health and community services which would have serious implications for the health service. This cannot be acceptable for patients or taxpayers. However, we duly note the concerns raised by consultees and consider that the spending
review settlement demonstrates this Government’s commitment to building a sustainable NHS through supporting implementation of the Five Year Forward View.
It is also crucial that tariff proposals reflect the broader views held across the healthcare sector, not just the view of one part of it, however important that part may be. But as I explained earlier, the ultimate responsibility for setting NHS tariffs must lie with Monitor and NHS England, the statutory price-setting bodies. This means that difficult decisions can be made at a time of unprecedented challenge around finite resources, an ageing population and improvements in medical technologies and drugs. We continue to keep under review the need for any further changes to ensure that the system operates optimally in the interests of patients.
These regulations remove the share of supply objection threshold and increase the objection thresholds for providers and commissioners from 51% to 66%. These changes can be made by secondary legislation in the form of these regulations, and there is no need to revisit primary legislation. We must also make these changes now because, as I mentioned, we cannot have a repeat of the process in 2015-16 as that could have a negative impact on planned investment in areas such as mental health and community services, which would have serious implications for the health service.
The Act provides the Secretary of State with a power to prescribe a share of supply threshold that takes into account a relevant provider’s scale and share of supply. I want to be clear that removing the share of supply threshold maintains a fair balance as a whole, as this will give small providers the same voice as larger ones. As I have explained, a significant trigger for formal objections related to a variation to the payment of national prices for specialised services rather than the underlying method for calculating the price. The largest trusts in the country are, in the main, the providers of specialised services. This means that disproportionate weight has been given to a small group of providers on relatively narrow issues, not all of which intentionally fall within the objection process. The draft regulations remove this bias. All providers of NHS services will continue to play a crucial role as part of the tariff development process. Furthermore, the changes made through the regulations will create the stability that is necessary for the tariff-setting process while retaining a comprehensive development mechanism that will allow for prices to be set in a fair, transparent and consistent way, taking into account the views of all providers.
The noble Lord, Lord Hunt of Kings Heath, has raised concerns about the 66% threshold: whether it is sufficiently fair; whether certain kinds of providers should by themselves be able to trigger the revised threshold, and whether our approach is consistent with that set out in 2012 by my predecessor. Our intention is that the revised 66% threshold will continue to give all relevant providers, regardless of their type, the opportunity to challenge the methodology where there is a widespread consensus about the existence of concerns. This includes relevant providers from all sectors, all of which make a valid and important contribution to the NHS and, ultimately, to patients.
The number of relevant providers increases year on year as increasing numbers of providers are covered by the national tariff. It is both fair and reasonable to set a threshold level that would reflect widespread serious concerns among the growing number of relevant providers that publication should be paused and adjudication possibly sought. It is therefore important to recognise that they should all have a part to play in a statutory process that may prevent publication of the national tariff, which would have a consequential impact on them. Therefore, where they are relevant independent sector or third sector providers, they can challenge the proposed methodology.
The noble Lord, Lord Hunt, has also raised concerns about whether these regulations are consistent with the Government’s views as set out in March 2012 by my noble friend Lord Howe. Those remarks focused on how objections from a sufficient number of commissioners or providers might lead towards adjudication, noting that recourse might otherwise be made to judicial review. It is true, as I have explained, that our views about the sensitivity of the objection mechanism as a trigger have evolved since 2012. We now consider that a more widespread consensus is fairer in the interests of all. The role of the Competition and Markets Authority remains. As adjudication by the CMA can occur, this is entirely consistent with the Government’s views as set out in March 2012 by my noble friend Lord Howe. The provisions in the Act enable Monitor to decide whether to make a referral to the CMA as the best course of action. We think that this is the right approach.
I must restate the importance of delivering the vision of the Five year Forward View, including new models of care which providers and commissioners are collaborating to develop. In the interests of patients, those models of care are developing in a collaborative manner across organisational boundaries, or in services where national prices do or do not apply. Our concern, as we listen to proposals about improving engagement on the national tariff, is to capture that wider vision. The department, NHS Improvement and NHS England have read the proposals for better engagement from NHS Providers. It is clear that one of the things that went wrong around the tariff engagement process for 2015-16 was that one specific measure which had a significant impact on providers—specialist care—was proposed late in the day. This, quite understandably, was a very serious concern to many trusts and foundation trusts and contributed to their formal objection to the tariff proposals. To avoid scenarios like that in the future, but also more broadly to ensure that the tariff process produces an outcome in the interests of the NHS as a whole, my officials, NHS Improvement and NHS England will pursue more detailed conversations with NHS Providers to improve the process. As in other areas of NHS management, what is needed is transparency and understanding across the piece. As Jim Mackey, the newly appointed chief executive of NHS Improvement, said today:
“The development of the tariff needs to be done with the NHS, ensuring all views are heard and to avoid uncertainty from year to year. We now need to move past the distractions of technical changes to tariff rules and focus on the issues that really matter to patients and the providers who deliver NHS care”.
This has been a long speech because it is an important issue and one which is somewhat arcane for some noble Lords. I beg to move.