Clause 66 - The NHS payment scheme

Health and Care Bill – in a Public Bill Committee at 12:45 pm on 23 September 2021.

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Question proposed, That the clause stand part of the Bill.

Photo of Sheryll Murray Sheryll Murray Conservative, South East Cornwall

With this it will be convenient to discuss the following:

Amendment 84, in schedule 10, page 197, line 17, at end insert—

“(1A) The NHS payment scheme must ensure that the price paid to any provider of services which is neither an NHS Trust nor an NHS Foundation Trust cannot be different from the price paid to an NHS Trust or NHS Foundation Trust.”

This amendment ensures payment to private providers can only be made at tariff price to prevent competition for services based on price.

Amendment 100, in schedule 10, page 197, line 17, at end insert—

“(1A) NHS England must obtain the agreement of the Secretary of State before publishing the NHS payment scheme.”

This amendment ensures that the NHS payment scheme, which sets out the prices to be paid for NHS services, is approved by the Secretary of State.

That schedule 10 be the Tenth schedule to the Bill.

Photo of Edward Argar Edward Argar Minister of State (Department of Health and Social Care)

I express my gratitude—I may be less grateful when I sum up—to hon. Members for tabling the amendments, and for the discussion that we are going to have about the NHS payment scheme. The Bill replaces the national tariff with a new NHS payment scheme, with additional flexibilities to allow the NHS to deliver population-based funding and more integrated care approaches. The NHS payment scheme, which will set rules about how commissioners pay providers for services, will apply to all providers of NHS services, including NHS trusts and foundation trusts, the voluntary sector and the independent sector.

Amendment 84 aims to ensure that payment to private providers can be made only at tariff price. While we will not introduce competition on price, rather than quality, there may be scenarios where it is appropriate to pay non-NHS providers different prices from those paid to NHS providers, to take account of differences in the cost of providing those services—for example, different staffing costs or a different range of services provided. There may also be cases where the financial regimes of different providers make it appropriate to set different prices or pricing rules. When setting any prices, NHS England will aim to ensure that the prices payable represent a fair level of pay for the providers of those services, as well as fair pay between providers of similar services.

I reassure the Committee that we do not expect to see the rules being used to give a premium to private providers to encourage them to enter the market. We do not expect to pay the independent sector 11.2% greater than the NHS equivalent cost, as the King’s Fund briefing on independent sector treatment centres set out in 2009. Nor do we expect commissioners to pay for 100% of the contract value regardless of whether the activity reached the contracted level. Instead, the new payment scheme delivers what the NHS has asked for to implement its long-term plan. For that reason, we encourage Opposition Members not to press the amendment to a Division, but I may be pressing them in vain.

The Government will also, I am afraid, oppose amendment 100, which would require the NHS payment scheme to be approved by the Secretary of State. The NHS payment scheme will be published by NHS England, following consultation with relevant providers and commissioners, and, where relevant, the publication of an impact assessment. Integrated care boards and relevant providers will be able to make representations and formally object in response to consultations on the NHS payment scheme, as they can with the national tariff. Where the percentage of objections exceeds the prescribed threshold for either ICBs or relevant providers, or both, NHS England must further consult the representatives of the ICBs and providers that were objecting. NHS England may then publish a revised payment scheme, with another consultation for significant changes. It will also be able to publish the proposed scheme without amendment, but will be required to publish a notice stating that decision and setting out the reasons for it.

The Government are responsible for setting out overall funding for NHS England, who in turn will continue to be required to have regard to fair levels of reimbursement for providers in setting the details of the payment scheme. The Department and NHS England will continue to work closely together in the development of the NHS payment scheme, as we do with the national tariff. However, as a last resort, derived from clause 37 powers of direction, the Secretary of State will be able to require NHS England to share the NHS payment scheme before publication. The Secretary of State will also be able to direct NHS England not to publish a payment scheme without his approval, and about the contents of the payment scheme under his general powers of direction under clause 37.

Although we do not expect to need to use the powers of direction to intervene in this area, they can be used and will act as a further safeguard against unfair payment scheme provisions, as well as allowing for appropriate parliamentary accountability for funding flows in the NHS. The consultation requirements in schedule 10, and the general powers of direction, allow for sufficient Government oversight and accountability for the payment scheme, and further specific provisions would be inflexible and unnecessary. [Interruption.] I will shorten my remarks. [Hon. Members: “No!”] I am happy to go on and on, but I fear the Committee might wish me to conclude. In that context, I will highlight to the Committee that, as with the national tariff, fair levels of reimbursement are a key principle of the legal framework reflected in NHS England’s duty in subsection (6) of proposed new section 114A(6) to have regard to differences in providers’ costs and the different range of services that they provide for the purpose of securing that prices and the overall payment scheme result in a fair level of pay to different types of providers.

I will also highlight and draw to the Committee’s attention provisions in proposed new section 114C as inserted by schedule 10, which makes clear that, before publishing the payment scheme, NHS England must consult integrated care boards, relevant providers and any other person that NHS England thinks appropriate. It must also provide an impact assessment of the impact of the proposed scheme.

Photo of Karin Smyth Karin Smyth Labour, Bristol South

There is a lot of drawing up of complicated documents and costings and then a lot of complicated consultation and decisions on whether the Secretary of State will or will not decide whether he wants to be involved in looking at what the final solution is. Does the Minister have any idea of when we might see the final NHS payment system under the new arrangement?

Photo of Edward Argar Edward Argar Minister of State (Department of Health and Social Care)

I would not prejudge the passage of the legislation and how the House might judge it, but I look forward to such a scheme being introduced expeditiously, if I may put it that way to the hon. Member. I hope I can also reassure the Committee in respect of amendment 107, which was not selected but raised issues pertinent to the clause more broadly. This is important. It is right that the amendment was not selected—I appreciate that it was not tabled by a member of the Committee—but it does highlight issues that we need to put on the record. I appreciate the impulse behind it.

Although NHS staff pay and conditions are outside the scope of the proposed payment scheme and are protected by provisions made elsewhere, unions and other representative bodies may wish to be reassured that their members are able to go to work in appropriately funded services. I hope I have given reassurance on that point and set out why I feel the amendment, although I am grateful that it was not selected, would be unnecessary, as the Bill already requires NHS England to consult with integrated care boards, relevant providers and any other person the NHS thinks appropriate before publishing a payment scheme. It must also publish an impact assessment of the proposed scheme, ensuring that any potential consultation is properly informed of the potential effects of the scheme. I appreciate that the amendment was not selected, but I put those points on the record as I can understand the intent behind the amendment and I wanted to offer those reassurances. I hope I can persuade Opposition Members not to press amendments 84 and 100 to a vote, but I may be unlucky in that respect.

Clause 66 introduces schedule 10, which amends the Health and Social Care Act 2012 by repealing the national tariff and replacing it with the new NHS payment scheme. The national tariff has for many years improved access to services and driven up quality across the NHS, but as we move towards a more integrated system focused on prevention, joint working and more care delivered in the community, we need to update the NHS pricing systems to reflect new ways of working since the tariff was introduced, and in the light of the covid-19 pandemic.

The new NHS payment scheme will build on the success of the tariff. It will support stronger collaboration than ever before, with shared incentives for commissioners and providers of services to improve quality of care and promote sustainable use of NHS resources. The scheme will move away from a wholly payment-by-activity approach to an approach that supports more joined-up ways of delivering services, with commissioners and providers working together to deliver the best quality care.

The new payment scheme will remove perverse incentives for patients to be treated in acute settings and allow more patients than ever before to be treated closer to home and in the community. It will allow NHS England to guide the health system, through the development of guide prices for entire care pathways, while ensuring that local systems have the necessary flexibility to deliver high-quality care and use NHS resources sustainably.

The payment scheme will specify rules that commissioners must follow when determining prices paid to providers of NHS-funded healthcare services. It will allow significant flexibility over the current pricing scheme, and allow rules to set prices, formulas and factors that must be considered when determining prices paid. It also allows for in-year modifications to the rules, to reflect changes in the costs of providing services.

Crucially, the scheme will also allow the NHS to set prices for public health services commissioned by the NHS, on behalf of the Secretary of State, such as maternity screening, to allow for seamless funding streams for episodes of care. These changes to increase the flexibility and reduce transactional bureaucracy associated with the current tariff are, we believe, crucial to integrating care and tackling the elective backlog. I therefore commend this clause and schedule to the committee.

Photo of Alex Norris Alex Norris Shadow Minister (Health and Social Care)

Clause 66 is exceptionally important, so I cannot promise the same brevity as the Minister. I think the rules work slightly differently on the hard stop on a Thursday than they do on a Tuesday.

Photo of Sheryll Murray Sheryll Murray Conservative, South East Cornwall

Order. There is no hard stop on a Thursday.

Photo of Alex Norris Alex Norris Shadow Minister (Health and Social Care)

I am grateful for that clarification. If I am interrupted by colleagues in order to meet the conventional times, I will not take that as a kindness.

The clause governs how billions and billions of pounds will be spent every year, so it is surprising that it is so thin: three lines under clause 66 and a rather broad schedule 10. People could read into it whatever they want. My hon. Friend the Member for Bristol South made a good point that we could be in the business of filling that out for a very long period.

I am also surprised that the Minister is so reticent about the Secretary of State’s involvement and that this power is solely reserved for NHS England. We are not suggesting that the Secretary of State would want to set payment levels for specific treatments; but the Secretary of State, either today or in the future, may want some sort of say over what is being incentivised in the system and how that extraordinary purchasing power works in practice, whether that is about innovation, prevention or incentivising buying British, for example. That is something in which I would expect there to be some political interest.

The Minister talked about using clause 37, but that is a rather blunt tool. What we offer in amendment 100 is much lighter and much less drastic than using the clause 37 powers. If the Government will not accept our amendment, I am surprised that they have not introduced a similar one of their own. Perhaps they may yet do so.

The history of the tariff and payments bears an airing here, because it informs our future. It is an itinerant journey, which all Governments of the day, of different political persuasions, have their fingerprints on. This is not a partisan issue; it is about getting this right for the future. The purchaser-provider split in the ’90s and the development of various market and quasi-market systems was patchy and sporadic. That is a topic that has launched a thousand dissertations. Sometimes it feels like we aimed for payment by results, which is a noble cause, but in reality we can very easily get to payment by volume, and that is our challenge.

Going back even further than that, it was even less satisfactory. Traditionally, we had funding mechanisms that were very hard to understand and worked by adding a bit to the previous year’s allocations, and then really sophisticated people might make some downward adjustments for efficiencies and upward adjustments for assumed increases in activities. Inevitably, bits of the health service would get into trouble and would need bailing out, and new ideas would be dolloped out without much of a process. We have, to a certain extent, returned to that during covid. Block funding has given trusts one less thing to worry about. That was probably wise, but we would not want to do it forever.

The idea of the tariff was a variant of the 2012 Act. It could, I guess, incentivise competition on quality, but not really on price, as in a real market, as the Minister said. Prior to that, in the first decade of the century, the introduction of payment by results was one of the factors that allowed the longest successful period in the history of the NHS, which saw waiting lists come tumbling down—so much so that the demand for queue-busting private options evaporated and private providers became suppliers to the health service, rather than suppliers of private healthcare.

Payment by results, or pricing, can be a tool to tackle waiting lists. Given that Conservative Governments leave office with spiralling waiting lists, that is worth remembering for the future. Although that may be a discussion for another day, I want to ask the Minister whether he thinks NHS pricing is likely to be part of the recovery strategy. It is all well and good saying that this may take years and years to come to fruition, but what about now?

The historic decision back in the first decade of this century was that private providers should be paid the same as the cost of the NHS, so that there is no financial incentive to use the private sector. I think that is a wise principle, but it can and has been worked around. We have seen some very dodgy, spurious outsourcing of services, such as cleaning, which was an absolute disaster in Nottingham.

There are and have always been large swathes of the health services where payment by results or volume did not apply. One was mental health, where defining the product was far from easy, so it was very difficult to price. For many years, the mental health sector wanted to be part of this, but that never happened. That is much less of a priority for the sector now; it is just desperate for proper funding. It continues to struggle.

Of course, in such a system we will always have gaming and bureaucracy. Any system such as this gets gamed. Upcoding is one example, where the work that is billed for gets put into the highest-paying category. We have invoicing, chasing errors, and disputes over such coding, the actual volumes of work done and all the rest. That was hugely prevalent when payment by results first arrived for primary care trusts, and I think it is still with us in some form today. The cost of the market systems, data collection and processing is well above the cost of providing entirely necessary management information about cost and volumes.

Of course, that is not to make an argument for no prices at all. For decades, the NHS as a system did not really have any idea what anything cost. The accounts were not particularly well kept, and there were no data collection systems and staff doing analysis. As a result, the variations were huge, and that did not work in the interests of the system. I am arguing not for a no-cost regime, but for one that lands in a sensible place and does not become an industry in itself. At the moment, we have no idea, because what is on the face of the Bill is so broad, and the Minister is promising quite a long walk into the future with not a lot of certainty.

Many discussions about the long term plan, the formation of STPs—then accountable care systems, then integrated care systems, and now ICPs—and the rest have been about co-operation and collaboration, a return to non-market days, and a dilution of the commissioner-provider split, at least so far as NHS bodies are concerned. There will still be a strong current to say that there has to be some sort of tariff and benchmark as a guide, but some will say that there may be some sort of ability to vary as circumstances dictate—a kind of “Trust me, guv” arrangement whereby people of good will and common purpose can decide what is best, and that would be acceptable. To an extent, that flexibility is understandable if we are talking about the internal workings of an integrated, publicly provided NHS.

However, when we are talking about £10 billion more a year of contracts with private acute care providers, that is real money exiting the NHS bank account, so we need to be much more careful. That is where amendment 84 comes in: there has to be some sort of limitation on what private providers are paid. I was not at all convinced by the Minister’s explanation that there might be different costs, because of course there are different costs, the No. 1 cost being the need to derive profit from the contract. That is already a big cost. Of course, that can be met by compromising on quality or through downward pressure on what staff receive, but that is also a bad thing, so I did not think that was a particularly persuasive argument.

When it comes to all this money going out to private providers, there really ought to be some standardisation of the contract. If amendment 84 were accepted, we would have greater assurance that this is something done based on need, not cost or convenience. We would much rather invest in the NHS itself, taking away any perverse incentives to lean on the private sector as a resource pool and any risk of sweetheart deals due to our reliance on the good will of for-profit organisations.

In conclusion, we do not want the Secretary of State to price up a hip operation, but we do think there ought to be some interest in what our purchasing does in this country, to ensure that it is as good as possible. I do not think we should be using the blunt and brutal tools in clause 37, so I hope that the Minister will think again about amendment 100—if not now, then at a later point in proceedings.

Ordered, That the debate be now adjourned.—(Steve Double.)

Adjourned till this day at Two o’clock.