Monitor publishes independent report on Local Modifications to the Tariff

Published on: 3rd April 2012

Monitor has published an independent report today to inform the development of its policy on approving local modifications to the national tariff. The report titled A methodology for approving local modifications to the national tariff was commissioned by Monitor from Frontier Economics and is another part of the growing evidence base that Monitor will use to determine its approach as sector regulator.

Adrian Masters, Monitor Director of Strategy, said, "Improving the pricing of NHS services is essential to help commissioners make better decisions for their patients, and to ensure that hospitals and other providers of care are fairly reimbursed."

"There are sometimes variations in terms of the pressures and challenges facing local health services. Making local modifications to the national tariff is a way of recognising that a one size fits all approach to setting prices will not always be appropriate."

"If a provider can demonstrate that it can’t provide services at the tariff price that are valued by patients and commissioners it may be appropriate for Monitor to approve a local modification to the national tariff.  Evidence based local modifications will increase transparency about how we spend money in the NHS, provide stability for those that need it, and end hidden bailouts."

"Local modifications will not be used to support poor quality or inefficiency, but will help to ensure services are provided that are valued by patients and commissioners."

The report recommends that local modifications would only be approved if:

  • A provider could demonstrate that alternative options have been tested and shown to be inappropriate;
  • A commissioner could demonstrate that alternative providers and service configurations have been considered;
  • No other form of reimbursement is already made; and
  • Additional costs are beyond the control of the provider and commissioner.

The report recommends a three pronged test to determine whether structural causes have created a revenue gap which could be addressed with local modifications to the tariff.  Structural causes of a revenue gap must be:

  • unique to the provider
  • beyond the control of the provider (and commissioner)
  • material enough to threaten continuity of service

Providers and commissioners will take primary responsibility for negotiating proposals for local modifications. However, a provider could make an application itself if it has failed to reach an agreement with its commissioner.

The report suggests that Monitor could act as an appeals body, considering proposals it receives, rather than intervening proactively.

Notes for Editors

What are local modifications?:

  • Under the national tariff all providers are paid a set price for delivering a particular service to NHS patients.
  • In principal, cost drivers which are common to other providers should be adequately reimbursed by the national tariff.
  • However, if a provider can provide evidence that it can’t provide services at that price, it may be appropriate for Monitor to approve a local modification to the national tariff.

Why are local modifications necessary?:

  • Evidence based local modifications will increase transparency about how we spend money in the NHS, provide stability for those that need it, and end hidden bailouts.
  • There are sometimes regional variations in terms of the pressures and challenges facing local health services. Making local modifications to the national tariff is a way of recognising that a one size fits all approach to setting prices will not always be appropriate.
  • Local modifications will not be used to support poor quality, but will ensure services are provided where patients need them.
  • Local modifications will form a part of Monitor’s overall development of a pricing strategy, helping Monitor to implement changes to the national tariff without destabilising providers.
  • Without local modifications it would be much harder for Monitor to drive more efficient pricing without placing some providers at unnecessary risk.

Monitor welcomes comments on this report.