Level Playing Field part 2

In my last blog I pointed out that the Impact Assessment that accompanies the Health and Social Care Bill suggests that the NHS has a 14% "advantage" over the private sector. This is based on a study by KPMG which is not available, but the results quoted in the Impact Assessment indicate that the study does not take into account training. Today Health Service Journal picked up the story and added the following:

Mr Dingwall [partner at Hempsons lawyers] said the most likely scenario would be the creation of a system whereby commissioners paid the same tariff rate to NHS and private providers, but the 14 per cent was subsequently deducted from NHS providers and placed in a central pot to fund their state subsidised benefits.

Earlier Conservative policy papers indicate that Lansley wants private hospitals to pay for training. The NHS Autonomy and Accountability white paper says:

We are also of the view that those who employ health professionals – both NHS and independent sector – should themselves take on responsibility in relation to workforce planning, and accept the risk should they get it wrong. ... All large employers of health professionals will be required to provide training places, or contribute a levy which will train and develop healthcare staff.

This suggests that private hospitals would take a more active role in training or pay a levy. However, this is from Lansley in opposition, in government he does not seem so keen to make private providers pay for training. This is understandable because training is very costly, at the moment it takes up £5bn out of the NHS £105bn budget. There is another issue. Even if private hospitals were to pay a proportion of the £5bn training, that would only be for the current crop of NHS trainees. It would be hard to work out how much the private sector should be charged for their proportion of the training cost of a fully trained employee.

If training is properly taken into account the 14% NHS "advantage" quoted above would easily be wiped out. But let's assume that the government intends to go ahead with this scheme and pay NHS providers the same as providers but take 12% off the tariff paid to the NHS provider for the "services" it gets from the state (if private sector costs ate 114% higher than NHS, that equivalent to the NHS costs being 88% of the private sector costs). A 12% cut in income is huge. NHS hospital trusts get most of their income from payment by results (ie the payment for the treatments it delivers to the NHS). Hospitals can generate private income, but this is usually small (in the region of a few percent of income).

Monitor, the Foundation Trust regulator say in their annual report for 2009/10

The unaudited total operating income of the 129 NHS foundation trusts in 2009-10 was £28.2 billion ... NHS foundation trusts reported an aggregate net surplus (before impairments) of £365 million in 2009-10 ... Impairment costs of £1.1 billion were significantly greater than planned ... an aggregate net deficit (after impairments) of £764 million against a planned surplus of £304 million.

The surplus before impairments was only 1.3% (the impairments were due to adopting International Financial Reporting Standards and taking PFI as assets). Foundation Trusts are supposed to be the cream of hospital trusts and hence chosen because of their financial governance, the remaining non-FT NHS acute trusts should be considered to be less financially viable. If the best NHS hospital trusts can (on average) only generate a surplus of 1.3% (most of which will be from payment by results from the NHS) what will happen to them when they are paid 12% less?

Next year the payment by results tariff will be 1.5% less than the tariff this year, and most hospital trusts will see their activity reduced as GPs refer fewer patients. Fewer patients and a cut in tariff means that trusts income will be cut next year, so it will be interesting to see what effect this will have on the quality of care. The cut in income next year is unlikely to be as large as 12%.

To be frank, a "payment" of 12% of tariff for the state "services" is ludicrous, and the resultant cut in income will mean that even the most financial stable Foundation Trust will go into the red.