Targeted and Practical Solutions

Cost Reviews

Setting a fair price for the services delivered by a provider can be a contentious issue. A large proportion of NHS-commissioned activity will be covered by the NHS Payment Scheme (NHSPS) for the year in question. However, even under a fixed block contract, disputes can arise as to whether the activity has been recorded and charged according to the guidance provided by the NHS Data Dictionary and the NHSPS rules.

Outside any nationally published prices, the agreement of locally negotiated prices can prove problematic, particularly where historic prices have been rolled forward for a number of years and the basis of the prices is no longer clear.

NHSPS guidance on local prices gives significant room for local negotiation – and hence dispute! It states at the outset that pricing should reflect efficient costs and provide appropriate signals. This is usually taken to mean that local pricing begins with an assessment of the provider’s actual costs in delivering the service to the specification stated in the commissioner’s contract. These costs can then be benchmarked to form a view on their relative efficiency, so that commissioners may make the most effective use of their available budget.

More specific principles regarding local payment approaches are given as follows:

  • the approach must be in the best interests of patients
  • the approach must promote transparency to improve accountability and encourage the sharing of best practice
  • the provider and commissioner(s) must engage constructively with each other when trying to agree local payment approaches.

And even more specifically regarding locally negotiated prices:

  • Where prices are determined locally, it is the responsibility of commissioners to negotiate and agree prices having regard to relevant factors, including opportunities for efficiency and the actual costs incurred by their providers
  • Commissioners and providers should have regard to national price adjustments, using these as a benchmark to inform local negotiations
  • Other relevant factors may include, but are not restricted to:
    • commissioners agreeing to fund service development improvements
    • additional costs being incurred as part of service transformation
    • taking account of historic efficiencies achieved (e.g. where there has been a comprehensive service redesign)
    • comparative information (e.g. benchmarking) about provider costs and opportunities for efficiency gains
    • differences in costs incurred by different types of provider

Bailey & Moore offers a cost review service, which combines information about the provider’s current costs in delivering the service specification required under the contract together with sources of benchmarking to determine the provider’s relative efficiency. The issue of then agreeing how the activity should be recorded under the contract can also be resolved, if this has been an issue of dispute in the past.

This service can be provided to either provider or commissioner, although our preference is for an engagement jointly commissioned by all members of the local system. This ensures all issues can be followed through and signed off by commissioner and provider alike as a fair outcome.

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