Hospitals and NHS England in Classic Supply Chain Power Struggle

More problems and challenges in the UK health world. NHS Providers, which represents a group of major hospital Trusts, has basically refused to accept the tariffs that the central health bodies - NHS England and Monitor - proposed for 2015/16. The tariffs define the set of fees paid for specified operations and treatments performed by the hospitals, and the new proposal in general sees lower payments than those used for 2104/15.

As the BBC reported:

“Chris Hopson, chief executive of NHS Providers, said the decision to reject the proposals had "not been taken lightly", but 80% of hospitals were now in deficit. "It is a clear response from the front line that they can no longer guarantee sustainable and safe care," he added.”

NHS England has responded saying there is no more additional money available.

“Since the overall NHS funding totals for 2015/16 are now agreed, any changes to the proposed tariff would in practice just be robbing Peter to pay Paul – meaning less investment in other hospitals, mental health or GP and community services – the exact opposite of what pressures this winter show is now needed.”

A bit of a standoff. Really, the hospitals are warning government that if you only pay us this meagre amount, we cannot guarantee the levels of service or safety that you desire. It will be a brave civil servant or Minister, with an election just a few months away, who now just tells the hospitals to jolly well get on with it. And of course some of the media will be ready to point out that it will be the government’s fault if there are any health failings, or anyone dies unexpectedly in hospital between now and the election!

The dispute may now have to be considered by the Competition and Markets Authority - the first time this has happened since the system changed under the Health and Social Care Act. If it is not resolved by April, the payment rates for this year are carried over. As they are more generous than the proposed 2015/16 rates, that would put even more pressure on budgets.

However we analyse the specifics of the tariff and who has the better arguments, the government is now reaping the reward for the actions that both this and the last Labour government took in terms of the major hospitals. By driving them down a “Foundation Trust” route, they created a set of really quite independent organisations, with their own Boards, non-execs and responsible to the local community. They may still be public sector bodies, but unlike the situation 20 years ago, they are no longer the compliant organisations they once were, responsible to the Minister and largely at the beck and call of Whitehall.

So now we might look at the situation as a more traditional private sector type relationship between buyer and seller. And going back to those issues of power we seem to write about a lot at the moment, (see Andrew Cox here for instance), we have a very interesting system here. There is a virtually monopoly buyer, the government, but also a well co-ordinated oligopoly, with high barriers to entry, sitting on the supply side.

If your local hospital refuses to accept the tariff for A&E (emergency treatment of patients), it is not as if the buyer can say “well, in that case I will take my business elsewhere."

Imagine the outcry if Frimley Park, my local hospital and the best in England, closed its A & E and we were told we had to travel 30 minutes to an alternative, and less good, hospital.  So how will this power struggle resolve itself? My prediction is that more money will be found, somehow and from somewhere. There’s an election , don’t you know?


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