A REVOLUTION in the way that the National Health Service is run was heralded by the publication of a national price list for operations.

By 2008 all hospitals and trusts will be paid a set “tariff” for every operation, treatment or procedure. The tariffs for 48 common operations were published yesterday, together with actual costs for those operations within the NHS and those carried out by private hospitals for the NHS.

The figures show that the Government is paying well over the odds for operations contracted out to private hospitals.

There were 60,000 such operations last year, costing £100 million, John Hutton, the Health Minister, said. Had the same operations been done in the NHS they would have cost £70 million. So the Government paid an extra 43 per cent for reasons that Mr Hutton said were not difficult to find or understand. In future private providers of NHS care would have to come much closer to matching the new tariff.

The system, called Payment by Results, is to be introduced piecemeal over the next few years. It will match what hospitals are paid to what they actually do. For every operation, they will be paid the national tariff, adjusted to take account of local cost of living.

If they can complete the operations for less than the tariff, they can pocket the “profit” or, more precisely, use it for other things such as improving equipment. If, however, the operations cost more than the tariff, they will lose money, raising the possibility of hospitals going broke. Mr Hutton said he did not think that this would happen, although he could not rule it out.

“Historically there has been no proper connection between performance and rewards,” Mr Hutton said. “In future there will be a direct link. Failure to meet target levels of service will mean loss of income, which primary care trusts will then be free to invest with other providers.

“By fixing a national tariff we can minimise bureaucracy and unnecessary transaction costs associated with local price negotiation, allowing trusts and (primary care trusts) to focus on quality and speed of access.

“Secondly it will allow patients to exercise greater choice over when and where they are treated, helping to match service capacity with demand.”

The new tariffs were constructed from statistics gathered from across the NHS. These show that the costs of even common operations vary considerably from trust to trust. For a hip replacement, for example, the average cost across NHS hospitals was £4,660. Costs ranged from £4,111 in the most economical quarter of hospitals to £5,319 in the most expensive. The set tariff will be £5,568. This appears easily achievable in almost all hospitals. But the costs measured are historical, while the tariff, which does not really start to come into play until 2005, is adjusted for inflation so is not as generous as it seems.

When the tariff is fully implemented by 2008-09, the Government intends to apply it to private hospitals, so that if they want to carry out NHS work they will have to accept the set price.

“These figures confirm that the NHS is paying a considerable premium when it purchases treatment from the independent sector, over and above the cost of the same treatment provided by the NHS,” Mr Hutton said.

He added that the new system was central to the plans for patient choice because funds would follow the patient’s choice of where to have their treatment.

“Payment by Results will reward efficiency and promote fairness in payment for work done,” he said. “Providers of treatment will be paid for the activity they actually deliver, and commissioners will have sufficient resources, through the extra investment we are putting into the NHS, to look for alternative providers if agreed activity levels are not met.”

The tables, published yesterday on the department’s website, show which hospitals are the most expensive and which are the cheapest. The five most expensive are North Bristol, Brighton, Trafford, Wigan and Leigh, and Bromley, while the five most economical are Swindon, West Suffolk, Bedford, York and Northampton. Once the new tariffs come in, the top five will have to find some way of economising, while the cheapest five can look forward to profitable times.

James Johnson, chairman of the British Medical Association, said: “There is nothing wrong with the principle of the money trusts receive being related to the quantity of work they do. In practice, however, the tariff system could cause the NHS problems.

“At the moment there is no system sophisticated enough to take account of all the factors that can affect hospitals’ costs. When an elderly patient goes in to hospital for a simple operation, doctors often have to diagnose and deal with a range of other related problems that will not be covered by the tariff. As a result, some tariffs will be far lower than the real costs of providing care, putting undue pressure on hospitals to make cuts.”

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