NERA’s Role in CCG Tariff Negotiations

The Situation

Health care commissioners in the UK (or Clinical Commissioning Groups – CCGs) purchase health care services from both National Health Service (NHS) providers and independent (private and not for profit) health care organisations. Each year the system regulator, Monitor (now part of NHS Improvement), sets a basket of tariffs, which are effectively a series of fixed prices for specific treatments, grouped into Health Resource Groups (HRGs). These prices are determined from national data submitted by NHS providers. The question facing the CCG was whether to pay its independent providers the nationally set prices for outpatient services, or whether the cost base of independent providers sufficiently differed from NHS providers that an alternative price could be justified.

NERA's Role

NERA was commissioned to analyse the hypothetical cost of solely providing specific outpatient services. The objective was to investigate whether or not the national tariffs set by Monitor were appropriate after accounting for the fact that independent providers focus primarily on elective rather than non-urgent care. Moreover, independent providers often do not treat higher risk patients, owing to the fact that they may be managed more appropriately in full service NHS hospitals. NERA built a bottom-up costing model, drawing on independent data for benchmarking and clinical advice, to provide an estimated cost range under various sensitivity scenarios.

The Result

NERA’s analysis suggested that the cost incurred by independent providers of delivering services to the specific HRGs that were investigated are substantially below Monitor’s national tariffs, and still allow for an acceptable rate of return to a private sector independent provider. The CCG used NERA’s evidence in its negotiations with independent providers and negotiated lower prices, which have translated into significant savings and can be deployed to fund other elements of public health care.