§ Mr. Webb
To ask the Secretary of State for Health what assessment he has made of the costs of(a) elective acute activity and (b) non-elective acute activity at North Bristol NHS Trust; how these compare with the tariff payments that he proposes to make for such services; what the effect 1024W on the money available to North Bristol NHS Trust would be if the payment by results policy was implemented immediately; and if he will make a statement on his plans for transition to the new arrangements. 
§ Mr. Hutton
[holding answer 27 April 2004]: The Department annually collects retrospective cost and activity data from all English national health service trusts, including collections of elective in-patient, non-elective in patient, and day case activity. The national tariff for 2004–05 includes some 550 or so healthcare resource groups (HRGs) covering activity in these categories. HRGs are groups of procedures and treatments that are clinically similar and involve similar use of resources.
Though the tariff is based on national average reported costs (Reference Costs), it is not meaningful to make direct comparisons between the two because of the prospective nature of the tariff. For example, the latest reference costs refer to 2002–03, and the tariff to 2005–06. However a realistic guide to the relative cost efficiency of a NHS Trust is given by the National Reference Cost Index (RCI). The RCI gives a single figure for each NHS trust which compares the actual cost of its activity with the same activity at national average cost. The 2002–03 RCI score for North Bristol NHS Trust indicates that across the board its activity costs are 26 per cent. above the national average. This reflects the significant extra unplanned expenditure incurred by the trust in that year.
Payment by results began in a small way in 2003–04, is extended in 2004–05, and becomes fully operational in 2005–06. There will be a further three-year transition period to full impact of the new system until 2008, during which the effect of the tariff will be phased to allow trusts to adjust local costs so as to be able to live within the tariff.
We anticipate there may be some NHS trusts that will not be able to reduce costs to the extent necessary. The numbers in this position are likely to be very few as new and better costing and HRG definitions are introduced, and when the system has been fine-tuned to take account of exceptionally expensive patients not well covered by the tariff. We also recognise that where organisations are recovering an accumulated deficit, recovery plans will need to be revisited in the light of transition.
Latest thinking on how these and a number of other operational issues might be resolved in practice is described in the Department's formal response to the latest round of consultation on payment by results, which will be published shortly. Final guidance will be issued later this year in time to inform the normal planning and contracting processes for 2005–06.