Abstract :
The English government has encouraged private providers – known as
Independent Sector Treatment Centres (ISTCs) – to treat publicly funded (NHS)
patients. All providers are to be remunerated under a prospective payment
system that offers a price per case treated, adjusted by the Market Forces Factor
(MFF) to reflect geographical variation in specific input costs. This payment
system presupposes that any remaining cost differentials between providers
result from inefficiencies. However, the validity of this assumption is unclear.
This article describes the constraints that could cause public and private provider
costs to differ for reasons outside their control. These constraints may be
regulatory in nature, such as taxes and performance management regimens, or
relate to the production process, such as input costs, the provision of emergency
care, and case mix issues. Most of these exogenous cost differentials can be
rectified by adjustments either to the regulatory system or to the payment
method. However, differences in capital costs appear less tractable and further
investigation into possible solutions is warranted
