Many people who work in and around the NHS will know about something called the national tariff. For those not in the know, this is the payment system which determines how hospital, ambulance, mental health and community services are paid, and it covers £72 billion of NHS healthcare spend, over 60% of the Department of Health’s budget. So it is a very big deal, and one that has a direct impact on frontline care but it is often difficult to translate that in to what it means for patients.

When the tariff is published once a year, the hundreds of pages put off even the finance teams in providers and commissioners responsible for implementing the policy, so it is hardly surprising that patients have little interest or concern in it. In part this level of detail is necessary but the complexity surrounding the policy reinforces the perception that the tariff is best left to experts, undermining the necessary accountability and engagement that would accompany other policy instruments of this kind.

The national tariff is a very big deal, and one that has a direct impact on frontline care - but it is often difficult to translate that in to what it means for patients.

To put it simply, the national tariff is the largest single policy instrument in the NHS affecting NHS finances, and we only need to remind ourselves how the NHS provider sector is currently performing (already £930m in deficit at the end of quarter 1), to know that tariff is not working properly. For the past five years, NHS trusts have had to cope with reductions in the prices they receive for the work they do, as the national tariff has been one of the levers pulled to help the NHS live within its means.

It is a difficult balance to strike – providers can and need to become more efficient, and therefore the urge to set an ambitious efficiency requirement through the tariff is understandably high. But as a signal to be used in the long term, it is not appropriate or effective, and we now need a different approach as we have consistently argued for. Providers have not been able to take costs out of their services at the same pace and scale as prices have been reduced, and this is now starting to bite.

It is also not enough for providers to simply cover their costs. If providers are unable to generate a surplus from their work, they are unable to transform services, invest in new innovative technology and equipment or simply ensure that their facilities continue to be fit for purpose. I recently learned of a hospital which was put under pressure to postpone investment to replace 50-year-old operating theatres in order to improve its financial position in 2015/16. None of these considerations are in the best interests of patients, but are inevitable discussions providers will need to have if their services are not funded appropriately.

For all these reasons, the national tariff currently includes a vital safety value  – an objection mechanism. At the moment, if the majority of providers (or commissioners) object to the tariff proposals, NHS England and Monitor are required to revise and reconsult or to refer to the Competition and Markets Authority. Last year, it was triggered for the first time by 137 providers (providing 75% of NHS work). This was a signal from the NHS frontline that they could not guarantee sustainable standards and safe care without substantial changes to the way they were paid.

Unfortunately, this vital safety valve is now being revised. The government has put forward regulations to change the conditions under which the mechanism is triggered. The proposals will mean that even if every NHS trust were to object to the proposals in the future, it would not be enough to trigger a formal revision of the proposals. This is because NHS organisations only account for 62% of all provider organisations in England (and the minimum threshold will be set at 66%). But collectively these NHS organisations account for over 95% of all NHS services covered by the tariff, making this change seem unjustified. It will mean disenfranchising the NHS in having a voice in the very rules affecting their ability to provide care to millions of patients.

Understandably the vast majority of the sector are not in favour of these changes – 65% of respondents to a consultation in the autumn were against removing the ‘share of supply’, undermining a valuable principle for the organisations greatest affected by the proposals should have the most significant say. Furthermore, 82% were in favour of maintaining the objection threshold at half of all providers and commissioners.

We urge the Department of Health and national bodies to provide greater assurances about how the sector will be meaningfully involved in negotiation, consultation and engagement on the national tariff in the future

The Department of Health, together with NHS England and Monitor, are concerned about how the mechanism was used last year. Yes, it led to delays, caused some uncertainty in the system but it ultimately led to proposals being revised, with an additional £500 million being transferred from the commissioner to the provider sector. We would be facing an even more untenable financial position if the original proposals had been implemented.

All this sounds very adversarial and in some ways missing the fundamental point. Ideally a formal objection should never be necessary if we consult and engage in effective and meaningful ways with providers, commissioners and patients in the first place. But when NHS funding is squeezed, setting the tariff becomes an art rather than a science and we have to ensure that the very difficult decisions Monitor and NHS England make are open to scrutiny and challenge. In this way the tariff setting process becomes as important for patients as it is for providers, and we all need to be aware of the implications it has on frontline services if we get it wrong.

As the regulations are discussed and debated in parliament, we urge the Department of Health and national bodies to provide greater assurances about how the sector will be meaningfully involved in negotiation, consultation and engagement on the national tariff in the future. This, rather than changing the objection mechanism, would have done so much to build bridges with the provider sector that are so desperately needed.