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Monitor has yesterday published an independent report, Strategic Options for Costing, which it commissioned from PwC. The focus of this report is on the costing information that underpins the current Payment by Results (PbR) system.

Pricing for NHS-funded services will be one of the most important levers that Monitor will have in its new role as Health Sector Regulator. Monitor recently published, An evaluation of reimbursement systems for NHS funded care, a research report from PwC which identified that the information underpinning the current reimbursement system (PbR) requires significant improvement.  To help Monitor understand how this might be achieved, it commissioned this new report on costing.

The PbR system is currently based on reference costs data. All providers submit their costs for each particular service, and prices are then set based on the average across all providers. PwC’s evaluation of the reimbursement system identified that 40% of prices set under PbR change by 10% or more each year. The main cause of these variations in price is variations in costs reported by providers.

Adrian Masters, Monitor’s Director of Strategy, commented, "It is often unclear whether these variations reflect real differences in the cost of providing the service, or ‘artificial’ differences in reported costs arising from different ways of allocating overhead costs to particular services. This new report makes a number of recommendations to help improve reliability and consistency of reported unit cost."

"We are reviewing the findings of this report, and considering how PwC’s recommendations might be taken forward. We are keen to develop our costing strategy as quickly as possible, so that the potential benefits can be realised at the earliest opportunity. Costing data is of course only one aspect of the pricing system, and we are working, together with the NHS Commissioning Board, to develop our broader pricing strategy."

"We are now seeking views on the findings and recommendations in this report.  We will be developing and consulting on our costing proposals and guidance later in the year, taking into account the findings of this report and the feedback received from stakeholders."

Notes for editors

1. For media enquiries please contact Nick Samuels on 0207 340 2446
2. Read the independent report titled: Strategic Options for Costing
3. More information about Monitor's role in regulating prices for NHS-funded care
4. Monitor was established in January 2004. It is independent of government and accountable to Parliament. Monitor's functions and powers are set out in the National Health Service Act 2006 and the Health and Social Care Act 2012.