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You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> Shepherd (On Behalf of 999 Call NHS), R (on the application of) v National Health Service Commissioning Board [2018] EWHC 1067 (Admin) (15 May 2018)
URL: http://www.bailii.org/ew/cases/EWHC/Admin/2018/1067.html
Cite as: [2018] EWHC 1067 (Admin), [2018] PTSR 1900, [2018] WLR(D) 295

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Neutral Citation Number: [2018] EWHC 1067 (Admin)
Case No: CO/5025/2017

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

Hearing at Leeds Combined Court Centre,
1, Oxford Row, Leeds LS1 3BG
Judgment handed down at
Manchester Civil Justice Centre
1 Bridge Street West,
Manchester M60 9DJ
15/05/2018

B e f o r e :

THE HON MR JUSTICE KERR
____________________

Between:
THE QUEEN ON THE APPLICATION OF JENNIFER SHEPHERD (on behalf of 999 CALL NHS)

Claimant
- and -


NATIONAL HEALTH SERVICE COMMISSIONING BOARD

Defendant

____________________

DAVID LOCK QC and LEON GLENISTER (instructed by Leigh Day) for the Claimant
FENELLA MORRIS QC and ROSE GROGAN (instructed by DAC Beachcroft LLP) for the Defendant
FENELLA MORRIS QC and IAIN STEELE (instructed by NHS Improvement Legal Team) for the Second Interested Party
The First Interested Party did not appear and was not represented
Hearing date: 24th April 2018

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

    The Hon Mr Justice Kerr:

    Introduction

  1. In August 2017, the defendant (the Board, also known as NHS England) published a draft contract setting out payment mechanisms for providers of health services, called "Accountable Care Organisations" (ACOs). That draft contract (the ACO contract) provides for a payment mechanism called the "Whole Population Annual Payment" (WPAP), which, as its name suggests, is linked to the number of people living in the area in which the ACO operates.
  2. The claimant brings the claim on behalf of a campaign group called "999 Call for NHS", which campaigns on behalf of NHS patients for high quality NHS services. She objects to the WPAP, broadly on the ground that it abandons the concept of payment by results and reverts to the concept of a block contracting arrangement, where providers are paid a fixed payment without reference to the quality of service they provide as measured by results.
  3. The claimant asserts that the WPAP is not just bad for the quality of service, because it is (in her phrase) "decoupled from the number of patients who are treated or the complexity of the needs of those patients", but also unlawful under the applicable statutory provisions. The Board, supported by the second interested party (Monitor), the statutory regulator, disagrees and submits that use of the WPAP is lawful.
  4. The first interested party did not appear at the hearing. It is a "Clinical Commissioning Group" (CCG) with the function of commissioning NHS services in the Calderdale area, where the claimant lives. It filed an acknowledgment of service supporting the Board's position but indicating that it did not intend to make detailed submissions of its own.
  5. The claimant seeks a declaration that the WPAP set out in the ACO contract would, if included in an NHS commissioning contract, be unlawful and that the legislation does not permit such a payment mechanism. She also seeks an order quashing the decision to publish the ACO contract and an order restraining the Board from permitting CCGs to use the WPAP in any commissioning contract.
  6. On 21 December 2017, Males J granted the claimant permission to proceed on one ground only: the issue of statutory construction which I have to decide, namely (in the words of Males J) "whether the proposed WPAP is a scheme of payment for NHS services which is permitted under the Health & Social Care Act 2012".
  7. Background

  8. The relevant history of NHS funding was not controversial and was provided in a helpful summary annexed to the joint skeleton argument of the Board and Monitor, not disputed by the claimant. I gratefully draw on that summary.
  9. Until the passing of the National Health Service and Community Care Act 1990, health authorities received funding allocations from the Secretary of State, from which they funded NHS services. The 1990 Act paved the way for the introduction of an internal market for NHS services, commissioned by health authorities from providers, which were primarily NHS trusts.
  10. The providers were normally paid under "block contract" arrangements whereby a single contractual payment was made in return for provision of specified services within a particular financial year. This led to a perception that providers lacked incentives to improve performance. From about 2000 onwards, NHS policy documents introduced the concept of "payment by results" (PbR).
  11. The purpose of PbR was to meet the criticism that block contract payments had led to competition based on price alone rather than quality, and that price competition was perceived as not working because the provider is paid the same for a given NHS service irrespective of the quality of the service. Instead, a proposal was developed in 2002 to establish "Healthcare Resource Groups" (HRGs).
  12. HRGs were not groups of people as the uninitiated might think, but "[c]linically meaningful groups of diagnoses and interventions that consume similar levels of NHS resources" (according to a helpful glossary provided to me). During the hearing, examples of HRGs were mentioned, such as a hip replacement or other standard operation or procedure.
  13. The identification of HRGs was intended to lead to the establishment of a standard tariff for particular forms of diagnosis and treatment, regardless of the provider; rather than a payment whose amount depended on which provider was providing the service and in what circumstances.
  14. PbR was implemented nationally with national tariffs for 15 identified HRGs in the 2003-4 financial year. It developed apace from then on; by 2007-8, the "national tariff", as it became known, covered most acute inpatient admissions, outpatient attendances and accident and emergency (A&E) attendances. The policy objective was eventually to eliminate the old block contract arrangements and replace them with PbR arrangements.
  15. A 2010 NHS White Paper called Equality and excellence: Liberating the NHS included proposals for further development of PbR and for introducing a statutory system of price regulation overseen by Monitor, which was to become the statutory regulator. The result was the bill introduced in January 2011, which became the Health and Social Care Act 2012 (the 2012 Act).
  16. During the passage of the bill through parliament, many statements were made to the effect that price competition does not work and that competition between providers should be on the basis of the quality of service provided and not its price. I was referred to some such statements, which I looked at de bene esse.
  17. For example, the minister responsible for the bill in the House of Lords, Earl Howe, stated during a debate on amendments to the bill on 6 March 2012:
  18. "To put matters beyond doubt, the national tariff would be a fixed price, with any competition based on quality and choice, not price. We listened to representations made to us about this, and we amended the Bill to make clear that the tariff would not be based on a maximum price. Of course I understand the points made very ably ... by the noble Lord, Lord Davies, and the noble Baroness, Lady Murphy. We all want to see best value for money for taxpayers in the way that services are provided, but our judgment was that …. that is not the right way to go. Where services were not covered under the national tariff, there would be rules to govern those prices locally. Prices and rules within the national tariff would be legally binding and independently enforceable by Monitor to eradicate any abuses. …
    … The purpose of the tariff is to ensure that providers are reimbursed fairly for the services they provide and to allow competition to be based on quality and not price. …"
  19. That passage broadly described the intended effect of what became the provisions of the 2012 Act debated before me. It clearly indicated the broad intent and purpose of the reforms introduced by the 2012 Act; but I do not think that or any of the other statements shown to me from the debates in the two Houses came near to meeting the Pepper v. Hart criteria for admissibility as an aid to statutory construction.
  20. Law

  21. The 2012 Act added a new section 1A to the National Health Service Act 2006 (the 2006 Act). It required the Secretary of State to exercise his functions in relation to the health service "with a view to seeking continuous improvement in the quality of services …" (section 1A(1) of the 2006 Act); and in discharging that duty, to "act with a view to securing continuous improvement of outcomes that are achieved from the provision of services".
  22. The 2012 Act also modified section 3 of the 2006 Act. A CCG must arrange, to the extent it considers necessary to meet the reasonable requirements of persons for whom it has responsibility, for provision of hospital and other accommodation and medical, dental, ophthalmic, nursing and ambulance services; other "services or facilities" for care of pregnant and breast feeding women and for young children; and such other "services or facilities as are required for the diagnosis and treatment of illness" (section 3(1)).
  23. A new section 3A of the 2006 Act, added by the 2012 Act, conferred a power on CCGs to "arrange for the provision of such services or facilities as it considers appropriate for the purposes of the health service that relate to securing improvement … in the physical and mental health of the persons for whom it has responsibility …" (section 3A(1)(a)), or "in the prevention, diagnosis and treatment of illness in those persons" (section 3A(1)(b)).
  24. In section 275(1) of the 2006 Act, as amended, the definitions there set out include one of "facilities", which "includes the provision of (or the use of) premises, goods, materials, vehicles, plant or apparatus". The word "facilities" bears the same meaning where it appears in Part 3 of the 2012 Act, to which I am coming soon; see section 150(1) of that Act.
  25. The Board, more commonly known as NHS England, was created by section 9 of the 2012 Act, supplemented by a new Schedule A1 inserted into the 2006 Act. It has the function of "arranging for the provision of services for the purposes of the health service in England", in accordance with the 2012 Act (section 9(3)(a)); and must exercise its functions "in relation to [CCGs] so as to secure that services are provided for those purposes", in accordance with the 2012 Act (section 9(3)(b)).
  26. Part 3 of the 2012 Act deals with regulation of health and adult social care services. Chapter 1, beginning with section 61, makes provision about Monitor, established by section 61 as the new name for what had been called more prosaically the Independent Regulator of NHS Foundation Trusts.
  27. Monitor's main duty in exercising its various function is "to protect and promote the interests of people who use health care services by promoting provision of health care services which … is economic, efficient and effective … (section 62(1)(a)), and "maintains or improves the quality of the services" (section 62(1)(b)).
  28. It must exercise its functions "with a view to preventing anti-competitive behaviour … which is against the interests of people who use such services" (section 62(3)) and "with a view to enabling health care services provided for the purposes of the NHS to be provided in an integrated way where it considers that this would … improve the quality of those services … or the efficiency of their provision..." (section 62(4)(a)) and would "reduce inequalities" in access to those services ((b)) or "with respect to the outcomes achieved …" (c)).
  29. Monitor's general duties are supplemented by provisions in section 64 of the 2012 Act, of which subsection (3) defines "health care" as all forms of health care "provided for individuals", whether relating to physical or mental health; and "it does not matter if a health care service is also an adult social care service". By section 64(5), provision of "health care services" for the purposes of the NHS refers to "their provision for those purposes in accordance with that Act [i.e. the 2006 Act]".
  30. In Part 3 of the 2012 Act (see section 150(1)) a "service" includes a "facility" and the word "facilities", it will be recalled, bears the same meaning as in section 275 of the 2006 Act, i.e. it "includes the provision of (or the use of) premises, goods, materials, vehicles, plant or apparatus".
  31. Chapter 4 of Part 3 of the 2012 Act deals with pricing of services. It starts with the provisions at the heart of this case. Section 116(1) obliges Monitor to publish a document called "the national tariff". It then includes detailed provisions about what the national tariff should contain and how health care services to which it refers should or may be priced.
  32. Section 116 provides for "health care services" to be "specified" in the national tariff or not "specified" in it. Broadly speaking, specified health care services are to have "national prices", while non-specified services are to be priced according to "rules", which may be stated in the published national tariff document.
  33. The provisions of section 116 are lengthy and detailed and are supplemented by yet further detail in section 117 enacting "further provision" about the national tariff. The two sections are set out in full as an annex to this judgment, to spare readers from them here.
  34. In section 115 the legislature explains, or tries to explain, what price is payable for, respectively, specified and non-specified services. It provides as follows:
  35. "115 Price payable by commissioners for NHS services
    (1) If a health care service is specified in the national tariff (as to which, see section 116), the price payable for the provision of that service for the purposes of the NHS is (subject to sections 124 and 125) such price as is determined in accordance with the national tariff on the basis of the price (referred to in this Chapter as "the national price") specified in the national tariff for that service.
    (2) If a health care service is not specified in the national tariff, the price payable for the provision of that service for the purposes of the NHS is such price as is determined in accordance with the rules provided for in the national tariff for that purpose."
  36. The reference to sections 124 and 125 in subsection (1) is to provisions allowing agreements or applications for "[l]ocal modifications of prices". A CCG and a provider of a health care service may agree that the price payable for the service shall be "the price determined in accordance with the national tariff for that service as modified in accordance with the agreement" (section 124(1)).
  37. The agreement must be approved by Monitor if it is to have effect (section 124(3)). Monitor may only approve such an agreement if, having applied the methodology which must (see section 116(1)(d)) be included in the national tariff for deciding whether to approve such local price modifications, it is satisfied that without the proposed modification, "it would be uneconomic for the provider to provide the service …" (section 124(5)).
  38. In practice, therefore, prices may only be modified upwards and not downwards under an agreement governed by section 124. If agreement is not reached, Monitor may, applying the same criteria and on the same ground, grant an application by the provider for an (upwards) modification of the price payable to the provider for a particular health care service.
  39. Section 116(2), included within the annex to this judgment, makes provision for the national tariff to include, if Monitor so decides, "rules" under which the commissioner of a health care service which is specified in the national tariff and the providers of that service may agree to vary the specification of the service or the "national price" of the service. Where the variation is of the price, that may be upwards or downwards and is not tied to the "uneconomic" criterion found in sections 124 and 125.
  40. Inevitably, regulations supplement the regime and enact machinery for putting it into effect. The National Health Service Commissioning Board and Clinical Commissioning Groups (Responsibilities and Standing Rules) Regulations 2012 include in Part 5 certain "[s]tanding rules" for "commissioning contract terms".
  41. Regulation 16, among many other rules I need not mention, requires that a "commissioning contract" must contain terms and conditions that ensure that the provider complies with certain duties of candour and co-operation.
  42. Facts

  43. In November 2012, about six months after the 2012 Act received the royal assent, the Department of Health and the NHS published A simple guide to Payment by Results. It included a detailed explanation of the national tariff and how it was intended to operate. It explained that the national tariff is a data driven system that evolves over years because of the need to build up data to establish the necessary HRGs and "currencies", a term meaning a unit of healthcare, which may have the potential to become a "specified" service within the national tariff.
  44. The current incarnation of the national tariff was published by Monitor between 1 April 2016 and 1 April 2017. It has effect for the two year period from 1 April 2017 to 31 March 2019. It runs to 120 pages and includes the required classifications of currencies, specified services, national prices, the method for determining national variations to those prices, the principles applicable for determining locally determined prices and the rules for billing and payment.
  45. On 4 August 2017, the Board published a draft version of the ACO contract, which it describes in its detailed grounds of defence as "a prototype variant of the NHS Standard Contract that may in the future be used as a model commissioning contract", intended for use by CCGs to commission health care services for NHS users living in their area.
  46. The ACO contract is intended to provide for purchase of services in "an integrated service model from a single organisation known as an ACO". It includes a payment mechanism consisting of a WPAP. According to the Board and Monitor, population-based single payments known as "block contracts", of which WPAP is a form, are currently in use by CCGs and are regarded as permissible.
  47. The characteristic of the WPAP is that the single annual payment does not involve paying on the basis of the number of patients actually treated during a particular payment period, nor, necessarily, on the type of services provided to patients. The amount of the payment is the same irrespective of the number of patients to whom services are delivered and irrespective of the type of services provided to those patients. However, it is intended that the calculation of the amount payable as the WPAP will be influenced by treatment activity in previous financial years and forecast future activity.
  48. These are matters which will be taken into account when determining and agreeing any adjustment to the WPAP year on year, as well as fluctuations or expected fluctuations in population or other demographic features and expected or actual variations in the types of NHS services offered to patients by a particular ACO. It appears that, within parameters established in the standard ACO contract, there will be an element of commercial negotiation between providers and CCGs when agreeing the amount of the WPAP.
  49. The standard ACO contract published in August 2017 is in three parts. The first is entitled NHS Standard Contract (Accountable Care Models) 2017/18 and 2018/19 – General Conditions. As the title implies, it contains generic terms. General Condition 11 (GC 11) provides that the commissioner (the CCG) will pay to the provider (the ACO):
  50. "11.1 … as full consideration for all Services that the Provider delivers and performance of all other obligations on the part of the Provider under this Contract:
    11.1.1 the Whole Population Annual Payment; and
    11.1.2 the Activity-Based Payments."
  51. The latter payments are, as the phrasing suggests, payments based on activity and thus outside the scope of the WPAP. There is no complaint about that aspect of the payment mechanism.
  52. GC 11.1A then states:
  53. "The WPAP and the Activity-Based Payments constitute in whole or part a Local Variation agreed in accordance with the rules set out in the National Tariff. That Local Variation and any subsequent Local Variation reflecting any agreed adjustment to the WPAP and/or the Activity-Based Payments must be recorded … and published in accordance with section 116(3) of the 2012 Act."
  54. The WPAP is then adjusted with effect from each "Review Date", "in accordance with Schedule 4B" (GC 11.2). The adjustment must be (see GC 11.3) "determined and agreed in accordance with the rules set out in the National Tariff (where applicable) and having regard to the Integrated Budget Handbook [evidently another document, not shown to me]." The parties must use "all reasonable endeavours" to reach agreement, failing which there are dispute resolution procedures. Finally, agreed adjustments must be "recorded in Schedule 4A" and published (GC 11.7).
  55. The actual figures are set out in the other part of the ACO contract, entitled NHS Standard Contract (Accountable Care Models) 2017/18 and 2018/19 – Particulars. It includes among its schedules those just mentioned, Schedule 4A (blank in the draft before me) setting out the WPAP, monthly payments, projections for future years and allocation between different CCGs; and Schedule 4B (also blank in the draft before me) which is to cover scheduled review and adjustment, adjustment on scheduled variations to scope and population, adjustment on unscheduled variations to scope and population and adjustment to "account for unforeseen demographic changes".
  56. At around the same time (August 2017), the Board published an updated version of an explanatory document first published in December 2016, entitled New care models – Finance and Payment Approach for ACOs; and a further document called New care models – Whole population models of provision: Establishing integrated budgets. These included detailed financial narratives dealing with the concept of an integrated budget, also called a "Whole Population Budget" (WPB).
  57. The idea, at its simplest, is that the budget is worked out for the whole of the population in the care provider's area and is paid in respect of the totality of the health care services the provider expects to provide during the budget period. The process by which the budget is calculated is, of course, a complex exercise starting from baseline figures including, most significantly for present purposes, the population served by the ACO in the area in which it provides health care services.
  58. Consultation on proposed changes to regulations, to facilitate the operation of the ACO contract, took place from 11 September to 3 November 2017. At the time of the hearing, the Secretary of State had published his response to that consultation and was considering the responses received during the consultation exercise. When the case was argued before me, he was still considering issuing further directions required to implement the ACO contract.
  59. Submissions

  60. Mr David Lock QC, for the claimant, submits that it is unlawful for a contract between a CCG and an ACO to include the WPAP as a payment mechanism. The main points he made in support of that contention were the following:
  61. (1) the statutory provisions require payment to be made for a particular service; payment using the WPAP mechanism does not set a price for any particular service; instead, a global amount is, impermissibly, paid irrespective of what services are actually provided.

    (2) Where the service in question is a "specified" service, payment by means of the WPAP, contrary to the statutory provisions, does not remunerate the provision of that service in accordance with the national price for the service set by or in accordance with the national tariff.

    (3) Where the service is not a "specified" service, payment by means of the WPAP, contrary to the statutory provisions, does not remunerate the provision of that service by applying the rules set out in the national tariff for determining the amount payable in respect of it.

    (4) The WPAP fails to respect the delineation between specified and non-specified services, treating them alike and remunerating them en bloc as part of the same annual payment under the WPAP, instead of observing the distinction between the two types of service required by the legislation and the national tariff.

    (5) A lawful mechanism for payment would require identification of the number of patients treated and the type of service or treatment given to each. Furthermore, the national tariff requires differentiation of payments as between payment for primary care and for secondary care; the former are not included within the national tariff at all.

  62. Mr Lock argued that the words "price payable for the provision of that service", in section 115(1) of the 2012 Act and repeated in section 115(2), create a statutory duty owed by the CCGs to pay the amount determined as the price for that service. That duty could not be performed, he submitted, by providing for a single annual payment for a whole group of services, both specified and unspecified, comprising both primary and secondary care.
  63. He argued that the definition of "health care" (section 150 and 64 of the 2012 Act) refers to health care "provided for individuals" and that accordingly a "health care service" within section 115 can only refer to a service provided to an individual patient. It cannot refer generically to a bundle of unquantified and unknown services based on estimations of what future treatments, etc, will be provided to a body of patients within the ACO's geographical area.
  64. According to Mr Lock's submissions, the duty to pay for a specified service, enacted by section 115(1), is a duty to pay the price "determined in accordance with" the national tariff and "on the basis of" the price specified therein. If, he reasoned, an overall price is determined in accordance with the formulae used to set the WPAP, the specified services referred to in section 115(1) are not paid for at a price "determined in accordance with" the national tariff, nor "on the basis of" the national price specified therein.
  65. The only exception to this statutory requirement, said Mr Lock, is where an upwards modification approved by Monitor is made, applying the provisions of section 124 or section 125. As I understand his argument, it is that a variation of the price of a specified tariff service under section 116(2) of the 2012 Act requires the consent of Monitor because it has to proceed by way of an agreement to modify the price under section 124 of the 2012 Act.
  66. In the case of services that are not specified in the national tariff, Mr Lock submits that section 115(2) imposes a statutory duty to pay a price for the service "determined in accordance with the rules" set out in the national tariff for determining that price. Use of the WPAP would, he argued, violate that mandatory requirement because the applicable rules in the national tariff would be by-passed and replaced by the indiscriminate block payment which does not relate to a particular service provided to a particular patient.
  67. Mr Lock submitted that the Board's and Monitor's interpretation of the provisions – that section 116(2) enables variations of specified tariff services or their price and operates separately and independently from the regime in sections 124 and 125 – would render that latter regime redundant. Furthermore, the WPAP could not be a variation of service specifications and prices using the section 116(2) route. The WPAP does not do so; it substitutes a block price not linked to services (or their price) at all; and remunerates unspecified services, not within section 116(2), as well as specified ones.
  68. More fundamentally, he argued that the WPAP is a payment system that encourages competition based on price, elimination of which was the avowed purpose of the new provisions in the 2012 Act. The provisions on pricing and specification of services ought to be interpreted in a manner that gives effect to that purpose and not in a way that undermines it.
  69. For the Board and Monitor, Ms Fenella Morris QC made the following main points. She emphasised the breadth and flexibility of the discretions conferred on Monitor with regard to pricing and the national tariff. These are set out in the detailed provisions in the various subsections of sections 116 and 117 of the 2012 Act. Those provisions, she contended, are intended to provide the maximum possible latitude to Monitor in relation to the setting of prices under (and by reference to rules in) the national tariff.
  70. Ms Morris submitted that the WPAP is permitted under the provisions of the 2012 Act and the national tariff. It does not calculate the amount of payment due according to the number and type of services; but the amount due is payable in respect of a defined population and in respect of services identified in the ACO contract over a defined period, in accordance with national tariff rules and with reference to (where applicable) national tariff prices.
  71. Thus, taking the example of a patient admitted for cataract surgery: in the first year of the ACO contract, the WPAP payable to the ACO will have been calculated by reference to activity levels in the previous year, including the number of cataract operations performed in that year and the national tariff price for that (specified) service.
  72. The amount paid will not be calculated by reference to an individual episode of cataract surgery; it will form part of a monthly instalment of WPAP payment. The number of cataract operations actually performed in the payment year may then inform the amount of WPAP payable for the following year, in accordance with the process for setting ACO contract terms.
  73. Ms Morris submitted that a "health care" "service" need not be an episode of treatment of an individual patient. The service must be for "individuals", but that does not mean it must be priced for each individual treatment episode. Thus, provision of an A&E department could be a health care service. It provides treatment to individuals but the service can be the provision of the A&E facilities; services include facilities, i.e. "premises, goods, materials, vehicles, plant or apparatus" (section 275(1) of the 2006 Act).
  74. Health care services can also be bundled together in groups; they do not have to be priced individually, she argued by reference to section 117(1). The specifications of those services that are specified in the national tariff, as well as their price, may be varied under section 116(2). Furthermore, a service may be priced in more than one way, either by reference to a national price, or in accordance with rules contained in the national tariff.
  75. Ms Morris contended that there is no requirement in the pricing provisions of the 2012 Act that requires services to be specified and priced based on measuring the level of activity undertaken. The prices can also legitimately be set by reference to the capacity of the ACO to provide the service or services in question, as occurs where the WPAP is used. Nothing in the 2012 Act prevents this pricing method from being used.
  76. Next, she submitted that determination of prices "in accordance with" and "on the basis of" the national tariff price (under section 115(1)) or "in accordance with" rules provided for in the national tariff (under section 115(2)) does not mean that the actual price for a service or services must merely copy the national tariff price, where there is one.
  77. The national price, Ms Morris pointed out, may be varied locally pursuant to national tariff rules made under section 116(2) (local variations); or it may be varied "by reference to the circumstances in which the service is provided" (section 116(4)(a)) (national variations). The claimant was wrong to submit that the only way of varying the national price for a specified service is by operating the procedure under section 124 or 125 of the 2012 Act.
  78. Furthermore, in the case of non-specified services the prices of those services are determined under section 115(2) in accordance with rules contained within the national tariff. Ms Morris submitted that those rules, as set out in the current version of the national tariff, do not mandate the use of fixed prices for specific individual treatment episodes; the prices can vary over time and need not remain constant.
  79. Ms Morris disputed the claimant's proposition that the statutory provisions enacted a statutory duty on the CCG to pay to the ACO the price determined under the statutory provisions for the service in question. She argued that the source of the obligation to make the payment was not the statute, but the ACO contract; all the statute did was to regulate and shape the process for determining what the contract terms are.
  80. She contended that sections 124 and 125 providing for (upwards only) modifications of prices where Monitor is satisfied it would be "uneconomic" to continue providing a service at the previously agreed rate, operate separately from the provision for local variations agreed under section 116(2). The latter do not require Monitor's approval; may vary the price downwards; do not require continued provision of the service to be "uneconomic"; and the specification of the service as well as its price may be varied.
  81. Finally, Ms Morris said the statements in parliament that price competition should no longer occur were not inconsistent with the Board and Monitor's construction of the legislative provisions; the flexibility within the price setting powers in sections 116 and 117 gave encouragement to competition based on quality. The WPAP was not inimical to such competition: innovation could be rewarded over time by changes to the WPAP, which could be negotiated on the basis of (among other things) increased service provision in the preceding year.
  82. Reasoning and Conclusions

  83. I start by reminding myself that the issue I have to decide is one of pure statutory construction. There is no Padfield challenge before the court; therefore, I can discount any suggestion that the statutory powers of the Board and Monitor are being misused in a manner intended, without breaching the letter of the law, to promote an ulterior purpose that is contrary to the true purpose of the provisions.
  84. The use of the WPAP in an ACO contract is therefore, straightforwardly, either unlawful or lawful. If it is capable of operating in a manner that accords with the statutory regime, the claim must fail. But if, conversely, the provisions cannot lawfully accommodate use of the WPAP as a payment mechanism, the court should say so by granting appropriate relief.
  85. At present, the ACO contract is in draft. There is no doubt that use of the WPAP is intended, subject to further consideration, to form a substantial part of the payment mechanism that will eventually be put in place. That should only happen if use of the WPAP is lawful.
  86. In considering whether it is lawful or not, I turn first to the question what is meant by a health care service in the statutory provisions. The phrase is split into two parts: "health care" and "service", but they are closely linked. The first expression, health care, refers (see section 150(1) and 64(3) of the 2012 Act) to health care "provided for individuals", whether relating to physical or mental health.
  87. Section 64(3) adds the further (probably superfluous) words: "a reference in this Part to health care services being read accordingly… ." Taking no chances, the drafter then added section 64(5): "[a] reference to the provision of health care services for the purposes of the NHS is a reference to their provision for those purposes in accordance with that Act [the 2006 Act]."
  88. What are "services" in this context? They are those which a CCG must arrange under section 3(1) of the 2006 Act to the extent necessary to meet the reasonable requirements of persons for whom it has responsibility: namely, hospital and other accommodation and medical, dental, ophthalmic, nursing and ambulance services; and other "services or facilities" for care of pregnant and breast feeding women and for young children; and such other "services or facilities as are required for the diagnosis and treatment of illness".
  89. I think "services" also includes discretionary services provided under section 3A(1) of the 2006 Act, namely "such services or facilities as it [the CCG] considers appropriate for the purposes of the health service that relate to securing improvement … in the physical and mental health of the persons for whom it has responsibility …" (section 3A(1)(a)), or "in the prevention, diagnosis and treatment of illness in those persons" (section 3A(1)(b)).
  90. Furthermore, although section 3 and 3A both speak of "services or facilities", in these over-articulated provisions section 150(1) of the 2012 Act goes on to state that "'service' includes facility" and that "facilities" has the meaning it bears in section 275 of the 2006 Act which includes provision or use of "premises, goods, materials, vehicles, plant or apparatus".
  91. Such a rich profusion of superfluous and overlapping definitions is inconsistent with the claimant's narrow conception of a health care service as a simple singular treatment episode of one patient. It does not follow that, because the definition of "health care" (section 150(1) and 64(3) of the 2012 Act) refers to health care "provided for individuals", a "health care service" within section 115 can only refer to a service provided to an individual patient.
  92. By the same reasoning, I accept the submission of Ms Morris that the health care services referred to in section 115(1) and (2) of the 2012 Act include making available resources to enable medical procedures to be performed, such as providing an A&E department or ambulance transport, as well as specific treatments such as a hip replacement or cataract surgery.
  93. The next point is that health care services can be "bundled" together or kept separate and their shape may be moulded in accordance with the liberal and permissive provisions in the detailed subsections of sections 116 and 117. The following features demonstrate how flexible is the process of delineating and remunerating services:
  94. (1) the national price for a service may vary depending on the circumstances in which it is provided or other factors relevant to its provision (section 116(4)(a)).

    (2) By a bizarre provision (section 116(5)), rules "may specify health care services which are not specified under subsection (1)(a)". While the drafting lacks clarity, it cannot mean a service may be specified and not specified at the same time; it could mean that non-specified services may become specified.

    (3) The same service may be specified in more than one way and rules can determine which specification of the service is to apply in particular situations or circumstances (section 116(6)).

    (4) Services with the same specification may command different remuneration rates or price variants depending on what type of provider is providing the service (section 116(9) and (10)), e.g. depending on whether the provider is in the public or private sector (section 116(10)(a)).

    (5) Services may be specified by reference to their "components" (section 117(1)(a)) or as a "bundle" that "comprises two or more health care services which together constitute a form of treatment" (section 117(1)(b)) or as a "service in a group of standardised services" (section 117(1)(c)).

  95. The next matter that must be considered is how health care services, widely conceived as they are in the statutory provisions, are to be remunerated. Initially, this depends on whether the service in question is "specified" or not. If it is, the governing provision is section 115(1) of the 2012 Act. If it is not, the governing provision is section 115(2).
  96. I reject the submission of the claimant that the words appearing in both subsections ("the price payable for the provision of that service … is") create an independent statutory duty owed by the CCG to the ACO to pay the amount due. There is no good reason why those words should confer a right on the ACO to sue the CCG for the amount due.
  97. The chosen mechanism for delivering services is by means of an ACO contract, which may be a particular type of "NHS contract" as provided for in section 9 of the 2006 Act; i.e. it is "an arrangement under which one health service body ('the commissioner') arranges for the provision to it by another health service body ('the provider') of goods or services which it reasonably requires for the purposes of its functions." (section 9(1)).
  98. These NHS contracts are created pursuant to statute but they are contracts nonetheless and enforced as such. I accept the submission of the Board and Monitor that the source of a CCG's obligation to pay an ACO for a service provided is the ACO contract and not the statutory provisions: the obligation to pay is contractual not statutory.
  99. I also reject the submission of the claimant that the "tariff" refers merely to the going rate for a particular episode of treatment. Mr Lock referred to the dictionary definition of "tariff" in the Shorter Oxford Dictionary, which refers to "[a] table or scale of fixed charges … as a list of prices …". But it is clear from the statutory scheme that the "national tariff" is much more than that and indeed that the expression "national tariff" is in part a misnomer.
  100. The national tariff is, first, a published document and as such not a tariff at all. Second, it is an amorphous collection of rules and guidance that may be diffuse and far removed from a rigid list of prices or scale rates. The claimant's characterisation of the national tariff and the charging regime do not do justice to the fiscal complexities and the fluidity of the regime.
  101. The breadth of "health care services" and the ways in which they may be remunerated, point to a wide and liberal interpretation of the link phrases "in accordance with" and "on the basis of" in section 115(1); and of the same phrase, "in accordance with", in section 115(2); which I prefer to the narrow and rigid interpretation advocated by the claimant.
  102. If the provisions simply required there to be a fixed price per patient treatment episode, I would expect the provisions to state that the price payable is such price as is fixed by the national tariff; and I would expect the national tariff to consist of fixed prices as suggested in the dictionary definition in the Shorter Oxford Dictionary. The reality of the regime and the provisions is otherwise.
  103. Does use of the WPAP as a method of remunerating health care services offend against the provisions, thus interpreted? In my judgment, it does not. It is true that the WPAP does not enable an observer to determine in advance how much is to be paid for an individual treatment episode and may not enable identification of the amount paid in respect of each service within a bundle of services that are grouped together.
  104. But I do not think that makes the WPAP unlawful. I accept the submission of Ms Morris that nothing in the statutory provisions prevents remuneration according to an estimate of the capacity of the ACO to provide a service or services (specified or not specified), rather than by fixing a price for the actual provision of that service or those services.
  105. Thus, by way of example, a CCG might agree to pay a WPAP of £X million to an ACO in respect of the financial year 2020-2021, for providing a raft of services - let us suppose, 20 or 30 bundled up services ranging from hip replacements to MRI scans to A&E provision to ambulance transport to cataract surgery, etc. The services are then provided as required during that financial year.
  106. The payment of £X million in return for providing them is the price payable under the ACO contract. That price is calculated by reference to the local population in the ACO's area. Once it is appreciated that section 115 does not require visible prices fixed in advance for each individual treatment episode, it becomes apparent that such an arrangement does not breach section 115.
  107. Nor do I accept that the WPAP fails to respect the delineation between specified and non-specified services. The services remunerated in accordance with the WPAP in the manner just described, may be specified or unspecified or a mixture of the two.
  108. I do not accept that the payment systems used when applying the national tariff require differentiation as between payment for primary and secondary care. The claimant says the former are outside the national tariff regime altogether. This is true of many not all primary care services, but that is by virtue of provisions in the current national tariff. There is no statutory exclusion of primary care services from the scope of the national tariff, as explained by the Board and Monitor in their skeleton argument.
  109. As to variation of prices, it is clear and obvious that a variation under section 116(2) of the 2012 Act is a separate and distinct process from a modification under section 124 of 125. The latter is there to protect providers against unexpected losses if they find themselves unable to provide a contracted service at the price agreed without the provision being "uneconomic". The former is intended for use during ordinary commercial negotiations in normal economic conditions.
  110. I should add that where section 116(2) is used, there must be a pre-existing pricing regime contained within the national tariff. An ACO contract cannot "vary" a price that has never been specified in the first place. The current draft ACO contract may need adjusting to deal with this possible difficulty. But as long as there is a pre-existing pricing regime that can be varied, there is no difficulty in relying on section 116(2) to underpin the variation.
  111. Finally, the claimant complains that the WPAP imposes budgetary control at the expense of not being "demand led": the ACO does not know how many hip replacements it will have to fund from its fixed budget. This, the claimant argued, encourages the very price competition which the 2012 Act was supposed to banish and which, politicians have said publicly, does not work.
  112. That is a political objection and is not a matter for the court. There are no doubt advantages and disadvantages to every payment system. The WPAP can be judged in the political arena but this court does not find anything unlawful in its use as the law stands.
  113. Disposal

  114. The claim therefore fails and is dismissed. Under a costs capping order made by Males J, the claimant's costs liability is capped at £25,000. On 3 April 2018, His Honour Judge Davis-White QC made an order that the claimant pay the costs of an unsuccessful application for directions including transfer of the case to London to be heard with another case pending there.
  115. HHJ Davis-White QC did not vary the costs capping order, nor mention it in his written reasons. It seems to me that the making of that order does not prevent the £25,000 cap from remaining in place and that the costs payable by the claimant, as ordered by the judge, are included within the capped liability.
  116. I will therefore limit the claimant's costs liability to the sum of £25,000. That sum, or such lesser sum as may be agreed or assessed by the court, is payable to the defendant. The interested parties have not sought any order for costs in their favour.
  117. Annex: sections 116 and 117 of the 2012 Act

    116 The national tariff

    (1) Monitor must publish a document, to be known as "the national tariff", which specifies—

    (a) certain health care services which are or may be provided for the purposes of the NHS,

    (b) the method used for determining the national prices of those services,

    (c) the national price of each of those services, and

    (d) the method used for deciding whether to approve an agreement under section 124 and for determining an application under section 125 (local modifications of prices).

    (2) The national tariff may provide for rules under which the commissioner of a health care service specified in the national tariff and the providers of that service may agree to vary—

    (a) the specification of the service under subsection (1)(a), or

    (b) the national price of the service.

    (3) Where a variation is agreed in accordance with rules provided for under subsection (2), the commissioner of the service in question must maintain and publish a written statement of—

    (a) the variation, and

    (b) such other variations as have already been agreed in accordance with rules provided for under that subsection in the case of that service.

    (4) The national tariff may also—

    (a) specify variations to the national price for a service by reference to circumstances in which the service is provided or other factors relevant to the provision of the service,

    (b) provide for rules for determining the price payable for the provision for the purposes of the NHS of health care services which are not specified under subsection (1)(a), and

    (c) provide for rules relating to the making of payments to the provider of a health care service for the provision of that service.

    (5) Rules provided for under subsection (4)(b) may specify health care services which are not specified under subsection (1)(a).

    (6) The national tariff may also provide for rules for determining, where a health care service is specified in more than one way under subsection (1)(a) or in more than one way in rules provided for under subsection (4)(b), which specification of the service is to apply in any particular case or cases of any particular description.

    (7) The national tariff may include guidance as to—

    (a) the application of the method specified under subsection (1)(d),

    (b) the application of rules provided for under subsection (2), (4)(b) or (6),

    (c) the discharge of the duty imposed by subsection (3), or

    (d) the application of variations specified under subsection (4)(a),

    and a commissioner of a health care service for the purposes of the NHS must have regard to guidance under this subsection.

    (8) Different methods may be specified under subsection (1)(b) for different descriptions of health care service.

    (9) The national tariff may, in the case of a specified health care service or health care services of a specified description, specify different national prices or different variations under subsection (4)(a) in relation to different descriptions of provider.

    (10) A description for the purposes of subsection (9) may not be framed by reference to—

    (a) whether the provider is in the public or (as the case may be) private sector, or

    (b) some other aspect of the status of the provider.

    (11) The national tariff may not specify a national price for a health care service provided pursuant to the public health functions of the Secretary of State, or of a local authority, under the National Health Service Act 2006.

    (12) The national tariff has effect for such period as is specified in the national tariff (or, where a new edition of the national tariff takes effect before the end of that period, until that new edition takes effect).

    (13) In exercising its functions under this Chapter, Monitor must (in addition to the matters specified in section 66) have regard to the objectives and requirements for the time being specified in the mandate published under section 13A  of the National Health Service Act 2006.

    117 The national tariff: further provision

    (1) The ways in which a health care service may be specified in the national tariff under section 116(1)(a), or in rules provided for in the national tariff under section 116(4)(b), include in particular—

    (a) specifying it by reference to its components,

    (b) specifying it as a service (a "bundle") that comprises two or more health care services which together constitute a form of treatment,

    (c) specifying it as a service in a group of standardised services.

    (2) In the case of a service specified in the national tariff under section 116(1)(a), the national tariff must—

    (a) if the service is specified in accordance with subsection (1)(a), specify a national price for each component of the service;

    (b) if it is specified in accordance with subsection (1)(b), specify a national price for the bundle;

    (c) if it is specified in accordance with subsection (1)(c), specify a single price as the national price for each service in the group.

    (3) In the case of a service specified in rules provided for in the national tariff under section 116(4)(b), the rules may—

    (a) if the service is specified in accordance with subsection (1)(a), make provision for determining the price payable for each component of the service;

    (b) if it is specified in accordance with subsection (1)(b), make provision for determining the price payable for the bundle;

    (c) if it is specified in accordance with subsection (1)(c), make provision for determining the price payable for each service in the group.

    (4) Where the commissioner of a health care service for the purposes of the NHS agrees to pay a price for the provision of the service other than the price that is payable by virtue of this Chapter, Monitor may direct the commissioner to take such steps within such period as Monitor may specify to secure that the position is, so far as practicable, restored to what it would have been if the commissioner had agreed to pay the price payable by virtue of this Chapter.

    (5) Where the commissioner of a health care service fails to comply with rules provided for under section 116(2) , (4)  or (6), Monitor may direct the commissioner to take such steps within such period as Monitor may specify—

    (a) to secure that the failure does not continue or recur;

    (b) to secure that the position is, so far as practicable, restored to what it would have been if the failure was not occurring or had not occurred.


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