Fears have been raised that hospitals will be allowed to compete for NHS patients on the basis of price after the health department said providers with lower costs would be required to charge less for their services.

The move comes less than a year after Andrew Lansley, the health secretary, was forced to remove a clause from his controversial NHS bill which referred to the health regulator’s role in setting “maximum” prices for NHS commissioners.

At the time, Mr Lansley stated: “Our modernisation plans have always been about competition on quality, not on price”.

However, Thursday’s NHS Operating Framework for 2012-13 – which sets NHS targets and financial rules for next year – states that from April commissioners will be obliged to pay a health provider less than the standard NHS tariff price “if the type of patients [it treats] results in it incurring lower costs than the average”.

The new rule is intended to prevent “cherry picking” whereby hospitals with “easier” or less severely ill patients can generate significant profits, because the costs of treating those patients is significantly lower than the standard prices set out in the NHS tariff.

However John Appleby, chief economist at the King’s Fund, a health think-tank, said that in practical terms the rule was a “recipe for arguments and price competition”.

While some hospitals would become embroiled in arguments over whether their lower costs were due simply to their relative efficiency rather than their “easier” patients, others would embrace the chance to undercut competitors by charging less and thereby increase their patient volumes.

“There will be providers saying ‘we can shave a bit off the price and advertise the fact’; then someone else will reduce the prices even further,” Professor Appleby said.

David Worskett, director of the NHS Partners Network which represents private providers to the NHS, told the Financial Times: “I think that this is incoherent in policy terms. It could easily become price competition, but it could also easily disincentivise efficiency.”

The new rule is widely seen as having been developed to target private treatment centres and private hospitals, which generally take less severe patients – not least because they often specialise in non emergency procedures.

A spokesman for Mr Lansley denied the move was intended to introduce price competition, and said the fact the price reductions would be instigated by commissioners rather than providers would ensure that was the case.

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