In a letter detailing changes to NHS tariffs, NHS chief executive David Flory said advice from clinicians had persuaded the DoH 'that it is not possible to have certainty about which readmissions will or will not be related to the original admission.'
Health secretary Andrew Lansley originally said the policy would end the 'perverse situation' where hospitals discharge patients too early and then get paid when they are readmitted as an emergency.
A number of services will now be excluded from the new policy.
Mr Flory's also letter confirms that in 2011/12 providers will be allowed to offer services below the published tariff price. He reemphasised NHS chief executive Sir David Nicholson's assurance that 'this flexibility is not intended to signal a move to price competition'. Providers will have to prove they are offering a service of equal quality to win contracts, he writes.
Health service experts have almost unanimously warned that encouraging providers to compete on price will lead to a 'race to the bottom' and quality will fall.