This year PbR will cover around 1,300 separate types of activity; account for between 40 per cent to 50 per cent of the total incomes for many hospitals; and amount in total to around £29 billion, about a quarter of the entire NHS budget in England.
In many ways PbR has been a tremendous success. The scale of its implementation has been impressive, rivalling most other countries’ attempts to implement similar systems. The technical issues that had to be addressed – from defining the ‘product’ to designing the fixed tariff without causing instability across the NHS – were substantial.
A national evaluation of PbR also showed that it had succeeded in boosting activity, reducing lengths of stay, and encouraging more day cases over inpatient work. At a minimum it appears not to have reduced quality of care.
And yet – the more we have got to know about how PbR and similar payment methods in other countries operate in practice – coupled with big changes in the economic, financial and policy context that have occurred since PbR was originally designed – the more there seems to be a case for a rethink.
A key goal for PbR, in those days when the NHS was receiving one of the biggest funding boosts in its history, was to encourage hospitals to do more work in order to reduce waiting times. But now, and for the foreseeable future, the goals – and the financial environment – have changed. A payment system that rewards doing more for more is less and less appropriate.
There are some general lessons we have learned too.
First, payment systems cannot do everything: they are one of many levers that can be used to achieve change. Second, one size does not fit all. Different services will need different ways of paying providers in order to meet different sets of objectives. Related to this is a third point that any payment system needs to be flexible – to deal with unexpected shocks, or unpredicted outcomes. There needs to be flexibility too between national rules and frameworks and local discretion and experimentation. Importantly, different types of care and different patients – from a knee replacement operation for the otherwise healthy 50 year old to ongoing episodic care for a 75 year old with multiple long-term needs – will require different payment approaches to give the right incentives to providers to deliver high quality cost-effective care.
Finally, we must find out more about how different payment systems operate in practice in different situations. Further developments in payment approaches will need to be supported by high-quality data and analysis or they will lack compliance and risk leading to unintended and unwanted side effects.
The NHS Commissioning Board and Monitor will soon be taking on the design and pricing functions of PbR. So how should they approach this job?
Things could carry on more or less as they have been over the past few years, with incremental development of PbR alongside approaches better suited to current needs – such as bundling or ‘year of care’ payments. Or, Monitor and the NHS Commissioning Board could develop a wider range of payment systems centrally and mandate them to the NHS.
However, in our view, they should allow and encourage local experimentation, but within a national framework. Commissioners and providers would be required to seek approval for, and commit to evaluating, the impact of local variations. The NHS Commissioning Board and Monitor would provide technical support and track the innovations adopted.
This active encouragement of local experimentation is more likely to identify the blend of payment systems needed to support the rapid development of new models of care.
- Read our new report: Payment by Results: How can payment systems help to deliver better care?
- Find out more about our forthcoming event on payment reform
- Read our press release on this report: Current payment systems not suited to current challenges facing the NHS, new report by The King’s Fund finds