Future payment systems in the NHS

In May this year, NHS England and Monitor embarked on a review of NHS payment systems which seems set to recommend a significant shake-up of Payment by Results (PbR). To coincide with this, The King’s Fund, the Healthcare Financial Management Association and Monitor held a one-day workshop with NHS finance leaders to debate the future of NHS payment systems.

In many ways Payment by Results has been a tremendous success. While its implementation and roll out was not completely problem-free, the payment system did not fall over. The significant technical issues that had to be addressed – from defining the ‘product’ to designing the fixed tariff without causing instability across the NHS – were substantial. 

And there have been measurable benefits from PbR. Formal national evaluation showed that it had succeeded in boosting activity, reducing lengths of stay, and encouraging more day cases rather than inpatient work.  At a minimum it appears not to have reduced quality of care. The financial incentives embedded in PbR have also encouraged hospitals to improve the quality of their own data systems.

But 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.

As we found in our assessment of PbR published in November last year, a number of general conclusions should inform this thinking.

First, payment systems cannot do everything: they are one of many managerial, policy and financial levers that can be used to achieve change. Second, one size does not fit all. Different services 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, there is a need to understand 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.

As with medicine, at a minimum, payment systems should do no harm. But with careful design they could do some good.

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#40787 Ian Greener
Durham University

Thanks John - much to think about here. But how about the idea that payment systems also have to justify their own costs, not only in terms of doing no harm, but simply in terms of their bureaucratic cost? We seem to have little idea how much payment by results actually costs the NHS, and whether this money could be better spent on other things instead? Shouldn't that be the way we judge its success or not?

#40788 Roger Steer
Healthcare Audit Consultants ltd

PbR does a good general job in providing incentives to provider organisations but it doesn't avoid the question of how to subsidise hospitals that are located in less than ideal rural settings with a small hinterland and/or with difficulties attracting skilled staff or facing extraordinary costs, nor does it provide sufficient disincentives for poor quality.
So long as it is regarded as a rough and ready way to ensure buoyancy of funding and not used as a patient management tool then there should be no problem.

#40794 Dr Haq
Leicester city

PbR is so inept that it causes the hospitals to go into deficit every financial year. The hospital systems are struggling and are having to be propped up every financial year. The root cause of all the problems in the hospital sector of the nhs is the undervalue of the service being provided and the squeeze on the staff and management.... Moral is low and going ever lower . I feel that the Nhs of today is not viable for the future and that needs to be accepted. If there is real choice rather than the NHS being the sole/ monopoly provider of choice will the public vote with their feet?

#40800 John Appleby
Chief Economist
The King's Fund

Hi Ian

Yes, I agree. The costs of actually running and developing the payment system do need to be set against the benefits of the system. I'm not aware of any work on this though. The official national evaluation of PbR (http://www.abdn.ac.uk/heru/uploads/files/pbr-report-2011.pdf) did not I think quantify the costs of the set up and running of PbR but rather made comparisons between before and after PbR (and between English (PbR) and Scottish hospitals (no PbR)) on selected measures of quality and efficiency.

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