Is it worth tinkering with an emergency care payment system in need of a thorough overhaul?

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A stream of reports of unprecedented pressure on urgent and emergency care services across the NHS have painted a picture of rising demand, increasing numbers of frail older people and difficulties discharging patients, leading to rising waits in A&E units, handover delays and hospitals on red alert.

But the data presented at a recent joint Monitor–NHS England stakeholder workshop on their review of the marginal rate rules presented a more positive picture. Total emergency admissions have levelled off since 2009/10, after growing at 4.6 per cent a year in the previous three years though there was growth of a little under 2 per cent in 2012/13. Average lengths of stay and the number of acute beds have continued to fall, emergency bed days have fallen for all age groups except the over 95’s, and delayed transfers of care are not increasing, though reference costs for non-elective care are rising. It looks like the NHS on the whole has improved its management of emergency inpatient demand and use of acute capacity since the marginal tariff was introduced in 2010.

So was this improvement a direct result of these tariff rules? They were intended to reduce inappropriate emergency admissions by paying hospitals only 30 per cent of the full price for treating patients once they had reached a set level of emergency admissions, and asking strategic health authorities to allocate the remaining 70 per cent to demand management initiatives. However, many other factors were at work in the same period: flat budgets, effort around the ‘Nicholson challenge’, joint working on alternative pathways for urgent care, among others.

Furthermore, the national data presented did not reflect the local experiences of some of the workshop participants. Monitor and NHS England could not find a relationship between changes in recent emergency activity in a locality and changes in the known long-term drivers of demand – prevalence of long-term conditions, demographics or social deprivation. Recent work by the Fund has also found that available data does not explain the recent pressures in A&E, and that there is wide local variation in managing emergency care pressures. The impact of the marginal rate is a question we’ve also put forward in our latest finance directors’ survey, as part of our September Quarterly monitoring report.

Some commissioners report good experiences of using the 70 per cent savings from the marginal rate to increase whole-system engagement in demand management and alternatives to hospital admission. But many health economies have negotiated pragmatic variants on rules or additional payments for emergency care for good reasons: to enable them to create innovative pathways, invest in expanded or reconfigured capacity, or respond to quality and safety recommendations. Changing the rules could, of course, have unintended consequences: rewarding poor management in some localities, destabilising some commissioners, more contract negotiations going to arbitration, and commissioners holding larger contingency funds. But until the longer term direction of payment reform is clearer, it may be that offering local flexibility would be the best way to mitigate the problems in the existing emergency care payment system.

The Health and Social Care Act demands increased rigour in the use of evidence in tariff pricing methodology. The debate about the marginal rate underlines the importance of evaluation of major financial incentive policies. But the current state of the payment system for emergency care makes evaluation difficult and evidence hard to interpret. There is concern about many aspects of the tariff for non-elective care: cross subsidies between services, rising complexity of rules and incentives, and local variation. Perhaps the most fundamental concern is that, in a world of flat budgets, NHS commissioners cannot manage the risks of activity-based payment for non-elective care and are looking for a system that encourages whole-system working within a constrained budget. The emergency care payment system needs a thorough overhaul.


Siva Anandaciva

Foundation Trust Network
Comment date
30 July 2013
Thanks for your article Loraine.

I completely agree with your point that the emergency care payment system needs a thorough overhaul to support future models of provision, and these future payments may not be as primarily activity-based.

However, this doesn’t mean that we should fail to take each available opportunity to improve the payment mechanisms for emergency care before these new payment systems kick in (which may be potentially years down the line). A failure to seize this opportunity will inevitably lead to less sustainable emergency services for patients.

As you noted, there is no evidence of a relationship between the application of the marginal rate and reductions in emergency admissions at the local health economy level. At best we can say that the national trend for emergency admissions changes, but we don’t really know why. This is a clear example of where aggregate national pictures mask the vastly different experiences of local health economies. For some providers, who are losing up to £10m per annum to the policy as admissions skyrocket through no fault of their own, the negative impact of the marginal rate is crippling.

The absence of conclusive evidence that the policy is effective would seem to be a strange rationale for retaining a relatively new policy that has created such significant problems in its short lifespan. As the Health Select Committee noted in last week’s report: “The current arrangements for remunerating A&E departments with only 30% of the tariff for activity over 2008–09 levels is no longer viable. The baseline is five years old and does not account for, or reflect, the pressures that hospitals face.”

If the policy goal should be to (1) maintain effective and high quality acute emergency care at hospitals, and (2) create an incentive for the whole health economy to reduce emergency admissions, then this policy clearly is not working.

On ‘(1)’ accepting that non-elective services should be loss-making and cross-subsidized year after year is simply not sustainable and is counter to the direction of travel that trusts should have well managed and efficient service lines. This payment policy makes a mockery of the cost-recovery and ‘money follows the patient’ ethos of Payment by Results – the net result will be a chaotic proliferation of the off-tariff risk-sharing block or cap & collar deals that will lead to the tariff for mandatory services being left in tatters. On ‘(2)’ there has been little to no transparency over how the withheld savings have been reinvested in admission avoidance and what outcomes this reinvestment has delivered.

Improving the policy to (1) better reflect the marginal cost of admissions (which is closer to 50-60% than 30%) (2) better reflect the current patterns of demand and nature of treatment provided (as the 2008/09 baseline becomes increasingly out of date); and (3) provide more transparency and assurance that the clawed-back funding is being used to reduce admissions (e.g. through supporting community-based crisis teams) would be very easy initial steps to take to stabilise the provision of emergency services before a new strategy and payment mechanism is eventually delivered.

I look forward to the results of the FDs survey more widely and the question on the marginal rate. If it is helpful we asked a series of marginal rate questions in a recent FD survey and the results are available here:


Vincent Connollu

Clinical Director ECIST,
Comment date
31 July 2013
I agree with most of the comments but would add the following
1. Mortality increased this winter, perhaps it is out with the scope of acute trusts but could reflect the pressure on them as there is evidence that overcrowded EDs, high occupancy hospitals & outliers are dangerous so another interpretation is that the emergency system wasn't coping at the most important level.
2. Growth in Emergency activity may be masked by coding changes eg Obs wards, CDUs, Ambulatory Emergency care may be coded differently in some trusts
3. There has been a huge deterioration in waiting times in ED this suggests that in order to gain income Acute trusts prioritise elective over emergency care as they are competing for beds. Financially elective care wins hands down so the effort & investment is focussed on elective care to the detriment of emergency care.
5. The Emergency tariff design hits the wrong part of the system. If a CCG has high admission rates what incentive is there to reduce it if it can be had on the cheap. There is a need for a tariff that shares risk and benefits for both the commissioner & provider to get them working together.
6. There are only a few areas where the evidence base shows that admission avoidance is effective, these are frail elderly, people in care homes & heart failure so we need some specific incentives that support work in these areas.
Finally there is a lot more evidence that length of stay can de safely& effectively reduced yet the tariff supports long LOS and not short LOS surely it should be the other way round.

Ian Sturgess

Consultant Physician,
Comment date
31 July 2013
PbR is a failure. Marginal tariffs make this worse. Cost per case are fine in a market environment, but health care has to be cash constrained. A return to block contracts for unscheduled care, with incentives for innovative volume (not volume inflation) delivery eg AEC, with system level disincentives for a rise in volume. System level demand management, except for a few good examples, havenever materialised, but is achievable eg Jonkoping County, Intermountain Health, Canterbury DHB NZ, and even Torbay yet we unpick success. Our current system ensures failure, yet we do have the opportunity to improve individual patient and system level outcomes. Are we prepared to deliver true integration, or are we going to constantly perpetuate the primary care secondary care separation myth? Sadly CCG maturity, or lack thereof, perpetuates this myth. Focus on physiology of the system rather than anatomy, patient level outcomes snd system level outcomes are all. I have no doubt that a 10-20% reduction in ED attendance (NZ has a markedly lower attendance) a similar level of reduction in admissions, reduced 28 day mortality from an urgent call, and a very significant reduction in Long Term Care placements can be achieved if there is courage. Sadly I doubt the courage!!

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