Briefing

All you need to know about…

payment by results in the NHS

Why payment by results?

People need more choice and greater control over their health care, says the government. So by this August all NHS patients who have waited longer than six months for an operation will be offered treatment with an alternative provider – which could include other NHS hospitals, Diagnostic and Treatment Centres (DTCs) or independent sector hospitals.

By the end of 2005, all patients who need elective surgery will be offered a choice of 4-5 providers, such as NHS and private hospitals, DTCs and primary care practitioners with a special interest. But the government says none of this can happen unless money starts to follow patients under the new system of Payment by Results (PbR).

How does it work?

Primary care trusts will no longer commission services from hospitals based on historic patterns of referral. Instead hospitals will be paid a fixed price, set according to a national tariff, for each patient they treat. The idea is that this allows PCTs to concentrate on the quality and speed of the services they need, instead of negotiating local prices.

At the moment there are big variations in costs between trusts: some are as high as 20 per cent above tariff and others 20 per cent below. The more cost-effective hospitals or those attracting more patients will gain under the PbR system and could reinvest any financial surpluses in other services.

And what’s the plan?

At present the tariff covers less than one per cent of hospital expenditure, but about 40 procedures will be covered in 2004/05 and most hospital expenditure from 2005/06. The government says there will be full roll-out of tariff costs in 2008, but some say that the DH is considering a delay to 2009, to take pressure off the providers who are above tariff.

Foundation trusts are implementing tariff payments early and some of their services have been provided at tariff cost since April. The seven teaching hospitals applying for foundation status this July have also decided to introduce PbR a year ahead of the rest of the NHS.

So is this a good idea?

PbR appears fundamentally incompatible with integrated care pathways, incentives to treat chronic disease, the drive towards keeping people healthy and the government aspiration to move work away from the acute sector.

Unease about the policy has been building among PCT senior managers for a while and in May they used a meeting called by ministers to point out that the system offers perverse incentives to the acute sector to do more work.

Director of public health at Norwich PCT Dr Peter Brambleby says that PbR is a misleading description of a policy that is really about payment for activity rather than payment by results or outcomes. ‘One of the things that matters to a health economist is the outcome – it matters to the community, but enormously so to the patient. It’s the overall package that matters. PbR is not a very patient centred, integrated or co-ordinated policy.’

What might happen?

Many fear that PbR could destabilise whole health economies. PCT commissioners could find it extremely difficult to redesign services away from the acute sector and there would be no incentive for acute trusts to help with the process.

Organisations with very high fixed costs – money tied up in facilities, equipment and highly-trained staff, or with fixed payments to make under PFI deals – will have a completely variable income.

Teaching and specialist trusts say the system does not as yet reward them adequately for expensive specialist care and they could be left with huge debts.

Professor of health policy and management at Manchester University Kieran Walsh has wondered whether a financial meltdown scenario is likely in the NHS by 2007, with only ‘backdoor cash injections’ keeping at least eight of the new foundation trusts from having to declare bankruptcy.

Chief executive of Rotherham PCT John McIvor warned in Health Service Journal in May that until the tariff applied across the vast majority of services there would be opportunities for gaming and inappropriate behaviour within the system.

David Hunter, professor of health policy and management at Durham, told healthmatters: ‘There’s a big issue about public health and the levers and incentives that run counter to it…I think that is one reason why they are rushing the (public health) white paper out in the autumn so that it can feed into the next round of payment by results’.

What about the longer term?

Mark Britnell, chief executive of University Hospital Birmingham, told healthmatters that the DH is considering how it could change PbR to offer incentives for chronic disease management.

Norwich PCT and the Norfolk and Norwich University Hospital trust are pilot sites for the international Pursuing Perfection patient pathway collaborative. Public health director for Norwich PCT Dr Peter Brambleby says: ‘Under Pursuing Perfection we would argue that hip fractures (in the elderly) should go to geriatricians and should attract a geriatric tariff. People don’t die of orthopaedic problems, they die of geriatric problems.’

For orthopaedics generally, he said there were good reasons for being able to break up the tariff and sub-contract parts of that to primary care. He added: ‘We could construct a case for the majority of the tariff belonging in primary care so that (the PCT) should be the major contractor.’