01 December 2006
NHS managers feel like they've been jumping through hoops and juggling priorities for ever. Now the health secretary is about to launch a major new challenge, in the form of a revamped payment by results system. Seamus Ward is watching from the sidelines
Patricia Hewitt put her own neck on the line last month, when she told the Commons health select committee that she was taking 'personal responsibility' for eradicating an overall NHS deficit of more than £500m in 2005/06 by the end of the current financial year.
The latest figures released by her department cannot have made comfortable reading for the health secretary. Halfway through the year, the service was predicting an overall deficit of £94m. The shortfall is partly due to substantial cuts in waiting list times, but the government has received little credit for these and other NHS improvements. Hewitt is playing a high-risk game in staking her political future on balancing the service's books. But undoubtedly she still has a few tricks up her sleeve.
One is the £180m worth of savings that have been identified by the Department of Health, through a new pharmacy contract and other methods. Another is a range of carrot and stick measures directed at improving NHS efficiency, such as the GP patient satisfaction survey announced this week. But, behind the scenes, Hewitt is also presiding over a review that could affect the long-term stability of NHS finances.
This is necessary because, even if an overall balance is achieved, a hard core of NHS bodies with persistent problems will remain. The last time the Blair government had such an inherent problem with the NHS – with waiting lists – it introduced a new system governing the way money flowed through the service. Payment by results was geared so that hospitals would concentrate both on clinical priorities such as cardiac services and on clearing waiting-list bottlenecks for surgery of low clinical priority but high volume, such as cataract removal.
To a large extent it worked, as trusts chased the extra income they could make by concentrating on the department's priorities. With its job seemingly done, many wondered what the future held for PBR. They will find out soon. A consultation document, Future of PBR, had been planned for this autumn but publication has now been put back until January – for fine-tuning, sources insist.
NHS trusts will watch with interest as the outcome could affect their financial stability. PBR remains controversial. Some believe that if the NHS deficit is a crime, PBR is the prime suspect. They say it introduced great financial pressure into the service by setting fixed prices for hospital care based on average prices. Acute trusts with higher-than-average prices receive less income; on the other hand, some primary care trusts' spending has increased because their providers have lower than average tariffs. In both cases, PBR is pushing NHS organisations into the red.
Few NHS accountants would agree with this analysis. To extend the analogy, they believe PBR is the sleuth, uncovering financial problems that have been hidden for years. An over-tariff service could be a symptom of a deeper malaise, such as an excessive reliance on agency nurses or weak management.
This is the department's view, so the review will not ask whether PBR should be abandoned. Rather, it will ask where it should go next. The department had intended it to cover at least 90% of hospital-based treatment by 2008/09 but it appears the consultation will back away from this commitment as it rethinks how PBR could be applied to areas such as mental health.
John Appleby, the King's Fund's chief economist, says: 'I think the department will want to take the principle of PBR – that the provider gets paid for the work it does – and extend that as far as possible.
'We might not end up with a fixed tariff for schizophrenia but we might get something slightly different that fits the principles of PBR.'
NHS Confederation policy director Nigel Edwards says the department has become less dogmatic in its approach to the regime. 'It appears to be moving away from looking at PBR only being about the tariff. People are talking about a payment regime of which the national tariff is a part. That might sound like a bureaucratic and trivial distinction but it is quite important. There are some things where a national tariff is not the answer, such as some long-term conditions in mental health,' he says.
Alongside the tariff in this new payment regime there could be a capitation-based system, providing a regular payment for each registered patient being treated over a long period of time. It is understood the department is also looking at introducing 'gain-sharing'. At present, health care providers have little incentive to keep patients out of hospital. Gain-sharing could encourage them to invest in prevention by ensuring they do not lose money as a result.
The NHS Institute for Innovation and Improvement's work on a tariff based on quality is almost certain to be part of January's document. Payment by results has always been a misnomer – the current system is payment by activity – but the institute's work could go some way to paying providers on the basis of activity and the quality of their care. This would be a significant shift away from the current system.
Mark Jennings, the institute's head of delivering quality and value, says it has examined nine high-volume clinical areas that vary widely in their outcomes and resources used. These include hip and knee replacement, gall bladder removal (cholecystectomy), stroke and caesarean section. In October, the institute completed the first phase of the work with the publication of documents detailing how the best providers deliver high-quality, efficient care. These characteristics include shorter stays in hospital, greater use of day case surgery and prevention of avoidable admissions.
The institute names the Royal Surrey County Hospital in Guildford as an example of best practice in cholecystectomy. The hospital's starting point is that gall bladder removals should be done by keyhole surgery and all the operations are placed early in a morning's list so patients can be discharged later that day. Before the operation, patients are given counselling on what to expect and the hospital ensures that they will have support at home when they are discharged.
The trust says one of the keys to its success is a dedicated keyhole surgery team, which minimises complications and makes open surgery rare.
Trusts wishing to improve the quality of their hip and knee replacements might look to the Chapel Allerton Orthopaedic Centre, part of the Leeds Teaching Hospitals Trust. It has been open for less than two years but already its multidisciplinary team, which includes nurses, surgeons and physiotherapists, has established a strong reputation. The institute reports that almost all patients have their operations on the day of admission and have few complaints and low rates of infection.
The institute is helping other NHS trusts bring their quality up to that of the best. It is also taking the work another step in conjunction with the DoH's PBR team. The idea is to create a normative tariff for PBR. This means that the price for some high-volume treatments would be based on the cost in the best providers – trusts with the characteristics that the institute believes constitute high-quality, efficient care. As with any system, there would be losers but there would be incentives to improve quality and, potentially, reduce costs.
'We expect our work will be used for at least a couple of areas by the PBR team,' Jennings says.
These are likely to be hip and knee replacements and cholecystectomy. 'They will start in the elective surgical settings, as these are probably the most straightforward to tackle,' he says.
In the same way as PBR was used to drive down waiting lists, it could also be used to drive up quality and potentially save money by producing more efficient care. 'The normative tariff will not necessarily be cheaper, but efficient performers deliver high-quality care with a lower length of stay. Length of stay is a key cost driver and you would expect to see a lower than average tariff,' he says.
But high performance does not necessarily mean discharging patients as soon as possible, Jennings adds. 'A good example is hip and knee replacement. The best performers concentrate on getting their patients mobile within 12 to 18 hours of surgery. In poor performers, it can be several days before that happens.'
Edwards backs the potential move to a normative tariff. 'There is a clear logic behind moving away from using average costs to setting it using an agreed group of accredited organisations that have good costing regimes. This would also reduce the burden on the service, as most trusts would no longer have to provide an annual submission on costs,' he says.
NHS finance staff are also likely to back a quality-based tariff. As one finance director told Public Finance: 'The current tariff rewards average performance. It sends out the wrong message of what is required, and doesn't fit in with what we all want – to give patients the best possible and most efficient care.'
In the short term, one of the biggest issues in PBR is the extent to which tariffs can be unbundled. Each tariff represents a group of treatments but unbundling would break the price up into its constituent parts, such as X-rays, surgery and rehabilitation. This would allow a commissioner to send patients to different providers for each element of the treatment – perhaps for clinical reasons or to bring more treatment out of hospital and into the community.
The department is strongly in favour of unbundling, believing it will support its policy of moving more of the care into the community. It expects the NHS to unbundle some tariffs from 2007/08.
But this could be a costly and time-consuming exercise. Acute trust finance staff say an 'army' of accountants and managers would be needed to separate each tariff locally. They also worry that unbundling could put trusts' viability at risk for the sake of what some believe is an unproven, politically driven mantra.
Patients are said to like the idea of having diagnostic tests performed in the community but they might not approve if this leads to cuts at their local hospital. And any hike in administrative costs would be unacceptable to politicians and the public.
With these words of warning ringing in his ears, NHS chief executive David Nicholson has indicated his strong support for unbundling, but also opted for caution. He has published indicative tariffs in four areas (stroke, fractured neck of femur, elective hip replacement and pneumonia) for the 2007/08 year but insists the extent of the unbundling is up for local negotiation.
Seasoned Whitehall-watchers believe this is part of a more pragmatic approach under Nicholson, where changes in PBR are introduced incrementally to prevent sudden financial shocks. The regime has given the NHS a fright by exposing some deep-rooted financial problems. It will continue to expand but the concern over deficits might have prompted policy-makers to ensure that changes in PBR no longer affect the health service's financial stability.
The pros and cons of PBR for mental health
Activity-based payment systems are used in many countries' health systems but most have limited them to non-urgent surgical procedures. England has gone further and will take another step into the unknown if it includes mental health within the scope of PBR.
There are a number of problems with this. First of all, PBR tariffs are based on discrete treatments (spells), such as a coronary bypass or knee replacement operation. However, mental illness can rarely be confined to such a neat package as treatment can go on for years.
A second major problem is lack of information. Under PBR, a trust cannot bill or budget accurately if it does not know who its patients are, what they are being treated for and for how long. Most acute trusts have a basic IT system that helps them 'code' each patient but the IT in mental health trusts is rarely up to the job.
IT is being modernised and the Department of Health is developing alternatives to spells in order to describe and cost all mental health treatments. These will be piloted before being introduced — potentially in 2008/09. It is thought that community mental health care could be based on the Care Programme Approach introduced in 1991, which is now being reviewed by the DoH. This sets out a package of care for individual patients and currently has two levels (standard and enhanced) based on the degree of intervention required. Payments for long-term treatments could be based on a capitation system.
Andy Bell, head of public affairs at the Sainsbury Centre for Mental Health, says implementation will not be easy but PBR can work in mental health.
It might also protect mental health trusts' income. This is being squeezed as acute trusts receive more funds from PBR work, leaving commissioners with less money to spend on care not covered by PBR, according to a Sainsbury Centre survey.
'It's clear that those not in PBR are being disadvantaged. It is essential to get the system right, and for mental health not to rush into PBR, but the longer it is excluded the longer the risk of it being disadvantaged,' Bell adds.
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