There is a growing consensus that Payment by Results has outlived its usefulness in the NHS. But there is less agreement on what to replace it with
The Department of Health, the NHS Commissioning Board and Monitor are currently reviewing the use of Payment by Results in the health service. It has been 10 years since Delivering the NHS Plan made a specific commitment to a new way of paying hospitals for work done – delivering on the promise that ‘money will follow the patient’.
Over the years, PbR has been expanded to cover a wider range of hospital activity and some non-acute care. This year PbR will cover around 1,300 types of activity. It will account for between 40 and 50 per cent of total income for many hospitals, amounting to around £29 billion in total, or about a quarter of the NHS budget in England.
Evaluation of PbR five years after implementation found it had some desired effects: it increased waiting list activity, reduced lengths of stay and promoted a shift from inpatient care to day cases. But PbR’s overall financial impact was quite modest. It achieved savings in resource use of only one to three percent.
With waiting times under control and years of flat budgets ahead, NHS priorities have shifted. It was with this shift in mind that the King’s Fund set out, in a new report, to take stock of what we know about how payment systems, including PbR, can help to deliver better care.
We found that PbR is now commonly viewed as creating incentives for undesirable, unaffordable growth in hospital activity – though this is hard to reconcile with the fact that it accounts for a declining share of hospital income.
It seems that PBR is perceived as an impediment to integrated care for people with chronic illness and to shifting care into the community. It is doubtful whether it is still an effective driver of major productivity gains. Downward pressure on PbR prices has been offset by negotiated increases in other hospital income.
So is there a better alternative to PbR for meeting current NHS challenges?
Other countries and parts of the NHS have been experimenting with new ways of paying providers to create incentives for efficiency across the whole continuum of care.
There are some promising initiatives, including'bundled payments' for patient pathways that encompass not only acute hospital treatment but also rehabilitation, or 'year-of-care' payments for managing chronic illness. But none of the payment innovations amount to a whole new paradigm that could replace PbR.
Our research found that some strong lessons on payment systems emerged.
Firstly, one size does not fit all. Different services call for different payment methods. It is easier to design payment systems for services where there is a consensus about the best way to diagnose, treat and measure outcomes. But for much of health care, particularly for people with multiple, complex long-term needs, reality is less predictable and less well understood.
So, secondly, any payment system needs to be flexible – so that is does not get in the way of allowing the health system to innovate and learn how best to provide care in these situations.
Thirdly, flexibility is needed to allow the health system to find out more about how different payment systems operate in practice in different situations. Geography, population and infrastructure impact on current cost structures and on determining the optimal form of organisation. A single fixed price schedule cannot create the right incentives in widely different contexts.
Finally, further developments in payment systems will need to be supported by high-quality data and analysis. Abandoning PbR and reverting to simple block contracts cannot be expected to drive improvement. Output and outcome metrics and costing systems need to be implemented in areas where these are currently lacking. Without data, payment for pathways or integrated care will risk unintended and unwanted side effects.
So, how should the DH, the Commissioning Board and Monitor approach the review of PbR? They could carry on as they have been over the past few years, with incremental development of PbR – adding more 'best practice tariffs', more experiments with pathway payments or ‘year of care’ payments on top of the existing system.
They could also develop centrally a wider range of activity-based payment systems to cover services currently outside PbR and mandate them for all NHS commissioners in England.
However, in our view, they are more likely to foster rapid development of new models of care if they allow and encourage local experimentation. This should be done within a national framework which focuses on shared metrics and a commitment to evaluating and publicly disclosing information, all of which will help track innovation.
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.
Loraine Hawkins is a health systems specialist and a co-author of the new King's Funds report on Payment by Results
