Payment by results

• Abstract
• Purpose of health policy or idea
• Characteristics of this policy
• Political and economic background
• Purpose and process analysis
• Expected outcome
• References

Abstract

The government is introducing a new payment system for providers called ?payment by results?. Under this system their will be a fixed national tariff for all procedures based on HRGs (health related groups). There will therefore be no price competition between hospitals.

Purpose of health policy or idea

The NHS is in the process of introducing a new payments system for providers known as 'payment by results'. Under this system, a fixed price for every HRG (i.e. healthcare resource groups, the UK version of DRGs) will be determined - the so called 'national tariff' - and all providers will receive this price for work undertaken.

Payment by results is being phased in to allow NHS organisations to adjust to the new system. From 1 April some NHS Foundation trusts have started to phase in the new system. Other NHS organisations will start the transition from 1 April 2005. It is intended that the new system will be fully operational by 2008.

The Department of Health has argued that a fixed rate national tariff will have three main advantages. First, it will eliminate price competition and the extensive transactions costs that surrounded price competition during the 1990s. Second, released from the need to compete on price, it is argued that purchasers and providers will be able to concentrate on the quality of services. Third, given the incidence of both monopoly and monopsony in the NHS, it will prevent price variations based on unequal, local bargaining power.

The incentives built into this policy for providers are clear: their income will depend on attracting patients - 'the money is designed to follow the patient'. As a form of yardstick competition, those providers who are able to provide services at costs below the national tariff will make surpluses, and those with costs above the tariff will make losses. In this way, yardstick competition is supposed offer financial incentives for increased efficiency.

Main points

Main objectives

To offer a new payment incentive structure for hospitals.

Type of incentives

Financial incentives: hospitals will be paid for the volume and case-mix of work undertaken.

Groups affected

Purchasers, providers

Innovationsgrad	traditionell		innovativ
Kontroversität	unumstritten		kontrovers
Strukturelle Wirkung	marginal		fundamental
Medienpräsenz	sehr gering		sehr hoch
Übertragbarkeit	sehr systemabhängig		systemneutral

Political and economic background

The Conservative government of Margaret Thatcher introduced the NHS internal market in 1991. This involved purchasers placing contracts with providers for services and, for the first time, involved payments related to services provided.

However, the incoming Labour of 1997 considered the internal market to be inefficient (high transactions costs) and inequitable and was committed to its abolition. In fact, the government retained the purchaser-provider split (although Primary Care Trusts took on the purchasing role) and a variant of the contracting system.

The official document Delivering the NHS Plan (2002) set out the governments intentions regarding private payments within the new system. It claimed that the internal market had demonstrated that price competition did not work, and therefore it planned to introduce a new system of purchasing and providing based upon fixed national tariffs. It argued that this would be fairer and would allow purchasers and providers to concentrate on service volumes and quality rather than price. This is the system of payment by results currently being introduced.

Change of government

Yes in 1997

Change based on an overall national health policy statement

A part of the NHS Plan approach.

Purpose and process analysis

Current Process Stages

	Idee	Pilotprojekt	Strategiepapier	Gesetzgebung	Umsetzung	Evaluation	Veränderung/Richtungswechsel
Implemented in this survey?

Approach of idea

The approach of the idea is described as:
renewed: A variant of the earlier mdel of the internal market

Stakeholder positions

The system of payment by results is a complicated one that will pose many new challenges for both purchasers (primary care trusts) and providers (hospitals). At the moment managers within the NHS are learning how they will have to operate under the new system. There are numerous guidance notes being produced by the Department of Health. Because the issues involved are quite technical, there is not a high level of public debate on the subject.

Criticism comes mainly from professional economists and other experts who claim that the system is likely to be inflexible and has not been thoroughly thought through. For example, it is not clear how fixed prices will be managed given the large variations in costs and prices currently found between NHS hospitals, thereby resulting in large surpluses and deficits.. It has also pointed out that in other countries where DRG payment systems have been introduced these rarely cover all the hospitals income as is intended to do in England.

Influences in policy making and legislation

Payment by results formed part of the Health and Social Care Act 2003. It was not a contentious part of the Act.

Adoption and implementation

The adoption process will the responsibility of contracting and finance staff at individual PCTs and hospitals, under the general direction of senior management and their Boards of directors. Clinicians can expect to provide some inputs to the contracting process as quality isssues are expected to become more important. As with most recent reforms the Department of Health and the NHS modernisation agency assume a prominent role in offering guidance and support.

Although it has not yet been formally specified, it is likely that Strategic Health Authorities will have a key role in overseeing the development of the local health economies as they emerge under the payment by results system.

There are many unanswered questions about how the system will work in practice. It has already been mentioned that some experts have expressed concerns about particular aspects of the new approach. How surpluses and deficits are handled by different hospitals is likely to be one of the major problems.

Local stakeholders remain strong

The internal market 1991-97 indicated how difficult it is politically to reconfigure hospital services when local stakeholders have strong attachments to their local hospitals. This problem will not disappear under the payments by results system. On the contrary, the establishment of foundation hospitals with Boards of governers may make local representation even stronger. Moreover local government now has a formal role in monitoring the NHS through local 'Overview and Scrutiny' committees. These can also be expected to exert additional political influences on the local health economy.

Monitoring and evaluation

The phased introduction of the system will clearly permit modification through the implementation process. I know of no plans for formal evaluation.

Results of evaluation

The official review aims to cover all three dimensions of performance.

Expected outcome

Impact of this policy

Qualität	kaum Einfluss		starker Einfluss
Gerechtigkeit	System weniger gerecht		System gerechter
Kosteneffizienz	sehr gering		sehr hoch

It is too early to make a judgement on this.

References

Sources of Information

Various guidance documents can be accessed using the keywords 'payment by results' on www.dh.gov.uk .

Author/s and/or contributors to this survey

Ray Robinson, London School of Economics and Political Science

Empfohlene Zitierweise für diesen Online-Artikel:

Ray Robinson, London School of Economics and Political Science. "Payment by results". Health Policy Monitor, 04/04. Available at http://www.hpm.org/survey/gb/a3/2