Payment by results involves a complete change to NHS funding. It is one of the most significant challenges facing the service and will require higher standards of financial management in primary care trusts, NHS trusts and foundation trusts. The system offers major opportunities and incentives that will benefit everyone. But it also carries major risks, which if not well managed will lead to financial instability and service difficulties.
Payment by results aims to support NHS modernisation by paying hospitals for the work they do, rewarding efficiency and quality. It does this by paying a nationally set price or tariff for each procedure, classified by Healthcare Resource Group (HRG), based on an average of all hospital costs for that procedure (reference costs). Separate tariffs will exist for elective and emergency care and, at least initially, some more specialised work will not be included. No local price negotiations will take place for work covered by the tariff (except where service changes result in significant efficiency gains). Unavoidable regional cost differences will be funded nationally. All contracts between primary care trusts (PCTs) and trusts will be 'cost and volume' with payment linked directly to the actual work done. Increases or reductions in activity will be charged at full rather than marginal cost.
Payment by results is not a project with an end point. It is part of a dynamic and emerging set of changes that will have implications for many years. These changes include the introduction of national standards and inspection, patient choice, new contracts for NHS staff, diversification of the provider side through the introduction of NHS foundation trusts and private providers and the devolution of the main responsibility for commissioning services, and the money to go with it, to PCTs. These changes aim to produce a service which, while remaining fair to all, is more responsive to local needs and individual patients. NHS organisations will be more accountable locally, less reliant on central intervention and top-down performance management and more subject to checks and balances within a system, subject to effective external regulation.
Included in this report:
- What payment by results means for the NHS
- The aims of payment by results
- The risks: the underpinning data
- The risks: financial management issues