Audit Commission

One of the Government's key NHS modernisation reforms, Payment by Results, has helped hospitals to be more business-like but has not yet increased NHS efficiency significantly, according to a report The right result? Payment by Results 2003-07, published today (14 February) by the Audit Commission.

The Payment by Results policy, which was introduced four years ago, is a system of paying hospitals nationally set prices for the number of patients and types of conditions they treat. It is designed to encourage hospitals to treat more patients, more efficiently without compromising quality of care. Meanwhile, primary care trusts (PCTs) have been expected to find ways of reducing unnecessary hospital admissions by commissioning new, more cost-effective services, for example from GP practices.

The report concludes that Payment by Results has been embedded across the NHS. Most hospitals have improved their financial management and now have a better understanding of how much it costs them to treat patients. The fear that patient care would suffer because hospitals would be tempted to cut costs at the expense of quality has not materialised.

There are some indications that the NHS is providing care more efficiently. For example, there has been an increase in the number of patients treated as day cases and the length of time patients spend in hospital has fallen. Spurred on by Payment by Results incentives, PCTs have reduced the number of avoidable admissions to hospitals.

Chairman of the Audit Commission Michael O'Higgins said:

'Now that the NHS has implemented Payment by Results, it should start to deliver the significant increases in productivity and efficiency across the NHS that the policy was designed to achieve. Looking forward, Payment by Results needs to develop so that it does what it says on the tin. In order to encourage a more efficient way of working, the price that the NHS sets for procedures should be set at the lower levels that some hospitals have shown can be achieved, rather than the average cost. The NHS should also consider rewarding those hospitals that meet the highest standards of quality for patients. Currently hospitals are paid the same for a procedure regardless of the quality of care provided.'

The report sets out a number of priorities for future development of the policy and the implementation issues that need to be addressed at the national level if Payment by Results is to deliver further improvements. These include strengthening the quality of information available on how much each patient costs to treat so that it is more accurate, precise and timely.

NOTES TO EDITORS

1. The report is based on fieldwork at foundation trusts, NHS trusts, PCTs and strategic health authorities; analysis of national activity, reference cost and accounts data from 2003/04 to 2006/07 and Audit Commission Payment by Results data assurance audits undertaken in 2007/08.

2. The right result? Payment by Results 2003-07 builds on the findings of our previous reports Introducing Payment by Results: Getting the Balance Right for the NHS and Taxpayers (2004) and Early Lessons from Payment by Results (2005).

3. The Audit Commission is an independent body responsible for ensuring that public money is spent economically, efficiently and effectively, to achieve high quality local services for the public. Our remit covers around 11,000 bodies in England, which between them spend more than £180 billion of public money each year. Our work covers local government, health, housing, community safety and fire and rescue services.

4. As an independent watchdog, we provide important information on the quality of public services. As a driving force for improvement in those services, we provide practical recommendations and spread best practice. As an independent auditor, we seek to ensure that public services are good value for money and that public money is properly spent.

5. Further details about the role of the Audit Commission can be obtained from www.audit-commission.gov.uk.