NHS trusts — commissioning and financial flows < Influencers contents | Print this page Reforming NHS financial flows: introducing payment by results Reforming NHS financial flows: introducing payment by results set out reforms to the way that money will move around the NHS. This area could prove to be the most significant change to NHS commissioning since GP fundholding, with far-reaching and profound implications. 2004/05 marks another period of radical healthcare reform as the payment by results (PbR) scheme gears up for full implementation. The introduction of the new system will mean that all English trusts will now have a fixed price for specific treatments and a three-year timescale to move to these full tariff prices. The whole system is based on the use of healthcare resource groups (HRGs) as descriptions of casemix with some 15 HRGs trialled at the moment. Similar to many health ideas, this is not such a new idea, as the Conservatives played around with such thinking in the mid 1990s. See the DH’s website section on payment by results from more information. Under PbR, each provider is guaranteed the same set fee — the ‘fixed national tariff’ for each service it provides (for example, a hip operation or a heart bypass). Given that it costs the same amount no matter where the care is bought, such a tariff means that the true price of procedures becomes irrelevant to commissioners. So NHS providers will have two major areas of interest:
PbR will apply to more than half of all services and all acute trusts from April 2005 and it is hoped that the system will be fully operational by 2008. Over the next few years national prices will be determined for all individual procedures and commissioners will base their decisions purely on quality and type of care — not on cost. NHS trusts will now only be able to deliver cost savings by being more efficient in delivering the standards of care set nationally. They can no longer vary price so they can only vary the costs of service provisions. This area is not just concerned with secondary, surgical and elective care — the idea is to bring in the whole health system. The NHS appears to be moving from a service provider to a service specifier, with a national price and quality standard, delivered by anyone who can meet the quality standards at that price. Background to commissioning health services Historically, health authorities (and subsequently primary care groups and primary care trusts) commissioned health services from acute trust providers on a contracting basis. The basis for the contracts varied from cost/volume, to block contracts where the NHS trusts provided services that were required until the money ran out. If they didn’t hit their targets there was little that could be done as wholesale service changes would not be supported and any yearly change would only release the marginal costs of the unperformed treatments. Individual services — particularly high cost ones — were costed and tight contracts were developed around these, to manage costs and also the financial risk to the trust and health authority. The prime focus was price, with the health authority trying to get as many patients through the system at the cheapest cost. Price often ended up having little to do with the real cost of service delivery and occasionally massive discrepancies between trusts occurred, some only miles apart. As a result, the commissioning process was adversarial, money-focused and rigid. It was certainly not geared towards delivering service change in an environment as technologically fast moving as the health service. The structure was geographically focused and too difficult to change or really get to grips with except on a piece-by-piece basis. So why
do it?
The new system should have many benefits:
Payment
by results: will it work? Many commentators are suggesting that the new financial flows regime will be the lever that will change the relationship between primary and acute care, underpinning patient choice, waiting list management and delivery on national targets. Payment by results consultation: preparing for 2005 outlines how all of this will apply to NHS foundation trusts from April 2004 and to all NHS trusts from April 2005. For 2005-06 nearly all specialties will be commissioned by PCTs on a cost and volume basis adjusted for case-mix. The investment in service delivery and redesign will mean, ‘assessing population needs; strategic planning; analysing and forecasting; skill mix review; good information flows and evidence-based understanding of current activity in both secondary and primary care settings’, according to the consultation document. Service redesign — particularly in moving services away from acute settings — is an area of PCT influence strengthened greatly by payment by results, especially with the power to shift resources away from those provider trusts that ignore their requests. But, we have been here before. One PCT chief executive has said, ‘Hospital trusts have been very powerful, and it is still going to be like turning an oil tanker if we are going to change attitudes’. Although government says that PCTs have 75 per cent of NHS monies, effectively it is 100 per cent of what is available. Armed with this treasure chest, PCTs will then set about commissioning services to support patient choice. Providers will receive a set fee (the national tariff) according to the amount of work they carry out (payment by results), with a stark financial incentive to cut their own costs sufficiently to retain surpluses for future investment. So PCTs, in principle at least, are now in the driving seat of the new reforms. As with previous reforms, all of this will introduce risks of financial instability into the new market. There remain big issues around the management of chronic disease and the commissioning of relevant services. Patients with illnesses such as respiratory disease, heart disease, diabetes collectively account for about 30 per cent of acute hospital admissions, yet many do not need to be in hospital but once admitted often become major users of hospital resources and frequently have extended stays. Proactive support for people with chronic disease can bring big benefits to both individuals, who receive more appropriate care, and to the NHS — thus the interest in the work of the US health maintenance organisation Kaiser Permanente and managed care. Mendip PCT has shown that hospital admissions for respiratory conditions can be reduced significantly by a designated respiratory practitioner concentrating on some 30 patients. But does payment by results, as currently envisaged, support such innovation? The short answer to that probably has to be no. Because it covers only one part of the complex care pathway that chronically ill patients use, PBR is likely to offer no financial incentive to redesign systems and keep people who do not need them out of hospital beds. On the contrary, it would seem to bolster the current perverse incentive to admit to hospital, which increases recorded activity, with a direct financial payment to the acute hospital for each spell. Another difficult area is mental health and up to four mental health trusts are piloting a system developed in New Zealand to introduce PBR to mental health. At first the system will be a paper exercise, classifying mental health treatments and their costs. Some acute trust chief executives have been scathing about the quality of commissioning of their local PCTs, saying that there is a ‘lack of imagination’ in commissioning. This according to a HSJ Barometer survey in 2004. Some 87 per cent of people responding to a question as to whether PCTs had the capacity to push through the changes in the NHS said no. The
view from the Audit Commission PCT concerns remain One of the threats is that there is no incentive for the service provider to manage (or cut) demand and no incentive for commissioners to tackle chronic disease. Perverse incentives are likely to operate with two of the major policy aspirations — PbR and chronic disease management — being in conflict with each other. Indeed some 70 of 100 chief executives surveyed by the NHS Confederation at their 2004 annual conference believed that the system would incentivise hospital admissions rather than promoting improved care for people with long-term conditions. There is also concern that hospitals below the national tariff will just put up prices and that the number and detail to be found in the healthcare resource groups (HRGs) is not yet sophisticated enough. But the government does seem to have taken on board PCTs’ concerns about perverse incentives for acute trusts. In their response to the PbR consultation, several tweaks to the system are to be made. Publication of a full list of tariffs for most procedures and final guidance is expected. Health Secretary John Reid has urged PCTs to ‘fight back’ and resist pressures from acute trusts to increase acute admissions under PbR saying that one of the balanced pulls built into the system is the responsibility of PCTs to resist any unnecessary increase in hospital work. And he also urged PCTs to be clear in telling acute trusts: ‘no, we don’t want to do that. This can be dealt with better, more efficiently at primary care level’. There is a lot of new information here for NHS influencers to digest but they should attempt to feel comfortable with what is coming. There is also a lot of new jargon. But there are considerable implications here to work through by companies. What will it all mean, for instance, to each of the particular therapy areas? Are there further opportunities here in terms of improved health outcomes delivered in the primary care setting? Specialist
commissioning The National Specialist Commissioning Advisory Group (NSCAG) annual report informs PCTs, SHAs and NHS trusts of the specialised services funded, managed and developed under the auspices of NSCAG.
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