News / News Analysis: PBR takes centre stage

It has been a funny summer for those who follow the fortunes of payment by results. It was thrust from obscurity into the frontline of the debate over the NHS, gaining two mentions on the BBC’s Newsnight programme. In its first appearance, England’s chief
medical officer Sir Liam Donaldson was asked how hospitals would cope with the loss of income under PBR if they had to cancel elective procedures following an outbreak of swine flu. His answer was a terse ‘We’ll sort the money out later’.

Barely a week had passed before the issue had become the latest front in the battle between Labour and Conservatives over which party could use PBR to drive the greatest efficiency and quality in the service.

Political brouhaha notwithstanding, it is evident that PBR will change over the coming years. The first best practice tariffs designed to incentivise the highest standards of care will be launched in 2010/11.

The Department of Health has just unveiled early details of PBR changes for next year, including (as rumoured earlier in year) the return to a combined day case and elective inpatient tariff after problems with the separate planned same day tariff.

The non-mandatory outpatient procedure tariffs will be withdrawn and replaced by mandatory tariffs for just a small number of high volume HRGs. Diagnostic imaging will be rebundled back into outpatient attendances. More generally, it is also understood the Department has looked into reviewing the affordability of PFI schemes under PBR.

There are growing calls for change from within the NHS. The upcoming squeeze on public spending prompted the NHS Confederation to call for reform amid concerns that PBR could not contribute to better patient care at a time of restricted funding growth. The Department has been undertaking a review of existing policy levers, including PBR, to ensure they work in a recession. Any changes, beyond those just announced, are expected to be set out alongside the 2010/11 operating framework due out towards the end of the year.

In July David Flory, the Department’s director general of NHS finance, performance and operations, shone some light on the latest thinking in Whitehall. He told the HFMA’s annual foundation trust conference in Blackpool that hospitals could in future be rewarded to give up work to help move some services into more appropriate and cost-effective community settings.

Asked how trusts and FTs could help commissioners deliver on demand management schemes, Mr Flory said providers and commissioners had to work together to develop the right care pathways and plan jointly. But he also suggested the payment system could reinforce local efforts.

‘We can be more helpful by finding ways to incentivise or reward people for giving up work rather than automatically penalising them,’ he said. He suggested that this was one of the ways the payment system ‘could be more supportive’.

The need for the PBR system to evolve was picked up during the conference in a debate, which posed the question: ‘Is PBR alive, dead or just wounded by the credit crunch?’.

The debate concluded with two-thirds of the 120-plus participating finance managers opting for the ‘wounded’ assessment, with the debate suggesting changes were needed to provide bundled tariffs covering whole pathways and to improve the incentives for quality.

Of course the future of PBR could hang on the result of the next general election, which must be held by the middle of next year. With the Conservatives taking a commanding lead in the opinion polls and David Cameron’s bid to convince the electorate that his is the natural party of the NHS, attention has turned to the party’s health policy.

Shadow health secretary Andrew Lansley is expected to give more detail on his party’s PBR policy on 9 September. We are already aware of the Conservatives’ support for PBR, but they also have ideas for its reform. The biggest departure from the current version of PBR is their belief that the tariff should act as a maximum rather than absolute price. In this model, commissioners would be free to negotiate a lower price and payments would be linked to performance – against MRSA targets, for example.

The proposal was also floated by the NHS Alliance in a July policy document that called for a radical overhaul of PBR. The primary care organisation welcomed the move to best practice tariffs but insisted this was not enough. It acknowledged PCTs and practices could fall prey to loss leading or skimming under its proposals, and that primary care providers risk competition from acute hospitals.

‘These risks must be faced if the NHS is to keep within budget,’ said alliance chairman Michael Dixon. ‘If last year the focus was on quality, then the focus for the future must equally be on cost. Cost has now become the business of every clinician and manager seeking to provide the best value in health and care for patients. Freezing costs, as PBR has, is no longer appropriate at a time when every part of the NHS will be financially stretched.’

The Conservatives are more tight-lipped about a proposal in a policy document published last year (right), which implied they might amend healthcare resource groups to include standards of care that should be received. A spokesman would only say that under a Conservative government commissioners would have greater clout.

‘We support payment by results but believe there are ways it can be improved. As it currently operates, payment by results creates powerful incentives for providers to increase activity, but it has not been introduced alongside similarly powerful mechanisms for commissioners to manage the activity levels they have to pay for,’ he said. ‘The result is an unbalanced market in which hospitals can drive activity and cost beyond the level needed by commissioners, who may wish to structure service referrals differently.’

He suggested that more effective demand management mechanisms, driven by primary care clinicians, would solve this imbalance, and added that the Conservatives would renew attempts to improve information on activity.

‘Without adequate service-level information, each price listed in the tariff necessarily groups many different casemixes and clinical interventions together under a single price. This means there is  potential for astute providers to cherry pick routine, high-volume procedures, leading to a situation where low-volume, high-cost cases will eventually not be undertaken because they are not profitable.

‘We propose a regulatory framework that will ensure that providers of NHS care manage their services in a way that encourages the collection and use of information.’

Liberal Democrat leader Nick Clegg has also been drawn into the debate over the future of PBR – speculating about the potential to set tariffs at the level of the cheapest providers.

‘It is a very specific but rather radical idea, of saying that all hospital tariffs under the payment by results system should match the most efficient tariffs in the hospital system,’ he said.

It has been an intriguing summer and, for now at least, PBR is very much at the centre of debate – both for politicians attempting to win over voters, and finance managers and civil servants hoping to make PBR work during a period of restricted growth.