Comment / Provider payment: our role in pricing

By Andy Hardy

With Monitor considering a report on the current provider payment system, and looking into ways to improve costing, the finance community needs to engage.

Consultancy PWC’s report for Monitor on current NHS reimbursement makes for interesting reading. I am sure we can all recognise at least some of the issues they raise as current difficulties with the provider payment system.

Importantly they also recognise that payment by results has delivered benefits – for instance, enabling choice, improving information availability and driving some quality and efficiency improvements. When the NHS introduced payment by results it was setting out on a journey. It was never intended to provide a one-time fix for all the ills – and there were many – of the block funding system.

So we need to recognise that the system was always going to evolve and that evolution is rightly taking us towards revised approaches and enhancements – pathway and best practice tariffs and perhaps, even for some services, year-of-care payment models.

No payment system will ever be perfect, but there are improvements that can and should be made. The overall aim has to be a system that fairly rewards organisations for the care they deliver and provides the right incentives to deliver the best quality services possible. In this context the handover of responsibilities from the Department of Health to Monitor provides a useful opportunity for reflection and charting the best future path for payment by results.

The core criticism in the report is focused on the information underpinning the reimbursement system. The consultants talk of ‘unexplained variations in the unit costs for the same services between providers’ and ‘poor data quality’.

Few would attempt to argue that costing data is uniformly good in the NHS – although it has improved in recent years, in part in direct response to the introduction of the tariff. The causes of poor costing data need to be clear. However refined your costing processes are, if you are not counting all your activity or interactions, virtual

and real – if in effect your denominator is wrong – your cost information will suffer. It is often the counting and coding of activity – or the lack of sophisticated patient data feeder systems – that is our real headache.

But there appears to be growing interest in the idea of using a sample of providers – recognised leaders in the field of costing – to submit more robust costs to feed tariff calculation. Monitor has already flagged the possibility in its licence conditions consultation and it is the approach followed in Germany – although its ‘sample’ includes as many hospitals as we have trusts in our whole system.

Even if we go down this sampling route, we need to ensure the whole NHS keeps pursuing the highest quality costing information. This is an important resource to inform and improve decision-making around service redesign and productivity.

My HFMA colleague Tony Whitfield, chair of the association’s Costing Special Interest Group, has led important work around the standards for patient level costing over the last couple of years. He argues that finance directors need to raise the profile of costing. That means resourcing it properly and making it a discipline our best finance managers are not only attracted to but want to stay working in.

PWC has already moved on to the next phase of its support work with Monitor, looking in detail at how the costing process could be improved. The HFMA is keen to engage with this work, as we did with the evaluation of reimbursement. The HFMA Payment by Results Special Interest Group will discuss the detail of the evaluation report at its next meeting. But, more widely than this, as a finance community we need to engage fully with these major opportunities to influence the shape of future approaches to reimbursement and costing.

Andy Hardy is chairman of the HFMA’s Payment by Results Special Interest Group