Payment by results

Payment by results aims to provide a transparent, rules-based system that rewards efficiency, supports patient choice and diversity, and encourages sustainable reductions in waiting times. Can it achieve all this and also prevent the NHS lurching from one financial crisis to the next? This fourth article in our series sets out to provide some answers. You can download these articles from our website, discuss the issues on the interactive section, iCSP, or write or email your views to Frontline's letters page. ~ Reports and research by Andrew Cole and Gary Robjent

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What's happening and why?

Payment by results is integral to the NHS reforms. Introducing patient choice and a quasi-market into the health service can only work if there is a mechanism to reward high-performing providers and penalise those that don't come up to scratch. That is effectively what payment by results does.

The new system replaces the old arrangement of locally negotiated block contracts with a nationally agreed fixed rate for each procedure undertaken by a hospital. More than 1,000 acute procedures now have a tariff attached to them, with hospitals receiving funding based on the number of procedures they perform. The cost of a routine hip replacement, for instance, is now £4,967, and of treating a stroke £4,293 - no matter where it is done in the country.

The new funding method, first introduced in 2003 to 2004, now accounts for 62 per cent of all hospital activity and more than £22 billion of primary care trusts' spending. But it has been dogged by controversy. Last year, for instance, the tariffs had to be withdrawn because many were inaccurate. More fundamentally, plans to extend PbR to non-acute services such as primary care and mental health have been delayed again and again because of the problems in agreeing robust costings. The latest consultation paper contains no date for the planned roll-out and some experts wonder whether it will ever happen.

Some experts wonder whether it will ever happen

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The home front

At present there are no plans to introduce payment by results in Scotland, Wales or Northern Ireland. However, the basic building blocks that PbR uses in order to cost activity in the NHS - the healthcare resource groups - have been used across the UK since the early 1990s, while the national tariff for England is being used as a benchmark for examining the cost-efficiency of health services in the rest of the UK. Also, as Northern Ireland begins to adopt a commissioning model similar to that in England, the possibility of introducing PbR increases.

What does it mean for healthcare?

The theory behind payments by results is that it makes a direct link between activity and income. So the more work hospitals actually do, the greater the rewards. Meanwhile, the fixed tariff for a particular procedure encourages more efficient use of resources. Also because costs are fixed, market forces will be brought to bear on quality of services rather than price, forcing quality up, or so the theory goes. If a hospital's work costs more than the tariff, then it has to make savings. If the hospital can do the work more cheaply, it retains the surplus.

In reality this has thrown up a number of problems. For a start, currently tariffs are based on the average costs for a particular procedure, which tends to penalise the more specialist hospitals that focus on the more complex - and therefore more expensive - cases. And the government has indicated a move to cheapest cost, which could make the situation worse. Last year, for instance, several paediatric hospitals claimed they faced a cash crisis as a result. The government subsequently agreed to make up the shortfall.

The nature of the new system also means there will be losers as well as winners. Recently, for instance, the Department of Health drew up a list of 19 acute trusts that will be closed, merged or broken up because they are unlikely to survive under PbR.

Evaluations from other countries suggest hospitals often manage to cut costs by reducing the length of stay but at the same time they may shave back on areas like the length of consultations or the number of tests ordered. Several hospitals now report they are doing more procedures, says John Appleby, the King's Fund's chief economist for health policy: 'The big question from PCTs' point of view is, does this genuinely refl ect greater activity or is it simply showing that things weren't properly recorded in the past?'

Another concern is that PbR offers perverse incentives to expand acute hospital activity at a time when the service as a whole is looking to shift more of its workload into primary care. There is already anecdotal evidence that some chief executives are instructing clinical staff to concentrate on the work that brings in income rather than more nebulous activities such as skilling primary care teams to move services into the community.

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Hopes and concerns

Hopes

  • Incentive for providers to become more effi cient,
    responding to patient need
  • Essential for government reforms such as patient choice

Concerns

  • Is it a perverse incentive to increase hospital work?
  • Is it realistic to extend PbR to primary care and mental
    health as intended?
  • Could destabilise the acute sector economy
  • Could increase fragmentation of provision
  • Rewards volume not quality

What does it mean for physiotherapy?

So far PbR has had little impact on the profession. Indeed physiotherapy is notable by its absence from the guidance. But the fact the profession's contribution is not formally recognised could represent a threat in a world where increasingly everything is expected to have its price.

Jill Higgins, the CSP's director of practice and development, says it is vital the profession tries to identify precisely what its contribution is. 'With hip replacement it becomes important to say what you do in terms of preparation pre-operatively and mobilisation postoperatively and what that actually costs.'

The fact is that payment by results is here to stay. And, despite their misgivings, many in the profession feel they would do better to make their own case for their cost-effectiveness rather than letting others do it for them.

Former NHS fi nance director Noel Plumridge is blunter - physiotherapists don't have a choice. 'I have heard physiotherapists argue you can't measure their activity in a way that's conducive to PbR - there isn't a realistic currency for what they do,' he says 'But if physios don't get involved, the areas that are rewarded by volume of activity will carry on and suck in the money - and in a world of fi nite resources that effectively takes away from anything not covered by PbR.

'The more messages get out about where physiotherapy can have a real effect, the more likely it is that physiotherapy will become accepted as part of the equation when commissioners make their purchasing decisions.'

But concerns remain that some of the less tangible aspects of physiotherapists' work may slip under the radar. 'I think some areas like hip replacements and stroke are undercosted, because it comes down every time to financial value when some of what we do is less tangible in terms of outcomes,' says Jill Higgins.

'There's no problem when it's measuring length of stay and admissions. But some of the softer things like quality of life are more difficult to measure. How do they get costed into the tariff?'

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What are the opportunities for physios?

One of the biggest selling points for physiotherapists in the new world of PbR is that they offer better value for money than some alternatives.

As former NHS finance director Noel Plumridge says, physiotherapy interventions can unlock waiting lists and so free up capacity. But above all, they are cheaper than doctors: 'That's a powerful argument. Anything that can be done by the physio rather than the doctor is going to save organisations a pile of money.'

One of the keys is rehabilitation - in hospital and the community. Up to now the acute tariff has not included a separate costing for rehab, meaning physiotherapists' contribution could have been missed.

Now, however, the Department of Health has produced guidance on how local commissioners can 'unbundle' different areas of care, such as rehabilitation, and so cost and pay for them separately. This in turn may help encourage earlier discharge by placing greater emphasis on communitybased rehabilitation.

One initiative that could benefi t from the new guidance is the communityled stroke rehabilitation unit at Newton Abbot hospital in Devon. Currently up to 50 per cent of stroke patients move to the unit within a week of being admitted to hospital. As a result, capacity on the acute unit has increased dramatically and general discharge planning has accelerated.

In the past PCTs have paid for the service under a local agreement, but Rhoda Allison, Devon primary care trust's consultant therapist in stroke, believes 'unbundling' could be the way forward.

Noel Plumridge's chief concern about unbundling is that: 'It requires intelligent commissioners to do it, and the truth is smart buyers are quite scarce. Lots of people don't know what physios actually do.'

No-one has any doubt PbR is here to stay, but some suspect the inherent problems of pricing every element of care and treatment will prove too tough once the focus shifts from acute to primary care.

'The message I'm getting from the consultation document is that unbundling and the care pathway approach is really quite diffi cult, so could we focus more energy on getting it right within hospitals rather than trying to extend it?' says Noel Plumridge. 'Where are the plans to introduce PbR in primary care in this document? The answer is there are none.'

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The professional's view

The bottom line is that PbR isn't going to go away. It's a different way of looking at how services are provided and commissioned, and we have to be part of it. It's better to take control rather than letting someone else do it for us.

We need to be very clear about the relevance of the physiotherapist's intervention. But that's quite difficult because as a profession we have tentacles in so many different things. How do you identify what is due to physiotherapy rather than good patient care generally?

We're encouraging members to become more business-focused in the way they deliver services, recognising that if they don't they could lose out. That's easy if you can hook into waiting lists and length of stay.

But if you were looking at mobilising post hip replacement, how do you cost in the fact that it may be easy to motivate one patient, while another requires a lot of personal intervention to maximise their potential? How do you equate the two and how can you refl ect that in the costings?

The idea is that eventually PbR should include the whole patient journey. For a hip replacement that would involve acute, rehab and the community. But the problem is the infrastructure is not set up to manage well the trail from acute into community care.

Jill Higgins Director of practice and development, Chartered Society of Physiotherapy

An employer's view

Unbundling requires intelligent commissioners, and the truth is smart buyers are quite scarce. Lots of people don't know what physios actually do ~ Noel Plumridge

PbR takes the subjectivity out of the system and enables us all to be reimbursed at the same price for the same type of work. Before, the annual contracting round was highly protracted and very diffi cult. Now the only debate is about volume and services, so it's simplifi ed things and made them more consistent.

It's a fair criticism, in a way, that PbR measures activity rather than outcome. But the system was never designed to refl ect the quality of outcome. Essentially it's driven by patient activity.

Within the models now developing across the acute sector, undoubtedly physiotherapists will be operating more on a trading basis within a trust and selling their services. That can help make their real value known. I could imagine a situation where some things previously undertaken more expensively by other groups could instead be undertaken by physiotherapists.

Obviously PbR will put some trusts under extreme cost pressure and if they can't resolve these issues then their future will need to be looked at. But it's got to be a good thing if ineffi ciencies in services are highlighted.

Mike Foster deputy chief executive, University College London Hospitals foundation trust

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On the ground - City and Hackney

For the past few months City and Hackney Locomotor Services, which caters for patients with a range of musculoskeletal problems, has been working out exactly how much its service costs in order to become part of local PbR from next year.

The aim is to develop shadow unit costs for all its procedures by later this year so that budget-holding GPs will eventually be able to buy its physiotherapy services directly.

The point of the exercise is to give greater transparency, says City and Hackney's service manager for adult therapies Cathy Williams. 'In the past physiotherapy has been seen as a freebie from the GP point of view. It didn't really matter who they referred to us and who they didn't.'

The unit offers a very good deal for local commissioners, in her view. It has helped cut referrals to rheumatology and orthopaedics. It has also reduced its own waiting times from as much as 18 weeks to an average of four to six weeks.

The big advantage of the new system will be that the unit can offer its services to a much wider range of GPs and patients. However, Cathy Williams also suspects the new funding system might adversely effect their overall case mix. 'GPs might see someone with tennis elbow and decide they'll inject that themselves and only send the more complex cases on to us, which could cause problems. We may need to get more sophisticated about some of these costs.'

On the ground - Birmingham

The message is: put more money into allied health professionals and save more money in bed days ~ Sarah Bazin

Payment by results has helped Sarah Bazin, Heart of England foundation trust's therapy services manager, to argue for more physiotherapy staff at the newly-acquired Good Hope hospital in Birmingham.

Ms Bazin, whose trust took over Good Hope last year, has been able to show that a larger, dedicated therapy team at a neighbouring hospital (with intensive outreach follow-up) helped cut patient stays for those with hip and knee replacements to three days - compared to an average of nine to 10 days at Good Hope. Given that the tariff for a hip replacement is based on a seven to eight day hospital stay, it's easy to see how attractive her proposals will be to the trust.

She is now drawing up a proposal involving extra physiotherapy staff as well as new procedures and protocols that will, she predicts, save the hospital as much as 1,000 bed days a year. 'The basic message is: put more money into allied health professionals and save more money in bed days,' she says.

The fact that physiotherapy is not mentioned in the tariffs for these procedures presents a problem. Ms Bazin suggests therapy managers might need to conduct a self-funding pilot to demonstrate the benefi ts of physiotherapy interventions. 'You need to tell everybody that you're doing this - as long as you're sure it's going to be positive.'

Useful references and resources

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This text on this page was last updated on 20 Jun 2007.