Can payment reform promote better care?

Blog post

Published: 20/02/2014

The NHS payment system defines the mechanisms through which NHS-funded care is paid for, and the prices paid. These mechanisms and prices are levers available to commissioners to incentivise providers to achieve health care objectives, such as better health outcomes, activity targets, greater efficiency, and reduced waiting times.

For example, the “Payment by Results” system, through which hospitals are paid according to how much treatment they provide, was introduced to incentivise more hospital activity, at a time of long and growing waiting lists for operations.

Now, in very different economic times with very different objectives for hospital activity, the system is being used to promote efficiency savings by reducing the prices paid for activity.

It is widely agreed that the payment system for NHS-funded care in England is now in need of reform if it is to support a sustainable health care system into the future. The economic climate, on top of shifting patterns of age and illness in the population, mean that changes are needed in where, how and when care is provided.

We find there is a lack of evidence that payment approaches can directly incentivise better integrated care and joint working

The payment system must be capable of promoting these changes – or at the very least, it must not act as a barrier to them.

Today’s NHS payment system is a highly complex mix of methods, prices, incentives and penalties, and is the product of more than a decade of reforms to separate components. Over this period, policy-makers have loaded it with an increasing number of objectives – and ambitions are greater still.

NHS England and Monitor want a reformed payment system to help tackle some of the biggest challenges facing the NHS, including joining up care across sectors, and shifting care out of hospitals into the community.

In our two reports, published today; we review the evidence from evaluations of NHS payment systems, examining how far payment levers can help meet the considerable challenges faced by the NHS; and we make recommendations to Monitor and NHS England for future reform.

We find there is a lack of evidence that payment approaches can directly incentivise better integrated care and joint working. Other levers may be more effective here. In some cases, payment systems actually provide signals that are counter to many of the ambitions for NHS care.

For example, paying for activity in hospitals encourages increased volume, while paying for much of community care irrespective of activity level has the opposite effect.

We conclude, therefore, that the payment system should focus on areas where we know it can make a positive difference. And, perhaps most importantly, it should do no harm – it must align with and support other levers for improving efficiency and quality, and not oppose them.

Based on these findings, there are some clear points for NHS England and Monitor to consider as they plan further change to the payment system.

First, there is good evidence that payment approaches can promote productivity and quality of care. In the face of an expanding NHS funding chasm, more and better data is urgently needed on how much it costs to provide high quality care as efficiently as possible in different settings. This is the only safe and fair way to decide the prices paid for care.

Secondly, future reforms must take a wider view than they historically have. Instead of separately tinkering with how we pay for each of hospital, primary and social care, we need money to follow patient need across organisational boundaries.

Finally, the payment system must provide clear and transparent means of purchasing care with public money. Engagement of health care professionals is critical; they cannot be expected to act in line with the signals provided if these are not clear or not aligned with best clinical practice.

In summary, the NHS payment system needs to be clear and comprehensive, to cover the continuum of care, and to support provision of the right care, in the right place, at the right time, for the population as a whole. Undoubtedly this is far easier said than done, but the lessons we have drawn from years of payment reform in the NHS give us a better place to start than ever before.

Dr Louise Marshall is Specialty Registrar in Public Health at Oxford University Hospitals Trust. Please note that the views expressed in guest blogs on the Nuffield Trust website are the authors’ own.

This article also featured on the Inside Commissioning website.

Suggested citation

Marshall L (2014) ‘Can payment reform promote better care?’. Nuffield Trust comment, 20 February 2014.