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The times we are working in now need a great deal of accelerated change and there must be no negotiating that down. So my mission statement for this part of my consultancy career is to be clear that there needs to be and will be a lot of change from the work that I do with individuals and organisations and if organisations don’t want that, then it is probably best to go somewhere else.

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Why pricing matters in the NHS

Filed Under (Expenditure, Foundation Trusts, Secretary of State) by Paul on 02-03-2010

Sometimes I write about things that start off looking so esoteric that I nearly lose my nerve in starting to write about them, let alone encourage the reader to read them.

But here goes.

In the autumn of 2003, when New Labour was in the last set of trenches getting the NHS Foundation Trust legislation through the Houses of Parliament, someone came up to me and congratulated me on creating the fuss around Foundation Trusts as a smokescreen for the really important change. They said that whilst FTs were important they were acting as a smokescreen for the creation of a pricing mechanism for the NHS – what came to be known as “Payment by Results”.

Whilst this person endowed me with much greater Machiavellian skills than I possessed, they were quite right in suggesting that, however important Foundation Trusts were, they would have little traction in changing the system if there was not a system where trusts were paid for the work they did – and were not paid for the work they didn’t’  – do. Introducing a system of payment for work carried out was hardly a revolutionary concept, but in terms of the NHS it was the single reform with the biggest impact on secondary care.

So when, a couple of weeks ago, in February 2010 the Department for Health published the tariff and code of conduct for payment by results, it sounded very boring – but in fact it matters a great deal.

In fact what these rules do is explain the way in which the NHS will spend about £35-40 billion in the next year. This, by any stretch of the noughts, is a lot of money and so how it is distributed matters. That is why the senior staff in all commissioning and all provider organisations in the NHS should pay close attention to these rules

As the code says:

“PbR has introduced a degree of transparency in the NHS financial flows that is almost unprecedented.”

For the money that flows around the system through PBR – if not for the rest of the money in the NHS – it is possible for taxpayers and patients to see where their money if going and what it is spent on.

Given that we are facing a financial crisis in the NHS it’s important to look at the key objectives for payment by results. Page 6 of the code lays these out.

  1. Improve efficiency and value for money through enhanced service quality, as both commissioners and providers can retain and invest surpluses and savings to improve services
  2. Facilitate choice by enabling funds to go to the services chosen by patients
  3. Facilitate plurality and increase contestability, enabling funds to go to any provider (whether NHS or independent sector) who can treat patients at tariff and at NHS standards, are enabling providers to compete on an equal basis to provide services;
  4. Enable service innovation and improve service quality and promote equality, by rewarding providers whose services attract patients and focusing negotiations between providers and commissioners on quality and innovation, because the price is fixed
  5. Drive the introduction of new models of acre closer to where people live and work, by enabling funds to go to providers offering care in non traditional and community based settings
  6. Reduce waiting times by rewarding  providers for the volume of work done
  7. Make the system fairer and more transparent through consistent fixed price payments to providers based on volume and complexity of activity
  8. Get the price ‘ right’ for services by paying a price that ensures value for money for the taxpayer and incentivise the provision of innovative high quality patient care that is responsively to individual need

Given the fact that this code of conduct has been issued from a Department of State where the Secretary of State has expressed a personal preference for all health care, bought with NHS money, to be provided by NHS providers, this praise for the better outcomes of competition is really refreshing.

It recognises how very important it is that resources follow patient choice and that those choices are open for patients and are not restricted by the Secretary of State’s personal preference.

It is these rules more than any other that will succeed in driving technical efficiency into the secondary care system in the NHS.

It is within these rules that the ugly sounding “unbundling” of the tariff will be developed – which will move the system on to the next level of efficiency for long term conditions.

So esoteric or not we will return to this code of conduct on how all those millions flow round the system.

Comments:

One Response to “Why pricing matters in the NHS”


  1. I think opinion (e.g. at our salon on PbR in the downturn) may be moving away from further unbundling as the most efficient way of shifting care out of hospitals (in order to achieve the end goal of more efficient models of care for people with complex and chronic conditions). Increasing the complexity of the payment system and creating even more fragmentation could be counter-productive (incentivising more volume and more hand-overs). In the current financial situation commissioners might be better off bundling up payments for individual elements of a care pathway into a capitation payment and handing them to an integrated care organisation (or GP commissioner) to manage the care (and the risk).

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