Payment by results could destabilise the NHS

BMJ 2005; 331 doi: (Published 13 October 2005) Cite this as: BMJ 2005;331:862
  1. Kathryn Godfrey
  1. London

    Trusts need to prepare carefully for the implementation of the payment by results system to avoid financial instability, warns a report from the Audit Commission.

    Payment by results is a way of paying providers a fixed national price for each case treated, replacing block contracts and locally agreed prices. The system, which is to be introduced across all English trusts from April 2006 for non-elective and elective care, has the aim of increasing productivity, rewarding efficiency, and affording patients choice.

    The report, which looked at the experiences of 10 foundation trusts and 15 primary care trusts that implemented the system in 2004-5, found that it exposed underlying weaknesses, such as trusts' financial difficulties, inadequate financial arrangements, and problems with data quality. It concluded that it was too early to judge if payment by results will meet its objectives.

    Presenting the report, Andy McKeon, managing director for health at the commission, said, “The danger is that if an organisation has not got its act together in terms of financial management and performance management then it will find itself in financial difficulty.”

    He also outlined risks for primary care trusts arising from the fact that they were obliged to pay for each patient treated and yet had little control over the volume of work done by hospital trusts. The report recommends that this risk could be lessened by altering the way the system is applied to emergency care. It suggests that once a certain threshold of emergency non-elective admissions has been reached by a hospital trust, then only marginal costs should be paid by primary care trusts.

    Mr McKeon also pointed to the risks for some services: “It is possible that payment by results will cause a reduction in the number of patients going to a certain department which may cause a funding problem leading to a service being closed.”

    One of the problems of the system as experienced in other countries is of “gaming,” deliberate manipulation of the system for financial gain such as discharging and readmitting patients to attract additional payment. The report did not find any evidence of gaming but acknowledged that the data quality was not good enough to be sure.

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    The report, Early Lessons from Payment by Results, can be found at

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