Reimbursing NHS-funded care

Monitor has published a report by PwC suggesting in its press release that "New pricing analysis highlights opportunities to improve patient care". The report suggests that what it calls incentives driven by pricing reimbursement are being undermined in the current implementation of Payment by Results (PbR). 

£28 billion out of a total secondary care budget of £66 billion is now contracted through PbR. What the report found is that the non-tariff  income is actually more volatile year on year. This is probably because non-tariff income is being used to smooth out any variations caused by PbR.

Actually this is not necessarily a bad thing. It means that trusts and PCTs minimise the risk of financial difficulties. As Alan Maynard says in his column on Health Policy Insight:-

Scrutiny of local budget bargaining usually shows that annual horse-trading about funding consists of negotiation about the level of investment for the year (de facto a global budget) with agreements that if the hospital stays within this budget and activity level, any misdemeanours on CQUIN and other regulations will be overlooked as far as applying financial penalties are concerned. 

It is this type of budget horse-trading which predominates but is rarely discussed outside tension-filled rooms when annual funding levels are fixed. It is the system that the clinical commissioning groups [CCGs] will inherit: a nice learning curve for the keen but rather naïve GPs whose survival will depend on their ability to play these well-established PCT-Trust games!

If the NHS is really going to be a clinician driven system, actually CCGs may even see an advantage in returning to block contracts. Commissioning support costs may be prohibitive and this money could be invested in services. Again as Alan Maynard says:-

So is it time to abandon PbR, revert to global budgets and use the savings to invest in sensible and simple management of cost, activity and outcome outliers and improving the mean performance of each? 

Reducing outliers and improving average activity, cost and outcomes is essential if The Nicholson Challenge is to be achieved. Squeezing PbR tariffs seems a crude and expensive method of achieving such efficiency gains.

If the Health and Social Care Bill gets through the House of Lords (see Ed Miliband writing in Sunday Mirror), I think it will be much more difficult for CCGs to use block contracts as they might wish because of the emphasis on competition by Monitor. But it would be a sensible way forward and, anyway, PbR can be developed at the edges of a block contract system through the introduction of any qualified provider arrangements (see previous post).