Payment by Results (NHS)

Payment by Results (NHS)
Name	Payment by Results (NHS)
Introduced	2003
Country	United Kingdom
System	National Health Service
Type	Healthcare reimbursement
Status	Evolving

Payment by Results (NHS)

Payment by Results (NHS) is an activity‑based funding system used within the National Health Service in England to reimburse hospitals and healthcare providers for clinical activity. It builds on concepts from tariff‑based reimbursement and case‑mix funding used in international systems, aiming to link payments to episodes of care, clinical classification, and national price lists. The policy has intersected with initiatives led by figures and bodies such as Tony Blair, Gordon Brown, Department of Health and Social Care, NHS England, Monitor (NHS) and has been debated across forums including House of Commons committees, King's Fund, Nuffield Trust and Health Select Committee.

Background and development

Payment by Results was introduced amid broader reform programmes associated with the New Labour administration and followed earlier experiments such as the internal market and purchaser‑provider splits implemented after reports by Dame Barbara Young and policy papers referencing Professor Julian LeGrand. Early pilots and academic evaluations involved institutions like University College London, London School of Economics, University of Manchester, and advisory bodies including the Audit Commission, National Audit Office, and Health Foundation. The approach drew on international precedents such as the Diagnosis-Related Group (DRG) systems from United States, Australia, and Germany, and was shaped by legislation and guidance from successive Secretaries of State including Alan Milburn and Patricia Hewitt.

Mechanism and payment methodology

The system uses national tariffs determined by clinical categories and activity counts derived from classifications like Healthcare Resource Groups (HRGs) and the International Statistical Classification of Diseases and Related Health Problems, ICD‑10 editions produced by World Health Organization, together with procedure coding from OPCS-4. Payment matrices are calculated by bodies such as NHS Improvement and informed by data flows from Hospital Episode Statistics held by NHS Digital. Tariffs incorporate elements like base prices, market forces factor adjustments, and best‑practice tariff incentives influenced by reports from National Institute for Health and Care Excellence and costings from Audit Commission. Contracting mechanisms link commissioners (formerly Primary Care Trusts, later Clinical Commissioning Groups, and Integrated Care Systems) with providers such as NHS Trusts and Foundation Trusts.

Impact on providers and commissioners

Providers adapted administrative and operational systems—finance, managerial reporting, and clinical coding—to respond to DRG/HRG incentives, affecting organisations such as Great Ormond Street Hospital, Guy's and St Thomas' NHS Foundation Trust, and smaller community trusts. Commissioners altered commissioning strategies and demand management, with implications for institutions like CCGs and regional offices of NHS England. Empirical studies by Institute for Fiscal Studies, Centre for Health Economics, King's Fund, and academic centres at University of York documented shifts in length of stay, throughput, and service reconfiguration at acute providers and mental health trusts. The payment model influenced strategic behaviour similar to that observed in systems overseen by regulators like Care Quality Commission and financial oversight by Monitor.

Clinical coding, tariffs, and data governance

Accurate clinical coding became central; coding teams and roles such as clinical coders and information analysts liaised with systems from vendors like System C and Cerner Corporation to ensure correct HRG assignment. Quality of Hospital Episode Statistics and governance frameworks from NHS Digital and Information Commissioner's Office determined data use, patient confidentiality, and secondary uses for commissioning and research, aligning with standards such as the NHS Data Model and Dictionary. Discrepancies in coding practice prompted audits by PricewaterhouseCoopers and policy responses from Department of Health and Social Care and advisory panels including Expert Advisory Groups.

Criticisms, controversies, and reforms

Critiques emerged from stakeholders including the British Medical Association, Royal College of Physicians, Royal College of Nursing, and think tanks like Social Market Foundation and IPPR. Concerns covered perverse incentives, upcoding, fragmentation of care, and impacts on chronic and complex care pathways highlighted in reports from Nuffield Trust and Healthwatch. High‑profile controversies involved disputes over tariff setting, emergency care funding, and use of best‑practice tariffs prompting policy revisions under ministers such as Jeremy Hunt and Andrew Lansley. Reforms moved toward blended payment models, outcomes‑based commissioning, and integration with initiatives led by Sustainability and Transformation Plans and Integrated Care Systems advocated by NHS England.

International comparisons and influence

The Payment by Results approach influenced and was informed by international payment reforms in countries such as United States, Germany, Australia, Canada, and Sweden, with cross‑national comparative work by organisations including the Organisation for Economic Co-operation and Development and World Health Organization. Scholars compared effects on efficiency, equity, and quality against models like DRGs, capitation in Netherlands and bundled payments in United States, informing debates in national health policy fora including European Commission health units and bilateral exchanges with health systems in New Zealand and Singapore.

Category:National Health Service Category:Health care payment systems Category:Health policy