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Editor’s blog Thursday 24 September 2009: is PbR a fitting payment system for the recessionomics of health?

This morning’s policy seminar at the NHS Confederation, ‘From payment for activity to payment for transformation- is PbR fit for the downturn?’ saw a series of impressively thoughtful reflections on PbR, the tariff and incentives.

As reports from the NHS Confederation and the Kings Fund / IFS have shown, the need to adapt to lower NHS funding is pressing. The session looked specifically at the need for a payment mechanism that can deliver the various policy objectives of prompt access, quality (pace Darzi) and financial balance.

One of the key themes was around the funding of integrated care. The point was repeatedly made that fee for service (PbR) is an effective means to get more of the service in question. The challenges currently being faced (bravely, in the particular case cited of the experiment under way at NHS Trafford) are how to create the climate that is conducive to improving the wrapping of care around patients without creating perverse financial incentives.

Several speakers remarked that the tariff and PbR are simply tools, and that the quest for a perfect payment system could be both unattainable and the enemy of necessary stability: some participants warned against a faith that perfecting the processes for payment and incentive would create systems that automatically manage themselves perfectly. In the words of one participasnt, “PbR is as much art as science”.

The perfectability of systems
In healthcare, as in life, you could spend forever trying to perfect the process and completely fail to pay attention to the product. An autistic obsession with structure and processes is an oft-seen pitfall in the NHS.

The role of complexity in payment mechanisms was much-discussed. There was a broad school of agreement that some degree of hybridisation between weighted capitation funding and tariff payment where appropriate was probably inevitable, given the starting point.

The challenges – as ever – arise around d the interfaces. Various examples were cited of systems which over-specified payments (the Czech remuneration system which collapsed under the weight of 20,000 payment categories / groups got several mentions).

Matching the payment and incentive system to the type of care being produced was also a specific challenge. Networked kinds of care thought to produce optimal outcomes (such as cancer networks, or chronic disease management programmes)

Incentives in some high-performing US require high level of micro-specification about aspects of the care pathway (possibly contributing to senses of loss of clinical autonomy?). A figure of 1-4% for incentives as a proportion of total payments was suggested to be the correct level.

It was also observed that efforts by the DH to construct a ‘year of care’ tariff for diabetes services had served to demonstrate that merely making such tariffs was challenging – let alone making them accurate and effective.

Tariff driving efficiency
As discussed with Simon Stevens here on HPI, much of the conversation revolved around how far the tariff should drive the reduction of spending. The concept of the tariff driving the curbing of spending, and focusing strongly on acute providers’ income, was generally clearly accepted. There was also little demur from the suggestion that the tariff should act as a maximum price signal. However, advocates of competition were more bullish that, to anticipate the ‘ramping up’ of activity by acute providers to compensate for lost income by tariff stability or even reduction, it should be possible to cut the tariff even more deeply if this were seen in practice.

Little confidence was expressed in PCTs’ commissioning capacity; and indeed in their likely endurance as an organisational form – various participants thought them highly vulnerable to a ‘bonfire of the quangos’-style fit of political populism. One strand of opinion was that so slight were PCTs’ abilities to manage contracts (and thus activity, demand and outcomes), that allowing the possibility of price competition would be likely to be a wasted endeavour given the extant poverty of commissioning skills.

Wry observations about the tariff included the observations, “it’s a price list; not a method of reimbursing providers’ costs”, and, “it’s a tool; not a solution”. Best Line Of The Day Award went to Professor Nick Bosanquet, who suggested that “the tariff is like using a nut to crack a sledgehammer”.

First, think what you want to get out; then design the funding
One participant suggested that when it comes to funding, there are only four methods of paying in healthcare – and the system needs a blend of them. “If you want more of something, you use fee-for-service. Capitation is the way to deal with demand. Pay-for-performance inentivises performance alone; and you use block payments if you want to fund infrastructure.

“If you look at what you’re incentivising, it’ll tell you what behaviours and results you might get”.

Another participant observed that handling economic constriction required “two tools: a schedule of costs on out-of-acute provision (the unbandled tariff), so those who want to build community-based integrated care can build a Lego kit of integrated care. The other is price competition, with tariff as a maximum”.

Radical stability
Another perspective merging in the discussion was related to the conversation about the perfectability of payment systems and incentives: that instead of constantly tweaking them in response to anachronisms or perceived mis-pricing, systems should be left in place in order for organisations to adapt to wrinkles and unfairnesses.

Getting money out of primary care
GP practice-based commissioning was not thought to have been effective in altering patterns of expenditure away from acute providers, and the enthusiasts were largely on the PBC provision side.

Another point of discussion was about the possible fate of the capitated payments to GP practices: whether it could be possible to make some of this funding available to organisations or networks to provide community-based management of long-term conditions without economically destabilising general practice. It was thought that this would not be easy (or indeed popular with GPs) to achieve.

Equally, on the subject of incentives and cost management, the importance of considering the 2004 (and subsequent) revisions to the GP contract and the quality and outcomes framework was apparent.