What is Payment by Results? – Introduction, Growth and scale of PbR, PbR in other policy areas

This post is one in a series on Payment by Results in mental health, written for both professional and personal reasons. The full series is introduced and linked to here, including a post with all references in it.

Payment by Results is the payment system in England under which health commissioners pay health providers on the basis of each patient they have seen or treated (DH, 2011a:8; NDTi, 2012:8). It is possibly the most significant change to how money flows around the secondary care sector since the inception of the NHS in 1948 (King’s Fund, 2012:6).

Before Payment by Results was introduced health providers would mainly be paid according to large block contracts. These were fixed sums of money which were based on historic funding patterns (DH, 2011a:64), which didn’t always encourage efficient or high-quality care (RCP, 2012:4)

The introduction of Payment by Results aimed to do many things, including to:

  • Reduce waiting times for planned operations, which required an increase in acitivity levels within hospitals. Since block contracts, with a fixed budget, provided no incentive for hospitals to attract extra patients, PbR was a mechanism which could address this (King’s Fund, 2012:7)
    • Support patient choice by allowing money to follow a patient rather than sit with a health provider (DH, 2011a:9)
    • Reward efficiency and quality within providers by allowing them to retain the difference in cost if they could deliver the required standard of care at a lower cost than agreed national prices (DH, 2011a:9)
    • Ensure fairness and transparency within the health payment system (DH, 2011a:46).

As such, PbR is a means rather than an ends: it is a lever or enabler that supports healthcare policy and the strategic aims of the NHS (DH, 2011a:50). It is therefore intimately tied to key questions such as: “What sort of service does the payment mechanism seek to reward and incentivise? Specifically, which services are to be provided, how they are to be delivered, where they are to be delivered and by whom are the criteria by which the performance of funding mechanisms may be judged?” (CHE, 2009:1)

PbR was a payment mechanism to be found in very many health systems across the world. For example, more than half of all OECD countries adopted activity-based payment systems like PbR throughout the 1990s and 200s (King’s Fund, 2012:18). The pioneers of this approach had been found in the USA, having been adopted for Medicare in the 1980s (DH, 2011a:47).

Growth and scale of PbR

There are two easy ways to identify the growth of Payment by Results wherever it exists: by the number of “diagnoses- or health-resources groups” (DRGs or HRGs) it covers (i.e. the number of diagnoses or conditions whose treatment is paid for via PbR), and by the proportion of money spent through PbR in the health system.

In England, PbR began with some 15 HRGs in 2003/4 and increased to 48 HRGs in 2004/5. NHS foundation trusts were early implementers of PbR, moving to the full system in 2005-06. There followed a transition period between 2005/6 and 2007/8 which smoothed the impact of PbR on commissioners and providers of healthcare, and by 2009/10 there were over 1,000 HRGs in operation in the NHS and in 2012/13 it now comprises approximately 1,300 manadatory tariffs (DH, 2011a:46).

Until 2011/12, the whole PbR system was overseen by the Department of Health. The Health and Social Care Act (2012) has now shifted responsibility for PbR to the NHS Commissioning Board and to Monitor. Broadly, the role of the Board is to set out general principles and the role of Monitor is to devise a payment system in the light of these (King’s Fund, 2012:14).

PbR started first covered (in 2003/4) a small proportion of elective activity – around £100m. This has grown to now be some £8.0bn of elective activity.

In total, PbR now represents over 60% of acute hospital income (around £29bn of services) and about one-third of primary care trust (PCT) budgets (DH, 2011a:9).

Year 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12
PbR spend £100m £2bn £9.5bn £23bn £24bn £25bn £26.5bn £28.5bn £28.9bn
PbR as % of PCT allocation 0.2% 4.1% 17.6% 35.5% 34.2% 33.7% 33.1% 33.7% 32.4%

Source: (DH, 2011a:48;62)

An early study on the administrative costs of Payment by Results, published by the Centre for Health Economics in July 2006, found that administrative costs associated with the introduction of PbR had increased by £100,000 to £180,000 in hospitals and £90,000 to £190,000 in PCTs. These costs represent about 0.2% of the total cost of activity covered by PbR (DH, 2011a:51).

PbR in other policy areas

It is useful to know that Payment by Results (PbR) forms an important part of the government’s reforms of public services. It is being rolled out in many different forms by many different government departments, including not just the Department of Health but the Department for Work and Pensions, the Department for Communities and Local Government and the Ministry of Justice (Sitra, 2013:3).


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Man of letters & numbers; also occasionally of action. Husband to NTW. Dad of three. Friendly geek.

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