The impacts of Payment by Results in health

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.

It is clear that a significant amount of effort has gone into introducing Payment by Results in health, even though it is recognised that is a means rather than an ends; that it is a lever which supports healthcare policy and the strategic aims of the NHS (DH, 2011a:50).

What kind of effects does the mechanism of PbR have on the ends it seeks to support?

In a table summarising the effects, the King’s Fund (2012:24) notes the following adverse impacts of introducing Payment by Results (and, in brackets, how they are typically addressed):

  • Increased hospital admissions (addressed by: volume or budget caps; discounted prices for activity above agreed targets; restriction of activity-based payment)
  • Unco-ordinated care across settings (addressed by: payments for case co-ordination; experiments with bundled payments for pathways)
  • Under treatment (addressed by: additional payment for outliers; penalties for readmission)
  • Cost shifting to other budgets (addressed by: penalties for readmission; piloting of pathway-based payments)
  • Cherry-picking of lower risk cases (addressed by: additional payment for outliers, high-cost inputs, new technology; case-mix tools give increased weight to procedures, complications and co-morbidities)
  • ‘Up-coding’ or misreporting (addressed by: good data audit).

Similar issues were also reported by the Centre for Health Economics (CHE, 2009:50).

One substantial adverse impact in healthcare generally is the possibility of PbR having a detrimental impact on quality as providers seek to maximise income (King’s Fund, 2012:2).

Specifically on this question, what evaluation there is to date would suggest it is difficult to categorically say PbR had a positive impact. The King’s Fund notes there “is very little evidence on the impact of PbR on quality” (King’s Fund, 2012:16). Nevertheless, it is equally difficult to prove the case that PbR negatively impacts on healthcare quality: the Audit Commission (2008) found that the early years of PbR had not compromised the quality of healthcare; similarly, a review by the NHS Confederation found that PbR had had no detrimental impact on care quality (quoted in King’s Fund, 2012:16).

Improved quality is often thought to naturally follow from an increase in competition under fixed prices amongst providers (King’s Fund, 2012:30). Evidence on how choice at the point of referral has operated, however suggests that it remains a weak driver of quality improvement (Dixon et al 2010). This leads to what the King’s Fund call a “prima facie case” for introducing financial incentives to improve quality (King’s Fund, 2012:30).

Given that PbR was initially introduced (at least partly) to address waiting times, evaluation has found that PbR did result in more rapid reductions in lengths of stay and the proportion of day cases than when it isn’t present (King’s Fund, 2012:16). This finding is echoed in the United States, as is the finding that PbR resulted in one of the following benefits in some (but not all) of Austria, Denmark, France, Germany, Italy, Norway, Spain, Sweden and Victoria, Australia: reduced length of stay, increased technical productivity, reduced unit costs or reduced waiting times  (summarised in Street et al 2007; Busse et al 2011, quoted in King’s Fund, 2012:22).

In England, a renewed focus on care coordination and increased integration poses an interesting question: does PbR support this or not? The King’s Fund is clear on this: “The current system is not always well suited to the promotion of other objectives, particularly integration and major shifts and changes in the location of care” (King’s Fund, 2012:41). Indeed, PbR doesn’t currently include payment relating to the costs of coordination itself (King’s Fund, 2012:33).

PbR is not felt to incentivise the change from activity-based systems to organisation along a whole episode of care. Payment aligned to a whole pathway could do this (King’s Fund, 2012:3) and places like the United States, the Netherlands and Sweden are exploring exactly this (King’s Fund, 2012:24).

One of the reasons why the effects of PbR on issues like quality are so difficult to determine is the context within which the changes operate. The effectiveness of payment systems depends on the context in which they operate, and the ends to which they are aimed (King’s Fund, 2012:4). As the King’s Fund notes:

“Payment systems cannot do everything: Payment systems are not just a means to an end; they are one of many measures used to promote health policy objectives.” (King’s Fund, 2012:vi)

Overall, the King’s Fund concludes:

“It is difficult to come to a conclusive view on what the effects of PbR have been” (King’s Fund, 2012:35).


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

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