Examination of Witnesses (Questions 163
- 179)
THURSDAY 14 JANUARY 2010
PROFESSOR ANDREW
STREET AND
DR PETER
BRAMBLEBY
Q163 Chairman:
I welcome the witnesses to the second evidence session of our
inquiry into commissioning. For the sake of the record perhaps
you would give your names and the positions you currently hold.
Dr Brambleby: I
am Peter Brambleby, the director of public health in North Yorkshire
and York Primary Care Trust. In six weeks' time I shall take on
a new position as director of public health in Croydon.
Professor Street: I am Professor
Andrew Street. I work at the Centre for Health Economics at the
University of York.
Q164 Chairman:
Professor Street, can you explain briefly what payment by results
is and how it works?
Professor Street: Payment by results
essentially is a financial system whereby hospitals are paid according
to the activity they do, so if they provide more treatment they
are paid additional money for each and every patient they treat.
The specification of activity compared with previous financial
arrangements is more precise. Previously, the contracts would
have been specified at specialty level, say a patient in trauma
& orthopaedics, and now it is more precisely defined, for
example a patient who is treated for a hip replacement.
Q165 Chairman:
What was the intention of introducing payment by results?
Professor Street: The Department
of Health set out a number of intentions, one of which was to
ensure that hospitals were rewarded for providing more activity,
so they had incentives to treat more patients rather than pile
them onto the waiting lists once their annual contractual budgets
ran out. There was a clear rationale for the hospitals to have
incentives to treat more patients. I believe that is the primary
objective.
Q166 Chairman:
Are there any international comparators? Where else is it used
in the world and what results are achieved?
Professor Street: England is a
very late arrival on the scene with this type of payment arrangement.
Many other countries have introduced this form of payments system.
It operates in many other European countries and in the United
States, Australia and so on. Many of them have adopted this payment
arrangement because in the funding of hospitals it is superior
to other contractual arrangements, although there is a lot of
fine detail that needs to be worked out in terms of how it is
implemented and refined over time.
Q167 Chairman:
What about the effect on providers?
Professor Street: Providers under
payment by results have clearer incentives to do more activity
and treat more patients because they are paid for each and every
one they treat. Therefore, they have a clear incentive to treat
more patients provided they believe that the extra income they
receive exceeds the costs of that treatment. Many hospitals believe
that they can treat additional patients at essentially a profit.
Q168 Chairman:
Would you describe it as just a payment for activity as opposed
to a payment for results?
Professor Street: It is an activity-based
financial system as currently specified. Essentially, that is
what payment by results is doing. The more patients you treat
the more money you receive. It would not be too problematic to
make the payment conditional on other things. You could make payment
conditional on the quality of care provided by a hospital or set
other rewards alongside this payments system, but currently in
its crudest form it is payment by activity. That does not prevent
its expansion into other areas.
Q169 Chairman:
How does this impact on trusts with PFIs? There was an article
in the Health Service Journal in January 2007 which argued
that trusts with PFIs had significantly higher costs than other
trusts, but we are led to believe that potentially the payment
is the same.
Professor Street: It is very difficult
to establish how the costs associated with PFIs are dealt with
in different organisations and whether trusts that have entered
into PFI schemes are at a financial disadvantage to others. That
is probably an area that needs further investigation, but I am
not in a position to give a definitive answer to that.
Q170 Dr Stoate:
Do you have any idea why it was called payments by results in
the first place?
Professor Street: Probably because
it sounds quite a nice catchphrase. Essentially, it is an activity-based
funding system.
Q171 Dr Stoate:
What does that have to do with results?
Professor Street: The result is
defined purely in terms of the amount of activity undertaken,
so if what you want to achieve is more activity and that is the
primary result that is fine. But if you believe that the results
you want from the health system are broader than more patients
being treated, for instance results that encompass the quality
of care they receive, you may want to expand your definition of
results and set the payments that hospitals receive according
to that broader definition.
Q172 Dr Stoate:
Currently, the only real result is an increase in the bank balance
of the hospital?Professor Street: It is an increase in
the amount of activity they undertake. Undeniably, more patients
have been treated over the past few years for a variety of reasons,
not solely because of payment by results which has not had a great
deal of coverage as yet. A number of other changes have happened,
but undoubtedly over the past few years more patients have been
treated by the NHS than previously.
Q173 Dr Stoate:
What has been the effect on PCTs? Are they stronger or weaker
because of this system?
Professor Street: PCTs have always
been in a weak bargaining position relative to hospitals for a
variety of reasons. Payment by results probably strengthens their
arm in some respects but puts them in a difficult position in
others. They have been freed from doing things that they had to
do in the past, notably to negotiate on the basis of price, but
now it is much more difficult for them to control the volumes
of activity for which they are financially liable. That has become
even more difficult under the patient choice arrangements.
Q174 Dr Stoate:
What incentives are there under the PbR scheme for the providers
to improve quality particularly on things like patient safety?
Professor Street: At the moment
they are not embodied in the PbR arrangements. The incentives
for them to improve quality come from other types of mechanisms,
for instance the inspections and penalties they face. It is fine
to have one type of arrangement that encourages some sort of behaviour
but you do not want to use just a single instrument to achieve
a whole array of behaviours across the health sector.
Q175 Dr Stoate:
Is it going too far to say that payment by results is really a
question of "piling them high, selling them cheap"?
Professor Street: I am not sure
that is the best description of the arrangement and it is not
something to which I would necessarily subscribe. The essential
description at present is that it is purely and simply a payment
for the amount of activity you undertake.
Q176 Dr Stoate:
The NHS Confederation is pretty impressed by PbR and has some
positive things to say about it, particularly its view about the
independent sector providers being brought into the market. Do
you share those views?
Professor Street: I am not sure
I share their views about how successful the arrangements have
been for introducing into the market the independent sector treatment
centres. At the moment there are questions about how they are
paid which need to be resolved and the nature of the contracts
that have been written with them. The findings of the Select Committee
on Health that looked into independent sector treatment centres
a couple of years ago still hold.
Q177 Dr Stoate:
Is there a simple way in which PCTs could be given more leverage?
Professor Street: I believe there
are two options available to PCTs. At the moment it is very difficult
for them to control the volumes of activity for which they are
financially liable because they do not negotiate volume controls
with each individual provider. Even if they did so it would be
difficult for them to do it in the context of patient choice where
patients are moving around the system. Therefore, if they are
unable to control volumes and vary the price they have to pay
they are at financial risk of blowing their budget allocations.
One option would be to give them a bit more flexibility over the
prices they pay. Instead of paying the fixed price they might
pay a maximum price, for example, but whether or not that would
be successful is open to question. Given the relative bargaining
powers it is probable that there would not be much deviation from
the maximum price anyway. I am not sure that that option is one
that would give PCTs the requisite balance of power in that negotiation.
The other option is to release them from having to negotiate with
the secondary care sector at all and to focus instead on improving
services in the primary community care sectors. The experience
of other countries is important in this respect. Although every
other country has adopted a financial system for this arrangement
not one of them has thought that what is needed to make it work
is the introduction of a set of commissioning organisations. Other
countries have this activity-based funding system but not commissioning
bodies to implement or oversee it on a day-to-day basis. The role
of commissioning bodies under this financial system is not essential.
They are in the English system and have had a role to play in
it because they pre-existed this type of financial arrangement,
but it may not be the best role for them to undertake. It could
be that that role is undertaken by a central organisation that
sets prices and controls volumes and instead primary care trusts
focus on what they really ought to focus upon and influence, namely
the more neglected areas of primary and community care where there
is probably a good need for concerted action and attention. That
is quite a radical option but it deserves exploration going forward.
Q178 Mr Scott:
Professor Street, how can we have a healthcare market with fixed
prices?
Professor Street: Most markets
rely on prices to signal a number of things: whether consumers
are willing to pay for the goods or whether providers are willing
to provide goods on the market. They change when there are new
entrants or goods offered to the market. They provide important
signals and adjust when things change. When a new provider wants
to provide new goods or increase market share one of the strategies
it will adopt is to change its price; it will lower its price
and gain market share. But in a market situation it does not rely
solely on price; it may change its prices and also the quality
of the goods it offers. If one is constrained to a fixed set of
prices and wants to gain market share one must compete not on
the basis of price but quality. If you want a market under fixed
prices one needs clear incentives for providers to gain market
share. Why would hospitals want to undertake more activity? What
incentive do they have to do more work? PbR gives them that that
incentive. One needs clear information on quality so that consumers
can make informed choices about that dimension when they do not
face prices. One can have a healthcare market provided there are
clear incentives for providers to compete and good quality information
on which consumers or patients or their advocates can make informed
choices about which are the best providers around.
Q179 Mr Scott:
Is there a danger that PbR can become unaffordable for PCTs?
Professor Street: There is a danger
of that if the activity for which it must pay from the secondary
care sector exceeds its budget. The problem is that at the moment
it is not able to impose volume controls so if hospitals engage
in greater activity ever more of the budget will be sucked into
the secondary care sector. There are two strategies they have
to resist that: one is that they can invest in substitute services
out of the hospital sector in the hope that patients will be diverted
to use those services and do not turn up at the hospital in the
first place. That might take a while to happen because that investment
takes a while. The second strategy is to encourage GPs to change
their referral behaviour and keep patients out of hospital, but
again their ability to influence GP behaviour is limited. Therefore,
their power to restrict patients getting to hospital is not as
it might be. That being so, there is a danger that they will spend
more than they have available to them. There need to be stronger
mechanisms in place to ensure that PCTs have the levers and instruments
available to them to give them budgetary control.
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