The current payment system won't enable the forward view vision

The NHS as it stands is unsustainable. If the expenditure on health over the next 50 years follows the same trajectory as the last, by 2062 the NHS will cost us a fifth of GDP and half our yearly tax revenue.

Even if these increases in expenditure were affordable, continuity in the type of care provided by our health service would be undesirable. We have an ageing population with complex and chronic, rather than tame and acute, conditions. This means the old services and solutions will no longer work.

As such, whichever way we cut it, the NHS needs reform.

Simons Stevens’ NHS Five Year Forward View sets out quite convincingly what this reform should look like with patient empowerment, the integration of health and social care, a greater focus on prevention, and the use of new technologies at its core. 

‘By 2062 the NHS will cost us a fifth of GDP and half our yearly tax revenue’

However, while the forward view paints a clear picture of what the NHS of the future might look like, it is light in terms of how we might get there. It’s a vision, not a detailed implementation plan. The challenge now is to create such a plan.

In doing so, one area of reform that must be undertaken - but that so far has been little talked about - is reform of the payment mechanism – that is, the method by which money is transferred from the Department of Health to the service providers at a local level, such as hospitals and GP surgeries.

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Payment mechanism: the story so far

Historically, payments have been made as lumps sums. A hospital or GP would be given a chunk of money over a year to provide any and all of the care its local population needed.

However, in the 1990s it was recognised that the quantity, quality and efficiency of care suffered as a result of this mechanism; there was an incentive for providers to reduce the quantity of care provided but no incentive to increase quality or efficiency.

‘The payment system we are left with is singularly ill suited to the reforms set out in the forward view’

Policy makers moved towards creating the equivalent of market incentives in the non-market of the NHS. A key example of this was the move towards payment by results, a mechanism in which providers are paid a set price for each unit of care provided - for example, your hospital gets paid a certain amount of money each time someone turns up for an operation.

This made a huge amount of sense at the time, and the results have been positive in some ways.

PbR helped deliver the efficiency savings seen over the last few years and allowed the Blair government to incentivise many of the targets that were key in improving care in the NHS, including reductions in waiting times and the uptake of best practice procedures.

However, the payment system we are left with is singularly ill suited to the reforms set out in the forward view. Indeed, as it stands it is an active barrier – not entirely prohibitive but not far off – to changes such as empowerment and integration as well as the adoption and diffusion of technologies.

A barrier to reform

Notably, our payment system currently incentivises, or even de facto mandates, processes rather than incentivising providers to deliver the outcomes patients really want – that is to say, it makes payment for a hip replacement, rather than the patient being able to walk after such an operation.

This is a both a barrier to local innovation in service delivery and to patient empowerment because it assumes that someone in Whitehall – someone at NHS England or Monitor – knows better than both the clinician and the patient what type of care they should be provided.

‘Our system reinforces the paternalistic relationship between provider and patient, making a joke of patient empowerment’

It reinforces the paternalistic relationship between the provider of healthcare (the state) and the patient, making a joke of the idea of patient empowerment. And it ties the clinicians’ hands: if they decide they want to provide a different type of care, they risk not getting paid.

There are, of course, ways around these problems: clinicians can negotiate a different tariff with their clinical commissioning group, which allows them to change the care they provide. But until the system’s basic assumption is that the clinician and the patient knows best, and liberates them to innovate accordingly, it will remain a barrier.

Furthermore, the payment system also stands in the way of integration. At the moment, payments are made through channels that reinforce the silos between different types of care. Notably, primary care and specialised care are commissioned out of NHS England’s budget; acute, community and mental health out of the CCG’s budget; and preventative care out of Public Health England’s budget.

Integration involves connecting these various types of care and ask the various services to work together to treat a patient. The separation of budgets poses the question “who should pay?”, and creates an incentive for one to pass the cost over to another – something especially tempting during a time of austerity.

Tackling the issues

We need the payment system to incentivise outcomes rather than inputs and we need the various care silos to pool their budgets and enter into shared contracts to deliver care for whole patient cohorts, thus allowing for integration.

This is already technically possible under the current payment system. Indeed, there are excellent examples out there where it has been done. Torbay and others have pioneered capitated budgets while outcomes based payments are being trialled in Croydon, Camden, Milton Keynes and Oxford to name just a few.  

‘We need the payment system to incentivise outcomes rather than inputs’

But these kind of reforms are by no means easy to achieve under the existing system, which is a result of a lack of expertise on new payment models, funding to drive change and leadership among commissioners and  providers as much as poor regulation. As such, these reforms remain the exception rather than the norm.

Policy makers must address these issues over the course of the Parliament to:

• make it easier for CCGs and providers to drive change;
• make knowledge about new payment models more readily accessible; and
• encourage laggards through the creation of a transformation fund.

Furthermore, all pioneers, including the vanguard sites should be encouraged, if not obligated, to test new payment models including outcomes based commissioning and capitation.

Failure to drive these changes will make delivering of the forward view exceedingly difficult.

Harry Quilter-Pinner is a researcher for the Institute for Public Policy Research