The principles behind a future NHS payment system

While the majority of patients who use NHS services will give little thought to the payment system that reimburses a provider for their work, it can greatly affect the type and quality of care that they receive.

Indeed, payment systems in the NHS represent a significant policy conundrum for those responsible for leadership, strategic planning and the allocation of resources.

As the NHS nears its seventieth birthday, it continues to face new challenges and priorities. It is widely accepted that the current NHS payment system needs reform to support the vision of the future NHS set out in the Five Year Forward View. In Towards an effective NHS payment system: eight principles, NHS Providers and the Health Foundation have sought to explore the impact of the current systems on those organisations and individuals who provide health care. Extensive engagement with the sector, primarily through workshops and interviews, formed the foundation of our research.

Many in the provider sector felt the existing payment system, along with its associated apparatus, felt like an ‘industry within an industry’. A lot of time and resource is dedicated to an area which many feel does not significantly contribute towards improving patient care. As part of our work we engaged extensively with those who live and breathe the payment system on a day-to-day basis. It appears no consensus exists on what the optimal payment system looks like. This is partly because opinions in this area tend to be based on an individual’s exposure to a part of the payment system, rather than the whole. Perhaps dependent on the extent of one’s involvement, many individuals we spoke to expressed strong and seemingly fixed views on the benefits and drawbacks of the existing system. The greater the level of involvement an individual had with the system, the more adamant they were in their views.

From our research, it was clear that organisational culture and relationships play a significant role in shaping providers’ views on the current payment system. For example, if a provider has operated on one system (be it payment by results or block payments) for a number of years, this seemingly has an impact on the views of those working within it. Change in this area tends to be slow, and ways of working appear to be rigid. This is understandable because of the existing requirements set out in legislation, national guidance and regulatory frameworks. Finally, many of those whom we spoke to observed that the payment system sat outside of the clinical realities of the day-to-day delivery of care. Clinical interest (and engagement) was variable from trust to trust.

Based on these findings, we have produced eight guiding principles that a payment system should meet, if it is to support providers in the delivery high quality care.

1. Clear purpose – anyone using the payment system should understand the defined primary purpose.
2. Realistic expectations about impact – the impact and success of the system is dependent on the wider policy initiatives of the health care system.  
3. National consistency with local flexibility – it remains important to retain a system-wide perspective when designing a new system, but local implementation, with national support, remains imperative.
4. Appropriate, aligned incentives ­– a payment system will only work if its financial incentives target the right actors and make financial sense.
5. High quality data – the effectiveness of a new system depends on the availability of accurate and high quality data. However, improvements in data quality should be driven independently of the payment system.
6. Balance between complexity of design and ease of use – the technical expertise required to use a payment system must be proportionate to the additional resource burden and costs associated with delivery.
7. Independent oversight and support – central bodies must be transparent and consistent in the support offered across the system.
8. Time to embed and evaluate systems – stability, balanced with the need for necessary improvement, is required to ensure a new system operates effectively and can be comprehensively evaluated.

Of these principles, the most important is that the system requires a clear purpose: what is it designed to support? We have not attempted to assign this purpose, or the strategic aims for a new system. Nor do we outline what an ideal payment system would look like, because no one system is perfect. Our research indicated, however, that if this purpose is clear and well defined, a payment system is more likely to succeed.

NHS Improvement and NHS England are ultimately responsible for the national payment system, and have begun working on the payment mechanisms that will support the development of sustainability and transformation partnerships, and accountable care organisations and systems. The principles detailed in our report, if adhered to, should assist these organisations, and support providers and systems to deliver high quality care to patients.

Read the report now

Adam Wright is Policy Officer – Finances at NHS Providers. This blog is also published on the NHS Providers website.