Finance director: Bob Dredge on PbR (Part 2 of 3)

In theory payment by results should be very simple but in practice it has turned out to be quite complex, perhaps too complex to have been brought in all at once, Bob Dredge.

Payment by results has been presented as a simple system that makes a single, nationally predetermined payment for every patient treated in hospitals. In effect the system is simple: admitted, treated, coded and paid for at tariff.

However, one of the problems in the implementation of PbR has been the apparent over-elaboration of the simple, fundamental concept of a predictable and fixed payment, but why does it have to be like this?

The payment is based on the healthcare resource group (HRG) that the patient falls into. The Department of Health (DH) sets the national, non-negotiable fee for this. But, of course, the patient is not allocated directly to an HRG. This is determined by a fixed set of algorithms that group the many interventions recorded as the patient is treated. Each has a code attached, so it is the recording of activities, rather than the coding, that is fundamental to the accuracy of the HRG.

The tariff, for the moment, applies only to elective in-patients in England. (We will soon know if this is to be extended to non-elective, out-patients and other services for 2006/7). So the first problem is to identify not all patients, but only the elective ones.

Remember that one fundamental aim is to set a fair tariff, and this is where the fun starts because the HRG system, as many will tell you, is not perfect. The current version (it is being reviewed) is some years old. Some of its classifications were never too accurate, while others, medical technology has passed by. When developing the tariffs, the PbR team found that some HRGs had very few cases recorded against them. To set a tariff on such a small set of data would be unreliable, so some HRGs were excluded on this basis. In all 22 HRGs were excluded in 2005/6, 10 of them for burns patients.

In addition to this, a whole set of patient’s those paid for by the National Services Advisory Group (NSAG)  were excluded. This is because these patients are by definition very complex and costly, requiring extremely specialised care and the national tariff would probably underpay for their treatment.

Specialised groups

This leads us then to so-called specialised patient’s, those with certain groups of conditions, laid out in a national definition set. More hospitals than not have patients who fall into these groupings, even if they are relatively few in number. As there is a relationship between average costs at hospitals and the number of specialised cases they treat, a premium is added to the basic tariff for these cases. It is averaged over the specialty and ranges from a seemingly miserly 4% for cancer, up to a massive 156% for orthopaedics  although there are very, very few cases in orthopaedics that qualify for this supplement.

With regard to medical technology, there are a few specific high cost drugs and devices that are deemed to be either so new that the tariff calculation has not caught up with them, or used on a limited number of patients and not the entire HRG cohort. The prices of these 23 specific exclusions are negotiated locally (as are the prices for all excluded services).

Currently the tariff is calculated from a process known as reference costs and drawn from data provided by all providers in England. These give the national average cost for each HRG, assuming by deduction the national average length of stay, as this is still the most common principal cost driver for acute care. But some patients stay for much shorter periods and some much longer. To pay full tariff for the former would overcompensate the provider; to pay in full for the latter would undercompensate them, so a system known as outlier payments is used. For long-stay patients this is an internationally recognised refinement. For each HRG conventional statistical parameters are used to set the point at which the long-stay addition kicks in.

The short-stay adjustment is not so common and is less well developed (and justified!). The pragmatic rule is that a reduced tariff is paid for short-stay patients in HRGs that have an average stay of over five days, if the patient’s stay is less than two days.

New technologies

There are further possibilities for complexity as the national system allows local negotiation for things that do not easily fit into the conventional pattern of care profiles. These are the pass-through payments, where a new technology or process can be added to the tariff and paid for locally, and the unbundling process whereby the tariff can be deconstructed to allow for parts of the usual treatment processes to be stripped out of the tariff. These need a separate article to explain. Perhaps we can return to this when we see the new rules for next year.

Not so simple

So, the simple process of admit, treat, code and pay is not so simple at all. And there is a further add on the market forces factor, paid directly from the Department of Health based on the cost of planned work at the start of the year. This is to compensate for unavoidable variations in input costs and is geographically based. It ranges from nothing in West Cornwall to 46% in Central London. This is a pretty contentious and complex subject, but I think the way it is handled is probably fair and right.

So, not so simple and a lot of things to deal with if the right payment is to be made. Perhaps it was a bit too complex to bring in all at once. Maybe it will be simplified for next year  and by the time you read this we should know!


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