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Incentives in health systems: developing theory, investigating practice
Edited by Russell Mannion and Huw T.O. Davies [University of York and University of Dundee]
Introduction and policy background
The English National Health Service is implementing an incentive based funding system whereby hospitals are rewarded for volumes of work adjusted for differences in the type of patients they treat ([3] DoH, 2002). Termed payment-by-results (PbR), the key differences of the new financing arrangements to the previous "block" contracting system are that prices are fixed nationally, hospital income is related directly to activity, and activity ceilings have been removed. Hospitals receive a fixed payment - the national tariff - for each type of patient treated. After initially applying to a handful of elective services, the national tariff is being extended to most elective and non elective activity in all NHS hospitals in England. By the end of 2008 it is intended that 90 per cent of inpatient, day case and outpatient activity will be paid in this way ([6] DoH, 2007). It is planned to extend PbR to mental health services, ambulances, community services and long-term conditions. Along with these funding changes, NHS patients are being given greater choice about where and when they receive treatment and the options include NHS and private sector hospitals.
England is a late adopter of activity based financing of hospital care and PbR shares many characteristics of the prospective payment policy initiated in the USA in 1984 and subsequently adopted in many countries worldwide ([11] Sussex and Street, 2004). The key difference between the English system and those implemented in other countries is that close to 100% of hospital activity is to be funded in this way, which compares to an average of 50% in other European countries that have adopted this payment system ([12] Wiley, 2004).
PbR is designed to stimulate improved NHS performance. Facing a fixed tariff hospitals have an incentive to cut costs and reduce length of stay in order to free up capacity to accommodate more patients. Access should improve because hospitals have a direct financial incentive to do more work: they receive extra funds for each additional patient treated. And commissioners have the means to divert activity from hospitals because they can spend the tariff on primary...