Big changes should be made to the way the National Health Service pays both public and private hospitals for treatments, the Audit Commission said on Wednesday.
Instead of paying a fixed national average price for each episode of care, the price should be set nearer to the level attained by the most cost-effective providers, the commission said.
At the same time the Department of Health should consider paying separately for capital, a move that could create difficulties for private providers of NHS care, and for quality.
“The NHS should consider rewarding those hospitals that meet the highest standards of quality for patients,” Michael O’Higgins, the Audit Commission chairman, said. “Currently hospitals are paid the same for a procedure regardless of the quality of care provided.”
The commission has reviewed the first four years’ experience of the introduction of the NHS tariff, which is misleadingly entitled “payment by results”. In practice, hospitals are paid regardless of the result.
Using the tariff had improved financial management in the NHS, the commission said. Many hospitals now had a better idea of how much it cost to treat each patient.
But a key aim of the tariff was to increase NHS efficiency significantly, the commission said. It had so far failed to do that, despite evidence that it might have increased activity and efficiency at the margins, along with encouraging primary care trusts to reduce avoidable hospital admissions.
Boosting efficiency would require that the price paid for some treatments should be set not at the average cost but at the lower levels achieved by some hospitals, the commission said, although it added that due notice would be given to avoid financial turbulence.
More work needed to be done on “unbundling” the tariff – breaking treatment episodes down into their component parts and costing them – to make it easier to shift elements of care out of hospital where this would provide the best form of treatment.
Paying for capital separately might also make it easier to develop new out-of-hospital facilities. The commission noted, however, that this could disadvantage private providers of NHS care, who would lose the capital element in the tariff.
Fears that the fixed tariff would lead to hospitals “gaming” the system to get unwarranted payments and cutting costs at the expense of quality had not in general materialised, the commission added.
Dr Jonathan Fielden, chairman of the British Medical Association’s consultants committee, said the tariff so far “has too often been used solely as a blunt financing tool”. Ways to use it to drive up quality must be found, he said, and to avoid the risk that unbundling the tariff would lead to the fragmentation of care.