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NEW NHS FUNDING SYSTEM BRINGS BENEFITS BUT ALSO SIGNIFICANT RISK OF FINANCIAL INSTABILITY TO PCTs

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Payment by results, the government's new funding system for NHS trusts, offers significant opportunities for improv...
Payment by results, the government's new funding system for NHS trusts, offers significant opportunities for improved efficiency and cost-effectiveness, according to an Audit Commission report published today. But the report says the new regime also carries substantial risks, which, if not well managed, could lead to financial instability within NHS bodies.

Introducing payment by results - getting the balance right for the NHS and taxpayers examines the benefits and risks in the new arrangements, including trusts' ability to implement them.

Primary care trusts (PCTs) in particular will have greater flexibility to influence the way services are provided and improve patient care. But they also face considerable financial risk under the new arrangements. Many do not have the necessary financial systems in place, nor the capacity to manage the risks. Other countries have also found that this funding system can be manipulated by providers to get extra, unmerited, cash.

Andy McKeon, managing director for health, said:

'Payment by results brings many opportunities, but cannot on its own guarantee greater efficiency and ensure a higher quality of care in the NHS. As far as the taxpayer is concerned, the new system involves a major shift of resources. It will also bring major financial pressures. We must make sure that PCTs and NHS trusts have the ability not only to cope with the new pressures placed on them but also to use the incentives to help drive improvement. Nationally, data on which national prices will be set is sufficiently reliable for most procedures. But, locally data on costs and clinical activity is often inadequate for the purposes for which it will now be needed.'

The report's recommendations for trusts include:

* Greater investment in information systems, focusing on recording and coding patient activity

* Strengthening financial management systems and capacity

* Ensuring doctors and front-line managers understand the implications of payment by results and are committed to the changes needed to address them

* Development of proper arrangements to identify and prevent manipulation of the system by providers

* Continual assessment and refinement of the system by the Department of Health and strategic health authorities (SHAs), and providing support to help NHS bodies address key risks and build capacity

Payment by results aims to support NHS modernisation and encourage efficiency and quality in the provision of care by paying hospitals for the work they carry out. Contracts between PCTs, NHS trusts and foundation trusts for providing care to patients will be on a 'cost and volume' basis. Activity will be defined according to Healthcare Resource Groups (HRGs) and a national tariff for each HRG will be based on national average costs.

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