#2921 - Topic 4 Reading Costs And Prices For Inpatient Care In England - Accounting in the New Public Sector

Unlike most other countries with similar payment mechanisms, hospitals in England will have few alternative sources of income once the tariff system is fully implemented

Cost-per-case tariff system for the reimbursement of hospital services aims to promote

• Productivity

• Patient choice

• Competition

Powerful incentives for change

Exposes purchases and providers to considerable financial risks, a state that has been termed “constructive discomfort”

Budget for the NHS of which 18% is used by the DoH for central services, research and training

Within the resource limit, PCTs are responsible for purchasing nearly all healthcare services on behalf of their local population

PCTs have traditionally purchased inpatient healthcare from publicly owned hospitals, but now also purchase from independent not-for-profit hospitals (foundation trusts) and private providers

In April 2005, there were 259 NHS hospitals, 25 foundation trusts and 6 independent providers offering services to NHS patients

Until April 2004, nearly all hospital healthcare for NHS patients was purchased from NHS rpvoiders by PCTs through locally negotiated block contracts

• Providers were paid a fixed amount often irrespective of activity

• Prices were typically based on historic costs of the providers

New reimbursement system – ‘Payment by Results’ (PbR)

• PbR is a national prospective tariff system that aims to promote:

  • 1) efficiency and value for money

  • 2) patient choice, more flexible market entry and competition amongst providers

  • 3) service innovation and improved quality

  • 4) reduced waiting times

  • 5) fairness and transparency

• The same tariff is paid for an elective inpatient as a daycase

• Gives a clear financial incentive for hospitals to transfer services to daycase where possible

• Tariff for each spell in order to promote a strong incentive for change, based on average (not marginal) costs of all NHS hospitals in England

• Where a provider lacks data on a particular episode and cannot identify the procedure or diagnosis

• The full PbR has a target date of April 2008, when 90% of hospital activity is expected to be covered by the tariff

A panel of advisors was set up in 1990 to modify US DRGs to reflect clinical practice in England

Following the introduction of the tariff, the DoH has refined the system by alost doubling the number of HRGs in the new version 5 from 550 in 2005/2006 to about 1000

Unintended consequences, such as perverse behavioural responses, have to some extent been anticipated and certain technical solutions have been employed to offset them

There are several additional components to the simple cost-per-case tariff

As a long length of stay may sometimes be clinically appropriate, the tariff structure includes long stay outlier payments to enable risk-sharing between purchasers and providers

• A trim point to be the upper quartile of length of stay plus 1.5 times the inter-quartile range

Patients generate reimbursement at the fixed HRG tariff if they stay in hospital up to a trim point, and at a HRG-specific rate per day for each day beyond this

The tariff may encourage the medically unnecessary admission of patients from A&E, an incentive made more acute by a government performance target that patients should wait a max of 4 hours in A&E before being admitted, sent home or transferred

• To mitigate this, a short stay (0 or 1 day) emergency tariff has been defined for certain HRGs

  • Approx. 40% of the full price

Unlike most other countries with DRG-type funding systems, the NHS for historical reasons uses Finished Consultant Episodes (FCEs) as the basis for hospital patient admin systems, and consequently this is the unit of activity for report HRG unit costs for inpatient and daycase patients

• A consultant episode is the time a patient spends in the care of one specialist doctor at one healthcare provider

Easily possible to manipulate the FCE count by increasing inter-consultant transfers

Reimbursement is therefore on the basis of spells

In the longer term, there is a need to align the currency for unit cost reporting (FCEs) with that used for reimbursement (spells)

• This will require further investment in patient information systems

The tariff is based on the...