Payment by results and demand management: learning from the South Yorkshire laboratory

The need for effective demand management has become more transparent following the introduction of Payment by Results, Patient Choice and other reforms. This report details the findings of an empirical study exploring the South Yorkshire experience of demand management. By being ahead of the game in introducing PbR for all activity in all its acute trusts in the South Yorkshire area, the experience in South Yorkshire has the potential to inform the national roll-out of Payment by Results and Choose and Book. Specific objectives included: • assessing local perceptions of the nature and scale of changes in demand and whether this will be affected as other reforms, specifically Patient Choice, are implemented; • identifying what strategies are being developed locally to manage demand effectively; • documenting any benefits and drawbacks of different strategies for patients, PCTs, providers and the wider health economy; • identifying any facilitators and barriers to developing effective approaches for managing demand; • eliciting opinions on how current demand management strategies could be improved or adapted

The administrative costs of payment by results

This report was commissioned by the Department of Health to look into more detail into the administrative costs of Payment by Results (PbR). Costs were estimated to have increased by around £100k-£180k in hospital trusts and from £90k to £190k in Primary Care Trusts. Most of the additional expenditure is due to recruitment of additional staff.

Estimating the costs of specialised care

In most sectors of the economy, specialisation is associated with lower costs. Yet some specialised hospitals claim to require more generous funding than general hospitals. This claim is based on the assertion that their patients are different, and that these differences outweigh the cost advantages of specialisation. Unless the basis for this claim can be established, the financial incentives introduced by Payment by Results to encourage cost reducing behaviour will be diluted.

Reference costs and the pursuit of efficiency in the 'new' NHS

Both the White Paper, The New NHS, and the later consultation document, A National Framework for Assessing Performance, stress the need to develop new instruments to tackle inefficiency in the NHS. Among these instruments it has been proposed to benchmark Trusts, and by association Health Authorities, using Healthcare Resource Group (HRG) costs. The NHS Executive has published plans for a system of ‘Reference Costs’ that will itemise the cost of every treatment in every Trust. These reference costs will be derived from costing HRGs and are to be used for many purposes: benchmarking cost improvement, measuring relative efficiency, identifying best practice, funding transfers and costing health improvement programmes. This paper examines the construction of reference costs, considers incentives to use the information appropriately and asks whether a single accounting construct, the costed HRG, can be expected to contribute successfully to its many intended functions of regulation and management.performance measures; costing

NHS input and productivity growth 2003/4 - 2007/8

Productivity growth is measured by comparing the rate of output growth with the rate of input growth. In an earlier report we calculated output growth in the English NHS for the period 2003/4 to 2006/7 (Castelli et al., 2008). This report concentrates on input growth, detailing methods and calculating growth from 2003/4 to 2007/8.

Measurement of Non-Market Output in Education and Health

In recent years considerable progress has been made in developing improved methodologies to measure non-market output in the National Accounts. Most EU Member States have supported the introduction of a legal framework to implement these methodologies and have introduced current best practice methods to measure output of health and education services. This report summarises contributions at a Workshop held in October 2006 that focussed on building on this foundation and further improving the measurement of non-market output in the National Accounts. The Workshop supports a project intended to provide detailed international guidelines for the further development of volume measures of non-market outputs, in particular for education and health.

Economic Analysis of Cost-Effectiveness of Community Engagement to Improve Health

Liberty of association is one of the building blocks of a democratic society, and presumes that community engagement in a democratic society is universally a good thing. This presumption is not subject to economic analysis, but the issue considered here is whether community engagement is a better vehicle for improving the community’s health than another approach. The problems of applying the standard framework of economic evaluation to consider this issue include: multiple perspectives and time frames; identifying and costing activities and specifically the costs of volunteer time; identifying and measuring benefits; identifying comparator communities; how the intervention interacts with the community and therefore identifying end gainers and losers and eventually how the former might compensate the latter; attribution of any changes in community (health) to the approaches and methods of community engagement (CE); quantification across the whole range of community engagement. We consider three possible ways to apply the tools of economic appraisal to assess community engagement, these being: developing a typology; relying just on effectiveness data from the literature and guesstimating costs; and developing a scenario based on partial information about both costs and benefits. We assess the impact of community engagement on health and health behaviour; the contribution of community engagement to supporting social networks and social capital formation; and other impacts specific to a particular situation, including collective and ideological outcomes (whether of citizenship, obedience or political literacy). We conclude with a set of questions to ask of any CE intervention.

Price regulation of pluralistic markets subject to provider collusion

We analyse incentives for collusive behaviour when heterogeneous providers are faced with regulated prices under two forms of yardstick competition, namely discriminatory and uniform schemes. Providers are heterogeneous in the degree to which their interests correspond to those of the regulator, with close correspondence labelled altruism. Deviation of interests may arise as a result of de-nationalisation or when private providers enter predominantly public markets. We assess how provider strategies and incentives to collude relate to provider characteristics and across different market structures. We differentiate between “pure” markets with either only self-interested providers or with only altruistic providers and “pluralistic” markets with a mix of provider type. We find that the incentive for collusion under a discriminatory scheme increases in the degree to which markets are self-interested whereas under a uniform scheme the likelihood increases in the degree of provider homogeneity. Providers’ choice of cost also depends on the yardstick scheme and market structure. In general, costs are higher under the uniform scheme, reflecting its weaker incentives. In a pluralistic market under the discriminatory scheme each provider’s choice of cost is decreasing in the degree of the other provider’s altruism, so a self-interested provider will operate at a lower cost than an altruistic provider. Under the uniform scheme providers always choose to operate at the same cost. The prospect of defection serves to moderate the chosen level of operating cost.

The cornerstone of Labour's 'New NHS': reforming primary care

Two remarkable aspects of the Thatcher ‘internal market’ reforms of the NHS were the focus on creating a market for hospital services and the way in which primary care was treated almost peripherally in the 1989 White Paper (Department of Health 1989a). The 1991 NHS reforms introduced general practitioner (GP) fundholding almost as an afterthought, and the revision of the GP contract in 1990 Paper (Department of Health 1989b) was conducted separately from the implementation of other health care reforms. In contrast the principal focus of Labour’s ‘new NHS’ reform is primary care (Department of Health 1997). The intention of the government is both to improve the efficiency and equity of primary care provision and to develop Primary Care Groups and Primary Care Trusts which both provide care efficiently and act as agents who purchase secondary and tertiary care on behalf of patients. This is an ambitious agenda. This paper explores the policy context of Primary Care Groups in sections 1 and 2, describes and appraises the government proposals in section 3, and identifies major issues involved in the implementation of change in section 4.fundholding, rationing

Price Adjustment in the Hospital Sector

Prospective payment systems are currently used in many OECD countries, where hospitals are paid a fixed price for each patient treated. We develop a theoretical model to analyse the properties of the optimal fixed prices to be paid to hospitals when no lump-sum transfers are allowed and when the price can differ across providers to reflect observable exogenous differences in costs (for example land, building and staff costs). We find that: a) when the marginal benefit from treatment is decreasing and the cost function is the (commonly used) power function, the optimal price adjustment for hospitals with higher costs is positive but partial; if the marginal benefit from treatment is constant, then the price is identical across providers; b) if the cost function is exponential, then the price adjustment is positive even when the marginal benefit from treatment is constant; c) the optimal price is lower when lump-sum transfers are not allowed, compared to when they are allowed; d) higher inequality aversion of the purchaser is associated with an increase in the price for the high-cost providers and a reduction in the price of the low-cost providers.Price adjustment, Hospitals, DRGs.