NHS plans to reform the payment system

The NHS Long Term Plan set out three ambitions for the payment system, which were to:

  1. take better account of the costs of delivering efficient services
  2. ensure that the majority of funding is population based, and
  3. align the payment system with the broader financial goals of the NHS.

Before COVID-19, the ambition was to move away from purely activity-based payments which reward the interests of individual organisations rather than systems. NHS system leaders wanted to harmonise the payment systems across different types of health care to aid population-based integrated care with greater collaboration between individual health care providers across a patient pathway.

The direction of payment reform is to replace the PbR tariff and block budgets with a blended system with three core components:

  1. A fixed payment element to secure adequate supply of health care services. This would be set to cover the operational costs of providing the level of acute services agreed within population-level planning agreements.
  2. A variable component to adjust payments to reflect differences between planned and actual levels of activity.
  3. A quality component to incentivise and fund quality of care in priority areas.

In addition, the NHS proposed allowing local commissioners to agree risk sharing agreements to help ensure spending does not exceed the commissioner’s funding allocation.

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