Payment systems: supporting the next step

by Lee Rowlands

12 June 2019

The national tariff payment system is evolving and finance professionals need to continue to shape proposed mechanisms to ensure they support the right outcomes

The NHS national tariff system is in a period of transition. There is broad recognition that the system of payment by results (to use its old and still widely-used name) does not readily support the move to integrated care systems. But it remains unclear what role there will be for a centrally determined payment system as the service moves forward.

England first moved to a tariff system more than 15 years ago and to be fair it has been in transition ever since. New mechanisms were gradually introduced over time to address specific issues around incentivising quality and ensuring affordability – think best practice tariffs, short-stay adjustments and marginal rate emergency tariffs to name but a few.

But the changes for 2019/20 arguably signpost a much more major change in the overall trajectory. Blended payments – involving a fixed and variable element – are now the default mechanism for emergency care with an end to the marginal rate tariff. While the current tariff has been set for a single year, work is already underway to develop proposals for next year and beyond.

There have already been indications that the blended payment model could be proposed for adoption for a wider range of services in future. And there continues to be broader discussion about moves to capitation-based budgets for whole systems or distinct patient populations. Overlaying all this is the ability for local health systems to adopt alternative approaches under the permitted local variation rules.

At the same time, NHS England and NHS Improvement has consulted on the possibility of a fundamentally different approach to tariff setting as part of possible legislative changes that may be needed to implement the NHS long-term plan. This could mean either publishing prices as a formula so that local prices reflect local factors or only setting national prices for care and treatment of out-of-area patients.

Some may therefore suggest that the day of national prices and national payment mechanisms is over – and point towards systems in Scotland, Wales and Northern Ireland. In fact, look at the increasing numbers of health economies in England where fixed contracts have re-emerged, often accompanied by new mechanisms for risk sharing.

But one thing is clear, payment systems have to be aligned with the objectives – local and national – that health services are trying to achieve. As a minimum, they must not create obstacles to delivering services in the best way to deliver the right outcomes and value for patients. And where services are delivered in the optimum way, they should ensure that money flows to the right parts of the system to cover the costs incurred.

Finance professionals will need to be at the heart of the future development of these payment systems. At the local level, they will be key to setting up systems that support the right pathways locally. And nationally, they need to influence the development of whole system approaches where this makes sense and where it will stop local systems developing multiple versions of effectively the same system.

The HFMA Payment Systems and Specialised Commissioning Committee provides a natural conduit for this national influencing role. The committee provides an opportunity for finance practitioners to share payment system-related issues from around the service – identifying what works and what doesn’t. This is a crucial part of the implementation phase of any new approach – is it working as intended and if there are unwanted or unforeseen outcomes, how can the system be adapted?

The group is already getting its teeth into the new blended payment system. It is not clear exactly how many areas have adopted this ‘default’ new approach – although NHS England and NHS Improvement has been reviewing uptake. Initial feedback suggests the process has tested a number of relationships between providers and commissioners. Where it has been pursued, the level of activity and percentage split of fixed and volume payment have largely been straight-forward to agree. However, the finer details, such as break-glass levels for over and under-performance, have taken longer to pin down.

The committee will keep its eye on this developing area. It also supports the HFMA in its broader role of improving the general understanding of NHS finance. For example, a new ‘how it works guide’ on specialised commissioning outlines what specialised services there are, how they differ from other NHS services, how they are commissioned and the process for service development.

And later in the year there are plans to explore the various types of contract that health and social care systems are currently using, and how they are helping shape integration.

All in all, it is a busy agenda. Payment systems – however simple or complex – won’t alone drive the changes that the service needs to see. But they will facilitate and potentially accelerate those changes. And finance professionals need to be closely involved with the design and subsequent implementation of those new approaches.



If you are interested in joining the payment systems group, please contact  We are particularly interested to hear from any commissioning finance staff that would like to be involved.