Comment / Bringing in the new

Ask most finance leaders about the old payment by results (PbR) system for paying providers for their activity and they will say ‘good riddance’. But ask them about its replacement – the aligned payment and incentive (API) scheme – and you’ll get a much more nuanced response.

Undoubtedly it is an improvement on PbR. For a start, it covers all healthcare activity, not just acute services. PbR’s acute-only approach would be particularly incongruous in the context of attempting to encourage a more integrated approach to service delivery.

And the inclusion of a big fixed element in the new approach – set to cover the costs of a realistic and agreed level of activity for the year – gives far more confidence to commissioners and providers about their actual spend and income.

But it’s not that straightforward. The NHS is moving from PbR to API via two years of a temporary financial regime, which has seen providers funded on a largely block contract basis during the service’s Covid-19 response. For some finance professionals, the move to API now feels like a step backwards.

There is recognition that as the NHS moves into a new ‘living with Covid’ phase, aspects of the pre-Covid financial regime need to return. Pressure is needed in the system to drive efficiency savings and productivity improvements. However, these will be harder to deliver given the continuing pressures of working in a heightened infection control environment with an exhausted workforce.

There are concerns about the new payment approach. For community and mental health services, it may feel as though little has changed. They also face significant backlogs of care, with mental health services, perhaps in particular, facing a huge rise in demand as a result of Covid-19. But there is no variable element or elective recovery programme to support these non-acute services.

For them, it may feel as if PbR’s focus on the acute sector has not broadened out much – although clearly the huge elective backlog does need to be addressed.

There are other misgivings too. One of the main criticisms about PbR was the way it led to increased bureaucracy – a mini-industry in coding and counting and time spent challenging activity and the validity of payments. Most agree that the new API system will reduce these activities. But it won’t do away with them.

There are significant counting implications connected to the elective recovery funding regime, details of which were published in draft form at the end of February.

Commissioners will need to demonstrate system-wide any variations from the 104% value-based activity, compared with 2019/20 activity, on which their initial elective recovery allocations are based.

At provider level, this activity monitoring will be key to triggering the variable payments under the API – or identifying the level of clawback due to missing the activity baseline.

The centre has recognised that a marginal rate of 75% doesn’t work for additional independent sector activity, as trusts would face full tariff prices. Paying 100% removes any disincentive. But this will mean detailed monitoring and reporting of this activity too.

A balance needs to be struck. Coding, activity counting and costing all improved under PbR. And there have been concerns that the gains could disappear with a change of system. There is agreement that this should not be allowed to happen, given the importance of good activity and costing data to support population health management, whole pathway costing and transformation.

But the new payment approach needs to provide a mechanism that helps systems channel resources to where they are most needed and support discussions about how system priorities can be delivered within available funds. Rather than counting and challenging, it needs to leave time for finance staff to support operational colleagues with identifying options for improvement and understanding the financial implications of revised pathways.