The NHS Alliance has called for a “radical overhaul” of the government’s flagship policy of Payment by Results (PbR) as the scheme has inflated National Health Service costs and encouraged acute trusts to become “profit centres”.

The government’s intent to link the portioning of funds to hospitals with the activity they undertake first came to light in The NHS Plan, unveiled back in July 2000. In 2003, the PbR scheme was launched on a small scale and was then expanded over the subsequent years to include more aspects of secondary care, such as elective surgery in 2005/06 and accident and emergency in 2006/07.

According to the Department of Health, by paying providers a fixed tariff for each individual case treated PbR offers a transparent system for funding that not only rewards efficiency but also supports patient choice and diversity. “Importantly, this system will ensure a fair and consistent basis for hospital funding rather than being reliant principally on historic budgets and the negotiating skills of individual managers,” it claims.

But according to the NHS Alliance the system has failed to deliver on improving the quality of services and keeping down costs. Furthermore, it says there is “a worrying trend regarding the inaccuracy of PbR data”, which has been estimated by the Audit Commission to vary by as much as 10%.

Tariffs were initially set by the average cost of treatment in NHS hospitals across England but are now based on best value instead. However, the NHS Alliance argues that the PbR set price should be viewed as a maximum price, as it claims this will allow trusts to offer services under tariff where PbR is considered to have inflated costs as well as give commissioners more power to provide “the best possible service for patients” and make use of potential “substantial” savings.

The organisation does, however, recognise that its proposal “carries some caveats”. For example, it warns that primary care trusts and GP practices will need to ensure that commissioners “do not fall prey to market tactics” such as loss leading, where prices are set very low to stimulate other, more profitable sales, or that of skimming, whereby the original price is set high to garner as much profit as possible before competition drives it down. It also stresses that contracts should only be switched on the basis of price and where there is the potential to make substantial savings.

But these risks “must be faced if the NHS is to keep within budget,” said Michael Dixon, chairman of the NHS Alliance. “If last year the focus was on quality, then the focus for the future must equally be on cost,” he stressed, explaining that cost is now “the business of every clinician and manager seeking to provide the best value in health and care for patients”. The PbR has effectively frozen costs, he says, but concludes that this “is no longer appropriate at a time when every part of the NHS will be financially stretched”.