NHS England and health sector regulator Monitor have opened a consultation on proposals to reform the way NHS services are paid for.

Hospitals are currently paid through the Department of Health Payment by Results (PbR) system, which has been in operation for nearly a decade and under which £29 billion-worth of health care services have national prices. This represents almost one-third of all NHS spending on patient care and more than 40% of expenditures on primary care. 

While PbR has delivered benefits, feedback from the health sector is that the current system is not sufficiently patient-focused, not always based on good-quality information and that it can act as a barrier to delivering integrated care, say NHS England and Monitor. 

A prominent concern is that in the main, PbR still pays for activities, not patient outcomes, yet there are few types of care in which paying for activities is sufficient to encourage the best patient outcomes, they note.

Also, operating separate payment approaches within the health sector and across health and social care is often cited as a barrier to delivering integrated care, while PbR prices are not always based on good information on cost and quality. In particular, the lack of patient-level data on quality limits national understanding of what represents good outcomes for patients.

And, faced with patchy information and sometimes inappropriate incentives, some providers and commissioners are opting to negotiate local contract terms. Flexibility is permitted under PbR if it supports innovation, service redesign or the treatment of an unusual mix of patients, but if commissioners and providers agree local prices without clear rules to follow, the quality and sustainability of care may be put at risk, the organisations warn.

Moreover, the annual cycle of new prices and new contracts for many NHS services inhibits longer-term planning, potentially constraining innovative investment and decisions on reconfiguring services. Users also complain that cost and coding lags put PbR prices a step behind clinical practice, which can also stifle innovation, they add.

However, the transfer of responsibility for the design and oversight of the NHS payment system to Monitor and NHS England "offers a good opportunity to look at how the system works today and how it can develop in the future," say the two organisations, who have now published a discussion paper which seeks views on the future of the payment system. They have also put out a call for evidence on the way hospitals are reimbursed for some emergency admissions.

The aim is to design an "over-arching payment system that will need to include methodologies for setting prices at a national level as well as variations and rules for local price-setting and payment and to be appropriate for all aspects of health care," they say, adding: "if we design the payment system correctly, it can strengthen local contracting by supporting commissioners and providers with better information, clearer rules, and the time and space they need to make local decisions that are in the best interests of their local populations."

However, they add that they are unlikely to find a perfect design for the payment system. "Trade-offs will be inevitable and we will have to prioritise where improvement can be made," they say.

"Changes to the system will not happen overnight, and it is important we get this right," said Paul Baumann, NHS England's chief financial officer. So there will be minimal change to the 2014-15 national tariff, and this will provide continuity and help providers with their planning. But at the same time, recognising the need for some immediate changes to the payment system, the two organisations say they will "encourage local experimentation" in payment to support service redesign and develop a programme for R&D. 

Monitoring and evaluation of this work will provide more evidence on which to base longer-term changes to the payment system, they add.