Perverse incentives in NHS funding structures have greatly increased the number of unnecessary admissions to hospitals in England over the last 10 years, by failing to encourage GPs and consultants to work together in the best interests of the patient, says new research from The Policy Exchange.

Hospital admissions have increased by 2.79 million since 2005, largely due to the fragmented nature of the NHS, the think tank reports, and it calls for radical reforms to the way GPs and consultants are incentivised, with the primary focus being on reducing admissions.

GPs are currently being paid "thousands of pounds" on top of their basic salaries to carry out basic administrative tasks such as arranging blood tests and updating diseases registers, while NHS funding arrangements encourage acute hospitals to admit patients to hospital to service high fixed costs for staff and property rather than trying to treat patients at a community level or in the home, says the study.

It also finds that, by international standards, patients in England with chronic diseases are more likely to be admitted to hospital - and to stay there much longer once they are admitted.

Over the last 20 years, successive governments have divided the NHS in England into ever-smaller and more divided parts, and this has led to a multi-tiered system of separate organisations, each setting their own legal identity, culture and bonus schemes. The lack of coordination between Primary Care Trusts (PCTs), GP practices and acute hospitals has led to unnecessary and costly admissions to hospital for patients with long-term conditions (LTCs) such as diabetes and Alzheimer's disease, who should be treated at a community level or in the comfort of their own homes, it says.

The report finds that a common theme from successful integrated care organisations around the world is the alignment of doctors' incentives which encourage GPs and consultants to work together. Therefore, it calls for the NHS pay and performance system to move away from considering each professional group as an isolated case.

Both the Quality and Outcomes Framework (QOF) and the Clinical Excellence Awards scheme should be overhauled to include indicators which incentivise GPs and consultants to work together in multidisciplinary teams to provide integrated care for patients, it says. Also, the National Institute for Health and Clinical Excellence (NICE) should develop a set of indicators which focus on cooperation and integration - for example, reducing admissions to hospital for a range of chronic diseases which can easily be controlled by modern, preventative medicine.

The report also recommends:

- the establishment of a pilot scheme for 10 fully-integrated care organisations covering 250,000 people that brings together primary, community and acute NHS services into one organisation. These would sit alongside the newly-formed Clinical Commissioning Groups (CCGs), and the pilot schemes’ chief executives would be directly accountable to Parliament through the regulator Monitor;

- the Department of Health should commission research to calculate the current healthcare-related costs of the most common LTCs, including asthma, diabetes, coronary heart disease (CHD) and chronic obstructive pulmonary disease (COPD), including adding services such as diagnostics and treatment to NHS Tariffs. This should be accompanied by a framework to enable financial pooling arrangements between purchasers and providers to begin delivering care for patients in a virtual model of integrated care: and