Payment by results requires better infrastructure

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The aim is to encourage hospitals to treat more patients, reduce waiting times and keep tighter control of costs by introducing a reimbursement system that reflects workload and productivity. However, the UK Government’s payment by results scheme has been criticised by Britain’s biggest trade union, Unison, while the Audit Commission has said that the scheme poses “severe challenges for financial management in some trusts”. But is the scheme a bad idea or does it simply require a better infrastructure? It is definitely the latter, says leading radiologist Peter Gaines. Gaines was the main speaker at the Bard Symposium at the recent meeting of the British Society of Interventional Radiology, and he sounded the call for other interventional radiologists and surgeons to get involved and deliver high-quality information to help improve the scheme.

The roots of payment by results are in 2002, when the Labour Government pledged to increase spending on the UK National Health Service (NHS). In order to effect this rise it needed a new mechanism to deliver the additional cash. According to the Department of Health: “The aim of the new financial system is to provide a transparent, rules-based system for paying trusts. It will reward efficiency, support patient choice and diversity and encourage activity for sustainable waiting time reductions. Payment will be linked to activity and adjusted for case-mix (ie, the mix of types of patients and/or treatment episodes). 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.”

This scheme will eventually replace the current block contract basis of payment by the NHS that was not linked to the number of cases treated. Payment by results is similar to the systems used in many other countries such as Australia, Norway, Germany and the US. However, the difference is that it will be more extensively applied in the UK – potentially covering all health services.

What is done and why…

Payment by results has many similarities to the internal market system that was established by the Conservative party and abolished when Labour came to power in 1997. It works by grouping all hospital admissions into a healthcare resource group (HRG) determined by both the procedure undertaken – the ‘what’ – classified by OPCS-4 (Office of Population, Censuses and Surveys, 4th revision), and the health-related problem – the ‘why’ – based on ICD-10 (International statistical Classification of Disease and related health problems – 10th revision). Each HRG has a fixed tariff assigned to it, which is based on the national average cost of treatment in NHS trusts throughout England. This is similar to the Australian Refined Diagnosis Related Groups (AR-DRGs), which have also been adopted in Germany as German-DRGs.

From April 2005, nearly all specialities will be commissioned on this basis. The national tariff is being phased in over three years. Some services are explicitly excluded from the system, including mental health, ambulance, radio- and chemotherapy, renal dialysis and critical care. However, for the remaining services that are covered, there are issues that are causing concern. Clearly, by using a national average price, instantly 50% of providers will have costs that are below the reimbursed figure, while 50% will have costs above. The Department of Health itself has calculated that around 160 trusts and primary care trusts (PCTs) will have budget deficits of more than 9%, with nearly 70 facing 25%+ shortfalls. And the government has said that it will not bale out struggling trusts. This may force some hospitals to stop treatments for some indications rather than attempt to improve efficiency. The tariff may end up making some patients more ‘profitable’ than others, said head of Unison, Karen Jennings. Costs could also grow if the new system brings a greater bureaucratic workload and more disputes.

This mix of politics, finance and healthcare makes payment by results a tricky field to negotiate. Three strategic health authorities (SHAs) – covering Hampshire, Surrey, Oxfordshire, Berkshire and Buckinghamshire – have already been widely reported to have suspended the scheme in a bid to control spiralling debt. But upon close inspection it is not such a simple situation. One SHA has released a statement: “Payments by results has not been ‘suspended’ in Hampshire and Isle of Wight. We are using payment by results to manage the financial position. You will be aware that payment by results carries responsibilities for both PCTs and other NHS trusts. Although risk-sharing arrangements are in place in all organisations, in some they have been modified in order to meet cash limits and to facilitate the financial recovery of the local health community.”

To complicate matters further, the Oxford Radcliffe NHS trust has removed around 50 patients from its waiting list for cardiac cathater ablation, which corrects irregular heartbeat. This is the same procedure that UK Prime Minister Tony Blair underwent in 2004. Consultants at the John Radcliffe can perform the operation for around £4,000, but under payment by results the hospital receives only £2,007 each time. Health Secretary Patricia Hewitt claimed this difference was due to inefficiencies at the hospital. However, as reported in The Guardian newspaper, the average cost for cardiac catheter ablation is closer to £4,500, while some complex cases could cost up to £9,000. In the private sector, the procedure costs between £7,500 and £8,500.

The wrong tariffs

The trouble is that payment by results depends heavily on OPCS-4 and ICD-10 codes and on information about costs and patient numbers – and data collection is not a strong point of NHS trusts. Speaking at the meeting of the British Society of Interventional Radiologists (Brighton, 2-4th November 2005), Dr Peter Gaines, from the Sheffield Vascular Institute, UK, noted that there are currently only two HRGs for interventional radiology: Q12 for therapeutic endovascular procedures and Q14 for diagnostic radiology, each of which carries a fixed tariff. He told Vascular News: “The HRGs are not well thought through at all. They were developed a long time ago by surgeons who didn’t even ask the interventional radiologists what they actually did.”

Similarly, Gaines observed, there are 12 OPCS-4 codes that cover vascular interventional radiology, but 58 procedures have no codes at all while a further 28 codes are redundant. It has all the signs of a scatter-gun approach, where certain procedures were included as and when someone thought of them. “If we had a code for every procedure (inflating a balloon, inserting a stent, performing an embolisation, etc) for every artery and vein in every part of the body we would have hundreds or thousands of codes,” he said.

It is not just the groupings that are wrong, the tariff structure is poor as well. According to Gaines, the national reference costs that form the basis of the tariff are based on annual returns from trusts’ costing spells. They are based on total costs divided by the number of procedures; they have not been worked out from first principles and do not reflect the true costs involved. In addition there are no costings at all for interventional radiology. At Sheffield, the breakdown for the HRGs is shown in Table 1.

With the current HRGs and tariffs as they are this could result in a shortfall for Sheffield of £1.5 million next year, Gaines predicted.

Stephen Atkinson, General Manager at medical device company Bard (UK), which manufactures and supplies instruments for use in interventional radiology procedures, sees the industry from a different perspective. While he noted that Bard has not yet seen a drop in the number of interventional cases treated since the start of the scheme, he is concerned about the future. “In its current guise, payment by results could be a potential barrier to the introduction of new technologies. For instance, the procedure to place the (very expensive) device for abdominal aortic aneurysms (AAAs) is currently off-tariff – exempt from payment by results. Therefore a hospital needs to get approval from the PCT to pay for that separately. Even if an innovation significantly improves patient care and saves the NHS subsequent or alternative treatment expense, when its initial purchase price is unaffordable under the existing HRG tariff that device will need a period off-tariff while data are collected on its use. Either its incremental cost will qualify for ‘pass through payment’ or its entire cost will be off-tariff, but either way hospitals need to submit a business case to the PCT to fund its use.” In other words, administrative barriers and long delays exist to hinder the adoption of new technology, to the detriment of patient care in the NHS.

Towards 2008

To improve the situation, the Royal College of Radiologists, working with the NHS Information Authority, asked Gaines to chair an expert working group and develop new HRGs. The group consisted of Gaines, Julian Kabala, Jonathan Tibballs, Laurence Abernathy, Nigel Cowan, Nigel Hacking and Roger Laitt, representing different specialist groups in all areas of interventional radiology. “However, we couldn’t develop a HRG banding structure without proper costings, and there were no costings available… Therefore we employed Boston Scientific to undertake an independent costing study involving a number of hospitals all over the country,” Gaines explained. “It took a long time!” Using this information, the working group developed six HRG bands covering interventional procedures ranging from £500-30,000. In addition the working group has succeeded in getting the interventional radiology HRGs ‘unbundled’. Currently interventional radiology procedures (including endovascular work) may account for a considerable portion of the cost a patient’s stay but is not reimbursed separately from the whole patient spell. By unbundling the interventional radiology portion of the spell that treatment can be reimbursed separately.

Following that, the working group looked at the OPCS-4 codes and not only tidied them up, but also created a new coding structure that would reflect the current diversity of procedures and be flexible enough to cover any future advancements.

That leaves the question of tariffs. And this is where practising radiologists will able to do their bit. Gaines stated: “People need to code using our new structure [from 2006], which will allow us to collect accurate costings…so we can have appropriate tariffs in 2008.” This will not necessarily be a difficult task, he assured. “Currently the coders are struggling as not only do they not have the right codes but they are also not being fed the right information. We need to develop a closer relationship [between the radiology and coding departments].”

So the final question is whether – with the right HRGs, appropriate codes and accurate costs – payment by results can deliver on its promise to improve the healthcare system of this country. For Gaines the answer is an emphatic “yes”. “It should make it more efficient. We will all get an appropriate slice of the pie. It won’t be a bigger pie, but we’ll get a fairer cut,” he concluded.

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