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Finance and planning

What is Payment by Results?

Last modified date:

8 February 2007

The NHS financial reforms announced in Delivering the NHS Plan have now taken shape. The budget settlement of 2002 announced the largest ever sustained increase in NHS funding over 5 years, averaging 7.4% real growth per year and on course to match European average by 2008. But these resources need to be used well and we need to secure and demonstrate value for money.

Payment by Results

The aim of the 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 casemix. 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.

Under the reforms to NHS Financial Flows, instead of being commissioned through block agreements as previously, hospitals (and other providers) will be paid for the activity that they undertake; so

Primary Care Trusts (PCTs) will commission:

the volume of activity required to deliver service priorities, adjusted for casemix (i.e. the mix of types of patients and/or treatment episodes)
from a plurality of providers
on the basis of a standard national price tariff, adjusted for regional variation in wages and other costs of service delivery.

Worked example

The worked example used by the Financial Flows Project Team in the implementation events from autumn 2002 is available to download here.

This has been improved and updated in light of comments received during these events, and notes on how it should be used have been produced. It includes an outline description of the data that will be needed to feed for the more comprehensive tool which can be accessed by clicking on the links below.