Understanding Payment by Results
Payment by Results (PbR) is the payment system that governs transactions between commissioners and acute hospital providers. Under PbR, commissioners pay providers a national tariff or price for each patient treated or seen. The price varies according to the complexity of the treatment or condition and is set annually for each type of service, with services classified by health resource groups.
With the price set nationally, contract negotiations focus on the volume of activity to be provided. Providers are paid according to the amount of activity they do, multiplied by the relevant tariff price. Activity x Price = Income
The national tariff is intended to base payments on an average price that balances out over the healthcare resource group (HRG). It does not reimburse a provider with the exact cost of treating individual patients and benefits providers whose costs are below average. Trusts whose costs are above the tariff will have to look for savings and ways to become more efficient.
There is also a variation in tariff according to geographical location which is adjusted by the Market Forces Factor (MFF). MFF takes into account unavoidable differences in costs at different geographical locations.
Further information is provided in the Clinical Services Unit Understanding Payment by Results document and in the listed guidance documents section of this page.
Setting the tariff
Tariffs are derived from 'Reference Costs' which are collected annually from all NHS providers. The Finance Director for each Trust will calculate the costs for each inpatient and outpatient activity in their hospital and submit it centrally. These reference costs are then averaged and adjusted to take account of data quality issues. Further details on how this was calculated can be found in Annex D of the PbR Guidance.
It is crucial that all Trusts submit accurate reference costs for their dermatology services, in order to ensure that the tariff reflects the real cost of dermatology care across the country.
2013-14 Tariff Update
We have noticed a change in the coding and tariffs in the 2013-14 Road test package for Payment by Results, affecting the HRG codes JC06 and JC07Z.
Over the last 2 years a mandatory outpatient tariff was allowed for the JC06 and JC07Z codes. However, to everyone's surprise including the PbR development team at the DH, it was discovered late last year that in fact no outpatient procedures (OPCS codes) were mapped to these HRGs. This anomaly was found to arise from a coding algorithm mistake that translated most OPCS codes for minor skin ops with a LoS of 0 (i.e. outpatients) to other codes; JC14, JC15, JC17, JC18, JC20, JC27 but mostly JC18. The effect of this was that whilst we all thought we were getting £140+MFF we were actually being paid £113+MFF. This year it was decided to remove the mandatory tariff for JC06 and JC07 as it was not being used.
Following discussions with the DH early last year there was a complete redesign of Derm HRGs and in future this algorithm will be corrected. The majority of the procedures that previously mapped to JC06 now map to the new HRG JC43 Minor skin procedures. Costing information on this new design is due to be collected this summer and we believed it is intended to be published late in autumn/winter 2013. Such costing information will inform the tariffs for 2015-16 onwards. In short we have been underpriced for the last 2 years and this unsatisfactory situation will continue for a further 2 years.