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Payment by Results (PbR) is an apparently simple policy for paying for hospital services, that is intended to improve efficiency within the NHS.

It applies only to the NHS in England, although Scotland, Wales and Northern Ireland are exploring how and if it or a similar policy should apply to their respective health services. It can be summed up in three words – counting, coding and costing. Re-imbursement of hospital activity will be based on counting the number of patients, appropriately coded into groups whose treatment should cost the same, wherever they are treated.

The policy aims are to:

• support patient choice and encourage hospitals to respond to patient preferences;
• encourage commissioners to provide effective care in the most appropriate settings;
• fairly reward hospitals for the work they do;
• increase transparency of hospital funding; and
• impose a sharper budget discipline on hospitals, making sure that they are responsible for any deficits.

In this system, PCTs have a budget with which they commission hospital services from whatever hospital a patient chooses, and pay that hospital a set rate for the care services. The cost of the care is set according to a national tariff based upon the average cost across the NHS for whatever condition the patient happens to be suffering from. Hospital income is therefore based upon the number of patients and conditions they treat and how much they actually spend on the patient’s care.

Despite the simplicity of the concept, the implementation is fraught with risks for PCTs and hospitals, with the result that the practice is extremely complicated.

Counting
Counting is the simplest component of all to understand. To make sure that hospitals maximise their income, they have to be certain that they count all the activity that they undertake. This includes not only all out patient attendances and admissions to hospital, but also all A&E attendances, patients with short length of stay (e.g. overnight in an admissions unit) and every operation and procedure that attracts funding. Hospital information systems have to be able to record the information reliably and staff have to be sure that it has been entered into the system.

Coding
PbR is based upon a casemix system for coding hospital activity. Casemix is defined as a means of classifying hospital patients to provide a common basis for comparing cost effectiveness and quality of care across hospitals. It groups patients, their diagnoses and procedures into comparable clinically meaningful groups that incur similar costs for their care – ‘iso-resource’ groups. In England, the casemix system developed for this purpose is called Healthcare Resource Groups (HRG’s).

HRGs are constructed from the patient’s age, gender, diagnoses and any procedures that they undergo. All HRG’s have a similar structure. For example, HRGs for fractured neck of femur include:
H82 Extracapsular Neck of Femur Fracture with Fixation w cc
H83 Extracapsular Neck of Femur Fracture with Fixation w/occ
H84 Intracapsular Neck of Femur Fracture with Fixation w cc
H85 Intracapsular Neck of Femur Fracture with Fixation w/o cc
H86 Neck of Femur Fracture with Hip Replacement w cc
H87 Neck of Femur Fracture with Hip Replacement w/o cc
H88 Other Neck of Femur Fracture w cc
H89 Other Neck of Femur Fracture w/o cc

HRG H82 is composed of the primary diagnosis which is ‘Extracapsular Neck of Femur Fracture’, the procedure was an operation ‘with fixation’. This HRG also includes ‘w cc’, which means ‘with complications’. The complications are predefined for any HRG, and can be age (e.g. >65), gender, or specific clinical complications. The HRG for a patient admitted with acute coronary syndrome who had no (chargeable) procedures might be: E22 Ischaemic Heart Disease without intervention >69 or w cc or E23 Ischaemic Heart Disease without intervention <70 w/o cc

Here the HRG attempts to account for the fact that older people may be in hospital for longer than younger patients and may have factors other than their primary diagnosis that affects their cost of care, e.g. impaired mobility meaning that they may spend an extra day or two mobilising before they can go home.

Costing
There are four major drivers to the cost of care for a patient. These are the cost of any medications, the cost of any procedure, the cost of staff time required for their care and their length of stay in hospital. Each HRG groups patients according to diagnosis (as a proxy for medication costs) and procedures and a predicted length of stay. Advice from clinicians was the basis for defining the groups. Costs of treatment for each HRG were set according to an average of the cost for each HRG reported by the hospitals that took part in a national costing exercise. The target length of stay was based upon the national average length of stay for each HRG. In the examples given above, the length of stay for HRG H82 is 16 days and for H83, 13 days. For E22 it is 2.5 days, for E23, 1.5 days.

But the devil is in the detail
Each of these three – counting, coding and costing, has its own set of challenges. I have mentioned the challenges of counting, but the most difficult problems arise out of the coding and especially the costing.
Coding of hospital activity is inevitably an imperfect science. It has to be do-able, and therefore based on readily available data. Hospital Episode Statistics are kept by every hospital in the country and record source of admission, method of admission (e.g. emergency or elective), age, gender, admission date, discharge date, destination on discharge, method of discharge, primary and secondary diagnoses and procedures. Coding diagnoses is in itself complex - which is the primary diagnosis of a patient admitted having fallen, developed a chest infection and become hypothermic? HRG’s do not include measures of cognitive or physical function that as geriatricians we know affect the time that patients are likely to spend in hospital to recover from illness. It is critical for a hospital to code everything that a patient has and then pick the diagnosis combination and procedures that will give it the maximum income for a patient. In the UK clinical coding has been regarded as a rather lowly job, but this is rapidly changing as hospitals ‘skill up’. In some countries it is possible to get a degree in clinical coding.

Costing is the most complex of all. Accurate costing for a patient with a fractured neck of femur needs to include the cost of all the medications, the time in theatre, the cost of staff involved in theatre, in post operative care and rehabilitation. It is only with the advent of PbR that hospitals have started putting enormous effort into accurate costing and accounting exercises. It is in the interests of a hospital (and its patients and staff) to know exactly where all its costs are generated so that it can manage them effectively. Because the costs were based on averages, it is certain that some hospitals will deliver the same care at less (or greater) cost. This will be in part due to the fact that they have always done things in a particular way within their own environment and given the populations they serve.

What does this mean for us as clinicians?
We are going to come under increasing pressure to take considerable effort to ensure that the work of the coders who record and code diagnoses, procedures etc. have the maximum accurate information readily available to them in the medical notes and discharge summaries. We are also going to continue to be under intense pressure to discharge patients as quickly as possible. PCT’s will be keen to minimise their expenditure and will start going to great lengths to reduce hospital admissions and outpatient attendances. We may well find that there are fewer hospital based consultants and more employed by PCT’s to work with them in the community.

There are also a whole range of adjustments that the Department of Health have introduced to try to reduce the pain of the transition from the old funding system to the new. These include a Market Forces Factor which attempts to allow for demographic and historical practice differences across the country, and a range of exemptions from PbR for some highly specialised services – e.g. spinal and brain injury rehabilitation, and allowances for patients who stay an exceptionally long time in hospital for legitimate reasons.

PbR is in practice hugely complex. Its introduction potentially threatens the viability of some hospitals and services and as the national press so frequently reminds us, it is causing huge anxiety and stress across the whole NHS. At the end of the day, we must acknowledge that as medicine advances and new and better treatments become available, costs will inevitably escalate. Somehow this has to be managed.
We have to become better at counting, coding and costing whether we like it or not. We should be supportive of the coders in their very difficult work. We must examine our own practice and gather sound evidence to support the fundamental principles of geriatric medicine - multi-disciplinary care and rehabilitation - to ensure that patients are discharged when they are fit enough to be supported or continue their rehabilitation after discharge. A major contribution would be to support systematic high quality data collection from functional and cognitive assessment. If routinely available, these data could be included in future evolutions of HRG’s and protect the interests of our frailer patients who need a longer time in hospital to recover.
In the meantime we must fight for the best interests of our patients and watch with bemusement as the policy wrangles continue.

Iain Carpenter
Professor (human ageing) and Associate Director
Centre for Health Services Studies, University of Kent
Consultant Geriatrician, East Kent Hospital Trust, Canterbury