Pricing in the English NHS quasi market: a national study of the allocation of financial risk through contracts

Abstract

The authors investigated how the formal national provisions for pricing in the National Health Service (which are a form of prospective payment, known as ‘Payment by Results’) are operationalized at local level. Transactions costs theory and existing evidence predict that actual practice often does not comply with contractual rules. A national study of pricing between 2011 and 2015 confirms this and indicates that such payment systems may not be appropriate to address the current financial and organizational challenges facing the NHS. As the NHS struggles radically to reconfigure services, it is necessary to reconsider the appropriateness of a wider range of pricing mechanisms to facilitate moving care out of hospitals.

Keywords:

• Contracts
• financial risk
• healthcare
• markets
• NHS
• pricing

Notes

* The NHS quasi market consists of tax-funded purchasing of care by state actors on behalf of patients; and competition between providers of care which may be state-owned or independent (Bartlett and Le Grand, 1993). It has had three major incarnations: (1) 1990 to about 2004, spanning the Conservative and early period New Labour regimes under which negotiated prices were expected (although fundholding was abolished in 1997); (2) 2004–2013 spanning the later New Labour regime after pricing reform using PbR until the coming into force of the HSCA 2012 under the Coalition government; and (3) 2013 to date when pricing is designed by a new national economic regulator: Monitor.

* PbR pricing does not take account of trusts’ cost structures, so that the amount of money lost to a provider when the money ‘follows the patient’ is greater than the savings made by the provider due to not treating that patient.

Additional information

Notes on contributors

Pauline Allen

Pauline Allen is Reader in Health Services Organisation and Head of the Department of Health Services Research and Policy, London School of Hygiene and Tropical Medicine, UK.

Christina Petsoulas

Christina Petsoulas is a research fellow in the Department of Health Services Research and Policy, London School of Hygiene and Tropical Medicine, UK.