Watchdog warns of "substantial risks" to new NHS funding system

Tuesday, 27 July 2004 12:00 AM

A new report from the Audit Commission has warned that the new funding system for the NHS risks "financial instability within NHS bodies."

The new "payment by results" system was introduced by the Government to support NHS modernisation and aid efficiency. The Government will pay a set price for each procedure, based on average hospital costs, and unavoidable regional differences in prices will be funded nationally.

The Government believes that the new system will "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" and the 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".

Today's report acknowledged that there are benefits to the new system, with Primary Care Trusts (PCTs) having greater flexibility to improve patient care, but warns "they also face considerable financial risk under the new arrangements.

"Many do not have the necessary financial systems in place, nor the capacity to manage the risks. Other countries have also found that this funding system can be manipulated by providers to get extra, unmerited, cash."

The Audit Commission's health director, Andy McKeon, said: "Payment by results brings many opportunities, but cannot on its own guarantee greater efficiency and ensure a higher quality of care in the NHS.

"As far as the taxpayer is concerned, the new system involves a major shift of resources. It will also bring major financial pressures. We must make sure that PCTs and NHS trusts have the ability not only to cope with the new pressures placed on them but also to use the incentives to help drive improvement."

The report recommends that NHS trusts should "urgently invest" in their IT systems, with particular focus on recording patient activity and strengthening financial management systems.

It advises all NHS bodies to ensure that clinicians and frontline managers fully understand the implication of the system, and calls on the Department of Health "to assess and refine the system and support its implementation, working with strategic health authorities to help local NHS bodies address key risks and build capacity; and ensure that a sound monitoring framework is in place to address possible manipulation or 'gaming' of the system".

Tags: