Payment by Results(PbR) is worse than PFI for the NHS
“That’s the standard technique of privatization: defund, make sure things don’t work, people get angry, you hand it over to private capital.” Noam Chomsky
Politicians love to blame everyone else for bringing the NHS to its knees – even the patients themselves are seen to be guilty. How dare you grow old, have dementia, have cancer, be overweight, smoke or need to attend A&E!
But the horrific truth is that instead of protecting the NHS, politicians from all the main parties have got into bed with the private healthcare companies, to make the NHS look and perform like a financial basket case.
£50 million is the amount that Barts Health NHS Trust is in debt at the start of each financial year and Barts, which includes Whipp’s Cross and the Royal London hospitals, is now in ‘special measures’ and for Whipp’s Cross, that really means intensive care.
Whipp’s Cross, an independent hospital for over 100 years until 2012, will most likely cease to be a District General Hospital, the A & E and Maternity units will close, and it will become an Urgent Care Centre (UCC).
Dirty Little Secret
Payment by Results (PbR) is the politicians’ dirty little secret. PbR is how NHS England and the Clinical Commissioning Groups1 reimburse individual hospital trusts for their costs. Instead of paying the actual costs they pay the average cost. What does this mean?
How Payment by Results works
Take cataract surgery as an example. The cost at one hospital maybe £900 and the cost at another maybe £1,100 but both hospitals will be paid the Payments by Results average of £1,000. So one hospital has been overpaid by £100 and the other underpaid by £100.
This is a small amount but this overpaying and underpaying is happening on all the patients treated! The trusts and hospitals that have had new hospitals built have the highest costs. This is because their Private Finance Initiative (PFI) repayments are included in their costs.
The Royal London was rebuilt at a cost of £1.1 billion, with repayments in excess of £100 million a year. Yet Barts is only receiving half this amount from the NHS centrally because of PbR. This is why Bart’s starts each year some £50 million in debt.
It can be extrapolated that, nationally, hospitals with PFI repayments are in serious financial trouble and those with older hospital buildings have lower costs than the average and therefore have money in the bank.
At the end of March 2014 the net cash balances, as they are called, were according to the National Audit Office2 in surplus for all trusts to the tune of £4.3 billion!!
Understanding Payment by Results
PbR has been explained by Keith Palmer3, ex vice-chairman of N M Rothschild investment bank and ex-chairman of Barts’ hospital. In a paper he wrote for the Kings Fund, the leading health think tank, and published in 2011, Palmer looked at hospital services in South East London and showed that the problem was hospitals not being reimbursed according to their actual costs but by the average cost, PbR.
He also pointed out that the hospitals without PFI, those with money in the bank, also offer a higher quality of care.3p6
How big is the problem?
What happened in South East London some years ago is now happening in East London with the Barts Trust. The PFI finance for the London Hospital has real capital repayments of between 11 and 12% of total income, but Barts is only being reimbursed 5.8% of income – roughly half the amount it has to pay out, a shortfall of £50 million.
PFI repayments are legally protected, and take priority over treating patients or paying staff!! The financial pressure on the Royal London Hospital has now spread to the other hospitals in the Trust, and Whipps medical services are being cut to keep up the repayments on the Royal London PFI.
Who benefits from Payment by Results?
The only beneficiaries are private healthcare companies, since the average price is effectively a fixed price, and provides a commercial certainty for the private sector in tendering for NHS contracts.
Can Payment by Results be reversed?
Very easily! Reimbursing hospitals their actual costs wouldn’t cost a penny more, since, as Palmer pointed out, it is simply a redistribution of exactly the same pot of money!!
When did this happen?
In 2003, the then Labour Health Secretary, Alan Milburn4, changed the system from actual costs to average costs, though only in England. The rest of the UK still reimburses on the basis of actual costs.
An alternative vision
The majority of the British people support a publically owned and publically run NHS. But we need to act now to save it!
Remember, once it’s gone, it’s gone. . .
Michael Gold,
@radicalmic
1NHS England & the Clinical Commissioning Groups contribute 25% and 75% respectively to reimbursing costs.
2http://www.nao.org.uk/wp-content/uploads/2013/07/10220-001_Indicators-of-financial-sustainability-in-the-NHS.pdf
3http://www.kingsfund.org.uk/sites/files/kf/Reconfiguring-hospital-services-lessons-South-East-London-Kings-Fund-March-2011.pdf
4Since leaving Government and Parliament, Alan Milburn has worked in the private healthcare sector for PricewaterhouseCoopers as chair of their UK Health Industry Oversight Board, as Chairman of the European Advisory Board at Bridgepoint Capital, whose activities include financing private health care companies providing services to the NHS, and as a member of the Healthcare Advisory Panel at Lloyds Pharmacy.
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