Payment by Results (PbR) is the tariff based payment system that has transformed the way funding flows around the NHS in England. This short guide is an introduction to the subject and supersedes the guide published by the DH in September 2010.

The basic facts about Payment by Results from the guide are:

1. PbR is the payment system in England under which commissioners pay healthcare providers for each patient seen or treated, taking into account the complexity of the patient’s healthcare needs. The two fundamental features of PbR are nationally determined currencies and tariffs. Currencies are the unit of healthcare for which a payment is made, and can take a number of forms covering different time periods from an outpatient attendance or a stay in hospital, to a year of care for a long term condition. Tariffs are the set prices paid for each currency.
2. PbR currently covers the majority of acute healthcare in hospitals, with national tariffs for admitted patient care, outpatient attendances, accident and emergency (A&E), and some outpatient procedures. For example, £118 for an outpatient attendance in obstetrics or £5,080 for a hip operation. The Government is committed to expanding PbR by introducing currencies and tariffs for mental health, community and other services.
3. The currency for admitted patient care and A&E is the healthcare resource group (HRG). HRGs are clinically meaningful groups of diagnoses and interventions that consume similar levels of NHS resources. With some 26,000 codes to describe specific diagnoses and interventions, grouping these into HRGs allows tariffs to be set at a sensible and workable level. Under the latest version, HRG4, there are over 1,100 tariffs. Each HRG covers a spell of care, from admission to discharge. The currency for outpatient attendances is the attendance itself, divided into broad medical areas known as treatment function codes (TFCs).
4. When a patient is discharged, a clinical coder working in the hospital translates their care into codes using two classification systems, ICD-10 for diagnoses and OPCS-4 for interventions. When a patient attends an outpatient clinic, their TFC is similarly recorded. This information, together with other information about the patient such as age and length of stay, is sent from the hospital’s computer system to a national database called the Secondary Uses Service (SUS). Reports from SUS allow commissioners and providers to make adjustments to monthly contract values agreed in the NHS standard contract to reflect what has actually happened to patients.
5. Tariff prices have traditionally been based on the average cost of services reported by NHS providers in the mandatory reference costs collection. In practice, various adjustments are made to the average of reference costs, so that final tariff prices may not reflect published national averages. Because the reference costs from which the tariff is produced are three years in arrears, an uplift is applied which reflects pay and price pressures in the NHS, and includes an efficiency requirement. The introduction of best practice tariffs in 2010-11 has started to ensure that tariffs are determined by best clinical practice rather than average cost.
6. The tariff received by the provider is multiplied by a nationally determined market forces factor (MFF). This is unique to each provider and reflects the fact that it is more expensive to provide services in some parts of the country than in others. There may also be other adjustments to the tariff for long or short stays, for specialised services, or to support particular policy goals.
7. Before PbR, commissioners tended to have block contracts with hospitals where the amount of money received by the hospital was fixed irrespective of the number of patients treated. PbR was introduced to:
• support patient choice by allowing the money to follow the patient to different types of provider
• reward efficiency and quality by allowing providers to retain the difference if they could provide the required standard of care at a lower cost than the national price
• reduce waiting times by paying providers for the volume of work done
• refocus discussions between commissioner and provider away from price and towards quality and innovation.
8. PbR was introduced to support healthcare policy and the strategic aims of the NHS. As these change and develop over time, so will PbR. The tariff is now seen increasingly as a vital means of supporting quality outcomes for patients and delivering additional efficiency in the NHS.
9. PbR began in a limited way, with national tariffs for 15 HRGs in 2003-04 and 48 HRGs in 2004-05. The first NHS foundation trust (FT) applicants moved to the full PbR system in 2005-06 and other NHS trusts in 2006-07. PbR now represents over 60% of acute hospital income and about one-third of primary care trust (PCT) budgets.
10. PbR is not unique to England. Many other countries in Europe, North America and Australasia operate similar payment systems.

A simple guide to payment by results (PDF). Department of Health, 1st Aug 2011.