Payment by results

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Chapter: Hospital pharmacy : Hospital pharmacy within the National Health Service

An important reform during this period was the introduction of a new system of paying providers for the care they provide.

Payment by results


An important reform during this period was the introduction of a new system of paying providers for the care they provide. Historically, hospitals were paid through to block contracts, a fixed sum of money for a broadly stated service, or possibly cost and volume contracts which attempted to specify in more detail payment that related to levels of activity. However, in block contracts there was no incentive for providers to increase activity, since they received no additional funding. The NHS Plan set out the government’s intention to link the allocation of funds to hospitals with the activity they undertake. It stated that in order to get the best from extra resources there would be significant changes to the way money flows around the NHS. Hospitals would be paid for the elective activity they undertake according to a fixed tariff price (worked out as an average price, then adjusted year on year). This was announced by the Department of Health in 2002 as the payment by results (PbR) system. PbR was implemented incrementally: the system began in a small way in 2003–2004, was extended in 2004–2005, and, for the majority of trusts, included only elective care in 2005–2006. In 2006–2007 PbR was extended to include non-elective, accident and emergency, outpatient and emergency admissions for all acute trusts.


The tariff price, which of course varies between type of admission, covers all the costs of that admission. Thus for a hip replacement, the cost of surgeon, nursing care, physiotherapist, anaesthetics, antibiotics and prothesis is included in the price paid. There is also a sum included for the buildings and all other direct and indirect overheads. For each episode of care there will be a contribution for the pharmacy team, the running of the aseptic unit and so on.


For pharmacy, there is a particularly important aspect of PbR the tariff exclusions. Where medicines would make a dispropotionate element of the episode of care (admission, outpatient visit) the medicine is excluded from tariff, and the commissioning organisation pays for the medicine separately. At the time of writing, cancer chemotherapy, antitumour necrosis factor medicines, intravenous immunoglobulins, along with many others, are tariff exclusions. Significant efforts are required to ensure appropriate data are collected and recharges made; equally PCTs are keen to scrutinise the use of these medicines to ensure only appropriate payments are made.

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