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Nuffield Trust Annual Health Strategy Summit
'NHS modernisation and the way we pay for care'
2 March 2011

  • Last modified date:
    4 March 2011

I think it’s clear to everyone that this government is deeply serious about putting our public finances in order.  Having lived beyond our means for so long, we can’t afford to continue as we were.  But the scale of our ambition goes far beyond just fixing the economy. 

I didn’t enter politics to cut the deficit.  I am in politics because I am a public servant, but also because I have my own ideas about how we can deliver world-class services.  Recognising that I had those views and I had to stand up and be elected on them. 

For well over twenty years, I have stood up for the benefits of enterprise and innovation.  I believe these can energise our public services every bit as much as they do the private sector.  Not in any way to inhibit the values of public service, but to empower public servants to deliver more, more effectively.

We face enormous pressures on costs – an ageing population, obesity and alcohol abuse.  Expensive new drugs and technological innovations like genetics, nanotechnology and robotics.  People expect to receive the latest and the best treatment, and so they should. 

But unless we fundamentally change the way we do things, we won’t be able to do this.  Unless we modernise, every year the relative costs of running the Health Service will go up.  Demand will grow, the bureaucracy will expand and inefficiencies will become ever more entrenched.

There is no “easy option.”  Sticking with the status quo and hoping that a bit more money will be enough to meet the challenges ahead is a complete fiction.

We need modernisation.  We need to do more to reduce the demands on the NHS through a far greater emphasis on public health.

We need to open up the NHS to make it more competitive, more responsive and more transparent, cutting out waste and bureaucracy. 

And we need a modern, successful NHS and to pay providers for the results they achieve for patients.

The typical 1940s patient might have been a young man with TB or Polio, best suited to hospital treatment.  But today that typical patient is more likely to be elderly with multiple conditions and with as many social care needs as healthcare ones.  But the NHS keeps treating them in hospital, which may not be at all the best place. 

Indeed, as the Health Ombudsman’s report tragically illustrated, it can sometime be the worst place.

The challenge for the modern NHS is to reflect and meet the needs, the expectations and the ambitions of today’s society.

NHS Modernisation

There are many ways in which we aim to do this: 

• We want to give patients far more control over their own care.  Giving them the choice over what happens to them and by whom, as well as where it happens.  There really should be no decision about me, without me.

• We will publish far more and far more relevant information on the quality of care being delivered by different providers.  So that patients and clinicians can see clearly who is providing the best – and the worst – care.

• We will allow NHS services to be provided by any organisation that can deliver NHS standards of quality at NHS prices.  For why on earth should we stand in the way of patients receiving the best care just because it is not an NHS organisation providing it?  On that basis, we would stop Macmillan nurses caring for cancer patients. 

• We will give NHS providers the freedom to run themselves as they see fit, not as one particular tier of bureaucracy or another decides they should. 
• We will empower clinicians to take the lead across all aspect of NHS care.  It is not my job to tell clinicians how to care for patients.  They are they experts, they are best placed to make those decisions.  And they are best placed to design integrated local services in collaboration with their colleagues across primary, secondary, community and social care.  Managers should be there to support the decisions of clinicians, not the other way around.

• And to drive all of this, we will change the way that we pay for NHS services.

And it is this last point – how we pay for things – that I would like to focus on in particular.  For many people, particularly those in the press, have tended to focus almost exclusively on the structural changes we are making, especially those around GP-led Commissioning. 

But what may actually make the biggest difference to the care that people receive will be how people behave within the system.  And to support the national focus on outcomes and quality, we need to align incentives.  The outcomes framework will lead this. 

• Commissioners will be accountable for outcomes and quality.
• They will contract for services using the new quality standards. 
• The regulator will regulate and inspect against real quality criteria. 
• Information on outcomes will focus health and social care providers on results. 

And the pricing system should align directly with this.  It is vital that what is rewarded is the best care, not just throughput or a simple process target.

I want every incentive and every reward to align with the single goal of improving outcomes for patients.  Better survival rates; a faster, fuller recovery; more prevention; and the effective management of long term conditions. 

At the moment, this is far from the case.

Payment By Results

We have a system in the NHS misleadingly called ‘Payment by Results’.  But organisations aren’t paid for results.  They are paid for activity.  They are rewarded for processes and ticking boxes, for doing stuff and not actually for delivering the best possible patient care.

PBR currently pays per procedure.  If what you want is just lots and lots of activity then, as you would expect, it has. 

The ‘more the merrier’ was the idea.  Only it isn’t very merry.  Providers get paid with little regard as to the quality of a procedure, or the end result for the patient.  From the organisation’s point of view, there is scant incentive to improve.

And because providers are paid after the event, they don’t have the up-front funds to invest in better prevention.  Instead they are forced to be reactive and prevented from being proactive.

You also have some quite perverse incentives.  If a hospital provides a poor service and discharges a patient only for them to bounce back a couple of weeks later through A&E, the hospital is not penalised for it.  It’s rewarded! 

It’s paid for putting right what it should have done in the first place.  And if the same happens again, then they get paid a third time.  And a fourth. 

Take maternity services.  Within antenatal care, the more visits or scans a provider can record, the more money they are paid.  It’s actually in the best financial interests of the hospital to provide care on a purely reactive basis, dealing with problems as they arise rather than planning care to prevent them from happening in the first place.  The hospital benefits.  The mother does not.

Another example - previously, because there wasn’t a specific tariff for interventional radiology procedures, if a woman had uterine fibroids there was a financial incentive for the hospital to perform a hysterectomy, a far more invasive and sometimes traumatic procedure. 

The problem was that because of the way the tariffs were set up, the hospital would not have been able to cover the full costs of interventional radiology, where as they could be confident of covering the costs of the hysterectomy.

Or take cataract operations.  Although the NHS Institute and Royal College of Ophthalmologists’ guidelines say that best practice would include combining the initial outpatient consultation with the pre-operative assessment into a single visit – far more convenient for the patient – and just a single post-operative out patient appointment, the tariff didn’t reflect this. 

Instead, it would just keep paying out for every pre- and post-operative appointment.  The focus wasn’t on providing the best and most convenient care for the patient but on making things easier for the provider.

The current system is the wrong system.  By rewarding treatment over prevention, activity over the quality of outcomes, patients suffer.  This cannot be right.

That is why we are changing the tariff – the way we pay for care.  I want commissioners of care, be they PCTs, the new GP consortia or the NHS Commissioning Board, to genuinely pay for results.  To reward those who improve health outcomes.  For the financial incentives to finally catch up with the rhetoric of a demand for ever higher standards.


For example, the new tariff for haemodialysis rewards services that apply best clinical practice by paying significantly more for dialysis sessions that are delivered through so-called ‘definitive access’ than for those that are not. 

This treatment is better for patients because the faster flow rates result in more effective and efficient dialysis and it is much safer due to a reduced risk of infection.

The tariff has been set so that if patients receive their dialysis in this way, the more the provider is paid.  So, as well as rewarding those who provide the best treatment, it also provides a strong incentive for those that are yet to bring their service in line with best practice to do so.

These changes are about getting the right financial system in place to support the very best patient care and to offer greater patient choice and control.


As soon as you bring clinicians together from primary, secondary and community care to design an ideal service, those institutional distinctions quickly fall away.  Instead, what becomes important is the patient’s pathway of care. 

So instead of a hospital looking at what it does in isolation, clinicians start to look at what is in the best overall interests of the patient and where their services can best fit in to that pathway. 

I want the way we pay for NHS care to support and encourage this.


Take the example of maternity again.  The current system pays for activity, encouraging a reactive approach that increases the chances of interventions.  Paying for a ‘Pathway’ could turn this on its head. 

Newly expectant mothers will first see a midwife to discuss her options.  A home birth, midwife-led, in an obstetric unit.  She would discuss her birth plan and what pain relief she would prefer.

Whatever she decides, she should be supported every step of the way by an integrated system of care, from a networked service, with clear quality standards that help to achieve the results she wants – a health baby, a healthy mother and a good experience from the first antenatal appointment to the last time she sees a health visitor.

The Midwife will also carry out an initial risk assessment in which she will take into account all relevant factors:
• does she have any underlying health problems?
• Has she had any previous problems with childbirth? 
• Does she have any mental health issues or require any social care? 

Depending on the results, the provider would receive a fixed amount up front, possibly for the entire maternity pathway – or possibly split into separate payments for antenatal, birth and postnatal care – based on the potential medical and social needs of the mother. 

It is then in the interests of the provider to work as pro-actively as possible with that woman, to plan and manage her care and to prevent the need for any avoidable interventions. 

For the greater the concentration on the smooth management of the pregnancy and on good clinical outcomes the more money can be saved by avoiding unnecessary interventions.  The money saved can then be used to improve their maternity services still further. 

The quality of the mother’s experience and the health outcomes for her and her baby are both improved.

And because the money is paid up front, providers will have the funds to invest in the prevention services they can’t necessarily afford when they are only paid for things after the event.


This sort of quality based payment also strips out a great deal of bureaucracy.  For as long as a provider meets the NICE quality standards, it doesn’t matter how they do it.  There will be no more telling providers how they should schedule antenatal appointments – that level of detail will be left for midwives or obstetricians to decide based on the patient’s own personal circumstances. 

Year of Care

Cystic Fibrosis is another example, this time based on a “Year of Care” pathway.  Building on the work of the Cystic Fibrosis Trust, it sets out all aspects of the support that an individual will need over the course of 12 months, depending on the severity of their illness. 

With this sort of payment it is easy to build in quality components.  The things that should happen.  Some patients will have more complex needs, and their payment will be higher, but it is all focussed on the most clinically appropriate care, whether that is delivered in the home, a GP surgery or in a hospital.

Best Practice Tariff

You can also provide a similar incentive for more discrete episodes of care.  There are already a few so-called ‘Best Practice Tariffs’ and we will soon introduce more.  18 in 2011/12.  One will be for TIAs, or mini-strokes. 

Here, payment will be aligned with NICE quality clinical guidelines, so providers can be paid more for delivering a service that meets these standards, and less for one that doesn’t.  In the case of treating a patient with a suspected mini-stroke, the emphasis is on preventing a full, acute stroke.  Things like an immediate specialist referral, identifying those at higher risk within 24 hours and getting an MRI scan for those high risk patients within 24 hours of diagnosis.

Payments based on the historic average cost of a treatment can’t hope to keep up with often fast-paced developments in care.  Where NICE clinical guidelines support the introduction of a Best Practice Tariff, we won’t wait for the cost data to catch up.  For example, in 2011/12, we’ll introduce Best Practice payments for some minimally invasive techniques in interventional radiology, using a reasonable estimate of the costs involved.

I know that it can sometimes feel like the NHS is drowning in a sea of best practice guidance sent from on high.  In the past, the guidance has often been sent with no money to implement it, no incentive to enact it.  It’s then often seen as yet another burden to endure, another rod for the backs of already over-stretched clinicians. 

But by aligning best practice, NICE clinical guidelines and improved patient experience with the way that care is paid for I am confident we will see a significant improvement in clinical outcomes.

30 days after discharge

And in this way, we can also address the issue of hospitals discharging patients with inadequate support in the community only for them to turn up a few weeks later in A&E. 

Hospitals will remain responsible for a patient for 30 days after discharge.  Responsible for arranging any social care, any rehabilitation or reablement. 

And unless there is good reason for it, if they are readmitted during this time, then the hospital will have to pick up the bill themselves.  The commissioner won’t pay a penny.

Again, this is a powerful incentive to make sure that the pathway of care is properly integrated and that, for example, a hospital cannot wash its hands of a patient just because they’re no longer lying in one of their beds.

Risk Stratification

In many cases, the different levels of risk are reflected in a different level of tariff.  This means the commissioner of that care, be it the GP Consortia or the Commissioning Board, is further encouraged to provide care that is the most appropriate for that patient. 

A good example is the new tariff for multi-professional outpatient clinics for patient needing dialysis.  By paying more for patients with complex needs to see a multi-professional team – for example a doctor and a psychologist or social worker – patients are given more choice and control and are able to move to their chosen treatment pathway more quickly.

The incentive is always to provide care that is integrated along the care pathway, aimed squarely at delivering the best clinical outcomes and tailored to the individual clinical and social needs of the patient and not on the organisational convenience of the institution.


I said at the beginning that one of the ways we will modernise the NHS is by placing more power in the hands of clinicians.  The changes to the way we pay for NHS services, far from being just an arcane and technical change to a pricing mechanism, is a vehicle for clinical empowerment.

It empowers providers to innovate and rewards them for improving the quality and efficiency of the services they provide.  And it empowers commissioners to influence the services their providers deliver and to gain as much value for money as possible. 

But as is always the case, with greater power comes greater responsibility.  Clinicians within consortia and providers will now have to grasp the nettle and lead those organisations.  They will need to look at how they operate now and see how they can do so differently in the future.  They will need to work with their colleagues across patient pathways to see how they can deliver not the best secondary care or the best primary care, but the best overall patient care.

Now more than ever, the NHS needs leadership.  It may sound odd coming from a Secretary of State for Health, but I don’t believe that in the future, modern health service, a politican should be in control.  Leadership should come from within the NHS . 

The leaders we need are:

• clinicians – designing the best care pathways for their patients. 
• managers – working with their clinical colleagues to realise that change. 
• local councils – ensuring that local healthcare joins up with other services like social care and public health.
• And patients – holding local services to account and playing an active and informed role in their own care.

New GP Pathfinders

I am very glad to see that more and more clinicians are grasping this nettle.  Today we are announcing the next group of General Practice-led Pathfinder consortia.  As of today, a further 40 consortia will begin the journey to taking full responsibility for local health services, working with providers along the various care pathways to deliver the best outcomes for patients.  This brings the total to 177 across England, covering 35 million people, over two thirds of the population.


The modernisation of the Health Service represents a massive shift of power away from me, away from Whitehall, to the front line, releasing the untapped creativity and talent of the NHS for the benefit of patients; realising the enterprise and innovation which NHS staff have by the bucket-load.  They are our brightest and best.  We should treat them as such.

Modernising the way we pay for NHS services is a powerful tool for clinicians to drive forward clinical practice. 

Along with far greater transparency, with increasing patient control over their own care and with clinical leadership to the fore at every step of the way, I know that a modern NHS will be one that delivers outcomes for patients and their families that are truly among the best in the world.

Thank you.

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