7 - Funding approaches

Summary

Aim

This chapter demystifies the new NHS England funding models, improving understanding of how they work and why they are an aid to today's commissioning aims. This includes the blended payment approach but also other payment alternatives to support commissioning for outcomes. Limited funding or complicated finance arrangements are often regarded as one of the biggest barriers for commissioning and service redesign. This is because financial sustainability is a major risk and affordability is nearly always a factor. Because of this, the chapter also covers alternative funding approaches and ways to find the money.

History of NHS tariff schemes

Figure 7.1 shows the key changes in NHS funding approaches from 2003/ 04 to 2023/ 24. The NHS Payment Scheme was introduced in 2023/ 24 but aspects of the scheme had been slowly rolled out prior to this.

With a very brief look at NHS payment history, the tariff schemes – Payment by Results (2003/ 04 onwards) and the National Tariff (2014/ 15 to the introduction of the NHS Payment Scheme) – were used to set the rules and prices that commissioners needed to pay providers. These schemes were predominantly used for acute hospital care, and payment made from these schemes made up approximately 60 per cent of a hospital's income (NHS England and NHS Improvement, 2022a). Other service providers, such as community and mental health providers, remained largely on block arrangements, with no or few individual prices for units of activity. A block arrangement provides a set monetary value based on anticipated activity volumes and costs. This is usually then split into 12 monthly payments.

The tariff schemes were based on units of activity, to which a code and a price was applied. For example, a first outpatient appointment with a diabetes consultant would have a treatment function code 307 and attract a price of £137. This coding arrangement was applied for consultations, procedures, units of care, and investigations. It also reflected patient complexity – that is, how many conditions a person had, their age, how long they stayed in hospital, what professionals they saw, and so on. A single episode of care could have many codes. Coded activity translated into a price which commissioners were obliged to pay. Therefore, it was financially beneficial as a provider to get your coding completed thoroughly.