This report from the Audit Commission describes the payment by results programme as one of the most significant challenges facing the health service, requiring higher standards of financial management in primary care trusts, NHS trusts and foundation trusts. The system offers major opportunities and incentives that will benefit everyone. But it also carries major risks, which if not well managed will lead to financial instability and service difficulties.The timetable for implementing payment by results is that primary Care Trusts will start to introduce cost and volume service level agreements. From 2005/06, the national tariff will apply to most activity in acute and specialist hospitals and almost all activity will be commissioned using cost and volume contracts. By 2008/09 trusts will need to have adjusted their financial arrangements to accommodate the tariff and the new system will also apply to mental health trusts.
Overall, payment by results has considerable potential to drive improvement in services, offering better incentives for both trusts and PCTs to provide efficient, effective and appropriate care than currently exist. Its impact on patient care and on trust and PCT management arrangements will be significant and it therefore poses some critical financial management questions at both local and national level.