Key points

  • How health care providers (such as hospitals) are paid is one way of influencing the quality and efficiency of NHS care. Over the coming years the NHS will face unprecedented challenges as it tries to recover the substantial backlog of unmet need after the pandemic, deliver on already demanding efficiency targets and redesign care, shifting services towards more community and primary care.

  • Before the pandemic, the NHS payment system was moving towards a blended approach where providers receive an annual fixed payment supplemented by activity and quality-related funding – to replace the payment by results (PbR) tariff.

  • With waiting lists at record highs, it might be tempting to move back to the PbR tariff to incentivise hospitals to treat many more patients. But over the coming years the NHS also needs to improve care of an ageing population with complex, long-term health problems. Coordinated care across hospitals, community, primary and mental health services is a priority and activity related payments are not well suited to this goal. Even after the pandemic, a blended payment system to replace the PbR tariff remains the right direction of travel to help balance these potentially competing priorities for the NHS.

The whole health service needs to recover well from COVID-19 and transform to meet the challenges of the post-pandemic environment.

This briefing, produced with Frontier Economics, considers these challenges and the role of a new payment system in meeting them as the NHS embarks on further reform and recovery from the pandemic. It begins by setting out the kinds of payment structures available to the NHS and describes the hallmarks of a ‘good’ system. It concludes by exploring what kind of system will be needed for the immediate COVID-19 recovery and to transform care.

About the authors

Matthew Bell is a Director at Frontier Economics where he leads Frontier’s Health and Care work.

Richard Lewis is an independent consultant and Senior Associate at Frontier Economics where he advises on health care reform.

Anita Charlesworth is Director of Research and the REAL Centre at the Health Foundation.

Cite this publication

Bell M, Charlesworth A, Lewis R. The future of the NHS hospital payment system in England. The Health Foundation; 2021 (https://doi.org/10.37829/HF-2021-RC17).

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