Pay-for-efficiency in the English NHS

Nils Gutacker1 (with J Gaughan1, L Siciliani2, N Kreif1, K Grasic1, A Street3)

1 Centre for Health Economics, University of York

2 Department of Economics and Related Studies, University of York

3 Department of Health Policy, LSE


Prospective payment systems incentivise providers to reduce production costs and adopt more efficient care pathways. When these incentives are insufficient or adoption is judged to be too slow, payers may decide to reimburse providers in excess of their production cost to accelerate adoption. The National Health Service in England introduced a pay-for-efficiency (P4E) policy in 2010 to reduce overnight hospital stays in favour of ambulatory care (i.e. day case surgery). For 32 conditions, hospitals now receive a higher DRG tariff for ambulatory care than for inpatient care, even though the marginal cost of production of ambulatory care is already lower. In this talk I will present results of a quasi-experimental evaluation of the P4E policy and discuss some of the methodological challenges in evaluating 32 different experiments as part of a single study.