What Are Currencies in a Tariff-Based Payment System?

In health and social care, currencies refer to defined units of healthcare services that are standardised and used to calculate payments in a tariff-based payment system. Essentially, they represent specific healthcare activities or bundles of care provided to patients. These units are assigned a value so that healthcare providers, commissioners, and the government can track spending and manage resources effectively.

A tariff-based payment system is central to the financial structure of the NHS (National Health Service) in England. It means that payments are made for healthcare based on a fixed price for each unit of service provided. Currencies simplify this process by assigning specific prices or codes to different types of services and interventions. For instance, an outpatient consultation, a surgical procedure, or a hospital stay might each be assigned its own currency.

Understanding how currencies work helps stakeholders coordinate payments, plan budgets, and analyse service costs.

What is the Purpose of Currencies?

Currencies simplify the reimbursement of healthcare services. They create a shared framework that allows:

• Clear definitions of medical services
• Fair payments between commissioners and providers
• Transparency in financial exchanges within healthcare systems

By categorising healthcare activities, currencies provide a standard method for pricing that avoids ambiguity. This allows both healthcare providers and commissioners to align on costs in advance. Providers deliver care, and commissioners (NHS England or local Integrated Care Boards (ICBs) cover payments.

How Are Currencies Created?

Currencies are designed by analysing common healthcare activities. Experts identify different types of patient care events that involve consistent resources, costs, and clinical input. These events are grouped into separate categories.

For example, outpatient services might include a consultation with an orthopaedic surgeon, a diagnostic imaging session such as an MRI, or a simple follow-up appointment after surgery. Each of these is treated as a unique currency because the resources, staff, and equipment required differ.

Currencies are dynamic. They can evolve depending on the patterns of healthcare delivery, advances in medical practices, and changes in patient needs.

How Do Currencies Relate to Tariffs?

Currencies and tariffs are closely linked but not interchangeable. Where currencies define the units of healthcare provided, tariffs assign the price to each unit.

For example:

• Currency: A knee replacement surgery is a defined unit of care provided to patients needing knee joint replacement.
• Tariff: The cost assigned to the knee replacement procedure based on national pricing databases, taking into account local adjustments such as staff wages.

This system ensures consistency in how healthcare services are paid for across the NHS. If a trust performs a knee replacement, they will receive the same base price per procedure as any other trust delivering this service.

Examples of Healthcare Currencies

Currencies cover a wide range of healthcare contexts. A few examples include:

• Inpatient Procedures: A hip replacement surgery, appendectomy, or heart bypass procedure.
• Outpatient Appointments: A consultation with an oncologist, an ENT (ear, nose, and throat) specialist appointment, or physiotherapy sessions after surgery.
• Emergency Care: Admission through Accident & Emergency that results in hospital treatment.

Each of these activities uses different resources. Using defined currencies for each ensures the right payment framework.

Payment by Results (PbR) System

The NHS in England introduced the Payment by Results (PbR) system in 2003, which uses currencies and tariffs. PbR ensures that payments to hospitals and healthcare providers are made based on the number and type of services provided.

How currencies work under PbR:

1. A patient receives a healthcare service, such as a diagnostic test or surgery.
2. This activity is grouped into its defined currency based on clinical coding systems (e.g., ICD-10 codes for diagnoses).
3. The provider submits the activity to the commissioner, who refers to the agreed tariff value for that currency.
4. Payment is made as per the tariff, ensuring transparency and consistency.

Key Coding Systems for Currencies

Accurate classification of activities as currencies depends on specific coding frameworks:

• ICD-10 (International Classification of Diseases): A system that categorises diseases and related health problems.
• HRG (Healthcare Resource Groups): Groupings based on procedures and diagnoses, which classify patients into similar groups that consume similar resources.
• SNOMED CT (Systematised Nomenclature of Medicine – Clinical Terms): Standardised medical terms used in electronic health records to define clinical information comprehensively.

Healthcare providers use these codes when reporting activities. Understanding them is critical for correctly assigning activities to currencies and receiving appropriate payments.

Benefits of Using Currencies

The system of currencies offers multiple advantages, such as:

1. Fair Funding Allocation: Payments are based on concrete services provided, ensuring no provider is underpaid or overpaid.
2. Transparency: All stakeholders know how services are defined and how payments are calculated.
3. Budgeting and Resource Management: With clearly defined currencies, commissioners can predict expenditure and plan budgets more efficiently.

Challenges of Currencies in Practice

Despite their usefulness, the currency system can pose certain challenges:

• Adequacy: How well a currency reflects the true cost of care—if costs increase due to inflation or technological advances, the system may need regular updates.
• Variation in Care Delivery: If two trusts deliver the same care differently, the costs they incur might vary, potentially introducing funding gaps.
• Coding Accuracy: Errors in assigning codes to activities can lead to incorrect currency allocations and financial discrepancies.

Efforts are made continuously to improve the currency and tariff framework. This ensures that payments remain accurate and fairly reflect the actual services delivered.

The Importance of Data in Currencies

Accurate data is critical. Providers must document all patient encounters carefully, capturing details of treatments, medications, and interventions. This information feeds into the coding that assigns activities to currencies.

Reliable data:

• Ensures payments are made correctly
• Provides insights into healthcare trends
• Helps evaluate the effectiveness of new treatments or interventions

Without robust data management, the accuracy of the whole payment system could be compromised.

How Currencies Support Accountability

By using currencies, healthcare providers remain accountable for the services they deliver. Commissioners can track spending against agreed tariffs, identifying areas of overspending or inefficiency.

For example, if a trust consistently performs below expected activity levels, this might indicate underuse of its resources, while unusually high activity levels could point to overuse or fraud.

This accountability helps the NHS maintain public trust in how funds are spent.

How Are Currencies Updated?

As healthcare changes, so do currencies. Advances in science, new treatments, and changes in patient demographics prompt adjustments. NHS England works with stakeholders to review and refresh currencies periodically.

Consultations are held with clinicians, providers, and commissioners. They gather insights on:

• Costs associated with specific treatments
• Emerging trends in healthcare
• Technological advancements that affect service delivery

Updates to the currency framework keep it aligned with modern healthcare practices.

Final Thoughts

Currencies are a crucial feature of the NHS’s financial system. They provide structure and fairness, defining how healthcare providers are paid under a tariff-based arrangement. By assigning clear units of healthcare activity, they standardise payments across the system.

Key takeaways about currencies include:

• They streamline payment processes between healthcare providers and commissioners.
• They ensure financial accountability and transparency.
• They enable better planning and resource allocation within the NHS.

While the system is not without its challenges, efforts to refine currencies continue to create a fairer, more efficient healthcare funding model in the UK.