Payment by results for mental health services: economic considerations of case-mix funding

Against the backdrop of a tight financial climate, a new method of funding mental health services is being rolled out in England’s National Health Service. Called payment by results (PbR), it represents a fundamental change to the way providers of psychiatric services are paid for care of patients. The Mental Health Clustering Tool has been developed to capture activity which reflects the relative needs of patients, and cluster costs are being collected by service providers. The ultimate goal is the creation of a national tariff or fixed price for each cluster. This article describes the incentives generated by PbR and gives evidence on PbR in acute physical care services where it has been in operation for a decade, with respect to efficiency, quality, volume of activity, administrative costs, upcoding or gaming, equity of provision, and cross-subsidisation. It explores the challenges for mental health services as PbR is introduced.