News / New payment mechanisms could unlock reform

The NHS Confederation has proposed three payment models that could change financial incentives and unlock local service reform.

The discussion paper is a response to the review by Patricia Hewitt (pictured) of integrated care system governance, which was published last year. The former health secretary called for systems to be given more flexibility to develop payment mechanisms, arguing that ‘current approaches are not effective in driving value-based healthcare’. In particular she said that payment by results, which is still used to pay for acute elective activity could ‘drive activity in a particular direction’.

The confederation’s paper put it more simply: more activity means more income for acute providers (under activity-based payment), while more activity for community and primary care does not increase income (under block contracts). Inevitably this drove increased funding into the actue sector, which is against the aims of delivering more integrated care.

The confederation proposed three options that could replace current arrangements, but stressed that these are just for consideration and that there are numerous payment mechanisms around the world that could be considered along with new ideas.

The options cover three timescales: now; next; and in future. Recognising that a dramatic move away from payment by activity for elective care is unlikely in the short term, given the current waiting list and current push for greater technical efficiency, the representative body suggested that systems may want to move to a model using block payments supplemented with rewards/penalties for addressing waiting times.

The researchers drew on a model implemented in West Yorkshire, where a block payment is supplemented by a fee for service. Waiting time targets are agreed between the commissioner and the provider, which faces a £2,000 penalty for every 52-week waiter above its target number at the end of March. Beating the target results in a £2,000 bonus per patient for the trust. This differs from the current aligned payment and incentive system, which uses a block contract for emergency activity and an activity payment approach for all elective care.

Beyond this immediate response, systems could consider moving to outcomes-based payment for specific pathways, the paper suggested. This would link payment to specific health outcomes, rather than just volume of activity, which could incentivise systems to use earlier and more cost-effective interventions.

The focus would be on commissioning pathways of care rather than specific components of care from providers. And there would need to be a gain-share mechanism in place across different providers involved in a pathway, potentially overseen by a lead provider.

The researchers said the model should set out only a small number of defined and agreed outcomes for a specific population, with payments made at as large a scale as practical.

The paper’s longer-term proposal is to move to capitated risk-based payments. This would involve the introduction of multi-year, capitated payments across systems, with shared savings contracts between integrated care boards and multiple providers. Again, the approach would aim to incentivise earlier-stage interventions and integrated working. While the model draws on existing payment approaches in Germany and the US, as well as some small examples in the UK, ‘significant further work is required to consider the different ways such an approach could be applied more broadly to the English context’, the paper said.

The confederation acknowledged that payments mechanisms are not a ‘silver bullet’ and cannot incentivise desired behaviour in isolation – they also need the right level of skills in commissioners and provider capacity, as well as multi-year financial settlements. But it said they were the key to unlocking reform and are a ‘crucial piece of the jigsaw’ to delivering more preventative and cost-effective interventions.