Blending plan

Proposed changes to the way hospital and community services are paid for from next year would move the NHS towards the NHS long-term plan target of delivering population-based funding, NHS England and NHS Improvement have said. However, decisions still need to be taken about how key aspects of the system would work.

The central bodies, which are currently responsible for setting the national tariff, briefed interested stakeholders on the proposals in a series of workshops spread over two weeks at the end of October.

They stressed that they are committed to co-production of the new payment system – the initial proposals were developed with input from the NHS, even before they ran the 20 workshops attended by close to 1,000 people, including finance and contracts managers. And the proposals are not fixed, they said.

‘The engagement exercise was not about briefing people on firm plans, it was about getting feedback to help us shape the proposed system,’ says Gary Andrews, head of payment policy at NHS England and NHS Improvement. ‘Our challenge has been to develop a payment system that people actively want to use, rather than one that they are required to adopt.’

Final proposals will be published as part of the statutory consultation at the end of December or early January, with the new arrangements taking effect from April.

Early reactions from the 1,000 or so finance and contract managers in the various workshops were mixed, ranging from people welcoming the simplification compared with the old payment by results payment approach to those who thought the proposed new system was still overly complicated or left too much risk with providers.

The proposals certainly mark a significant acceleration away from activity-based payment. They would see a blended payment approach adopted for almost all secondary healthcare services, both acute and non-acute, including community, mental health and ambulance services.

Blended payment was set as the default mechanism for emergency care and adult mental health services in 2019/20 and there had been plans to broaden the scope to include outpatients and maternity services in 2020/21. However, the expansion was put on hold as a result of the Covid-19 pandemic and the introduction of block contracting arrangements for the current year.

NHS England and NHS Improvement have indicated that they do not want to return to this phased approach to introducing blended payments. Having broken the link with activity-based payment as a result of the Covid response, returning to a system where some services remained on national tariff would be seen as a backwards step.

Lee Rowlands, contracts director at Manchester University NHS Foundation Trust and chair of the HFMA Payment Systems and Specialised Commissioning Committee, says it would also not have been practical.

‘It is hard to see how we could have returned fully to any form of activity-based payment system,’ he said. ‘Everything is so up in the air – are we going back to normal methods of delivering activity or even to pre-Covid levels of activity? Are the tariffs, as previously calculated, actually usable? With fixed costs, if you are only getting through 75% of activity post-Covid, then the tariffs are already 25% short before you start.’

The proposals, he suggests, provide something that people can implement without leaving everything down to local discussion and implementation.

However, he says the work that would be needed to agree contracts and the level of detail required in risk share arrangements may vary depending on existing local relationships and the level of system maturity.

When it was first introduced, blended payment involved a fixed payment that was supplemented by variable, quality and risk sharing elements.

For example, for emergency care, the default mechanism suggested a fixed payment based on planned activity at national tariff price. There was then effectively a marginal rate of 20% paid for additional activity above plan – although this was actually calculated as 20% of the difference between actual activity at tariff minus the fixed payment.

Local framework

But as well as expanding the scope, under the new proposals, the basic framework would also be altered. Rather than setting the fixed payment using activity and tariff prices, it would be based on the locally calculated costs of delivering the activity indicated in a local area’s integrated care system plan.

The proposals discussed at the workshops mean blended payment would be used for any contract value more than £10m. Below a lower threshold – covering non-contract activity and initially suggested as £200,000 – providers would be paid by their host commissioner, with adjustments made to clinical commissioning group allocations.

Between these two values, local health economies would be free to choose the most appropriate payment approach for them. There would be no threshold for NHS England specialised commissioning activity, with all contracts covered by blended payment.

A variable element would be included, although this would specifically be for elective activity, initially focused on supporting recovery and the reduction of waiting lists during the year.

The risk share element in the original blended payment design would be replaced by a system collaboration and financial management agreement (SCFMA), which all organisations in a system would be expected to sign. This agreement, which should have been in place this year under the pre-Covid contracting guidance, would set out how financial risk will be shared across the system, commit all bodies to open book accounting and describe how a consensus view of finance will be reached.

In reality, basing the fixed payment immediately on locally agreed costs is probably more of an ambition – there simply isn’t a comprehensive set of robust cost data covering all local bodies in a system. A more realistic starting point may well be rolling forward existing contract values, adjusted for inflation, efficiency and planned service developments.

Mr Andrews (pictured) says this could be the 2020/21 full-year contract value or based on the second half of the year, whichever the system decides is its best starting point and the most reflective of local costs for the year ahead.

It is perhaps agreeing how risk will be shared that presents the most difficult part of the proposed new arrangements. ‘It is likely to be most successful where system leadership and behaviours are strongest,’ says Mr Andrews. ‘Where relationships are more confrontational, it will be more difficult.’ 

Depending on where systems fit on this spectrum, risk share arrangements could range from loose agreements to address overspends as they arise in the year to setting out exactly how different scenarios will be dealt with.

Alastair Brett, NHS England and NHS Improvement’s senior engagement manager, says the intention is to provide a payment approach that gives organisations and systems more flexibility to innovate, to move away from the previous detail around paying for inputs and to encourage discussion about the allocation of system resources.

‘We want to remove barriers to innovation,’ he says. ‘Payment by results was sometimes seen as a straitjacket where finance was tied to the delivery of activity in a certain way.’

Blended payments should enable systems to more easily create and pay for alternative pathways. ‘If you want to spend more in the community, it is easier under blended payment than going through the tariff variation process to take money out of unit prices,’ says Mr Brett.

The devil may well be in the detail and participants at the workshops were keen to discuss plans for the variable payment, how high-cost drugs would be treated and what the proposals meant for existing quality incentives such as Commissioning for Quality and Innovation (CQUIN) and best practice tariffs.

Workshop participants appeared to view the proposal for non-contract activity as sensible, although there were calls to raise the lower threshold to at least £500,000.

This work is being taken forward by NHS England and NHS Improvement’s standard contract team, with a separate consultation now under way. But the feedback has been passed on.

The national bodies have not proposed a specific approach for setting the variable rate for elective activity above the level included in system plans and were keen to hear views. Mr Rowlands prefers the idea of working within a framework.

‘My observation with leaving variable rates for wholly local discussion and agreement would be that this could take up a lot of negotiation/discussion time to agree,’ he says.

‘There is also a link to the impact of Covid on the costs of delivery. Without taking this into account, it could be punitive to have marginal rates using tariffs that no longer work or fit with post-Covid costs of delivery.’

Proposals to retain additional quality incentive payments were seen as incongruous by some, given that the vast majority of activity would be covered by a single fixed payment.

The fact that these schemes attract additional payment might distort priorities, and setting the CQUIN reward at just 1.25% might mean some providers decide the benefits do not justify the extra costs involved.

Similarly, the current thinking is that best practice tariffs would become non-mandatory. The previous year’s level of achievement could be reflected in the fixed payment and then this would be adjusted in light of actual delivery.

Some practitioners felt that the tariffs, which reward patient-specific responses in selected pathways, were out of step with the overall approach.

Mr Brett says clinicians remain keen to retain the ability to signal that these areas
are important. However, NHS England and NHS Improvement acknowledge there is a tension between the macro-level approach of blended payment – which provides an overall sum of money and allows systems to decide the best way to meet patient demands – and retaining micro-level controls for specific treatments and patients.

Practitioners suggested that the use of quality incentives should be considered alongside a wider review of the use of contract sanctions.

The national bodies are clear that the proposals for next year are part of a transition to population-based funding as required by the NHS long-term plan. The aim for subsequent years after 2021/22 would be to improve the cost-reflectiveness of blended payment, leaning more on local patient-level costing data to set the fixed payment rather than rolling forward existing contract values.

Beyond that, further refinements could be introduced, such as pathway or year of care-based payments for specific cohorts of patients, so that various payment approaches are in use.

Mr Andrews says this could involve publishing prices, but it might just be more about providing benchmarks and data analysis to support local approaches. ‘The point is, we will only do something that the sector wants,’ he says. ‘There is no point working on something if it is not needed.’

Other proposals