Aligning up

19 June 2020

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Even before the Covid-19 pandemic, it was clear the NHS in England is moving into a new phase of what was once called the internal market. The split between commissioners and providers is closing, while collaboration, not competition, should describe the interactions between all NHS bodies. The old system of moving money around – payment by results (PBR), which was initially designed to incentivise an increase in activity to tackle waiting lists – is not compatible with this new co-operative world.Simon_Worthington

Alternatives have been implemented to some extent (see box), but one – the aligned incentives contract (AIC) – has attracted a lot of attention as a potential new national payment mechanism. Aligned incentives have been adopted in several parts of the country, with the first AIC launched in Bolton in 2016. It was pioneered by Annette Walker, the then Bolton Clinical Commissioning Group chief finance officer, and Simon Worthington (pictured), then finance director at Bolton NHS Foundation Trust.

Ms Walker has since succeeded him at the Bolton trust and Mr Worthington has successfully implemented AICs in his new post as director of finance at Leeds Teaching Hospitals NHS Trust. But what are they and how do they differ from other types of contract?

There are several definitions, particularly around the risk sharing arrangements – from high levels of trust through to contracts with more formal risk sharing mechanisms (see University Hospitals Coventry and Warwickshire NHS Foundation Trust case study in the new HFMA briefing on aligned incentives contract).  But what is the view of one of its architects? Mr Worthington admits that less thought went into naming the contracts than the detail of the agreements themselves. However, he says the aligned element is about bringing together people with a common purpose to get them to deliver activity in a different way. Incentives are facilitated by the devolution down to service level – in Leeds called clinical service units or CSUs – giving clinicians control over the delivery of their services. If savings are made, these can be invested back into the service.

At a high level, AICs are about putting most of the commissioning funds into frontline services, and promoting transformation by giving clinicians the permission to deliver their service in the best way possible for patients. Overall service costs should be lower than under payment by results (PBR), due to lower transaction costs, for example. There is a large reliance on good relationships between commissioner and provider, including open books, a transfer of risk to providers, but with the safety net that recognises that a problem for one organisation is a problem for both.

‘It’s about applying an amount of money to run the services within the context of an agreed plan for the development of services that removes the barriers in place under PBR. A lot of people work together to make it easier for clinicians to make positive changes to their services for patients. They then have the incentive to reduce waste. It’s about behavioural change, when in the past the system has driven negative behaviours.’

Leeds Teaching Hospitals (pictured below) has two aligned incentives contracts – one with Leeds Clinical Commissioning Group covering the bulk of its activity and the other with NHS England for specialised commissioning. Overall, they account for £980m of the trust’s £1.3bn annual income.

On a practical level, the Leeds AIC begins with good strategic planning and forecasting, eliminating commissioners’ potential fears over uncontrolled cost increases. This sets the vision for services and outcomes.

The amount paid in the previous year is used as a starting point for the contract value, plus realistic amounts for growth. Under AICs, the commissioner should transfer a significant proportion of its risk reserve to the trust. This reflects the fact that the provider will carry more risk, though the commissioner will hold, and declare, an amount to cover exceptional risk. The contract value makes up the provider’s minimum income guarantee. Under the partnership, with the commissioner’s QIPP savings effectively delivered through the contract value, the provider will benefit from savings it can achieve.

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A key element of aligned incentives is that cost equals price, with agreements based on understanding costs, good planning and forecasting. This minimises movements in-year and gives more certainty to the commissioner.

The risk share is relatively informal, with the parties acting together to manage it. ‘There’s nothing that says, “If the risk changes, then you will pay us this money”,’ Mr Worthington says. ‘If the risk changes and we have a problem, we try to solve it together. This is different from a standard contract where if activity rises above, say, 5%, a payment will be triggered. Aligned incentives contracts are about relationships and trusting people.

‘In the past, where a problem arose, never in a million years would I have thought anyone would help me solve that problem – and I don’t mean just by putting more money in. Under aligned incentives if you have a problem you try to solve it within your bandwidth, but I would have no fear in telling the CCG we have an issue. Similarly, the CCG would have no issue telling us if they have a problem. It’s a completely different way of working. It throws all the rubbish in a legalistic contract out of the window and recognises that all organisations are on the same team and are trying to get to the same outcome.’

Leeds’ contracts with its commissioners are largely the same, except for a different approach on high-cost drugs in the specialised services contract. ‘We are the only trust I am aware of that has an aligned incentives contract for specialised services,’ he says. ‘It works really well as we have a good relationship with the commissioners.’

Traditionally, commissioners ask for savings in high-cost drugs, which puts pressure on consultants to use the best value options. Under AIC, he explains, the process is led by local clinicians, with the agreement of NHS England, and operated under gain share arrangements. In the specialised contract, there is a 60:40 gain share on high-cost drugs in favour of the trust.

In the contract with the CCG, high-cost drugs are covered by the overall sum paid to the trust under the minimum income guarantee.

While the contracts have all the key performance indicators (KPIs) in the standard national contract, such as waiting times, in AIC there are no penalties. ‘The industry of penalties under PBR was driving negative behaviours. Similarly, with CQUIN there was continuous arguments about the specific wording of the CQUIN clause.’ 

Communication and engagement are vital, with leadership from the top of commissioner and provider bodies to engage clinicians in managing the costs of their services.

‘The clinical leadership is really important in all this. PBR drives behaviour among clinicians that are not necessarily good. But since we introduced AIC they see it as a positive change for patients,’ Mr Worthington says. ‘For example, changing how outpatients work to have more phone consultations – you are able to do that in AIC and not lose income, but in PBR you would likely lose income. This is a genuine incentive for clinicians.’

While the contracts are relatively simple, he accepts the concept of AICs can take some time to understand and get behind – from suspicious consultants, to finance directors worried that the contracts remove some of the tools they have used to help hit financial targets, to commissioners who mistakenly believe it’s another name for a block contract. But Bolton and now Leeds have proved AICs work.

In 2019/20, the trust identified around 150 benefits schemes facilitated by the AICs – including patient pathway improvements, service redesign, and increased patient throughput.

‘The incentive for clinicians is to be able to completely redesign services to make them run better for patients and possibly cost less, without losing any of their service’s income. It’s a massive incentive to do what we would call waste reduction, which isn’t available under PBR. AIC can achieve service transformation from the bottom up.

‘In the first year in Leeds, we saved £4.5m – that’s money we wouldn’t have saved under PBR. Leeds Teaching has around 1% of the national budget, so pro rata that up and it comes to £450m in one year.’ The savings were made in high-cost drugs, the transformation of patient services and transactional costs.

It’s essential clinicians see they are in control of the process. ‘AIC is extremely simple and easy to explain to consultants: ‘You get this amount of money; deliver the service in the way you want and if you save money then the service gets to keep it. Under PBR, if we wanted to change to an innovative activity, we would have to agree a local tariff, which can take anything from six months to 10 years, with both sides trying to gain financially.’

Fundamentally, clinicians want to make savings and the Leeds AICs facilitate that, he says. ‘We talk about waste reduction rather than savings, and the main thing is, you are going to reduce more waste under AIC than under PBR. You spend less money for doing the same thing and everybody feels better about it. And you make positive changes for the patients. I don’t know of anyone who’s done AIC who says they want to go back to PBR.’

Contract comparisons

Though AICs are often likened to block contracts or blended payments, Mr Worthington insists there are key differences.

In a block contract, similar to those in operation during the Covid-19 outbreak, a level of funding is agreed to deliver an amount of activity.

‘The AIC differs from a block contract around the values and behaviours that are supported,’ he says. ‘If you look at the financial mechanism on a block contract, once it’s agreed you say, “That’s it; speak to you in a year”. Under aligned incentives you have a plan of what you want to do in your services and the money to work within. If problems arise, you have to address them and solve them. If the commissioner has some financial flexibility, then they are much more able to deploy that to help solve the problem than under PBR.’Calculator

Blended payment contracts were introduced in 2019/20 for emergency admissions, A&E attendances and same-day/ambulatory emergency care, where a CCG’s annual emergency activity with a provider was above £10m. The contracts include a fixed element based on locally agreed activity, plus a variable element set at 20% of prices.

Blended payments were due to be expanded under the operational plan for England for 2020/21 – now suspended due to Covid-19. This introduced blended contracts for outpatient and maternity services, again with two elements. In outpatients, the first is a fixed payment based on locally agreed planned activity, advice and guidance services. The second is a payment for quality, aligned to the successful delivery of the advice and guidance services. A risk share can be included, but is not mandatory, while systems could add more quality or outcomes-based elements.

Mr Worthington says AICs differ from blended payment contracts as he believes the latter can still drive some negative behaviours. But If you have a variable rate for activity over and above an agreed level, there’s still a chance a provider will take the opportunity to deliver that activity regardless of the financial impact on the commissioner, he adds.