Contracts to be based on cost not price under blended payment proposals

by Steve Brown

19 October 2020


NHS England and NHS Improvement are engaging on policy proposals that could mean a wide-ranging move to the use of blended payments to pay for NHS services next year. This would be a step towards the NHS long-term plan commitment to move from activity-based to population-based payments.

The proposals are being shared with NHS bodies in a series of workshops starting this week – forming part of the annual engagement exercise ahead of formal tariff consultation at the end of the year or in January.Calculator

Blended payments were launched as part of the 2019/20 tariff replacing tariff payment with a fixed payment optionally supplemented by variable, quality and risk sharing elements. Initially they were set as the default mechanism for emergency care and adult mental health services, although it is not clear how widely the approach was adopted.

The plan had been to roll out blended payments across other service areas over a number of years. The original proposals for the 2020/21 tariff would have seen blended payments introduced for outpatients and the option to use them for maternity services as well. There was also a longer pipeline in place for adult critical care services and radiotherapy.

The Covid-19 outbreak and the pausing of the payment system put these plans on hold. Returning to the service-by-service approach, with some services reverting to tariff payment, could now be seen as a step back towards activity-based payment, when the clear direction of travel is the other way.

Instead the proposals would see blended payment adopted as the default mechanism for almost all secondary healthcare services, both acute and non-acute including community, ambulance and mental health services. Any contracts with an annual value of more than £10m would be expected to be drawn up using a blended payment approach – believed to account for around 94% of activity by value.

The framework described in earlier tariff publications would also be modified. 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. A variable element would be included for some elective activity, specifically to support 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.

Tariff prices would continue to be published as they may be needed to cover activity flows between health systems and as a reference point for understanding local contract values. However, they would not be mandated for use.

The one exception would be diagnostic activity, meeting requirements in the Health and Social Care Act 2012 for the national bodies to publish some tariff prices. Even here, organisations could undertake a local variation to fold these services into the blended payment model.

Specialised commissioning would also be brought under the blended payments framework as part of the proposals. However, NHS England and NHS Improvement are still exploring options around incentives and sanctions.

While the intention is to retain CQUIN – which incentivises the achievement of national and local quality goals – at 1.25% of contract value, best practice tariffs (BPTs) may need to change. BPTs have proved effective at reinforcing good clinical practice, but were designed for use with an activity-based system.

While some BPTs will be retired, for others the approach could involve setting fixed payments based on best practice achievement in a reference period and then adjusting this based on actual performance. The central bodies are keen to hear other ideas on how the BPT benefits could be retained in a blended payment approach.

Prices for 2021/22, which would cover services outside the scope of blended payment, would be rolled over from the yet-to-be confirmed 2020/21 prices, adjusted for efficiency and inflation following the comprehensive spending review. Individual tariff prices will not reflect the higher cost of delivering care under Covid-19 – due to reduced levels of activity and personal protective equipment costs for example. Instead, NHS England and NHS Improvement will provide guidance on how to make local adjustments to prices where required.

The proposals for next year are seen as just a stepping stone towards wider reform of the payment system. The ultimate goal is a population-based payment and contracting system that supports the goals of the long-term plan – less dependent on historic cost structures and better aligned to the current needs of patients.

Beyond 2021/22, this is initially likely to mean improving the cost-reflectiveness of fixed payments. But in future years it could mean the addition of pathway or year-of-care approaches for specific patient groups within the blended payment framework. The central bodies are also keen to refine quality incentives and ensure incentives are aligned across primary, secondary and social care.