Convergence 2.0: ICSs offered flexible interim payment framework

Gary Andrews (pictured), NHS England’s senior pricing development manager, told the HFMA Convergence conference that new payment systems were not the priority for ICSs, but instead needed to follow on from setting strategic objectives and establishing clinical models.

However, he said there was a recognition that existing payment approaches did not support many system objectives. In simple terms, the national tariff system drives acute activity, while block contracts for community and mental health services constrain activity in the very services where there needs to be expansion.

The proposed approach has been developed for ICSs to adopt if they want and involves three components: an ‘intelligent fixed payment’; a transparent variable payment; and financial risk share arrangements.

He said that unlike a traditional block contract, the fixed payment would reflect inflation, efficiency savings, system transformation plans, changes in demand and the need to deliver the system control total.

‘The idea is that the intelligent fixed payment should start to mirror the system plan that is being developed – so not just shaving money off the previous year, but how do you shift resources,’ he said.

The other two components focus on risk sharing, which aim to get different risks managed by the most appropriate part of each system. First, payment should recognise where activity varies from plan, with this applying to mental health, community and ambulance services as well as acute.

A final component would look to share different types of risk. For example, it could share the risks of consolidating services on a single site, recognising where some costs are stranded.

Mr Andrews stressed that this was not a mandated approach. ‘There is lots of flexibility. ICSs don’t have to use all three components – they can pick and mix what is right for them as a system,’ he said.

He provided a snapshot of the payment approaches being pursued in the ICS pioneer systems. For example, in Dorset – a relatively self-contained system – the system has adopted a fixed payment approach. There is no variable element and while a risk share has been agreed in principle, it has not been documented and has not needed to be called upon to date.

Bolton has introduced aligned incentive contracts based on fixed values and shared risks and is looking to expand this approach across primary care as well. West Berkshire on the other hand is moving to a blended payment approach. Payments to providers have been fixed this year with an agreed approach on financial risk share. But there are plans to move to a variable element that reflects system costs rather than setting a simple marginal rate.

Frimley – another relatively mature ICS – has retained a payment by results approach with agreed caps but is also managing financial flows informally, building on strong system relationships.

Mr Andrews also briefed delegates on the ongoing work around system incentives – with financial incentives aligning so they ‘all pull in the same direction’. He said it was important for there to be local flexibility alongside national CQUIN-style incentives.