HFMA summer conference: more clarity needed on payment model

The NHS in England is still funding providers via block contracts, as part of its response to the Covid-19 pandemic. However NHS England and NHS Improvement are consulting on a system of aligned payments and incentives to be introduced once the temporary arrangements come to an end.

The new system would mean no return to the old tariff-based system, which is now seen as an obstacle to a more collaborative approach to transforming pathways of care. In future, payments to providers would include a fixed element, based on funding an agreed level of activity, and a variable element initially to support elective activity over planned levels.

Mr Anandaciva said that payment by results had ended up with a ‘gothic level of complexity’ with the new system responding to calls for a much simpler approach to payment.

‘I absolutely understand the strategic intent,’ he told the conference, ‘but there are quite a few unresolved questions. The narrative is simple, but when I think about how a clinician or a chief finance officer will behave, it becomes a little bit more unpredictable and complex to me.’

He highlighted four areas of uncertainty. ‘To what extent does this new system all fit together and pull in the same direction?’ he asked. ‘For all its nay sayers, the one thing you could say about the national tariff was that you understood the rules of the game.’ From a clinician’s point of view, there was a clear link under the tariff between income and activity and between increased efficiency and direct gain under service line reporting.

‘The link between understanding the cost base to prices to income is much more heavily mediated in this kind of system and there is a risk of a disconnect,’ he said.

His second area of concern related to gain and loss sharing arrangements and whether these would lead to the reduced transaction costs that are part of the aim of the new approach, unless a ‘very high threshold was set for materiality’.

A further issue was around what the new approach would lock in. He said that he was aware of CFOs in providers agreeing suboptimal payments under block arrangements that didn’t reflect fixed costs in return for stability to support planning. ‘So I worry that you will lock in existing practice under the guise of stability,’ he said. This could leave providers facing some ‘rude awakenings’ and ‘big cliff edges’ when a bottom-up costing exercise reveals the full extent of real costs.

Finally, he said that accountability could be more diffuse under the new approach. ‘The old system looked ornate but at its heart it was strategically crystal clear – for example [you knew] where accountability lay for volume risk,’ he said.

He called for greater clarity about the financial framework, without which people would default to a risk averse position that would be focused more on the organisation than the system.

Mr Anandaciva said the move towards simplicity in policy design, of which the payment system was an example, was in contrast to the increasing complexity in system architecture with provider bodies able to adopt numerous different models in pursuit of greater collaboration and integrated care.