Pricing Opportunities For Commissioners

Briefing Note 74

Alongside the new provider models identified in the Five Year Forward View, Monitor have recently signalled reforms to the NHS payment system and identified several payment approaches that will be developed with the NHS to support the implementation of the new care models by 2020. Monitor also propose reforms to the information building blocks which underpin the payment system over the next five years. This all presents some exciting opportunities for CCGs to commission care pathways in ways not previously possible.

Commissioners have been using the national tariff or national currencies for acute care services and mental health services for many years, and have developed local pricing solutions where there are gaps in the national tariff. However, for other services – particularly community and primary care services – this is not as straight forward, with problems in defining commissioning currencies and gaps in robust data to support the commissioning process. Increasing use of integrated care models and personal health budgets will also need to be supported by robust pricing mechanisms which balance financial risks for both commissioners and providers, and do not hinder the development or delivery of innovative care models.

For integrated care models, Monitor propose a formula based capitation based system, covering as much of health and social care funding as possible. Previous use of capitation payment systems have resulted in perverse incentives for providers, such as shifting costs to other providers, and do not appropriately address the management of financial risks. To make new versions of capitation approaches work, they will need to be linked to quality and outcome measures, and supported by an appropriate contract structure such as the prime contractor model with alignment between financial and clinical accountability.

In reviewing Monitors proposals and the test cases it is clear that the proposals for capitation payments are far more comprehensive than those used previously in the NHS, with risk adjustments, quality standards and a mix of financial and non-financial incentives all factoring with more robust contracting processes and innovative commissioning models to support more integration and coordination of health and social service delivery models.

In developing capitation pricing, there are a number of things that commissioners will need to consider:

  1. Patient cohort to be included – could easily be linked to GP registers, however advice is for cohorts to be at 5,000 as an absolute minimum to reduce financial risks.
  2. Budgets to be included within the capitation price – there are rules to follow in setting the capitation price, particularly if it includes services covered by the national tariff. NHS England commissioned primary care services cannot currently be included within capitation budgets. Local Authority funded social services also cannot currently be included, but this may change as pooled budget arrangements (e.g. Better Care Fund) develop.
  3. Financial planning risk mitigations – these should be agreed upfront with the provider, e.g. where a patient incurs much higher treatment costs than expected. Also arrangements for any financial loss or gain as a result of activity or cost changes
  4. Contractual arrangements, including provider-to-provider payment mechanisms, existing contractual commitments, and also new contract terms. Longer contract terms will help to manage some of the risks of capitation models.
  5. Quality and outcomes incentives – Need to have a balanced financial / non financial incentive package
  6. Information systems and dataset availability, both for initial baseline setting and for performance reporting, benchmarking and pricing realignment. Whilst this is readily available for acute and mental health services based upon nationally determined currencies, there are challenges in accessing meaningful community services and primary care data to support activity based costing and monitoring.
  7. Governance structures, particularly where budgets are pooled across health and social care, and where decision boards may include potential providers.

Development and implementation of new models of care can take time. Time invested in robust planning and stakeholder engagement will pay dividends to the success of the service delivery change, making sure that the patient benefits are delivered and that accountabilities and risks between the commissioners and providers are fully understood and managed. The opportunities for CCGs to use different tariff models such as capitation will help remove some of the financial barriers to commissioning clinical pathways or services, and provide a more meaningful way of funding patient care and managing financial risks.