By Jon White, Deloitte Consulting


The NHS Five Year Forward View, published in 2014, included proposals to develop five new models of care or ‘Vanguards’ to help transform and integrate health and social care services. Starting in 2015. NHS England allowed health systems the flexibility to introduce new payment mechanisms that would provide better incentives for local care models. Five years on, we have seen pockets of innovation such as the aligned incentive contract in Coastal West Sussex and the outcomes based contract in Greater Manchester. However, by the end of the vanguard phase of the new care models programme, in March 2018, instead of developing new contracts, most vanguards had used a consensus approach based on non-legal agreements between their partners.i

Today, there are still relatively few health systems taking advantage of payment reform. With 50 vanguards, 14 integrated care systems and 44 Sustainability Transformation Programmes (STPs) all looking at innovative new care models this blog explores why most health systems still use the standard contract and National Tariff. Is it because it is just too difficult to design new payment models? Are they simply too complex to operate? Or perhaps new payment models only work in mature integrated care systems?

What we do know is that transactional, ‘volume based’ or fee for service, contracts such as the National Tariff used in acute contracting are often cited as one of the biggest barriers to integration. In this latest edition of our ICS blog series we explore some of the more common challenges we hear from systems looking to introduce payment reform and highlight some practical steps systems can take to ensure that, when the time is right, they are well prepared to move on from fee for service arrangements.

The challenge of parallel running new approaches

One of the challenges of payment reform is phasing in new approaches alongside existing fee for service or block contracts. Limiting the scope of new payment models is a logical way to mitigate the risks inherent in payment reform and most health systems in England, which have implemented new payment models, have tended to phase in a new model for only a small subset of services, which results in systems parallel running old and new payment methods.

Some of the most successful new payment models have taken a similar approach to mitigating risk by limiting the scope of services, but have segmented the population and introduced a total per capita payment for a small cohort of patients. One benefit of this method is that when transacting payments the only criteria to define whether an event is in scope of the payment model is the patient ID. This can make parallel running comparatively easy compared to models which limit the scope of services where individual patients can be part funded on a fee for service basis and part capitated basis depending on the activity type.

The segmented population method is also well aligned to good practice in population health. Systems can define their priority population cohorts and directly incentivise the integrated care provider to improve their outcomes and manage the total cost of care by contracting for patients rather than service lines. Often a small, focused cohort of patients are included in pilot phases and once the process is refined, the approach can be quickly transferred and scaled to other patient cohorts. This approach does however require well established linked data flows, which leads us to the next challenge.

The availability of data

The National Tariff evolved over a long period, first introduced in 2003/04 as Payment by Results it took many years before the majority of health systems had the data processes required to support it.

For many of our clients there is a disconnect between system level data work streams and the finance and contracting work streams. This appears to mirror the way that many systems have separate local data flows for acute contracting which are ring-fenced from other data flows. To make progress, we recommend that systems have a payment specialist on all system level, primary or secondary use, data forums, including LHCREs and other locally funded data integration programmes, regardless of the maturity of their approach to payment reform. However, there are no quick fixes to the limitations of data flows. Ultimately, there will be a pay-off in having a voice at the table who is tasked with considering whether investment in system level data infrastructure will be compatible with the standards required for contracting.

It’s all about downside risk

We often hear that payment reform in the NHS is all about downside risk and that upside risk doesn’t apply when the system is running a net deficit. Many of the new payment models that the NHS is considering were pioneered in the US, where the starting point is a fully funded and mostly private health system. In the US, if an accountable care provider can reduce the total cost of care for a cohort of patients then the buyer and the provider can share the savings and increase profits. In the publically funded UK health system, savings are reinvested, but for many NHS organisations, the risk of running a deficit is far more pertinent. This can create an unhelpful sense that new payment models are a covert method for providers or commissioners to reduce their financial exposure to activity-based contracts and that ultimately there will be winners and losers.

The two immediate solutions to this challenge are shadow running and contractual risk exposure mechanisms. Shadow running is good practice regardless of the system’s appetite for payment reform. It gives systems time to refine data flows and reporting processes whilst demonstrating the theoretical impact of different payment models to bottom line finances. The impact of new payment models can be significant for some organisations; however, the short-term impact can be ameliorated by adding simple overarching principles and phasing the impact in over a longer period. This is similar to the way that that changes to the Market Forces Factor have been phased in over a number of years in the National Tariff. It can also be helpful to shadow monitor more than one new payment model or variations to a single new model to optimise the approach prior to going live.

So where do we go from here?

As well as the steps outlined above, in the longer term we expect more advanced integrated care systems to seek to introduce contracts where the provider takes efficiency risk and the commissioner takes population risks, as part of a multi-year capitated contract. Many consider this model to distribute risk equitably to the party who is best placed to mitigate it, enabling commissioners to focus on managing population health and providers to concentrate on delivering efficient services that improve health outcomes.

This model will require a new generation of analytical insights, starting with population health profiling. By investing in population health analytics, clinicians will be able to identify priority patient cohorts based on unwarranted variations in health outcomes. This, in turn, provides a robust foundation to underpin insight driven, population health management and is an important step towards a payment reform mechanism that directly incentivise targeted improvements in health outcomes.


Jon White - Senior Manager, Public sector health analytics team

Jon is a senior manager in Deloitte’s healthcare consulting practice specialising in population health analytics, including health commissioning policy and alternative incentive models to drive integration and help realise local population health objectives, including using analytics to drive innovation in care model and health system design, with leading health systems. Jon spends much of his time working with clinical leaders in aspirant integrated care systems, where he helps develop solutions to identify and evaluate priority patient cohorts.

Prior to joining Deloitte, Jon spent two years working for a leading international health services company specialising in data and analytics, including experience of some of the most sophisticated and innovative health analytics solutions globally. During this time he was the UK solution lead for population health analytics and associated technologies. Having designed and built solutions to adapt international best-in-class platform components to apply to UK health systems, Jon is now focusing on helping organisations and systems to deliver practical and tangible results with minimal investment.





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