A dramatic increase in the value of block contracts commissioned by CCGs for NHS-funded elective care over the last 12 months has prompted a review by NHS Partners Network. So what are the financial implications of this rise, and is it a cause for concern, asks Emma Dent.

Commissioners and providers alike are now accustomed to a regime where payments for many elective services in an acute setting are linked to activity. In the era of the National Tariff (formerly known as Payment By Results), a rise in block contracts – where clinical commissioning groups (CCGs) give providers a set amount of money in order for the provider to deliver an agreed number of elective procedures – is something of a surprise.

Yet research by NHS Partners Network, which represents independent providers of NHS clinical services, has found they have increased by almost a third (32 per cent) in just one year. NHS Partners Network Chief Executive David Hare says the organisation undertook the research, which consisted of freedom of information request to CCGs, after hearing anecdotal evidence of their increased use.

We wanted to quantify that in terms of both numerical and value terms,” says Hare, who says he was surprised at the extent of the increase. The total value of block contracts has increased by over £700 million in two years – from £2,032 million in 2013/14 to £2,778 million in 2015/16.

Across the country, the London region has seen the largest increase in block contract use, with a 354 per cent increase in that time. In terms of value, the area with the highest proportion is the South of England, where block contracts are worth £980 million, compared to £165 million in London and £585 million in the North of England.

As they are often perceived as providing some financial stability to providers in difficult times, an increased use in block contracts corresponds with the massive financial pressures being felt across the NHS.

Hare disagrees their use is necessary to stabilise the system. “The system does not need block contracts to achieve financial balance,” he says. “Good planning around elective activity can allow for properly allocated funding. If a provider trust feels it is at risk of losing its patient base [from being under commissioned] then that should act as an incentive to improve services.”

The impact that block contracts will have on the potential for independent providers to be chosen for elective activity contracts is a concern to NHS Partners Network members. Independent providers’ share of block contracts was found to have dropped by almost a tenth (9.8 per cent) in the same period as their use has hugely increased (2013/14 to 2015/16), with 20.7 per cent going to such providers. At the same time, NHS providers’ share of block contract work has increased by over 40 per cent.

So is this increase in block contracts at odds with policy shifts towards enabling patients to have a choice of provider? Recent schemes to reduce waiting lists have increased the use of independent providers for elective care.

Patient choice [of provider] as a clear commitment was stated in the Five Year Forward View and in the Department of Health mandate to NHS England. But we need to move beyond the rhetoric and ensure that this remains a policy priority,” says Hare.

DAC Beachcroft Associate Hamza Drabu, who specialises in Commercial Health, points out that individual block contracts with single providers are less likely to encourage innovation amongst providers.

Activity based payments don’t help to integrate services or encourage collaboration between providers,” he says. “On the other hand, block contracts with a fixed payment regardless of activity, run the risk of reducing quality of services where providers need to deal with excess demand. Given the short-term nature of many of these contracts, there is little opportunity or incentive for providers to innovate.”

Although often viewed as a safety net for providers, block contracts are not risk free to providers and as such have built-in thresholds around their use.

If it underperforms then the risk is with the provider [as they then have underused services], if it overheats – if more work is carried out than planned for – then the provider is going to have to cut expenditure [as a result]. But it doesn’t mean patients don’t have a choice of provider,” says NHS Clinical Commissioners Chief Executive Julie Wood.

She adds that many patients are happy to be “referred locally through an arranged contract”. In other words, with the local providers that their CCG and GP will already have a long-standing relationship with.

Wood believes that as patients become more accustomed to the idea of choice of provider, the debate has moved onto choice of the kind of care they want to receive.

“[The debate] has shifted into the personalisation agenda. Not so much about ‘where I go’ but ‘what happens to me when I get there’. People want a choice of service,” she says.

Drabu points out that Accountable Care Systems, which involve commissioners handing a provider or group of providers a capitated budget for health and care services for a segment of the population, may help to integrate services, but this may be at the expense of patient choice. Those contracts involving capitated budgets are longer term contracts, set up to reward outcomes rather than activity, and are themselves a species of block contracts.

Both forms of contract place the onus of risk for activity overspills on the provider; however, the larger contracts for accountable care will require collaboration from a number of providers in order to deliver a broad range of services in an integrated way. Where there are longer term contracts with a larger budget and the potential for shared reward based on outcomes, this may give providers the opportunity and incentive to innovate,” he adds.