NHS England is proposing a root and branch overhaul of the incentives, rewards and sanctions currently imposed on providers of NHS services under the NHS Standard Contract. This review will inform the 2014/15 planning round and may lead to more radical changes being introduced in the 2015/16 contract such as the scrapping of sanctions and Commissioning for Quality and Innovation (CQUIN) and their replacement by a new “pay-for-performance” regime. 

NHS England has circulated to NHS commissioners and providers a discussion paper on improving the existing incentives to support providers and commissioners to get the best value out of their commissioning contracts in the context of tighter financial constraints.

It is not just about the NHS Standard Contract though, it is also about how that document works in the wider context of the national tariff (ie, Payment by Results) the Quality Premium and the Quality and Outcomes Framework. 

NHS England suggests that currently commissioners are not using incentives, rewards and sanctions in the way they were intended. 

It identifies current problems on the ground including:

  • Commissioners setting impossible CQUIN targets to avoid paying CQUIN monies.
  • Commissioners not implementing individual sanctions, despite clear provider performance failure.
  • Using block arrangements or cap and collar payments to protect providers from the financial risk of performance failure.

Why might this be happening? There are many possible reasons but the key issues appear to be complexity, lack of commissioner capacity or capability and lack of time to negotiate meaningful targets. 

There is also an imbalance between the number of nationally imposed targets and sanctions that apply to acute services as compared to other areas of NHS provision. The discussion paper distinguishes between national standards that should apply to all contracts and all providers to the extent that they are not already enshrined in legislation or statutory (ie, binding) guidance, and standards that should only apply to different types of providers which, it is proposed, should be included in standard (ie, mandatory) or template (ie, advisory) service specifications. 

NHS England also makes the observation that the NHS standard contract will need to be more flexible as regards contract duration and commencement date from 2014/15 onwards. 

National tariff business rules are also under scrutiny with the proposal that, as regards permitted flexibilities on pricing, these should encourage local innovation, subject to an appropriate level of oversight from NHS England. It is clear that there is little or no evidence of what sorts of incentives and sanctions actually work to drive up quality. Everyone seems to agree that outcome based contracts should be used far more often, but how to draft one? NHS England is proposing to enable and evaluate the use of methodologies to achieve this. 

Although the proposal is to keep CQUIN at 2.5 per cent for the moment, NHS England is considering whether CQUIN should apply to pass through payments (it also asks for clarification of what stakeholders think these are), small contracts and non-contracted activity. It also asks whether a more rigorous approach should be adopted to the indicators used for CQUIN schemes, including a possible menu of local indicators. The current pre-qualification gateway to CQUIN is thought to be de-motivating to providers improving quality and may be removed altogether. 

Local incentive and risk sharing schemes can already be used within the contract but there is little evidence that they are widely used and NHS England is keen to ensure that where they are used in future they are aligned with any changes to be made to the variation rules in the national tariff. 

National sanctions for failure to meet national standards will continue but NHS England is considering whether monies retained should be earmarked for reinvestment in quality improvement measures. We discussed this with clients years ago as regards the C.Diff “adjustments” to contract payments (ie, penalties). The contractual right to retain payment for breach of national standards is also under review to ensure it does not operate as a perverse incentive to quality improvement and actually results in worse service quality where it is applied. 

Looking forward to 2015/16, the proposal is that providers would receive “a core payment for a given quantum of service provision”. This sounds as though it may lead to a form of “block contract”. But the proposal is a bit more complex, allowing for flexing up and down in line with activity and the opportunity for providers to earn a “significant further percentage payment” for meeting the requirements of the NHS Constitution, operational standards and agreed national and local improvement goals.