NHS England has circulated a discussion paper for NHS commissioners and providers 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 and tighter financial constraints. The paper proposes a root and branch overhaul of the incentives, rewards and sanctions currently imposed on providers of NHS services under the NHS Standard Contract and the resulting review will inform the 2014/15 planning round and may lead to more radical changes being introduced in the 2015/16 contract including the removal of sanctions and CQUIN and their replacement by a new ‘pay-for-performance’ regime.

The paper considers not only the NHS Standard Contract though, but also how it works in the wider context of the national tariff (ie PbR), the Quality Premium and the Quality and Outcomes Framework.

The suggestion is that commissioners are not currently using incentives, rewards and sanctions in the way they were intended. The paper identifies current problems on the ground including:

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

There are many possible reasons for this, but the key issues appear to be complexity, lack of commissioner capacity or capability and lack of time to negotiate meaningful targets together with the current 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 proposes to distinguish between national standards, applicable to all contracts and all providers and standards that should only apply to different types of providers which should be included in standard (ie mandatory) or template (ie advisory) service specifications.

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

The discussion paper covers a number of other related issues which it would not be appropriate to describe in detail her but they relate to:

  • National tariff and permitted flexibilities on pricing to encourage local innovation
  • Using incentives and sanctions to drive up quality
  • Using outcome based contracts and methodologies to achieve them
  • Keeping CQUIN at 2.5% and considering whether it should apply to pass through payments, small contracts and non-contracted activity
  • Adopting a more rigorous approach to the indicators used for CQUIN schemes, including a possible menu of local indicators
  • Removing the current pre-qualification gateway to CQUIN which is thought to be de-motivating to providers improving quality
  • Aligning local incentive and risk sharing schemes with any changes to be made to the variation rules in the national tariff
  • Preserving national sanctions for failure to meet national standards but considering whether monies retained should be earmarked for reinvestment in quality improvement measures
  • 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 damages service quality where it is applied.

Looking forward to 2015/16, it is proposed that providers would receive:

  • a core payment for a given quantum of service provision” allowing for flexing up and down in line with activity; and
  • the opportunity to earn a “significant further percentage payment” for meeting the requirements of the NHS Constitution, operational standards and agreed national and local improvement goals.