Unlocking reform and financial sustainability: NHS payment mechanisms for the integrated care age

This discussion paper has been developed by a small working group; members of the group have participated in an individual capacity. This publication does not necessarily represent the views of all members of the group, their organisations nor all members of the ICS Network or the NHS Confederation more widely. We recognise that suggestions within the paper will generate debate within our membership and look forward to continuing the discussion. The paper has been developed in collaboration with KPMG.

Key points

• Following the Hewitt review recommendation to consider alternative payment mechanisms within the health system, this discussion paper explores examples of international and domestic payment mechanisms. The paper is intended to support further discussion and debate and to inform future policymaking to support integration.

• Currently, financial flows within the NHS are fragmented and work against integration. The different parts of the NHS – primary care, community care and hospital care – are not financially incentivised to work better together. The financial system does not allow all partners within an integrated care system (ICS) to benefit from returns from investments in another part of the system, disincentivising some quality-improving and cost-saving investments.

• Payment mechanisms, although not a silver bullet, can be a crucial factor in enabling changes in services and behaviour which can boost allocative and technical productivity, including a leftward shift to earlier, more preventative, upstream interventions. This is crucial to improving health outcomes and the financial sustainability of the health and care system given rising demand for services driven by demographic trends.

• This discussion paper is intended to contribute to policy debate, rather than propose ideal type solutions, and reflect honestly on the advantages and the disadvantages of a range of available payment mechanisms and the different behaviours they can incentivise.

• It also identifies wider factors which need to be aligned to enable payment mechanisms to provide effective incentives. Effective data analysis, longer-term financial planning and capital investment feature among the crucial factors that need to align with payment mechanisms to boost NHS productivity.

• The paper suggests three options for consideration over the short, medium and longer term. None should be compulsory and we encourage experimentation, learning and tailoring the choice of intra-ICS payment mechanisms to the particular needs of each ICS.

• 1) Now – Further use of flexibility within the existing NHS Payment Scheme to experiment locally, including considering options such as West Yorkshire’s block payments, with a rewards and penalties model to incentivise cutting waiting times for elective care

• 2) Next – Development of pathway-based payments by outcomes, starting with pathways for care of the frail and elderly to incentivise admissions avoidance.

• 3) In future – Adoption of risk-weighted, capitated payments for NHS services in England, learning from international best practice including OptiMedis in Germany and ChenMed in the USA.