Conclusion

Payment mechanisms are not a silver bullet. They do not operate in a vacuum and cannot effectively incentivise desired behaviour in isolation. National and local governance, capacity, regulation and skills all play a role. Key factors, such as capital investment, must urgently be addressed. To redesign and integrate services and pathways, relationships between local stakeholders are crucial. However, payment mechanisms can often become a barrier to doing the right thing to improve outcomes and financial sustainability. 

Choice of payment mechanisms enable all partners in systems together to prioritise the right thing for their system and their patients – this is why we describe them as key to unlocking reform. The governance arrangements of ICSs are already in place to help ICSs shift care towards earlier, more preventative and more cost-effective interventions. Payment mechanisms and financial flows are a crucial piece of the jigsaw so it all fits together. The need for change is clear and will require a greater tolerance of the risks associated with change. 

There are various payment mechanisms across the world policymakers can learn from – but we should not limit our imagination to these. Every payment mechanism was invented at some point and new ones can be too. Of those already in use, an overly simplistic view might suggest that payment by activity (output) is better place to incentivise improvements in technical efficiency by rewarding providers to do more with the workforce, facilities and equipment they already have. Meanwhile, block payments encourage providers to work together to redesign services to boost allocative efficiency, where local relationships are strong. While this perspective is too reductionist, it does highlight a potential tension between the means for boosting technical and allocative efficiency which policymakers need to weigh up. Simplicity in payment mechanism is an important factor in making them effective. 

To find a way forward, this paper has set out three payment models which could be considered as part of a change to financial incentives and opportunity to unlock local service reform. The proposals seek to enable a shift towards more preventative interventions and to drive improved productivity within providers. Each has its advantages and disadvantages. As we have stressed, one size does not fit all and local needs and priorities should be considered in choice of payment mechanisms. Each ICS should be encouraged and empowered to use flexibility within the existing NHS Payment Scheme to innovate and experiment with intra-ICS payment mechanisms that suit their local context. However, we would note that standardisation of inter-ICS payments is required to minimise complexity, particularly for more specialist providers who provide more care for patients from across the country. We would also note that national standardisation in the price paid, whatever the payment mechanism, remain a crucial driver of technical efficiency. [109] 

The proposals are also limited within the scope of the NHS Payment Scheme and Provider Selection Regime – that is, payment for provision of healthcare services. [110] We have also not distinguished between payments for healthcare services provided by the NHS and the independent sector. However, housing, public health and social care services are key components of health which should be align with the approach taken in commissioning healthcare services. Further consideration can also be given to incentives to shape individuals’ behaviour – both within healthcare providers and for the public to live healthy lifestyles. All three options would require further work to support their implementation and manage the transition – KPMG’s Implementation Toolkit (in appendix 1) can help to support this.

As a short-term option, a model of block payment supplemented by rewards and penalties for beating or exceeding agreed waiting time targets could be introduced. However, this ‘quick fix’ does not go far enough to incentivise integration of care and could have detrimental effects on secondary care technical efficiency. This is one option and ICBs and providers should seek to use the flexibility in the existing payment scheme more widely. 

To develop an improved option, we intend to work with our members to develop proposals for a more detailed payment mechanism which makes outcomes-based payments for care of the frail and elderly to support admissions avoidance. An outcomes-based payment could help to incentivise interventions that provide best value. In particular, the shift to commissioning pathways rather than particular services could help shift resources to earlier, move preventative interventions which improve health and save money. This is not just a shift in financing but more fundamentally in the commissioning model. We hope that such a model could be trialled in 2024/25 to inform national payment policy beyond. Yet such an approach also has its risks to avoid, in particular complexity and bureaucracy. Upscaling such an approach would require developing and applying patient outcomes measures across multiple areas of care, which will be challenging. 

In the longer run – and looking at payment systems in use around the world – the direction of travel is clear. Capitated, risk-weighted payment mechanisms can enable the NHS to take the best aspects of social insurance models while maintaining a publicly funded and delivered healthcare system. This will help to enable integration of care at scale. However, translating this approach into the context of the NHS in England will require further policy development and building the appropriate data and tools to support it. Capitation should account for age, sex and deprivation, with appropriate supplements covering primary care. This will require cost profiles as used for age weightings need to be developed.

This discussion paper intends to be the start, not the end, of a wider conversation about payment mechanisms. Our hope is to encourage a debate in the health and care sector about how to do this in the months and years ahead to inform better policy and a payment system which is tailored to the age of integrated care.