New models of contracting in the NHS

Finding ways to integrate health services to make the best use of resources, reward the delivery of the best outcomes, address demand risk, and catalyse new configurations of providers has become an important policy priority in the English NHS following the publication of the Five Year Forward View (NHS England, 2014). This ambition is being realised through various policy developments which entail separate organisations working more closely together. Over the past few years in the English NHS there has been increasing interest in the use of new models of contracting to achieve these aims. These contractual models aim to incentivise providers of health and/or care services to work together to achieve a common aspiration. This report focuses on three such models: Alliance contracting, lead provider contracting and outcome based contracting.

This research project aimed to explore why NHS commissioners are choosing new models of contracting, the characteristics of these models, how they are used in practice, and the impact they are having. To meet these aims, the study addresses the following research questions:

why commissioners choose particular models of contracting, and what they think such models can achieve
in detail the characteristics of these new contractual documents, in particular how outcomes are specified and how financial risk is shared between the parties
how the contracts are used in practice, in particular whether the contractual documentation is adhered to, and if not, in which ways it is not
the strengths and weaknesses of the different contractual models, both in respect of encouraging cooperation between providers and achieving better outcomes
how the NHS Standard Contract is used in conjunction with the new models of contracting, and whether any problems arise in attempting to do so
how the new contractual models contribute to reconfiguration of services in local health economies

Our research suggests that while new models of contracting can play a significant role in facilitating the reconfiguration of services at a local level, and achieving ends key to the integration agenda such as making better use of resources, such contractual arrangements do not address the complex problems that organisations face when they attempt to work together. Consequently, they should be viewed as mechanisms which can help strengthen attempts to work collectively, but cannot overcome significant differences in individual organisations’ interests where these exist.

The study has a number of implications for policy and practice. These contractual arrangements cannot influence system design and regulation. The overall aim of agreeing the allocation of financial risk amongst providers is impeded by the payment systems to which providers are subject, and the individual accountabilities of providers for their own financial performance. These elements need to be addressed before the potential of such contractual models can be realised.

Furthermore the legislative framework in relation to procurement does not support inter-organisational co-operation. The findings suggest that the move to alter the procurement requirements as a result of the NHS Long Term Plan may ease this situation although the nature of the proposed ‘best value’ regime is not yet clear.

In terms of practice, our findings suggest a number of recommendations for commissioners and providers who are considering using these new models of contracting. These include, in the precontractual period, clarifying the position of all parties regarding risk share capacity, considering the resource intensive nature of the contractual negotiations, and investigating and understanding the implications of third sector involvement. It is also recommended that commissioners and providers consider the following when deciding whether to use a new contractual model: issues of scale and scope in the light of findings that modest arrangements may carry practical advantages; the local context, in particular whether organisational interests are aligned and organisations are ready and willing to work together. If an Alliance model is being considered it is recommended that commissioners and providers should consider: the limitations of the Alliance approach in the NHS context; and the level of local support, in particular the existence of enthusiastic local leaders.