Archive for the ‘Contracting’ Category


If we carry on down the same road we have been down every previous year, with providers operating in isolation from other providers and CCGs operating in isolation from all providers, where will we end up?

If each organisation continues to develop its own plans then it plays out something like this.  Providers and CCGs enter the contracting round with the figures they need out of the contract.  They argue about the likely success or otherwise of demand management plans.  With the deadline imminent they agree a figure on paper, but they both take away different assumptions about what will happen during the year.  The CCGs assume demand will be reduced, the providers assume demand will grow. 

The net result is a deficit gets built in to the health economy position, because both build different assumptions into their forecast outturn position.  Someone will be right and so a deficit will inevitably sit somewhere.  The value of the agreed contract figure becomes material only in terms of determining the level of monthly cash payments.  In terms of establishing an agreed end of year position it is virtually meaningless.

In 2014/15 the gap between what CCGs can afford and what providers will require is going to be bigger than ever.  Aside from ever increasing demand and inflationary pressures, the situation is exacerbated by the planning guidance.  Now we have the cost of introducing seven day working, the requirement for CCGs to fund £5 per head for general practice, the need for CCGs to keep 4% out of recurrent expenditure (2.5% non-recurrent, 0.5% contingency, 1.0% surplus), just to name a few.

Once a figure is agreed on paper and the year starts, the cracks will start to appear.  CCGs facing financial challenges will shift down a route of increased contract challenges and reducing elective activity, and providers will try to do the reverse (improve coding and increase elective activity).  Throw in the last winter before a general election and the pressure will ratchet up, and relationships will become extremely fraught.  And if next year does not finish us off the year after will, with the transfer of funds from providers to social care via the Better Care Fund.

But there is an alternative.  We could work as health communities to have a single plan.  We could work together to take the resources that are available (knowing that they are insufficient) and use them collectively to deliver a single plan.  This requires each organisation to relinquish the sovereignty that it feels entitled to; actions would be determined by the greater good, not simply by what is best for any single organisation.

In this model organisations collectively commit to what the health and social care economy must deliver.  There is a single set of assumptions that all sign up to.  Agreement is made as to how the money will be used between the organisations in order to enable delivery of the plan.  The contract negotiations focus on this, rather than simply setting the level of cash flow. 

The alternative is harder to set up.  It requires providers to work with providers and CCGs to work with providers.  It will fail if alongside the one plan organisations have their own (secret? real?) plan.  Each organisation has to commit to the system plan.  Each organisation has to be accountable to each other for delivering their part of the plan. 

Clearly this requires trust between the partners. It introduces an uncomfortable interdependence.  If one organisation does not deliver, all will suffer because delivery of the overall plan will suffer.  And of course the worse the current position, and the longer we continue along the current course, the less trust there will be.  If we wait until we trust each other to do something different, we may never get started!

There is no doubt this alternative is harder to set up, but if we understand where the route we are currently on takes us then maybe we will think it is worth it.  After all, something has to change.

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The Health Service Journal (HSJ) has this week declared that the ‘Oxfordshire battle will determine the impact of CCGs’ (here).  This is because, as the HSJ puts it, ‘One of the largest and most advanced attempts to bring about integrated, outcomes based commissioning has been delayed following objections from two powerful provider trusts.’

So is the HSJ right? The conclusion seems to have been drawn from what the events in Oxfordshire say about relative ‘power’ of purchasers and providers.  In the private sector different industries have different relative levels of buyer or supplier power.  In some sectors buyers (like supermarkets) wield great power and can drive price down.  In others (like the oil industry) suppliers wield the power and determine the price that buyers must pay.

So the HSJ argument is constructed on the basis that the formation of CCGs was to increase buyer power over providers, and that the amount of power exerted (in this instance the imposition of a specific contract) is the marker of CCG impact.

But there is very little about CCGs that is different from predecessor commissioning organisations that would increase their ‘buyer power’.  Maybe knowledge of services by the GPs and clinicians involved in CCGs, but at best there are only changes at the margins and certainly not enough to effect a significant switch in power.

I would argue that the whole notion of relative power is unhelpful for where we are in the NHS today.  The win/lose mentality between providers and commissioners has not served the NHS well in the past, and is extremely unlikely to help in the future.  It doesn’t help supermarket suppliers or those who buy oil.  And in the highly politically charged environment of the NHS, adversarial relationships inside the NHS will always damage the consistency of public message required to enable change to happen.

CCGs are most likely to be successful not because of an increase in relative power, but because of the ability of their clinicians to create partnerships with other clinicians and drive whole system change to improve outcomes. 

It is effective partnerships that are required, not power games.  According to Wikipedia, a partnership is, ‘an arrangement in which parties agree to cooperate to advance their mutual interests’.  And while it is tough to develop strong commissioner provider partnerships in the current environment, this is what is required. 

It is tough in part because the tight financial state of the NHS means there is limited funding to smooth the transition to any new model.  It is tough in part because each organisation has its own regulator putting pressure on it to take action that may be at the expense of partners.  And it is tough in part because people are not perfect, and in a pressurized environment any misplaced comment or action can quickly undo progress that has taken months to build.

The HSJ is being deliberately provocative in stating the ‘battle of Oxfordshire will determine the impact of CCGs’, but it raises an important challenge as to how we choose to monitor their impact.  Measuring whether or not contracts are imposed is not a good marker.  Any perpetuation of the win/lose mentality of provider commissioner relationships is unhelpful.  A much better marker is the ability of CCGs to form relationships that enable new ways of working that in turn drive improvements in outcomes.  Neither CCGs nor providers can make the changes they need for a sustainable future in isolation; it has to be done in partnership.

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A key responsibility of CCGs is to take a lead role in driving improvement in the quality of care and treatment through the contracts they hold with providers.  As part of this each CCG must put in place the type of contracts that they believe will enable them to fulfil this responsibility.

We have been on a journey of contracting in the NHS that started with block allocations.  Discontent with these contracts grew as commissioners were unable to identify exactly what they were getting for their money; there was no transparency and the situation worked against any form of meaningful and clear improvement.

And so we moved into the period of payment by results (PBR).  It brought transparency of activity and enabled real productivity gains (shift to daycases and outpatient procedures etc).  But when the outcome required is demand management, payment by results is not the solution.  We have seen this with the attempts to use PBR through MRET (marginal rate emergency threshold) to incentivise providers to manage demand (by only paying them 30% of any growth in emergency activity).  It does not work, and worse leads to dispute and tension between providers and commissioners, further distracting from whole system working.

So where next?  We recently discussed  the Porter and Lee Harvard Business Review Article ‘The Strategy that will fix Health Care’, and one of their key components of a successful strategy was a move to bundled payments for care cycles.  This marks a move towards a system that actually rewards payment for outcomes.  The issue they identify with both block contracts and activity based contracts (like PBR) is that neither reward improvements in quality.  A new model that does this is required.

Porter and Lee make a number of suggestions of what this might mean in practice, including commissioning full care cycles for a condition, and year of care tariffs for long term conditions.  CCGs are feeling their way into some of these new models, but they are unproven, and they are also being met with significant levels of resistance.  What is clear is that a wholesale move into this type of contracting is not going to be possible for next year.

So given the models available are either demonstrated not to be effective in tackling the problems that exist today, or are not ready to be implemented, what should a CCG do?  Contracting is not an end in itself; it is a means to an end.  The starting point for the CCG is to understand what its priorities are, and then to ensure the contracting model that is used is the one that can most effectively support delivery of those priorities.

Ok – what are the priorities?  While these will be different everywhere, two spring immediately to mind.  First to ensure we have an urgent care system that is safe and effective. Second to enable the reconfiguration of the health and social care system so that it can deliver high quality care within the resources available in future.  So if we take these two, which contracting model would best support their delivery, a block contract or an activity based contract?  When you think of it like this, the argument for a block contract is compelling, as it removes any incentive for growth in activity, creates shared incentives for effective management of demand, reduces transaction costs, moves the conversation away from who should be paying the bill to how can we work together to change the system, and creates a clear financial envelope for providers to understand the resources available.

Of course there is a downside.  Block contracts will be perceived by many as a retrograde step, a move back to the dark times of obscurity when contracts were amorphous masses with no clarity of what was contained within.  But a block contract today is not the same as one 15 years ago.  Payment by results has done its job in putting the systems in place to track activity, which are not going to stop immediately.  This problem would only come if block contracts were to be seen as a permanent solution.  The discussion here is really trying to identify the best solution for now while we progress towards and develop bundled payments for care cycles.  Block contracts over a long period may well take us backwards, but framed as an interim measure this risk is massively reduced and can be easily mitigated through information schedules. 

It can also be argued that block contracts are anti-competitive.  Monitor is reportedly to investigate a complaint from a private hospital in Blackpool that referrals dropped after the two local CCGs entered into a block contract with a local NHS hospital.  CCGs do after all have a duty to promote patient choice.  But choice happens at the point of referral, and so whether the contract is block or activity based is actually irrelevant; what is relevant is whether the GP at the point of referral is directing patients or promoting choice, and the CCGs concerned flatly deny that any direction of referrals has taken place.

Whilst I don’t believe that block contracts are anti-competitive, what they do is promote integration far better than activity based contracts such as PBR, because they encourage providers and commissioners to work together to find lower cost ways of working, and to reduce transaction costs. 

The final issue is the one of risk.  The immediate reaction of the board of a foundation trust may well be to reject any suggestion of a block contract, because of the perceived shift of risk from commissioner to provider.  If the activity goes up, there is no more money, and the hospital will be expected to manage the demand without any additional resource.  But if you look at what is happening to activity, elective activity is flat at best, and it is only emergency activity that continues to rise.  Providers already do not get reimbursed for this rise (because of MRET).  And if the block increases the chance of joint working across the system to manage urgent care demand (which everyone believes is necessary), is it really that much of a risk?

Clearly there does need to be a way of sharing risk between commissioners and providers.  Risk pools can be set up, and these can be put in place around an outline block structure.  But if the question the health economy is stuck at is ‘who is carrying the risk?’, then the chances of achieving any real integration or whole system redesign is minimal.

As the contracting round looms CCGs, conscious of their responsibility to improve quality and care and treatment, need to make sure they are using the best available contracting model as a mechanism to deliver this.  And for the first time in many years CCGs are having to think hard about whether the block contract, that for so many years we have been working hard to get away from, might just be the best answer.

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The NHS Commissioning Board (NHSCB) has launched Christmas with the publication of the Operating Framework last week, which it now confusingly calls ‘Everyone Counts’.  For all the language used by the NHSCB, this was always going to be the real test of how different things are really going to be in the new landscape of the NHS next year.

It starts reasonably well, and on the surface of it the shift to a much stronger focus on outcomes is a really positive step.  However as ever, there is a sting in the tail, which sits in 3.4 of the document,

The NHS Standard Contract is a key enabler for commissioners to secure improvement in the quality of services for patients.  It supports the approach set out in this guidance and as such will be the basis on which commissioners should commission NHS funded services from providers.  Commissioners must enforce the standard terms, including the financial consequences for under-performance or failure to provide data on which to assess performance.  We will be rigorous in supporting CCGs and our direct commissioners to ensure the contract terms are implemented.

Littered throughout the document are also references to specific situations in which the NHSCB will expect CCGs to implement financial penalties, including completeness and quality of data, individual 52 week breaches, and ambulance handover delays over 30 minutes (with a further fine for delays over an hour).

This is not something that is going to start on the 1st April.  Right now many CCGs are being asked to report directly and in detail to the NHSCB as to how contract penalties are being applied where providers are failing performance target.  It would seem that the NHSCB strategy for maintaining ‘grip’ in the new world is ensuring that CCGs are implementing contract penalties.

I know there are mixed views on this.  There is a camp, even within CCGs, that support this approach wholeheartedly.  The contract is viewed as the key tool by which commissioning is delivered, and strong contracting is seen as the enabler by which providers will understand consequences and therefore improve performance. 

For me this does not really stack up.  Clinical commissioning at its core is about clinicians working together to develop services that best meet the needs of patients.  It is built upon trust and honesty and strong working relationships.  It is very difficult for a CCG to on one day have a conversation with its local hospital about working together to transform the urgent care system, and the next day to issue a fine for failure to achieve the 4 hour target.

Do fines really incentivise providers?  Is it really helpful when a hospital has been under severe pressure over a sustained period of time, and front line staff are at breaking point, for the commissioner to issue a financial penalty – one that most likely will lead to more cuts, lower staffing, lower morale, and most likely even worse performance?  As commissioners in our heart of hearts do we think the real issue is that hospitals are not taking performance seriously, and that it is simply a question of insufficient effort, which needs to be galvanised through punitive action?

I do think that there is a role for contract penalties.  There are times when for whatever reason providers take their eye off the ball and do not meet the standards that we expect for our patients.  What CCGs need to do is set their own strategy for use of contracts and contract penalties.  We need to be explicit about what we will fine for and, more importantly, how we will use any income gained from fines.  There is a huge difference between using it to offset an in-year financial problem and using it to reinvest in resolving the identified issues. 

CCGs need to share this strategy with their providers up front, in the explicit context of the Everyone Counts document, and then stick to it.  Page one needs to restate that it is clinical relationships that will drive long term success, not contracts.  If as CCGs we do not do this we will be on the back foot with the NHSCB from the start, and will be storing up trouble and impossible relationships for the future.

Enjoy your Christmas.  Hopefully you will have time to amidst agreeing how the winter money will be spent, producing the first draft of next year’s plan, and responding to all of the Local Area Team’s urgent requests for information!

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There are, broadly speaking, two scenarios that CCGs can play out in relation to contracting.  The first is where GPs take the stance they are good negotiators (after all, they did negotiate the GP contract) and decide it is time to ‘get tough’ with the acutes.  Practices apply pressure on the contracting teams to ensure that they stop being ‘ripped off’ by the acute trusts, something they all know has been going on for years.  They use their inside knowledge of what goes on at the hospital and use practice generated patient level data to drive payments down, and to turn the screw on their (already cash-strapped) local hospital.

The hospitals fight back.  They decide to take the contracting novices to the cleaners wherever possible.  They bring back issues that had been set aside years ago by the PCT.  They draw consultants into the contracting process, and dismiss the outlandish demand management claims as pure fantasy.  In the meantime they continue to actively pursue growth strategies to survive.

Contracts are generally settled by arbitration.  General bad feeling turns into a deep rift between the GPs and the consultants.  Initiatives to improve care are undermined by the ‘other side’, and none deliver what is needed.  As a result all organisations (CCGs and acute trusts) start to fail.

The second scenario is one where clinicians and organisational leaders from across the health economy commit to working together.  They develop a shared vision of the future, and agree a broad direction of travel.  These leaders follow through, and set their individual organisational paths along this route.

GPs, consultants and health and social care professionals from all disciplines work together to develop and implement changes to deliver the vision.  These changes are based on clinician to clinician conversations, and organisations share risks and rewards.  For each change a clear set of agreements is developed as to what needs to be done by whom.

In this scenario contracting is simply the end of this process.  It is the mechanism by which agreements already made are codified.  It becomes the technical end game, not the star attraction.  The contracts are agreed as part of the ongoing joint work to deliver sustainable health economies serving the needs of local populations.  Organisations change and adapt, but by working with each other, none fail.

The opportunity that the introduction of CCGs presents is the second scenario.  The risk that needs to be avoided at all costs is the first.  CCGs must focus on relationships first and contracting second.  Contracting must be an outcome of relationships, not define them.

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