Breaking free from the short-term, one-way, top-down system

Day-to-day responsibility for smooth operational running of trusts lies with their boards, and when things go wrong, formal oversight of trust boards is provided by regulators. But between those two stools is performance management; in the current system, that sits with commissioners.

‘There is a lack of balance of risk between commissioners and providers’

The tool that performance management conversations are invariably based on is the standard contract. The contract is the annual legal agreement between all trusts and their commissioners to deliver set services. It includes a huge raft of metrics and measures, some nationally mandated, some locally negotiated, that providers have to attain. If they don’t, they are often penalised by fines they have to pay to the commissioner.

The stated aim of these fines is to ‘incentivise’ good provider behaviour. This is the tenor throughout the contract; via micromanagement clauses, commissioners are forced into the role of the corrective parent, and providers the errant child.

Put another way, there are numerous potential downsides for providers if they do not perform to the letter, but there is nothing with real teeth that holds commissioners to account for their performance in demand management and planning.

The result is a lack of balance of risk between commissioners and providers.

Challenging blunt fines

This is problematic – in both the short and long term.

In the short term, provider fines mean they are losing income at the very time they can least afford it – the sector is forecast to be more than £2bn in deficit by the end of the financial year (according to the Nuffield Trust, total fines are set to be £240m).

‘The current contracting model does not fit either the principles or practicalities of delivering the future of service delivery’

Also, the assumption that to incentivise performance you use a blunt fine – and what is more, the fact that a blunt fine takes little heed of issues outside of a provider’s control – needs to be challenged.

In the longer term, the nature of the contract means that providers and commissioners are less likely to be able to work collaboratively; at a time when national policy is unanimous, that is exactly what they should be doing in establishing new models for delivering care.

It is very difficult to establish a close working, equal and trusting relationship when both parties are contractually obliged to go through annual, tough-fought negotiations over a morass of new criteria for providers to jump through.

That said, there is no benefit at all in loading the contract so far the other way that the commissioner bears all the risk. But it is important to recognise the contract system was designed for a different time and for different organisations.

Commissioners and providers, in line with the Five Year Forward View, are now trying to work in entirely new ways locally, blurring the boundaries between their organisations to think strategically, together, about how they deliver the best possible healthcare for their local populations.

However they are still tied to a contracting system that is based on short term, one way, top down performance management.

What is the alternative?

There needs to be national level policy alignment to allow local arrangements between providers and commissioners to flourish. This means a contracting system that has the flexibility to move away from granular monitoring of organisations to one that makes commissioners and providers jointly responsible for local health economy performance.

To achieve this, any new contracting system could start to focus on the following principles:

• Longer term: Break the annual cycle – multi-annual contracts, common practice in other areas of the public sector, allow more strategic planning and help facilitate better relationships between providers and purchasers.
• Shared outcomes: Enable commissioners and providers to have the flexibility to shape, together, what they want contracts to deliver – this could, for instance, mean the design of contracts that reward achieving better population outcomes rather than just paying for activity.
• Shared risk: Develop commercial arrangements that promote financial stability for all parties – for example the risk of increased demand costs could be shared between both the providers and the purchasers of the services in question.
• Leveraged expertise: Acknowledge the broader skills organisations might have in designing the details of new care model delivery – for instance, contracts could focus on holding certain providers to account for improving delivery of care across different provider types.

Addressing these principles, in a practical way between commissioners and providers, will not be easy. But the stark truth is the current contracting model does not fit either the principles or practicalities of delivering the future of service delivery for the NHS.

It will require – at a national level – a fundamental rethink of what contracts between commissioners and providers are trying to deliver, and at a local level, a resetting of relationships between providers and commissioners to put them on a more equal footing.

Edward Cornick is policy officer (commercial and contracting) for NHS Providers