Get on top of the NHS standard contract

In any commercial contract for services there is no doubt that the specification and the key performance indicators are among the most important things to get right. Lawyers can support you to draft them in a manner that makes the specification clear and accurate, guards against “scope creep” and sets out express obligations enforceable against the service provider. 

‘There is an imbalance between the number of nationally imposed targets and sanctions that apply to acute services and other areas of NHS provision’

But the detailed content of the specification and the performance inidicators will need your input as the commissioner of the service. Only you know what you want the provider to do and the standards you want them to meet.

Just for the record, the other key commercial clauses will always be price and payment, liabilities and indemnities, information governance, and the variation and exit (ie: duration and termination) arrangements. If you get these right and you have a robust service specification and manageable key performance indicators, in the vast majority of contracts you are home and dry.

Quality requirements

The key performance indicators in the NHS standard contract, known as the quality requirements, include a very large number of different performance indicatorsdivided into eight different sub-schedules. On top of this, there is usually a service development and improvement plan, which is also often used to set performance targets for the provider. 

Let us be clear though, the reporting requirements in a separate schedule are just that; they will not generally drive up quality on their own, they will just tell you how well the provider is doing, or possibly how well the provider thinks it is doing.

When we advise clients about performance indicators, we give them the following golden rules:

• Do not try and cover all aspects of the service.
• Focus on the really important parts of the service that are capable of objective measurement.
• Do not try and measure absolutely everything that can be measured.
• Less is more − keep your key performance indicators down to as small a number as is truly necessary, which you will have the time and capacity to monitor and performance manage effectively, and where you will be able to exercise your rights to impose penalties or other sanctions.

Incentive review

HSJ recently reported that NHS England is proposing a root and branch overhaul of the incentives, rewards and sanctions currently imposed on providers of NHS services under the NHS standard contract. This review will inform the 2014-15 planning round and may lead to more radical changes being introduced in the 2015-16 contract with the scrapping of sanctions and the commissioning for quality and innovation scheme and their replacement by a new “pay for performance” regime.

‘There is little or no evidence of what sorts of incentives and sanctions actually work to drive up quality’

NHS England has circulated to NHS commissioners and providers a discussion paper on improving the existing incentives to support providers and commissioners to get the best value out of their commissioning contracts in the context of tighter and tighter financial constraints.

It is not just about the NHS standard contract though, it is also about how that document works in the wider context of the national tariff (ie: payment by results − a misnomer if ever there was one), the quality premium and the quality and outcomes framework.

Current problems on the ground may include:

• not using incentives, rewards and sanctions in the way they were intended;
• setting impossible CQUIN targets to avoid paying CQUIN money;
• not implementing individual sanctions, despite clear performance failure; and
• using block arrangements or cap and collar payments to protect providers from the financial risk of performance failure.

There are many possible reasons why this is happening but the key issues appear to be complexity, lack of commissioner capacity or capability, and lack of time to negotiate meaningful targets. 

Missed targets

There is also an imbalance between the number of nationally imposed targets and sanctions that apply to acute services compared to other areas of NHS provision. The NHS England discussion paper distinguishes between national standards that should apply to all contracts and all providers to the extent that they are not already enshrined in legislation or statutory (binding) guidance, and standards that should only apply to different types of providers that, it is proposed, should be included in standard (mandatory) or template (advisory) service specifications.

NHS England also drops in the observation that the standard contract will need to be more flexible regarding contract duration and commencement dates from 2014-15. 

National tariff business rules are also under scrutiny with the proposal that, as regards permitted flexibilities on pricing, these should encourage local innovation, subject to an appropriate level of oversight from NHS England. 

‘The current pre-qualification gateway to CQUIN is thought to be demotivating to providers improving quality’

It is clear that there is little or no evidence of what sorts of incentives and sanctions actually work to drive up quality. Everyone seems to agree that outcome based contracts should be used far more often, but how to draft one? NHS England is proposing to enable and evaluate the use of methodologies to achieve this.

The right support

NHS England also wants to know from stakeholders what support it could provide, possibly through CSUs to build commissioner capacity and capability.

Although the proposal is to keep CQUIN at 2.5 per cent for the moment, NHS England is considering whether it should should apply to pass through payments, small contracts and non-contracted activity. It also asks in one of its questions what stakeholders think these are.

‘The contractual right to retain payment for breach of national standards is also under review to ensure it does not operate as a perverse incentive’

It asks whether a more rigorous approach should be adopted to the indicators used for CQUIN schemes, including a possible menu of local indicators. The current pre-qualification gateway to CQUIN is thought to be demotivating to providers improving quality and may be removed altogether.

Local incentive and risk sharing schemes can be used within the contract but there is little evidence that they are widely used and NHS England is keen to ensure that where they are used in future they are aligned with any changes to be made to the variation rules in the national tariff.

Complex proposal

National sanctions for failure to meet national standards will continue but NHS England is considering whether money retained should be earmarked for reinvestment in quality improvement measures. We discussed this with clients years ago in relation to the C. difficile“adjustments”, ie: penalties to contract payments. 

The contractual right to retain payment for breach of national standards is also under review to ensure it does not operate as a perverse incentive to quality improvement and ends up actually damaging service quality where it is applied.

Looking forward to 2015-16, the proposal is that providers would receive “a core payment for a given quantum of service provision”. Didn’t we used to call these “block contracts”?

But to be fair, the proposal is a bit more complex than that, allowing for flexing up and down in line with activity and the opportunity to earn a “significant further percentage payment” for meeting the requirements of the NHS constitution, operational standards and agreed national and local improvement goals.

Responses to the NHS England discussion paper are requested to be submitted via email by 2 August.

Julie Jordan is an associate at Mills and Reeve