Contracting models
Key benefits
As-is (Do
nothing option)
Informal
network
approach with
profit / risk
sharing
Accountable
Care
Organisation
(ACO)
Integrated
Care Hubs
(Prime
Provider
model)
Key risks
• System and relationships
already in place
• No costs (HR/VAT)
associated with
implementation
• Unable to support transformational
change
• Inability to move funding around the
system
• Current system and
relationships could be
‘geared up’ to implement
this model relatively easily
• No costs (HR/VAT)
associated with
implementation
• Ability to share profits may be limited
based on need to make savings
within QIPP and may encourage
adverse competition
• Arrangements are non-statutory and
potentially unsustainable, e.g.
uncertain governance arrangements
for dealing with any deficits
• Complex contracting processes with
multiple organisations
• All providers brought
together contractually within
a single ACO
• Goals are focused around
the achievement of an
agreed set of balanced
scorecard objectives
• No costs (HR/VAT)
associated with
implementation
• Evidence from the USA
suggests model can
improve quality of care and
lower costs
• May be difficult for providers to show
evidence of achievement of balanced
scorecard objectives
• Works best where providers are
given a pooled budget for integrated
care
• Need to move towards payments
based on risk/ outcomes rather than
fee-for-service (PBR)
• A single provider takes all
responsibility for providing
care within a pathway,
therefore contracting is
straightforward
• No organisational change
required, assuming an
existing provider becomes
the prime provider
• Ability to identify/ agree an existing or
new local provider who can take on
this accountability
• Requires true integration across
providers, e.g. information sharing
and culture change (staff to think of
themselves as a unified organisation)
• May be costs (HR/VAT) associated
with implementation if any staff move
across to the prime provider
Key benefits
Key risks
Alliance
• Collaborative approach with • Contracts for the formation of the
all organisations
alliance are usually time-limited,
(commissioners and
therefore may not be sustainable
providers) sharing
• No evidence of application in UK
contractual responsibility
health/ social care context, and may
and risk, therefore promotes
require changes to the regulatory
joint ownership of outcomes
environment to implement this model
• No organisational change
(however has been used in New
required, except to put in
Zealand and in UK infrastructure
place a contract for the
projects)
alliance and governance
arrangements for working
together.
• Can be implemented
quickly, with contracts
amended as the project,
risks or scope develops
• No costs (HR/VAT)
associated with
implementation
Single
Integrated
Care
Organisation
• Clear accountability and
contracting arrangements.
• Sustainable over the longer
term
• Would promote culture
change and information
sharing
Joint Venture
with Joint
Management
Board of
providers
• Collaborative approach
• Ability of staff in each provider
between providers,
organisation to work in a truly
promoting joint ownership of
integrated/ joined-up way
outcomes and
accountability, and shared
risk
• More sustainable than an
alliance (which tends to be
time-bound)
• No organisational change
required, except to put in
place the JMB and contracts
with this organisation
• No costs (HR/VAT)
associated with
implementation
• Used in other UK health/
social care settings (e.g.
Lewisham)
• Would require a long period for
implementation, supported by
consultation and legislation
• Costs (HR/VAT) of implementation
where staff move across to the new
organisation (whether NHS or LA)
Key benefits
Key risks
Principal
provider
(contractor)
and
subcontracting
model (Prime
Vendor or
Prime
Contractor
model)
• A single provider takes a
responsibility for providing
or sub-contracting care
within a pathway
• No organisational change
required, assuming an
existing provider becomes
the principal provider, and
all other existing providers
can play a role in care
provision
• No costs (HR/VAT)
associated with
implementation
• Extensive contracting arrangements
required within and between principal
and prime contractors
• Mixed levels of risk, with principal
providers taking on most risk
Capitated
outcomes
based
contracts
(COBICs)
• Incentivises performance by • Performance incentives may
linking payment to outcomes encourage adverse competition
• Collaborative approach,
• Absence of a defined structure brings
particularly around risk
reliance on good relationships
sharing
between partners, therefore may not
• No organisational change
be sustainable
required
• Difficult contracting arrangements as
• Links well with the desire to
each entity is responsible for
move to a capitation funding
delivering its own services but jointly
model (see later)
accountable for the delivery of
outcomes
• Requires understanding of total
spend in order to calculate
capitations
Funding models
Key benefits
Key risks
Payment by
Results
• Encourages organisations
with above average costs to
lower these towards the
average
• Helps to promote provider
productivity
• Some scope for varying
national prices to promote
innovation and integrated
care
• Easy to implement as
system is already in place
• Places greater focus on the use of
specialist care, therefore may detract
investment from preventative and
community based approaches
• Based around rewarding activity
rather than outcomes
• Does not encourage generation of
savings across the system, risk
sharing or integrated care
• Current system works best for most
providers, who may be unwilling to
move away from this approach
Block/ rolling
contracts
• Promotes stability for
commissioners and
providers as budget is set at
the start of the year
• May encourage providers to
innovate when working in a
fixed budget
• Does not incentivise productivity or
savings across the system
• Value of contract is not usually linked
to the level of needs/ risk within the
local population
Key benefits
Key risks
Capitation
• Assists in avoiding
inappropriate use of
specialist care by
encouraging the system to
innovate and share risks
• Can be used to specify
desired outcomes for a
specific disease or pathway
group, and expanded if
successful
• Approach has been tried
and tested in Kaiser
Permanente
• Complex to develop for local
population, particularly when a risk
profile is used
• Implementation of this model requires
providers to be integrated or working
in an integrated way
Cap and collar
• Promotes stability for
• May require providers to take a
commissioners and
greater share of the risks
providers as budget is set at • Value of contract is not usually linked
the start of the year
to the level of needs/ risk within the
• Could provide an interim
local population
solution as it is relatively
easy to implement, whilst
moving to a more
sophisticated model based
on need
• May encourage providers to
innovate whilst also
incentivising productivity and
savings in the system
Pooled
budgets
• Promotes integrated working • Overspend may occur and dealing
• Assists with expenditure
with this could be difficult if partner
control and helps to avoid
priorities change
‘cost shunting’
• Value of contract is not usually linked
• Relatively straightforward to
to the level of needs/ risk within the
implement
local population
Aligned
budgets
• Flexible approach which can • More bureaucratic than a pooled
be used outside of formal
budget
partnerships and when there • Does not promote more integrated
is a possibility of overspend,
working
cost-shunting or changing
• Value of contract is not usually linked
priorities
to the level of needs/ risk within the
• Relatively straightforward to
local population
implement
Reproduced from West Cheshire, Community Budget programme
Cited in GM Community Budgets Programme Health and Social Care Theme
Narrative Report 2012-11-12
Incentives and Delivery Vehicles
A key argument of this report is that new models of integrated care are required,
shifting the focus from episodic and reactive to population-based and planned care.
Although there will be different approaches to integrated care within GM (reflecting
the different local contexts and circumstances), many of the critical success factor
and barriers are likely to be similar. The issues of common purpose, culture and
leadership are dealt with elsewhere in the report.
Given the ambition to substantially reduce unplanned admissions to hospital and
care homes, the issue of financial risks and incentives is critical because they are
powerful drivers that can align, or generate dysfunctional, organisational behaviour.
The NHS tariff is largely designed to reward growth and support the delivery of timely
and efficient care. It is not designed to reward providers to manage demand or
reduce their activity; NHS providers primarily get paid for treating patients not for
preventing hospitalisation. This is not to say that hospitals can’t or haven’t played a
role in managing demand however this has tended be a marginal role and often
despite (not because of) economic incentives.
There is a variety of alternative contracting and payment regimes that could be
adopted (see below and Appendix IV) to incentivise this approach, though the
complexity of this task should not be underestimated.
Particular attention will need to be paid to unintended consequences. For example,
crude block contracts (where a provider is paid a fixed fee for a defined range of
services), transfer the risk of managing excess demand from commissioner to
provider and could lead to inappropriate under-treatment.
Many integrated care systems operate with some form of a capitated budget,
creating incentives to keep people well. Some of the US accountable care
organisations have identified more sophisticated approaches, combining elements of
condition-specific or full capitation, along with pay-for-performance. Payment for
whole care episodes and ‘year-of-care’ for some long term conditions have also been
piloted in mainland Europe and are currently being developed in the UK.
There is a spectrum of potential organisational models that could be pursued, from
formal merger down to simply sharing of information. Most interest in GM is
associated with models of integrated working that stop short of full merger. Indeed,
there is no “perfect” organisational model - it is likely that different models or
approaches will be required in different circumstances.
Risk and benefit sharing is likely to be critical to the success of integration, though its
precise form depends crucially on the mechanisms used to deliver integrated care.

Most organisations want to be part of the ‘future’ and therefore models of care
that result in a wholesale transfer of care from one party to another are likely to
result in some resistance (whether active or passive).


Often multiple organisations will have responsibility for providing care; hence
wherever possible payment systems should support and incentivise shared care
and joint outcomes.
Arrangements that allow multiple parties to have a ‘stake’ in the solutions that
are created are more likely to act as both an incentive for implementing the
required changes and ensuring the agreed outcomes are achieved.
A related issue is the basis upon which costs are extracted, given the significant fixed
costs within acute providers. The simplest approach is to ensure that any reduction of
provider income (associated with changes in activity) is determined by a transparent
and robust assessment as to the ability to extract costs rather than using tariff.
The ability to extract costs will largely be determined by the scale and nature of
activity reduction. Most acute costs are associated with inpatient activity where a
single ward is effectively the minimum unit of currency. Where there are timing
differences between activity (income) and cost reductions, transitional non-recurrent
funding could be used in-year.
Whilst the approach minimises risks to providers (avoid destabilising the system), the
downside is that without sufficiently large scale interventions which enable semi fixed
costs to be released, and it will be difficult to deliver substantial cashable savings.
Jack Sharp 2012
Taken from GM Community Budgets Programme Health and Social Care
Theme Narrative Report 2012-11-12