Moving towards capitated payment models to support service transformation

Mark Carmichael, Managing Director of Attain, talks about delivery of capitation in support of the delivery of new models of care.

The NHS Five Year Forward View sets out an ambitious vision for the future of the NHS to 2020 and beyond, with implications across the range of organisations involved in the commissioning and delivery of health and care services and for the people that use them. Central to this vision is the requirement for health and care systems to simultaneously deliver against the following ‘triple’ aims:

  • Improving population health outcomes
  • Improving the quality and experience of care for individuals
  • Maintaining or reducing per capita costs of providing care

In order to achieve these competing and challenging aims against a backdrop of an aging population and growing financial pressures, it is widely recognised that a fundamental shift is required in the way care is delivered – rebalancing the system to focus available resources towards prevention and keeping people well in their own homes; as opposed to treating people who have already reached crisis points in their care in formal care settings.

Whilst it is acknowledged across the majority of care economies that treatment in a primary or community setting delivers better patient outcomes and is more cost effective, a key barrier within the system to delivering this shift in the delivery of care is often the way in which providers are currently incentivised through traditional contractual payment mechanisms.

Existing arrangements can be seen to incentivise primary and community care to push activity towards hospitals. The core GMS and block contracts traditionally used to fund care in these settings reward providers through a fixed financial envelope, and therefore offer them no firm financial incentives to treat patients in these settings. Acute providers on the other hand are rewarded on the basis of activity through tariff arrangements, and are therefore effectively incentivised to take this activity by seeing and treating patients within an acute setting – especially where they are themselves under financial pressure.

This also has significant knock on effects into social care, where hospitalisation and subsequent discharge planning in order to free up hospital capacity and improve patient flow can often result admissions to residential care; placing substantial pressure on already stretched social care budgets and reducing the funding available for prevention.

So what needs to change?

A key enabler for introducing models of care which rebalance the system is an alignment of financial and contractual incentives to drive the right behaviours across providers and shift care towards prevention. As many economies move towards the development of accountable care systems, payment mechanisms will need to change to include the whole of an individual’s care and the full scope of services they receive for a ‘fixed price’ per person based upon their level of need (known as a capitated budget) – whilst at the same time ensuring that that a component of the financial envelope is dependent on the delivery of individual outcomes. Such arrangements will effectively incentivise providers across different parts of the system to work together in order to target prevention, early intervention, and ensure that care is delivered in cost effective settings – thus integrating services, improving outcomes, and reducing the total cost of care.

The introduction of capitated budgets and outcomes based incentives can therefore be seen as fundamental building blocks in the development of accountable care systems.

How can this be implemented in a safe and effective fashion?

A move towards ‘capitated’ budget models and outcomes based incentives are not new concepts within the NHS, yet they have often been seen as difficult or high risk to implement in practice – and in some cases associated with some high profile failures – especially where commissioners are working in financially challenged care economies and do not wish to further destabilise local providers.

At Attain, we have worked across a number of care economies to transform local payment mechanisms and align system incentives in a safe and manageable fashion. We adopt a phased approach to implementation, starting with discrete elements of the system or defined population cohorts and developing this over multiple contracting rounds to include the whole population. This is grounded in a practical understanding that the systems, processes, and data required to move towards fully capitated budgets and outcomes measures are unlikely to be in place from day one, and will require time to be developed across the system.

Our capitation approach diagram

Some examples of our work

A CCG in the East of England – Care Closer to Home

We have supported a CCG in the East of England to move from a traditional block contract towards a capitated payment mechanism covering some £35m of annual spend on Out of Hospital Care; introduce outcomes based incentives worth over £5m per annum over a three year period; and align wider system incentives to reduce non elective admissions amongst the over 65s through the Care Closer to Home programme. This formed part of the CCG’s wider strategy to develop a Multi-Speciality Provider for Out of Hospital Services, which would be funded and incentivised in such a way that made it accountable for the delivery of improved patient outcomes, whilst giving it the freedom to allocate resources in a way which was most cost effective.

  • Capitated payment mechanism – rather than re-procuring community services using a traditional block contract, we worked with the CCG to develop a capitated payment model that equates funding for all out of hospital services to a single cost per head of population weighted to take account of individual need. This has initially been calculated using the Nuffield formula as a proxy measure to allocate funding on the basis of NHS resources used by specific demographic groups within the population, whilst the system develops more sophisticated risk stratification tools that can profile need more accurately over time. The value of the contract will be re-calculated on an annual basis to reflect changes in demographics and therefore need.
  • Outcomes based incentives – in parallel to introducing a per head cost of care for out of hospital services, it was recognised that the provider would need to be incentivised to deliver the best possible outcomes for services users within the cost per head. We therefore supported the CCG to develop a comprehensive outcomes framework in order to measure individual outcomes. The framework is a combination of specific health outcomes and also more holistic measures – such as people being fit and available for work. This will eventually form 15% of the total contract value through a quality incentive scheme, a figure chosen carefully to ensure that the provider was sufficiently incentivised without being overly punitive and risking the safety or quality of services. It was also clear that the system would not be in a position to introduce this overnight, and time would be required to ensure the systems and processes where in place to capture, measure, and baseline outcomes before they were aligned to financial gain. The value of the quality incentive scheme within the contract will therefore be introduced in a phased fashion over a three year period.
  • Wider system incentives – in order to ensure that the provider was further incentivised to focus on prevention and reducing acute activity, we also worked with the CCG to develop a gain share scheme around non elective admissions for the over 65s. This meant that the provider of out of hospital services would benefit financially from a reduction in non-elective admissions, thus incentivising them to prevent over 65s from reaching crisis points in their care. This was based on a volume driven rather than criteria based approach, ensuring that the whole economy would benefit from a real terms reduction in activity and savings would be shared across the system.

North of England

Within the North East of England we are currently working with multiple providers and commissioners that, up until now, have operated under historic and traditional commissioning arrangements. Our work involves bringing providers together as a single multi-faceted health and social care provider network under a single contract, removing layers of cost and duplication. This will subsequently liberate time and resources enabling them to be put at the heart of users’ health and social care journey; creating a succinct and seamless service.

We are creating this by utilising and combining a range of existing entity model frameworks and combining them with new innovative approaches to contracting and payment mechanisms to ensure equity, quality, transparency and collaboration across multiple providers and most importantly service users.

To discuss further please feel free to contact Mark Carmichael