a handshake

Introducing Aligned Incentive Contracts

In 2017, in preparation for becoming an Integrated Care System (ICS) the Portsmouth Hospitals NHS Trust (PHT) and South East Hampshire, Fareham & Gosport and Portsmouth CCGs wanted to look at how they could incentivise activity and reduce costs across the system as a whole rather than focussing on hospital income.

With challenges facing the health economy of:

  • A CCG affordability gap
  • £12m (possibly £20m) QIPP needed
  • No PHT capacity to deliver the backlog

With no existing plan for the system to solve these issues, there was a need to encourage CCG’s and the acute Trust to work together to develop collaborative solutions to address the key issues of affordability, rising demand and capacity constraints.

In an interview with the Portsmouth News, Michelle Spandley, the CCG’s Chief Finance Officer explained that the arrangement will see Portsmouth Hospitals Trust (PHT) work more closely with other services to ease pressures and free up hospital beds at The Queen Alexandra (QA) Cosham site.

She said 'This is a building block to helping improve the system at QA. It is about opening that dialogue to transform services without PHT worrying about loss of income. We need to be working together better and making ourselves more efficient."

Our approach

The South East Hampshire CCGs tasked SCW with preparing the ground for a contract with Portsmouth Hospitals NHS Trust based on a different form of payment. SCW sourced a dedicated Director of Contracting, with 10+ years’ experience of NHS contracts and experience of using the contract in innovative ways.

A key aspect of the preparation was to get the baseline, based on the existing Payment by Result (PbR) payments, set at the right level. Through strict adherence to NHS payment business rules, this was achieved, whilst at the same time ensuring the commitment of the parties who had been involved in the PbR, to adhere to the new rules rigidly and without compromise.

Once the CCGs and Trust made a commitment to each other that a different form of contract and payment would be preferable SCW supported the parties in the transition. The contracting parties identified a suitable model, having seen a presentation from the Healthcare Financial Management Association (HFMA).

SCW took the model from that point and through an iterative process of negotiation and baseline setting varied the complex NHS Standard contract, whilst adhering to national guidance.

The variation took the form of detailed documentation regarding the new business rules to be followed and their underlying principles. Accompanying this was a complex financial model with activity divided into discrete tranches each with its own business rules to be followed should activity and cost vary from plan.

The parties were able to take this variation through their internal governance processes and to their regulators externally and SCW supported the parties to facilitate formal agreement.

During this transition, and after signature, SCW embraced the following principles which were enshrined within the Aligned Incentive Contract:

  • A deficit of either organisation is a failure of both (in due course, extend this concept to wider system working)
  • Collaborative working
  • Aligned incentives
  • Open, transparent with no fear
  • Enabling and supporting the locality vision
  • Risks faced, shared, managed
  • Place-based, system working
  • Focus on value – cost, efficiency, effectiveness
  • Contracts that enable transformation
  • Resets behaviour
  • Align clinical and business risk across the system
  • Focus on reducing variation

SCW embraced these principles and joined the system in committing to the following steps:

  1. Culture of empowerment of front line staff to innovate
  2. Governance arrangements - Joint Improvement Board
  3. Agreement on how to navigate/communicate with each other

The Contracts Team from the Trust and SCW provider management team committed to working closely together. SCW reconfigured IT on the CCG site and collaborated with Trust colleagues to do the same at Trust Management offices so that system team members could work alongside each other to deliver systems savings. 

The outcome

  • The health economy agreed to a new type of contract. The Aligned Incentive Contract (AIC) replaced the Payment by Results (PbR) payment mechanism that had been in place for the last 10 years.
  • The new solution will deliver better services and outcomes for people.
  • It supports the implementation of the locality vision of prevention and out of hospital care and enables targeting of investment in primary, community care, social care and hospital.
  • The AIC will see the end of reliance on Commissioning for Quality and Innovation (CQIN), fines and contract adjustments.
  • The contract includes an activity reduction incentive (44% of contract), a cost reduction incentive (6% of contract) and an element of cost risk share (37% of contract) to incentivise different behaviours and working together to address rising local demand and budget constraints.
  • The contract contains an Expected Income Guarantee of £329m. As well as the three incentives outlined above, 14% of the contract relates to Fixed Income from Block Services and CQIN.

There are enormous financial and performance issues in the South East Hampshire system. The AIC is intended to allow Portsmouth Hospitals Trust work more closely with other services to ease pressures and free up hospital beds at The Queen Alexandra.

Direct patient care will be improved through closer working, improving communication and whole-system working to improve pathways. Moving the system away from a contract where huge management resource was spent on transactional discussion and dispute has freed up that resource for system leadership. This contract is viewed by the parties as a vital first step on the journey towards a system based Integrated Care contract.  

It is too soon to quantify success in terms of financial benefit. The contract variation was signed in the summer and the changes anticipated are short term in nature. 

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