Appropriate, aligned incentives

 

Incentives in the payment system must be designed to encourage all parties to work towards the same, or aligned, objectives. Shared objectives will foster effective relationships between providers and commissioners. Payment incentives should also be carefully aligned with non-payment measures, such as performance metrics and regulatory frameworks.

Targeting the right actors

Several participants thought that contracting and finance departments were normally aware of payment system incentives, but that a lot of work was required to engage clinicians to fully align the incentives and make them effective. Sometimes the placement of an incentive is a step removed from those whose behaviour it is intended to alter.

It’s clinicians generating this informationand it doesn’t make a difference to anything that they do, other than we don’t harass them if they create data. If they don’t do it, then there’s not really any consequence. NHS contract manager

This is consistent with findings by the Nuffield Trust, which stated that: ‘Pay-for-performance schemes in secondary care in England have not translated into incentives for individual staff, only for hospitals as institutions.’

This is not to say that best practice should not be incentivised. Rather, if the payment system is the tool used for incentives, it will work better if these directly affect those who are making clinical decisions that determine both costs and patient outcomes. Otherwise, other incentive tools may be more appropriate.

Payment mechanisms must consider that NHS providers are obliged to treat patients presenting to them. Providers agreed that patient care should always come before the payment system.

[But incentives can] potentially stop people taking the steps to doing the right thing. NHS contract manager

For example, basic block contracts can create a perverse incentive to undertake less activity, and undermine choice where other providers are paid on an activity basis for the same services. Furthermore, evidence suggests they may not incentivise quality improvements as successfully as other payment mechanisms.

Problems arise when payment incentives are not correctly targeted to the right part of the system. For example:

There is a penalty for providers not receiving electronic referrals. It’s the GPs who send the paper and yet [providers will] be the ones who get penalised. NHS finance professional

It is important that payment systems within the secondary care sector are not designed in isolation and are aligned with the broader health and social care sector, and that the financial incentives are targeted at the part of the system that can influence the outcome. However, this is challenging, particularly given the move to more integrated systems, and the frequent lack of integrated accountability frameworks.

Making financial sense

Financial risk needs to be balanced and incentives or disincentives targeted at those directly able to improve performance. For example, participants expressed concerns that block contracts burdened trusts with disproportionate degrees of risk; higher levels of activity, or rising patient acuity, are typically not funded in year despite providers experiencing higher costs.

Under block [contracts] the risk seems to be on the provider side, because things come on board like a new drug, which is very expensive. So it disincentivises development in a sense that when new business cases, new initiatives or innovation come up, it costs the providers money… that is bad for the patient. NHS finance professional

Some interviewees reported that PbR can hinder innovation and that, being based on average cost, the tariff does not incentivise best practice or quality improvement.

You get paid for doing the work whether you’re doing the worst hip replacement in the country or the best… you get paid the same. NHS board director

There is often a disconnect between the size of an incentive and the cost of achieving it. Challenging yet achievable targets should be set, which take into account the cost of delivery. But if the cost of achieving these targets is greater than the reward, they will not incentivise improvement. Best practice tariffs (BPTs) aim to improve quality for certain procedures, but their impact is not universal, in part due to the associated costs of improvement and/or set up, along with opportunity costs. The size of the trust and current activity or practice may determine this.

For a small trust… BPT arrangements make no sense at all because you’ve got to set up infrastructure just to count and monitor. NHS contract manager

Alignment across the system

Payment mechanisms do not always align with national rules or ambitions, or other non-payment mechanisms. For example, a community trust funded through a block contract was compelled to enforce a national agency nurse cap, and as a result had to close beds due to weekend staff shortages. The block contract meant that commissioners were unable to repurpose the funding to commission alternative services. Following the bed closures, the activity instead flowed towards the local acute provider and was funded by commissioners via PbR.

As a result, costs to the local health economy increased, and it is possible that some patients were treated in inappropriate care settings. In this case, the national agency cap distorted the incentives of the existing payment system, demonstrating some of the problems that arise when providers use different payment mechanisms with conflicting objectives.

The fragmented nature of health services in recent years has led to an increase in local negotiations and contractual arrangements. One provider described developing a block contract with their CCG over a 3- to 4-year period. Another provider in the same area had signed a cost and volume arrangement, which meant that if patients didn’t get ‘the answer they wanted’, they were referred to the other provider, which was willing to investigate patients because they were incentivised to do so by PbR. Unnecessary and avoidable clinical activity was thus being driven by conflicting payment mechanisms within one local health economy.

Even when respondents were able to interpret the purpose of a component of the payment system, it did not always align with the prevailing national or local strategies of the health system. One participant highlighted this problem in the context of STPs, saying that PbR is hindering the drive towards co-planning and whole-population management.

Incentives and risk must be balanced between providers and commissioners. For example, with the marginal rate emergency tariff (MRET), the financial penalty falls disproportionately on providers.

[A]ll the pressures, all the penalties, MRET, everything all sits with the acute trust and there is absolutely no way you can fight it – there are no levers in the contract, you can’t respond. NHS contract manager

Commissioners and the wider system are arguably better able to reduce the volume of patients attending A&E by investing in preventive services and alternatives to A&E where appropriate, and should be incentivised to do so. Currently, acute trusts are experiencing rising A&E attendances, yet are receiving reduced payment for this additional activity.

The financial incentive or disincentive must be targeted at those who have influence over the outcome. This is clearly an ongoing challenge.

It’s quite unhelpful, PbR, in terms of the STP conversations we’re having… The whole focus on having to pull costs out of our local health economy should be based on avoided cost. And a lot of the planning is on avoided commissioner payment, which is income, and that’s not necessarily what providers can pull out in cost terms. NHS contract manager

Any development of the payment system must ensure that incentives target those who are able to influence the desired outcomes, and must anticipate the potential consequences of any change on other parts of the system.

Conclusion

While it is widely accepted that payment systems should be used to incentivise or deter certain actions, these systems must be coordinated with non-monetary incentives such as medical education and clinical guidelines.

During research for this report, it was not unanimous what should be incentivised and how. Some participants felt existing incentives inhibited their ability to make appropriate decisions for high quality, efficient care provision. Others felt incentives are targeted at parts of the system unable to influence outcomes. Accountability must be agreed across the system, and payments aligned to this.


‡‡ Clinical notes are translated into codes by clinical coders; these underpin existing currencies. For more information see the appendix to this report: www.health.org.uk/effective-payment-system-eight-principles

§§ Patient acuity is a concept used to estimate nurse staffing allocations. It has two main attributes: severity (the physical and psychological status of a patient) and intensity (the nursing needs, complexity of care and corresponding workload required by a patient).

¶¶ The money or other benefits lost when pursuing a particular course of action instead of an alternative.

*** Commissioning for Quality and Innovation (CQUIN) schemes go some way to addressing inappropriate activity. For more information see: www.england.nhs.uk/nhs-standard-contract/cquin/cquin-17-19

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