• One in four acute providers now mostly contracted through some form of block payment or risk share, research suggests
  • 28 per cent increase in the cash value of block contracts in 2017-18, compared to 2016-17.
  • Analysis was based on freedom of information request responses from 85 trusts, which represents around 60 per cent of the sector.

There has been a significant increase in hospital trusts moving away from activity based payment tariffs to block contracts, analysis by HSJ shows.

HSJ’s research suggests one in four acute providers are now mostly contracted through some form of block payment or risk share by their main commissioner, up from one in six trusts the previous year.

Our analysis was based on freedom of information request responses from 85 trusts, which represents around 60 per cent of the acute sector.

It suggests a 28 per cent increase in the cash value of block contracts in 2017-18 compared to 2016-17. There was a 9 per cent increase in 2016-17 compared to the previous year, and a 5 per cent year on year decrease in 2015-16.

The shift this year has been driven by 10 trusts that have made a major move away from the national tariff in 2017-18.

Trusts that now have more than half their main contract on a block payment or risk share

 Trust2017-18 (£m of main contract on block/risk share)2017-18 (% of main contract on block/risk share )Change in percentage from 2016-17
Taunton and Somerset Foundation Trust 186 100 99
Wrightington, Wigan and Leigh FT 182 100 91
Worcestershire Acute Hospitals Trust Not provided 100 89
Colchester Hospital University FT 217 100 59
Isle of Wight NHS Trust 133 100 56
Dorset County Hospital FT 118 100 3
Torbay and Southern Devon Health and Care Trust 164 100 0
Northern Devon Healthcare Trust 128 100 0
Bolton FT 194 100 0
South Tyneside FT 81 100 0
Epsom and St Helier University Hospitals Trust 205 100 0
Ipswich Hospital Trust 190 100 0
West Suffolk FT 109 100 0
Royal Devon and Exeter FT (not finalised) Not provided 100 0
Aintree University Hospitals FT 83 94 76
Pennine Acute Hospitals Trust 224 91 85
Royal Liverpool and Broadgreen University Hospitals Trust 233 86 86
King’s College Hospital FT 333 78 -5
Royal Free London FT 137 75 73
Plymouth Hospitals Trust 182 73 -1
Stockport FT 86 57 0
Rotherham FT 87 55 54

Under the payment by results tariff, a provider is paid according to the number of treatments or operations it performs. Whereas a block or risk share contract means the contract value is fixed, or partially fixed, usually over the course of a year.

PbR was introduced by the Department of Health in the early 2000s, with the aim of improving efficiency, volume of activity and quality of care. But it has been increasingly criticised for creating perverse incentives and encouraging competition over collaboration.

NHS England has previously urged caution especially in relation to elective care, but more recently has said it is open to trusts moving away from the tariff.

Siva Anandaciva, chief analyst at the King’s Fund, said: “The key question is how many of these are genuine partnerships that act as a catalyst to a more joined up system that shares financial risk appropriately, and how many are mainly a case of NHS organisations passing financial risks between each other.

“It also remains to be seen how the increasing popularity of these arrangements will be managed in health systems where some providers are on payment by results contracts and others are on block contracts for the same services.

“In the past an SHA would attempt to monitor patient flows and broker arrangements across the patch, but in the new system it is still not entirely clear how this will work.”

He said HSJ’s analysis further highlights the “growing gap between the current reality of the NHS and what was envisaged by the Health and Social Care Act 2012”, saying current legislation may need to be revisited as organisations work to bridge the purchaser/provider split.

However, the body representing private providers, the NHS Partners Network, has warned the increasing use of block deals could “impede the ability of NHS patients to get access to the quickest available care”, as they could limit CCGs from diverting resources to alternative providers.

There were three trusts that bucked the national trend by shifting from a block contract back to the PbR tariff: The Dudley Group Foundation Trust; Mid Essex Hospital Services Trust; and Basildon and Thurrock University Hospitals FT.

A spokesman for the two Essex trusts said: “The decision to move back to activity based contracts was a joint decision by the trusts and commissioners. Although the block contracts gave both parties certainty over the value of contracts, the risk associated with actual activity delivered did not fall equitably between the parties and it was therefore jointly agreed that we would move back to PbR.”

The Dudley Group said it was anticipated that moving away from a payment by results contract may reduce the “administrative burden”, but there was in fact little difference.

It added: “Therefore, we have this year agreed to move back to payment by results. In future, we expect a weighted capitation style of funding to be the preferred option.”

In Devon and Liverpool there are wide ranging block contracts with all the acute providers. In Liverpool, this also extends to specialist providers. Royal Devon and Exeter FT said its contract value for 2017-18 had not been finalised, but it was anticipated to be a block contract as in 2016-17.

Royal Free London FT said its deal involves the use of marginal rates, in which the tariff payments are reduced above an agreed level of activity, while Colchester Hospital University FT said its main CCG contract is now based on a guaranteed income agreement.

Ipswich Hospital Trust said its main contract dictates that any overperformance up to a maximum of £1.3m will be funded by the CCG, while any underperformance will be paid back.

South Warwickshire FT said the block element of its contract is based last year’s outturn, plus growth.

David Hare, chief executive of NHS Partners Network, pointed to a letter issued in March last year by NHS England and NHS Improvement, which said block contracts should not generally be used for elective activity.

He added: “Instead, as communicated by the national NHS bodies last year, the focus should be on maximising the incentive for providers to deliver the activity needed to meet the 18 week referral to treatment target and, if this is not possible, maximise the flexibility for CCGs to divert resources to other providers capable of doing the work.

“In light of these latest figures indicating that the cash value of elective block contracts is actually on the rise, it is vital that the national NHS bodies seek assurances that the use of block contracts are not impeding the ability of NHS patients to get access to the quickest available care.”

However, NHS England said in a statement: “As we move towards STPs and whole system working, providers and commissioners are working more closely together and as part of this they are free to agree different local contracting models to support care redesign.”

NHS Improvement was also approached for comment.

The figures for the Royal Free London FT have been amended, after the trust said the initial figures it supplied were incorrect.