Inefficient block contracts reviewed by ICBs

New contracting guidance says integrated care boards should review their fixed funding deals to make them “more reflective of activity levels and reasonable costs”.

Block funding deals – now known as “aligned payment and incentive contracts” – were agreed to simplify payments for emergency care and other non-elective hospital services such as maternity, at the height of the pandemic.

Since then they have been updated and uplifted based on local negotiations, largely based on covering trusts’ cost base, rather than real levels or types of activity.

Recent analysis by NHSE indicates this has led to different trusts now being paid hugely varying rates per unit of non-elective activity, HSJ understands.

To try to address this and increase efficiency and productivity, NHSE is now increasing the national payment tariff for urgent and emergency care, maternity and non-elective activity, to a level it says reflects “the pre-pandemic cost base for these services”. This entails a 13 per cent increase on previous rates.

Measured against this new rate, NHSE analysis suggests a very small number of trusts are now slightly underpaid, but the large majority are receiving well over the recommended rate, HSJ understands.

NHSE says ICBs should not seek to move to the new rates in 2025-26 – which would mean severe cuts for some trusts – but should calculate the gap and seek to close it over time. It will share its analysis with systems to “support ICB and provider discussions about acute services”.

NHSE’s consultation on a new NHS Payment Scheme for 2025-26, published on Thursday, said: “Many provider contract values are still heavily based on the emergency payments agreed under covid-19 measures, adjusted for subsequent inflation, efficiency and planned activity growth. As a result, the fixed payment may not reflect current activity and efficient costs.

“We are therefore proposing that commissioners will be required to review the current fixed payment for all providers with which they have an aligned payment and incentive contract [which combines fixed and variable payments].

“The review should help identify areas of potential efficiency savings, as well as, over time, leading to payments which are more reflective of activity levels and reasonable costs.”

While block contracts offer providers a predictable income, there is concern among senior figures in emergency care that they do not incentivise improved clinical care or efficiency, and may not incentivise keeping patients out of hospital.

As previously reported by HSJ, NHSE is also set to launch pilots of alternative methods of funding in 2025-26, such as incentivising virtual wards or “same day” emergency services, and “accountable care”-style payments to arrange all the care for a specified population. If they are to be rolled out widely, it will not be until 2026-27 at the earliest, however.

Adrian Boyle, president of the Royal College of Emergency Medicine, said: “We are keen for a review of the funding mechanisms in urgent and emergency care. The current system of block contracts does not adequately incentivise money going towards the patients who need care most.”

NHSE’s consultation is open until 28 February.

An NHS England spokesperson said: “This review will identify areas of potential efficiency savings for 2025/26, with A&E, non-elective and maternity prices uplifted to align with the pre-pandemic cost base to provide better comparison.

“We do not expect provider fixed payments to increase as a result of the price changes, and we encourage ICBs and providers to respond to the statutory consultation process before 28 February.”

Updated at 11:10am, 5 February to add NHSE comment