An emerging type of contract is changing the way healthcare does business. Robert McGough and Rupert Dunbar-Rees examine the risks and benefits
There is a growing acceptance that existing NHS contracts are not going to deliver the level of integration, outcomes and efficiency savings we desperately need. The phrase on everyone’s lips right now is “alliance contracting”. But are alliance contracts the solution? What are the basics every commissioner and provider should know before going down this route?
‘Alliance contracting is potentially a more collaborative and collegiate approach that seeks to create cooperation between providers and commissioners’
Alliance contracts are usually an arrangement where a number of parties enter into an agreement to work cooperatively and to share risk and reward, measured against set performance indicators − often pre-agreed outcomes indicators.
The commissioner and providers work as a single “integrated” team to deliver a specific project under a contractual framework that looks to tie their commercial interests in with the project’s objectives.
Alliance contracting has been attracting more interest recently due to a number of reasons. Changes in the structure and requirements of the NHS, financial restraints on commissioners and a series of patient safety, satisfaction and quality concerns all require a rethink of the way healthcare does business.
‘The alliance will need to be based on clearly documented principles to which all members of the alliance are completely agreed’
There is no single agreed form of alliance arrangement in an NHS setting at present. But it is a move towards improving outcomes across the full care cycle such as for people with osteoarthritis, rather than by discrete bits of the pathway such as hip replacement, which is creating a multiple provider contracting issue that needs fixing.
This has led to a greater willingness to explore beyond existing activity based contractual routes and to consider new, innovative contractual solutions that focus more on integration of care between multiple providers and improvement of meaningful outcomes.
Alliance contracting is potentially a more collaborative and collegiate approach that seeks to create cooperation between providers and the commissioner, based on an agreed set of objectives.
Because of this, it lends itself more readily to use in a pathway where multiple providers need to integrate care than the traditional adversarial approach sometimes reflected in existing NHS contracts.
Under alliance contracting, traditional contractual legal protection is exchanged by the commissioner and providers for a new form of relationship based on good faith, focused on delivering defined outcomes, which all parties have signed up to.
The alliance will need to be based on clearly documented principles to which all members of the alliance are completely agreed.
Principles seen in other examples of alliance contracting include:
- Everyone wins or everyone loses depending on whether the alliance has met its objectives.
- Members of the alliance have an equal say in decisions for it.
- Risks and responsibilities for the project are shared and managed collectively by members of the alliance, rather than allocated to individual members.
- The introduction of a “no blame culture”, where members are less likely to take legal action against each other, with dispute resolution mechanisms underpinned by a clear definition of responsibilities within the alliance.
- Communication between members is expected to be transparent and open, with all alliance transactions conducted on an “open book” basis.
- Creation of an integrated management team for the alliance selected on the basis of the best person available for each position.
There are an increasing number of proposals to use forms of alliance contracting in the NHS such as the Somerset integration “pioneer” project Symphony. There are also elements of alliance principles in the collaborative operation of current integrated care models and some prime contractor models.
Look beyond healthcare
The model itself has been used more commonly outside of healthcare − such as in the construction and oil and gas industries − especially in Australia and New Zealand. It has often been used where there is a finite and discrete objective, rather than a series of ongoing outcomes as in healthcare.
‘Alliance contracts depend on the ability to share incentives and rewards and not just cover costs’
Where it is beginning to be used in healthcare, for example in New Zealand, it is not yet apparent whether improved outcomes or lower costs have been achieved.
What is clear is that the alliance approach requires a significant cultural shift and breaking down of organisational barriers to operate.
Need for transparency
All alliance stakeholders need to be involved on an equal and transparent basis, whether they are directly involved in the main project management or not. The share of risk and reward also needs to be fair.
The collaborative nature of alliance contracting is appealing but the complexity, time and cost for the alliance approach documentation and management should not be underestimated.
Detailed due diligence should be carried out by all the potential alliance members on each other to ensure they are comfortable with the potential arrangements and their partners, on a fully informed basis.
‘A high level of trust between alliance partners who ideally have a successful track record of working together on other projects is needed’
It has potential advantages over traditional contracting structures if better alignment and integration of providers and commissioners across a complete care cycle can be achieved.
In an NHS context, the approach becomes much more challenging for providers that may have to put at risk a proportion of what was once fairly guaranteed income on the basis of collective performance on predetermined and evolving outcomes. While that may sometimes be in patients’ best interests and can promote more integrated working, the real problem comes when disputes arise.
Alliance contracts also depend on the ability to share incentives and rewards and not just cover costs. But it is not clear whether many commissioners will be in a position to adequately incentivise delivery for the foreseeable future.
‘Before selecting an alliance contract over other approaches, it is important to understand the full spectrum of alternatives’
Alliance contracting appears to be better suited to scenarios where there is a partnership of equals between the providers and no single dominant provider/provider type whose considerations could skew decision taking.
Relatively manageable numbers of alliance partners is also ideal; the greater the numbers, the greater the complexity and management issues.
A high level of trust between alliance partners who ideally have a successful track record of working together on other projects is needed.
Risks and rewards
Alliance contracts can also be employed where there are low levels of clinical risk across the pathway and there is an ability to adapt the financial structure to meet a risk and reward model.
A low likelihood of needing to subsequently change the contract, or where changes are anticipated and the impact on the alliance can be planned for within the structure, works well.
As commissioners focus increasingly on commissioning for outcomes, contractual structures are needed that support shared responsibility for delivering outcomes, hence the increasing interest in alliance contracting. But this is a completely different way of contracting, so NHS commissioners and providers need a full understanding of the issues if they are discussing entering into alliance arrangements.
Before selecting an alliance contract over other approaches, it is important to understand the full spectrum of alternatives, from loose arrangements such as memoranda of understanding, through federations, partnerships, integrator and lead provider models, to partial or full merger models.
What to look out for in alliance contracting
Key areas where alliance contracting needs to be carefully examined before proceeding include:
- The specification and delivery of services − who does what? The full responsibility for performance of services becomes a joint responsibility across the members of the alliance (which can, confusingly, include commissioners as well as providers).
- Warranties and indemnities − when things go wrong: Alliance members may make commitments to act in good faith and work together towards shared objectives, as part of an alliance culture. The main mechanism for dealing with poor performance from an alliance participant would be reduced reward or increased financial risk.
- Payment structure − who gets what? Members are paid for certain costs incurred in performing the services as specified in the alliance contract. However, a “risk and reward regime” operates on top of this to incentivise alliance partners to complete the services more efficiently, or help deliver the overarching outcomes.
- The finance and remuneration mechanism: This is fundamental in an alliance model and needs to be developed in detail at an early stage to ensure it does not produce unintended or perverse results (excessive rewards for underperformance or penalties harshly imposed upon the parties), which could damage the trust on which the model is built.
- Variations − changing the contract: One potential complexity is when a contract variation is required, which would normally require the written approval of all parties to the contract. Operation of “vetoes” and/or protection of minority interests are a particularly tricky area and it is essential to consider them in advance.
- Insurance and liability − when things go really wrong: There is shared attribution for delivery of the outcomes required, meaning there is also shared risk (potentially clinical and non-clinical), so traditional indemnities and protections between the contracting parties become much more limited.
- Corporate structure − what are we and can we hold an NHS contract? Only certain types of organisation are currently permitted to hold some types of NHS contracts. For example, for primary care there are regulations about the types of organisation that may hold primary medical, dental, pharmacy and ophthalmic contracts and in some cases these may limit the form of the “alliance”.
Robert McGough is a partner at DAC Beachcroft and Dr Rupert Dunbar-Rees is founder of Outcomes Based Healthcare