The Department of Health has recently published two forms of model contract for the provision of acute hospital services, both within and outside the scope of the national tariff. The models are in legally and non-legally binding form for use by foundation trusts, hospital Trusts and PCT commissioners. We would advise that legal advice is sought before implementing the legally binding model.

The Department of Health has recently published two forms of model contract for the provision of acute hospital services, both within and outside the scope of the national tariff. The models are in legally and non-legally binding form for use by foundation trusts, hospital Trusts and PCT commissioners. We would advise that legal advice is sought before implementing the legally binding model.

The new contracting models are based on the premise that a co-ordinating commissioner will act on behalf of its associate commissioners, but each associate will remain responsible for paying for any activity they have commissioned.

Essential to the operation of the contract is agreement of the co-ordinated activity profile, and monthly monitoring of it. The activity profile will specify each type of activity being commissioned. It will be based on both expected volumes of new referrals, and the reduction required in existing waiting lists, to allow providers to deliver the 18 week waiting time target in a sustainable way. The effectiveness of this process will be determined by how much monitoring information is available. Under the foundation trust model, co-ordinating commissioners will be entitled to retain a locally agreed sum for information which is provided in default of timescales - as per Secondary Uses Services guidance - or for information which is inaccurate or incomplete.

At the end of the financial year, the co-ordinating commissioner will initiate a joint process with the provider, to determine whether any financial adjustment for activity performed in excess of the activity profile should be applied. Such an adjustment relates to any activity which has exceeded forecast thresholds, despite being subject to a remedial action plan. The provider will not be paid for any excess activity above the forecast threshold.

A strong contractual emphasis on compliance with the 18 week referral to treatment target requires the parties to review monthly and forecast year-end 18 week performance positions. A 0.5 per cent deduction in total elective income will be applied for each one per cent by which the provider underachieves the 18 week target. The adjustment will be capped at a maximum of five per cent of total elective income if the provider underachieves the 18 week target by ten per cent or more. The overall adjustment will be capped at two per cent of total contract income if this is less than five per cent of total elective income. Where the parties agree that all reasonable actions have been taken, with reference to the findings of a ‘capacity review’, any subsequent financial adjustments may be waived.

Parties are encouraged to examine reasons for inappropriate ‘over-utilisation’ of healthcare resources by agreeing ‘utilisation management’ and ‘prior approval’ schemes. The former can be used as a development tool to redesign services, reduce delays and release beds. The latter should be used by providers to confirm in advance the appropriateness of a proposed intervention or course of treatment. Where providers fail to comply with them, commissioners will be entitled to retain payment.

All contracts should be signed by 28 February 2007. If agreement cannot be reached the dispute will proceed to Mediation and if necessary an Independent Binding Pendulum Adjudication (‘IBPA’) which will be concluded by 30 April 2007. The IBPA will consist of a panel appointed by the 10 strategic health authorities and Monitor. It will determine the dispute, with the losing party bearing the costs.

Amy Chattopadhyay is an assistant solicitor at Bevan Brittan LLP