As the NHS becomes accustomed to the legally-binding contracts between primary care trusts and foundation trusts, the main pressure points are beginning to emerge.

As the NHS becomes accustomed to the legally-binding contracts between primary care trusts and foundation trusts, the main pressure points are beginning to emerge.

Although the vast majority of issues are informally resolved 'in year', some focus on the following issues and mechanisms could prevent or resolve damaging disputes:

  • The model contract: the contract is part of a suite of documents governing payment by results, including technical guidance and a code of conduct. Underpinning the contract is the principle that payments to foundation trusts reflect the level of service they provide. Although a fixed amount is payable every month, periodic reconciliations trigger balancing payments to reflect activity.
  • Contractual review mechanisms: the model contract does not link foundations' reporting or monitoring obligations to payments. This creates challenges for primary care trusts in managing demand and cost.
  • Performance can be examined in-year through 'contract queries' and an escalation process can trigger 'performance notices', 'warning notices' and, ultimately, suspension of foundation trust services and payments to them. The contract also provides for comprehensive annual reviews. More informally, parties should also meet monthly to discuss performance.
  • Withholding payment: monthly payments by PCTs, agreed in advance, are not the limit of their liability. The contract and code of conduct require PCTs to pay for all activity; 'caps' and 'floors' are inconsistent with the fundamental principle of PbR that payment should be based on the number and complexity of cases treated. Disputed elements of invoices may be withheld until resolved, but past overpayments may not be offset against current liabilities, and sums owed to the PCT may only be offset against payments to trusts for services that have been agreed or 'determined' (probably by an independent tribunal). If a dispute arises during the review process, PCTs must still pay for actual activity, pending resolution. PCTs breaching the principle of payment to foundation trusts for work performed risk liability for interest at commercial rates and, ultimately, termination of contracts by foundation trusts.
  • Over-performance against baseline anticipated activity has triggered disputes. Inevitably, given the contractual framework, if demand management fails to prevent this, liability for additional activity falls on PCTs. Otherwise, foundation trusts would be required to provide unlimited activity, effectively at a fixed price, even where PCTs failed to manage demand. However, foundation trusts should not regard referrals as a licence to treat regardless of anticipated activity. Where over-performance is identified or projected, and agreement cannot be reached, foundation trusts should clarify the position with a 'notice of uncertainty'. This will enable PCTs to agree or decline increased activity, entitling foundation trusts to provide treatment (and invoice PCTs) or decline referrals.
  • Dispute resolution: The contract contains a range of provisions governing dispute resolution, generally through an escalation process. Initially managers, then chief executives, should try to negotiate a resolution. If that fails, negotiation by an independent mediator provides a last resort for voluntary resolution. If that fails, binding external resolution generally follows, through arbitration, a panel of experts or litigation. There are no known cases of any PCTs or foundation trusts resorting to court, and mediation and arbitration are private, so there are few precedents.

Daniel Purcell is a solicitor-advocate and partner in Capsticks' dispute resolution department.