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Ghosts of Future Past – new approaches in contracting and commissioning Part 1/3

Thursday 11th February 2021

Neil Stevenson from NECS discusses outcomes as a tool to support system accountability and performance.


The NHS’s Long Term Plan (LTP) signalled a move from the internal market and competition, with the end of payment by tariff. This is reinforced by additional guidance based on the Covid experience but there’s an ongoing question of what replaces tariff.

Are outcome based payments the solution? Or is paying for outcomes simply going to risk recreating the issues that the tariff-based system caused?


Recent guidance on the development of ICS’s and place-based planning and delivery has reinforced the shift signalled in the LTP. Though it looks like the commissioner/provider split established in the 2012 Health Act will remain (meaning that contracts will still be required to transfer resources), we are on a pathway that will see tariff becoming a comparative tool at best or gradually phasing out. The centre has been playing with population based models for some time, and it looks that this is the direction of future travel.

But there are concerns. Though payment by tariff only ever covered acute based services, it is deeply ingrained into the service planning and development. It did have its benefits, including supporting the reduction in waiting times (as challenging as the current situation is for elective year, there was a time when we measured routine access to planned care in years) and giving a granular focus to pathways, service change etc. (with the side effect of improving the quality and depth of data and information for clinical interventions). However, the ‘pay as you go approach’ encouraged increased transactional behaviour across commissioners and providers and the failure to find an equivalent system to cover community and mental health services led to resources being sucked towards acute care, making it difficult to deliver system based solutions.

The alternative – population based funding, though it fits with the wider aspirations of the LTP, also doesn’t come without baggage. There’s a worry that it is just a smart way of describing what is in effect a block. Those with long memories can remember a world where this was the case and the frustrations that it caused. And then there’s the issue of reward and incentives – would a simple population based funding system provide the necessary incentives to produce the change we need and what to see?

In western health care systems there has been a wholesale move above from simple, ‘pay as you go’ approaches for activity. Funding models have changed to focus on specific improvements and/or outcomes, i.e. payment approaches targeting specific improvements that are of wider benefit to the population. This is most obviously seen in the US accountable care system.

Simply put, from a health perspective, this is about commissioners looking at their population and setting out the improvements they want to see over time in that population. This is an outcomes based approached, where delivering on those outcomes are incentivised through financial payment. The genesis of this outcome based payment system approach (a true version of payment results) has evolved in a number of sectors, with health coming late to this.

One of first areas to focus on an approach that incentivised specific improvements was in international aid. Concerns in a number of areas that funding into developing countries was redirected away from its original purpose led to the development of schemes that linked a proportion of investment directly to the outcomes, which the money was being given for. The idea, tie an element of funding to the (positive) outcomes desired, logically made sense. It would drive action and if it failed the funder didn’t lose out.

The concept spread, and not just in the developing world. Work and justice schemes were funded on the basis of the number of people going back into work; preventing them to return to a life of crime.

It is a small step to assign this kind of approach to health. Provide core funding on a population basis and then incentivise the improvements and changes that you want to see, with a percentage paid for delivery of these requirements. It’s neat and it provides a degree of accountability for the funding.

But even though it sounds (and) feels reasonable, there are fundamental issues that suggest this approach won’t work and this is backed by evidence:

  • From a practical point of view, to offer this kind of incentive based population approach requires an element of resourcing to be withheld to pay the incentive; this is going to be challenging where organisations are under significant pressure.
  • From an organisational/system perspective it assumes that the aims and objectives of commissioners and providers are not aligned. There are two issues here; the first is that potentially this is a direct challenge to the wider commitments to work together collaboratively and collectively. It implies that money can simply ‘buy’ compliance, rather than the practical hard graft of working together. The second issue though is more fundamental.

We can all probably agree that the health system is complex. At individual, group and population levels there are a many drivers affecting health status. The risk with incentivising outcomes financially is that it assumes that a single organisation (or collective) can resolve issues. It fails to recognise that outcomes are not delivered by organisations; they are products of the complex systems we work in. There are many factors that drive and effect outcomes.

Financially incentivising outcomes risks distorting efforts and requirements, creating perverse incentives and gaming. Rather than focusing holistically on the needs, organisations start focusing on the specifics to get the performance incentive. Reporting becomes orientated to reflect these requirements at the expense of wider needs and issues; systems are created to capture information to support delivery, often through proxies that bear no relationship to actual need. Equally, as and when a threshold is achieved the motivation to continue improvement goes, as further improvement doesn’t deliver additional resources.

There is also the risk of distortion and misalignment. What do you do in a system where you get rewarded for

improvements in cardiac health but additional resource needs to be spent to improve long waits in orthopaedics? A rigid outcome based financial system can cause this.

Outside of health, there is now a large library of evidence showing the significant limitations of outcome incentivised approach. As early as 2011 it was found that “The overall conclusion from international experience of implementing an outcomes approach is that the journey is long and the results are disappointing.”[1] The National Audit Office reached a similar conclusion in 2016 “While supporters argue that by its nature [outcome based] PbR offers value for money, PbR contracts are hard to get right, which makes them risky and costly for commissioners. … [but] commissioners may be using PbR in circumstances to which it is ill-suited, with a consequent negative impact on value for money.”[2]

The use of financial outcomes incentives in health is limited, though anyone with experience of working on CQUIN’s or primary care’s QOF might recognise the issues around gaming and perverse incentives. Population based funding is an appropriate approach to supporting the LTP and associated requirements, however designing a system where outcomes are financially incentivised prospectively leads us back to the same issues we’ve had with tariff: bureaucracy and transactional behaviours. As we are on a journey there’s the potential to avoid this, this time round.

[1] Wimbush, Erica (2011): ‘Implementing an outcomes approach to public management and accountability in the UK—are we learning the lessons?’, Public Money & Management

[2] ‘Outcome-based payment schemes: government’s use of payment by results’ National Audit Office June 2015