Capitated Outcome-Based Incentivised Contracts

Fragmented care pathways can deliver suboptimal patient experiences and, when combined with perverse incentives from the financial structure, often mean increased costs and poor value for money.  These problems can be addressed if the same care is delivered through a seamless and efficient care pathway.  This is why CCGs are starting to consider using a model of outcome based commissioning with an accountable lead provider (also known as "COBIC" or Capitated Outcome-Based Incentivised Contracts) to deliver care to patients with health needs that span domiciliary, primary, community and acute care.  Examples of this approach include the delivery of substance misuse services in Milton Keynes, and in procurement are musculoskeletal services in Bedford and frail elderly care services in Oxfordshire.

Outcome based commissioning is not a new concept, but it has been given new impetus by the CCGs who are seeking improved services for a reduced cost, and the refresh of Transforming Community Services contracts in the coming 6 – 18 months gives CCGs the opportunity to reconfigure some of the care pathways as part of that process. Outcome based commissioning transforms commissioning for activity into commissioning for outcomes. 

An accountable lead provider takes the process beyond this so that the CCGs do not need to separate and bundle discrete services to put out to tender, and then manage the multiple providers of those services.  Instead, by procuring outcomes and an accountable lead provider, the CCG transfers the responsibility (and some of the financial risk) for integrating the care pathway to the accountable lead provider.  The accountable lead provider constructs a supply chain to deliver the range of services required by patients within the pathway, and it is responsible for navigating all of its patients through the care pathway efficiently and effectively. 

In order to manage the risks inherent in an outcome based commissioning contract, the accountable lead provider is likely to implement more joint working arrangements within its supply chain, and therefore the impact of outcome based commissioning may be more widely felt than at first appears. In order to counterbalance the risk, providers need to be able to see an upside from sharing in gains from improved services and more efficient delivery.

CCGs need to be aware of the potential complexities that may arise from adopting an outcome based commissioning approach.  We can help with advice on issues such as:

• Terms of the contract.  While the Service and General Conditions of the NHS Standard Contract are mandatory, the Particulars section contains a range of provisions which are for local development.  These include the specification, local quality requirements and the commercial pricing terms. The pricing terms can include transferring price and demand risk to the accountable lead provider, and gainshare, subject to the PBR and National Tariff rules.
• Consideration will need to be given to both the NHS procurement regulations and EU procurement requirements.  The procurement process may need to be conducted through a competitive dialogue process (depending on the extent to which the Particulars in the standard contract cannot be pre specified and need to be developed through discussion and in negotiation with bidders).  In any event the procurement is likely to be more complex than many previous service procurements carried out by PCTs, due to factors such as the size and value of the contract, and the number of potential bidders (with or without established supply chains).  
• Conflicts of interest.  Under the NHS procurement regime, care should be taken where there are conflicts of interest as there are formal obligations on CCGs not to award a contract where there is a conflict of interest that affects or appears to affect the award. 
• Complexities with PBR and National Tariff rules.  Where services are currently covered by PBR rules there is scope to locally agree a different payment mechanism, but care should be taken to ensure that the proposal fits within the scope of the exceptions. However things will get more complex under the new National Tariff when the relevant provisions come into force next year.  The Tariff will not merely provide for fixed prices for certain descriptions of health service but also provide rules for ascertaining prices which are not fixed. There are provisions for variation by agreement, and it seems to be intended from the current consultation that agreement through a procurement process will meet this requirement.  However, there may be rules which constrain this freedom.
• Complexities with Patient Choice.  There will be instances where a patient chooses to be treated at a hospital that is not part of the accountable lead provider's supply chain (as is permitted by Patient Choice).  The issue to be determined between the CCG and the accountable lead provider is then which party takes the risk of that non-supply chain provider not meeting the care pathway timescales or procedures required by the accountable lead provider – is it for the CCG to manage that risk through its acute contract with the hospital, or does the accountable lead provider take (and price) the risk?  The CCG will also need to consider where the accountable lead provider may be required to offer choice within the care pathway.
• Interface with acute contracts and essential services in primary care contracts.  There is a particular risk of overlap between the outcome based commissioning contract and existing contracts for acute services and essential primary care medical services.  The CCG will need to understand the extent to which existing contracts can be varied or terminated or the outcome based commissioning contract can be drafted to avoid duplication of commissioned services.
• Integration with Local Authorities.  Some of the services being procured through outcome based commissioning contracts will require integrating with services delivered or procured by local authorities.  In particular this applies to the frail elderly care pathway where local authorities are responsible for domiciliary and social care services.  The preferred approach may be to procure an integrated health and social care contract, and this is likely to involve entering into an agreement for joint or lead commissioning with the local authority under Section 75 NHS Act 2006.

Social Impact Bonds and Local Integrated Services Trusts

Commissioners have to find a way of delivering effective public services in a more affordable way.  The principles for achieving this have long been known – integrating commissioning and budgets, and focusing on early interventions.  The challenge is not seeking agreement on these aims; it is finding a practical and effective way of delivering on them.

The challenge with adopting an early intervention approach is that it requires someone paying for activity up front to provide savings that will accrue in the future.  Where there is such financial pressure as well as on-going demand for reactive services this is challenging.  Commissioners are responding by combining COBIC style contracts with Social Impact Bonds (SIBs).  This is now being taken up at scale across the public sector including NHS bodies, local government, Ministry of Justice and DWP.  Early examples include payments being linked to reducing reoffending by focusing on rehabilitation, reduced children going into care through greater early support to families and reduced demand on acute beds through greater community based health and social care.  The team at Bevan Brittan has closed 2 SIBs to date and is working on 7 others, including what is likely to be the first pathfinder in health for end of life care.

The final, and fundamental, piece in the puzzle that underpins the whole area is how can commissioners integrate budgets and overcome the traditional funding silos.  This has been a, if not the, major barrier to progress in this area with commissioners historically only able to work within the constraints of their own funding silo.  This means that, for example, even though it may produce improved service and savings to the public sector for the local authority to commission greater community care to reduce the demand on the acute hospital it does not happen because the authority does not have the luxury of paying for discretionary services that will provide savings to the CCG.  Early movers in this area are proactively coming together with public bodies in their area to consider how this could be achieved.  One approach being developed across the country is the use of a 'LIST' (local integrated services trust) which is a neutral entity owned by public bodies in an area that allows parties to pool budgets, share savings and co-commission on an outcomes basis.

Bevan Brittan is at the heart of shaping and delivering on these new commissioning approaches providing advice to commissioners and providers on COBIC style contracts, social investment, SIBs and how to integrate budgets and commissioning.  We pride ourselves on our creative thinking and have a long history of being at the forefront of developing innovative approaches.  As a public services law firm advising both health and local authorities we also bring a deep understanding of the integration agenda.

We will be hosting a symposium in the autumn to bring together commissioners from Local Government and Health to consider the initiatives in more detail.  This will be a high level one day event that will be open to existing clients.  If you are interested in attending please email kay.bhatti@bevanbrittan.com.

If you would like to discuss how we can support you in developing your COBIC procurements please contact a member of our COBIC Team.