10 quick reflections on... progress with the 2017/19 contracting round

16 December 2016

10 quick reflections

Chris Hopson

NHS trusts and commissioners are required to agree two year contracts for 2017/18 and 2018/19 by 23 December in a process that has been brought forward and shortened. The NHS contracting round has often proved a difficult and protracted process, particularly when NHS finances are tight. With a week to go before the deadline, how is the process going? These reflections draw on a wide range of feedback from NHS trusts, including discussions this week at our quarterly meeting of trust chairs and chief executives.

  1. NHS finances are tighter than ever, with overall CCG allocations for 2017/18 and 2018/19 set at +2.1% and +2.0% compared to 2016/17’s +3.4%. Some CCGs will be receiving less than this, they have a range of predetermined commitments to meet and they are also required to hold back 1% of funding. So, in addition to ongoing financial pressures on NHS trusts, CCGs are under greater financial pressure than they have been in recent times.
  1. However, the sustainability and transformation planning process has, in most local systems, started to drive greater collaboration and greater mutual understanding of the positions of each individual system player. It is striking how many trusts tell us that this is driving a better quality of more collaborative contracting discussion.
  1. There was almost universal concern, in the early stages of the round, about the size of the gap between initial commissioning offers and what providers needed to meet the control totals they have been allocated by NHS Improvement. Opinion was split between “the gap will close as we reach the final deadline, as it always does” and “given the size of the initial gap and the financial pressures, maybe this year the gap won’t close”.
  1. At our chairs and chief executives network meeting on 13 December, around 70% of trusts were confident of their ability to secure an appropriate agreement with their commissioners by the 23 December deadline. This is very positive, better than we were expecting, and reflects a lot of hard work by both provider and commissioner leaders. But it was clear that a small number of trusts and commissioners were either in or definitely headed for mediation and arbitration (around 5% on a show of hands at our network meeting).
  1. From a provider perspective, discussions heading for mediation or arbitration are likely to be in cases where commissioners are under significant financial pressure that limits their ability to fund volume growth in trusts; commissioners wanting to cut 2017-19 contract volumes as the beginning of ambitious sustainability and transformation plans to move care out of hospital; or a desire to transfer the risk of volume growth towards trusts through crude block contracts. There are real, legitimate, risks around demand growth and accounting for the benefits of transformation delivery. Many systems recognise these risks need to be shared and one of the characteristics of systems heading for agreement are mature risk sharing arrangements. These include agreeing to vary contracts later should certain conditions occur.
  1. Trusts also report that the impact of the changes to national tariff payment currencies through HRG4+, particularly the impact on CCG allocations, is causing complications and is making it more difficult to get agreement in some places. There are also issues over how the pressures on distance from target*, the Commissioning for Quality and Innovation (CQUINs) payments framework, and Quality, Innovation, Productivity and Prevention (QIPP) schemes are translating into the contracting round.
  1. NHS Providers remains concerned that the national level investment commitments on mental health – increasing spend in line with overall increases in CCG allocations – may not be met, again. We have conducted a ‘flash’ survey of mental health trusts – results will be released shortly. It’s important that the mental health investment commitment is met, recognising that CCGs can only spend their allocations once.

  2. In some areas, the greatest emphasis is being placed on agreeing the 2017/18 contract with the second, 2018/19, year “left for later”. While this may be pragmatic given the level of uncertainty over 2018/19 funding and demand, it may dilute the benefits of having a more stable and longer-term two-year planning and contracting round.
  3. Some local systems are genuinely trying to do something different and radical – for example, developing new care model type contracts or accountable care organisations – and some will struggle make the deadline. We would urge NHS England and NHS Improvement to be supportive of these systems’ requests for their deadlines to be extended.
  1. There is still a strong feeling among trusts that the significant amount of time, effort and management bandwidth used up in this process is an unnecessary distraction from the myriad of other pressing demands on provider leadership time. Particularly the need to deal with operational pressures at this time of year. Trusts recogniseand welcome the improvements made by NHS Improvement and NHS England to the process this year but we would welcome further discussions to see if we can significantly streamline the process further.

* NHS England has a funding formula which establishes the 'target' financial allocation for each CCG. This target allocation is based on a combination of key drivers of healthcare costs including population, population age, population health inequalities and geographical cost factors. The difference between the CCG actual funding and their target funding is referred to as the 'distance from target'. NHS England is seeking to reduce the ‘distance from target’ in the way it allocates money between CCGs.