Outcome-Based Incentivised Contracts - the challenge for Providers

Outcome-Based Incentivised Contracts - the challenge for Providers

25/07/2013

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.

Providers need to be aware of the potential complexities and opportunities that exist if they become either an accountable lead provider or part of the supply chain to deliver services under an outcome based commissioning contract.  We can help with advice on issues such as:

  • Bidding for the contract.  The procurement procedure is likely to be more time consuming and complex than previously (particularly as the competitive dialogue process is likely to be adopted by the CCG), and therefore consideration will need to be given to how the accountable lead provider constructs its supply chain, the application of procurement rules to creating a bidding consortium, agreements as to bidding costs, bid resource and support, and confidentiality.
  • Terms of the contract.  CCGs are required to use the NHS Standard Contract but will develop the locally completed elements to reflect the outcome based commissioning structure.  The supply chain providers will need to sign up to subcontracts that step down the terms of the Standard Contract, and some areas of particular focus are  likely to be on allocation of reward and financial risks from the head contract and on the circumstances in which a supply chain member can be replaced.  Additional co-operation or interface agreements may also be necessary, and these may need to pick up cross default risks. 
  • Joint working arrangements.  There are opportunities for joint working to deliver efficiencies in the care pathway, and these could range from holding regular liaison meetings between all of the providers, to working to standardised processes and methods of recording information, to establishing a joint venture company to share risks and rewards between the providers.  Other joint working arrangement issues could include:

-   Employment issues such as TUPE where services are being transferred to a new provider, or opportunities for secondment of staff;

-   Sharing of premises and equipment;

-   Sharing of IT systems; and

-   Intellectual property being shared or created jointly with other providers.

  • Contracts with third parties.  Bidders will need to consider whether, if successful in their bid, any existing contracts will need to be varied, terminated or novated to the accountable lead provider in order to ensure the delivery of the outcomes required by the new contract.  They will also need to address relationships with third parties (e.g. primary care providers outside of the supply chain).
  • Exit strategy.  Bidders will need to consider at the outset what the exit strategy will be should it not retain those services when the contract is retendered.  In particular, the supply chain members will need to be able to unpick the joint working arrangements put in place by the accountable lead provider.  One aspect will be consideration of how TUPE is likely to apply on termination across the consortium and where redundancy costs may fall.

Social Impact Bonds

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 moving to an outcome based commissioning model where a provider is only paid on outcomes being achieved.  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.

This creates a challenge for providers – who will pay for the activity pending the outcomes being met (and take the risk of not being paid if the outcomes are not met)? Some large national providers may be able to take on this risk themselves.  However, for many providers of health and social services who are often third sector / social enterprises this is not viable, they cannot afford to fund activity at risk on outcomes.  A developing social investment market is growing in response to this, offering to fund third sector providers delivering under outcome based contracts with the funders receiving a return upon the outcomes being met. This approach (often structured as a 'Social Impact Bond' or 'SIB') is now in use across the public sector, funding projects from homelessness to reoffending to child social care, and is growing all the time.

Bevan Brittan is at the heart of shaping and delivering on these new commissioning approaches providing advice to commissioners and providers on outcome based contracts, social investment / SIBs and how to integrate budgets and commissioning.

We bring extensive experience of supporting clients in developing bids, maximising opportunities in the procurement process and if necessary, challenging procurements.  We pride ourselves on our creative thinking and have a long history of being at the forefront of developing innovative approaches.  We also adopt a practical and proactive approach in providing solutions to commercial issues.

If you would like to discuss how we can support you in developing a bid for a COBIC (whether as accountable lead provider or as a supply chain member) please contact a member of our COBIC Team.

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