Advanced Academy - Part Three: The Advanced Foundation Trust and the IHO Contract

Join us for our article series 'Advanced Academy', delving into what NHS England’s recent announcements on Advanced Foundation Trusts means for current NHS Trusts and NHS Foundation Trusts. Sign up to our mailing list to be notified of the next article in the series. 

In our first article, we reviewed the key freedoms the Advanced Foundation Trust status would afford to those NHS Trusts and Foundation Trusts who are successfully promoted, and in our second article, we focused on the mechanics of the application and assessment process to become an Advanced Foundation Trust. 

In this article, we consider the Integrated Health Organisation (IHO) contract first introduced in the 10 Year Health Plan for England, the additional insights provided in the NHS England guidance “Advanced Foundation Trust Programme – guide for applicants” and the application and assessment process set out in Annex 2 to the guidance. 

The introduction to the IHO was within the 10 Year Health Plan for England

The IHO was introduced in the 10 Year Health Plan for England as a mechanism to deliver the NHS’s three fundamental shifts: from hospital to community, from analogue to digital, and from sickness to prevention.

The IHO contract is intended to enable high-performing Trusts to lead the shift from hospital-based to community-based care. An IHO contract holder would act as the local health budget holder for a defined neighbourhood, becoming the “host” provider and working in partnership with single- and multi-neighbourhood providers. This collaborative model is designed to replace the current service-based approach with one focused on neighbourhood-level care.

A key feature of the IHO model is a change in funding. Instead of activity-based payments, the IHO would receive a capitated budget made up of “yearly care payments,” reflecting the expected care needs of the neighbourhood population over a year. This approach is intended to support the shift from hospital to community care, and from reactive treatment to prevention, by providing upfront funding that can be deployed more strategically.

By operating at greater scale, IHOs are expected to take a more strategic approach to care delivery, enabling investment in preventative services and allowing costs and benefits to be managed across a single neighbourhood budget. The 10 Year Health Plan also envisages greater flexibility for budget holders to realise capital savings and investment opportunities where benefits accrue collectively.

The Plan anticipated that a small number of IHO contract holders would be designated in 2026 following a “rigorous authorisation process,” though no detail was provided on how this would operate. It also stated that IHO contract holders would “always and only ever be NHS organisations,” without specifying which types of NHS organisations would be eligible.

IHOs under the Advanced Foundation Trust Guidance 

The Advanced Foundation Trust Programme - Guide for Applicants, published last month, confirms that only organisations successful in achieving Advanced Foundation Trust status will be eligible to hold IHO contracts. The guidance also provides greater clarity on what the previously described “rigorous authorisation process” will involve.

At a high level, the application process will require applicants to submit evidence for NHS England to assess across the following categories:

• strategic vision for how the trust would use an IHO contract, working with system partners to shift care out of the acute sector and into effective community-based and neighbourhood health services to improve population health outcomes;
• population health management – understanding of their local population, including underserved populations (inclusion groups), drivers of risk, local community assets (including existing provision) and show desire to co-design services with their communities and embed patient voice within IHO development;
• working beyond organisational boundaries and in partnership with other organisations, the ability to act as a trusted convener and broad support from system partners for IHO proposals;
• organisational maturity and leadership capability to take on a population-based IHO approach; and
• board willingness and capability to hold and manage a capitated IHO contract.

There are no further details on the IHO contract holder status or how they will interact with other Advanced Foundation Trusts, especially if NHS England intends for all NHS Trusts and Foundation Trusts to become Advanced Foundation Trusts in future. Instead, the guidance focuses on the application and assessment process only.

The IHO contract holder application assessment process

Only Advanced Foundation Trusts will be eligible to hold an IHO contract. A Trust applying for Advanced Foundation Trust status may apply to become an IHO contract holder at the same time, or it may apply later once Advanced Foundation Trust status has been achieved.

NHS England describes the IHO application and assessment as considering the applicant’s strategy, case for change, and plans to develop mature IHO arrangements, alongside evidence of the core competencies needed to manage risk and contractual responsibilities. In addition to the Advanced Foundation Trust application, the IHO application comprises two elements:

• a signed board statement certifying that the Trust meets the IHO assessment criteria set out in Annex 2 of the Advanced Foundation Trust Programme - Guide for Applicants; and
• a supporting memorandum setting out, or cross-referencing, the key evidence used by the board to assure itself that each Annex 2 statement has been met.

Whilst this format mirrors the Advanced Foundation Trust application and the annual Provider Capability self-assessment, the IHO statements are distinct. NHS England has described the IHO application as focusing on the transition from a high-performing organisation to one responsible for designing services and allocating resources to improve population health.

Although the guidance does not explicitly state that Annex 2 statements must be used without amendment (as it does for Annex 1), it is likely the same approach applies. Where a Trust cannot certify a statement, it should explain this in the supporting memorandum and set out a clear plan to address the gap within a reasonable timeframe.

As with Provider Capability assessments, Annex 2 includes suggested types of supporting evidence. Trusts should include all relevant third-party information, as NHS England regional teams are likely to request it if not provided.

The guidance does not set out a distinct assessment process for standalone IHO applications. Where a Trust applies separately after achieving Advanced Foundation Trust status, it is assumed that the same application and assessment approach would apply.

NHS England has indicated that the IHO application and assessment process may evolve following the first wave of applications in 2026 and 2027, and that the criteria will be revised to reflect early learning and the ongoing development of the IHO model.

Further development needed to understand intended interaction between Advanced Foundation Trusts and IHO contract holders

Both the 10 Year Health Plan for England and the Advanced Foundation Trust Programme- Guide for Applicants recognise that further detail is needed on the operational aspects of IHO contract holder status to complete the transition to the new system for Advanced Foundation Trusts. In particular, it remains unclear how the shifts from hospital to community care, and from sickness to prevention, will be reflected in the financial arrangements for neighbourhood providers.

Based on the information available to date, there appears to be potential overlap between the capital and investment freedoms of Advanced Foundation Trusts and those that also become IHO contract holders. Advanced Foundation Trust status offers increased financial flexibility, including the ability to retain and reinvest aggregate revenue department expenditure limit (RDEL) surpluses and to spend up to £100m of a trust’s own operational capital without business case approval. Where multiple Advanced Foundation Trusts operate within an IHO neighbourhood, it is unclear whether these freedoms would be affected for trusts that are not the IHO contract holder once the neighbourhood budget sits with the IHO.

The 10 Year Health Plan anticipated that further detail on the purpose, scope, governance and oversight of IHO contract holders would be published by the end of 2025. If this information is now limited to what is set out in the current guidance, NHS Trusts and Foundation Trusts may not yet have sufficient clarity to assess whether applying for IHO contract holder status, alongside an Advanced Foundation Trust application, represents a proportionate use of time and resources.

Join us in the new year for the next addition of our Advanced Academy series, where we will delve deeper into the proposed benefits of this new Advanced Foundation Trust regime and compare these with the similar freedoms previous proposed when first introducing the Foundation Trust status back in 90s.

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