Comment / Payment mechanism to support elective recovery remains complex

Integrated care boards have been set differential targets for elective activity that take into account their starting point and activity levels in 2022/23. Overall, the national target is to deliver 107% of 2019/20 activity levels, which is a significant step up on the 98% delivered in the first half of 2022/23. In practice, this means activity targets ranging from 103% to 114% of pre-pandemic levels.

Funding for these targets is delivered through the aligned payment and incentive scheme. This continues to have both a fixed and variable element in 2023/24. But this year the variable element covers all elective activity (rather than additional activity above planned levels funded through the fixed payment, which was the approach last year). So providers are being paid at full national unit prices.

If ICBs were to exceed their target activity levels, they will receive additional funding also at 100% of those national prices. The variable element also allows for adjustments for under-achievement against CQUIN targets, funding for which is included within the fixed element on the assumption that all the criteria have been met.

While the API system is intended to provide a simpler mechanism than the full payment by results approach for all activity that existed before the pandemic, discussions at a recent HFMA Payment Systems and Specialised Services Group meeting demonstrate that the payment mechanism remains a complex area.

For example, there have been different approaches taken to agreeing the elective baselines, against which elective performance is judged, which have led to some delays in finalising contracts. Most providers, it would seem, have interpreted the guidance as starting with the ICB elective baseline based on the value of 2019/20 activity and then multiplying this by the target percentage (for example 103% for Greater Manchester).

But in some areas, ICBs have set the elective baseline by adding in a provider’s fair share of elective recovery funding on top of the adjusted 2019/20 baseline value, which can give a higher target percentage overall. This could leave the provider at risk when you consider the totality of the contract value.  NHS England pricing colleagues, attending the recent HFMA group meeting, confirmed the former approach is correct. But it would be helpful in future for operational guidance to include illustrative workings so as to avoid the inconsistency in interpretation and application.

Another area of complexity is with specialised services. NHS England specialised commissioning practitioners said that, when new services or procedures are being commissioned, providers are asking for upfront funding included in the contract value. While this may be understandable to get the service up and running, there is a concern that providers could end up being paid twice.  

A pragmatic solution to this may be to also uplift the elective baseline. However, from a provider perspective, this doesn’t always work, if it is a bespoke tariff or one that is not generated in the secondary uses service (SUS). So, it needs to be added in at the right value.

A further complication is the uncertainty on whether or not there will be any allowance made for the impact of industrial action. Clearly losing junior doctors, consultants, nurses or other staff to strike action will reduce capacity on those days. This will have an impact for providers, which will lose money under the variable payment system for undertaking less activity. It will also have an impact for ICBs in terms of hitting the activity targets they have been set. In my organisation, we have calculated a proxy for the cost of lost activity in elective outpatients. This has enabled us to estimate the financial impact for the month of April and provides a starting point for discussions within systems and with regional NHS England colleagues.

Some specialised providers are also concerned that the approach to elective funding and payment doesn’t take account of the nuances around specialised services. With some highly specialised activity continuing to be funded via the fixed payment, there is concern that small but costly increases in activity could create a financial headache for providers.  NHS England understands the problems and encourages feedback from providers as part of the future consultation for 2024/25. It promises to consider the inclusions and exclusions that should be factored into the elective recovery and API process to make it fairer.

API may offer a simpler approach than full payment by results and provide a bridge to future population-based payment approaches. But it remains a complex arrangement in places and, in such a tight financial environment, getting the detail right is vital.

Lee Rowlands is contracts director at Manchester University NHS Foundation Trust