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How will capitated budgets affect NHS spending?

Sue Thomas and Paul Midgley, of Wilmington Healthcare, assess the implications of a single budget covering all the physical, mental and social care needs of patients in an STP

Multi-year, capitated budget based, accountable care contracts which involve one provider or a group of providers covering all the healthcare needs of a defined population – are increasingly being viewed by NHS England as the best way to manage the complex healthcare needs of the nation’s ageing population and the associated burden of chronic diseases.

The Lakeside Vanguard in Corby was an early adopter of this Accountable Care philosophy and around 50 percent of Sustainability and Transformation Partnerships (STPs) are currently considering introducing capitated budgets, with nine areas leading the way and identified in the ‘Next Steps on the Five Year Forward View’.

Within a capitated budget model, the physical, mental and social care needs of a defined population are handled by a single entity, or a group of providers, who are tasked with improving outcomes and reducing costs, across a defined area – an Accountable Care System (ACS). The ACSs will deal with specific diseases initially but will eventually cover all the health and social care needs of a designated population.

Care must be provided in line with agreed quality and outcomes standards which are written into a contract, and service providers are financially incentivised to maintain them. This means that commissioners can scrutinise the delivery of contracts for particular therapy areas and will only hand over the final part of their budget to the lead provider when performance measures show that it has fulfilled its responsibilities.

If the lead provider delivers the desired services more cost effectively than anticipated, any surplus may be invested in further improving services.

Evidence from other countries, such as Spain, Germany and the US, shows that providers in capitated budget networks keep costs down by investing more in prevention, and thereby helping people stay healthy and out of hospital, where possible.

Under a Capitated Budget Accountable Care model, a cash limit is set for every common chronic disease (a ‘programme budget’) and since the NHS is not expected to receive more than an inflationary increase in its annual budgets, money will have to be saved and then recycled within the system in order to improve care. Savings will have to be made through proactive changes, such as disease prevention, earlier diagnosis, and more effective and integrated intervention, within each ‘programme’.  

To realise these changes, patient pathways will have to become far more efficient in order to reduce pressure on the budget. This will require a more integrated approach to disease prevention, early diagnosis and effective management of conditions in order to keep patients stable for as long as possible and avert unnecessary hospital admissions.  

‘Payment by Results’ (PbR) will be dropped. With reduced transactional (activity) costs, there will be no incentives for people to stay in hospitals, and clinicians will be encouraged to provide as much care in the community and at home as possible. Specialists’ roles will need to change to support this.  

Technology will be a key enabler of this change, hence artificial barriers that currently prevent it from being fully utilised will have to be removed and a lot of specialist knowledge will have to be filtered down through the NHS to enable care to be provided effectively outside of hospitals. These changes will see more high tech and high cost drugs being administered in the home supported by specialist nurses and consultants.  

Delivering services in this way can save money in terms of VAT on hospital care and reduce pressure on hospitals which often have limited infusion capacity. Also, it’s often safer for patients to receive treatment at home to avoid iatrogenic diseases, for example, infections in immune-suppressed patients.  

There is already a clear move towards providing more specialist services in the community and in patients’ homes. For example, in renal care, people routinely attended hospital for dialysis, but now this procedure can be done at home.  

As health and social care providers are united within STPs, it is likely that multi-year capitated budgets will be tendered within many footprints through an Accountable Care model. Pharma needs to identify the early adopters of accountable care and take a thoughtful approach to dovetailing its products and services with the major changes that these organisations will bring to bear on NHS spending.    


Sue Thomas is CEO of the Commissioning Excellence Directorate and Paul Midgley is director of NHS insight, both at Wilmington Healthcare. For information on Wilmington Healthcare, log on to

21st April 2017


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