Healthcare Contracts and the Allocation of Financial Risk

Chapter 7 reports two aspects of research on contracting in the NHS. The first investigates how the policies to use contractual mechanisms including financial risk allocation work in practice. Most of the contractual relationships between NHS owned acute providers and commissioners were characterised by the use of general annual financial settlements outside the terms of the contract. This behaviour appeared to be increasing over time. The second study comprises a review of the evidence concerning new forms of contract being introduced into the NHS: alliance and outcome based contracts. These are aimed at facilitating the integration of services and improving quality of care. Evidence from other sectors indicates that new models of contracting may result in cost savings including a reduction in capital costs, the development of innovations and benefits in relation to time. But there are high transaction costs in relation to the process of contract negotiation and specification. The evidence base regarding improvements in the quality of services is not convincing. These models carry a number of potential governance issues in relation to their implementation in the NHS, and are at risk of failing to satisfy public sector governance objectives including accountability, integrity and transparency.