How could risks and savings be shared?

Section 6

Provider networks need to agree how risks and savings will be shared.


Savings

When the cost of providing care is less than the capitated budget, the provider network can either:

  • Reinvest savings at a network level in improving care interventions or providing contingency funds should future care costs exceed capitated budgets
  • Distribute shared savings to member providers

If the provider network chooses to distribute shared savings, it may choose one or a combination of the following:

  • Equal share: all providers share equally in any savings.
  • Linked to budget allocation: savings are shared in proportion to the budget allocation agreed for the model of care. This implicitly assumes that providers who were responsible for most activity are responsible for the majority of savings.
  • Linked to equity: where the members have shared ownership of a new legal entity (e.g., corporate joint venture or fully integrated organisation), providers that have greatest equity receive the greatest share of the savings. This rewards providers who would be responsible for larger shares of any deficits.
  • Linked to performance: savings shares can be linked to performance measures, such as service user experience or outcomes, agreed as part of the performance management system. This rewards the best performers. An example of how performance-linked savings could work is provided in the Supporting Material A: Discussion Paper Compendium.
  • Prioritise savings for members who need investment: where some of the members need funds for investment which will help service users, reallocating savings can be an effective way to fund investment.
  • Compensate members where budgets have fallen: Reallocating funds to support new models of care will see some providers lose out. Any shared savings could provide temporary compensation to these providers to help them with transition costs such as double running or stranded assets that are no longer needed.

Deficits

When the cost of providing care is greater than the capitated budget, the provider network will be responsible for the financial deficit. This could be met by any contingency fund the provider network has independently allocated or through insurance arrangements with commissioners. This is discussed in more detail in Chapter 8: How can commissioners align provider incentives?

Above these arrangements, deficits can be shared according to:

  • Equal share: all providers share equally in any deficit.
  • Linked to budget allocation: deficits are shared in proportion to the budget allocation agreed for the model of care. This implicitly assumes that providers who were responsible for most activity are responsible for the majority of overspends.
  • Linked to equity: where the structure creates equity, linking deficits to equity exposes the owners with the most potential for savings to the possible costs.
  • Linked to performance: poor performing providers who did not meet service standards could be penalised by being responsible for greater shares of the deficits.
  • By ability to pay: larger providers who are likely to have larger capital reserves and therefore ability to manage risks would be responsible for managing deficits

Check and challenge

  • How will you share savings?
  • How will you share deficits?

What next?

To implement a whole systems approach you will need to plan for and complete the following:

  • Meet as providers to discuss and agree your vision for integrated care locally, aligned to the North West London pioneer vision.
  • As you define and agree your collective vision, discuss with commissioners their objectives, the population groups they wish to prioritise for implementing new integrated approaches and the outcomes they want to be achieved More information on population groups is available in Chapter 4: What population groups do we want to include? and on outcomes in Chapter 5: What are the outcomes to be delivered?
  • Discuss with other providers the models of care that would best achieve the outcomes for the service users. More information on interventions and models of care are available in Chapter 6: How do we innovate a new model of care working with users and carers?
  • Test that all the providers who can support the model of care are willing to participate in the provider network
  • Review provider network structures and discuss together which options could best enable model of care. More information on network structures are available in Supporting Material G: Legal Issues Compendium
  • Work together to design decision-making processes for the provider network. More information on the issues to consider for provider network decision-making are available in Supporting Material G: Legal Issues Compendium.
  • Agree allocation of resources. More information is available in Chapter 6: How do we innovate a new model of care working with users and carers?
  • Agree performance management systems. Agree how any savings or deficits would be shared across the network.