A recent national review has brought to light a significant concern regarding the financial mechanism used in some NHS hospital trusts: block contracts for emergency care may be overpaying providers by up to 18% of the actual cost, as reported by the Health Service Journal. The lack of public disclosure of the detailed findings raises serious questions about transparency in NHS financial management and the potential impact on other under-pressure services.
The block contract model, widely adopted during and after the COVID-19 pandemic to offer financial stability, involves Integrated Care Boards (ICBs) and NHS England agreeing to a fixed payment for a set level of services, irrespective of the volume of activity delivered. While supporters argue this approach helped stabilise trust finances during periods of volatile demand, critics contend it can mask inefficiencies and lead to overpayments when actual activity is lower than projected or costs are miscalculated.
The suggestion of emergency care payments being up to 18% above recouped costs is particularly alarming. If some trusts are receiving substantially more funding than their activity justifies, resources could be diverted away from crucial areas like community care, elective surgery recovery, and workforce investment, which are already struggling with constrained budgets.
This debate over the financial efficacy of block contracts is not new. ICBs have previously been urged to review these arrangements, particularly for non-elective care, due to concerns over variations in rates and incentives compared with activity-based payment systems. NHS England’s guidance for 2025/26 now promotes a mix of mechanisms, including aligned payment and incentive (API) contracts and activity-based payment where feasible, acknowledging the need to balance financial stability with incentives for efficient service delivery.
The absence of transparency surrounding the national review’s findings undermines confidence in how block contracts are monitored and used. Without clear data on the calculation of the 18% figure—including which costs and trusts are involved—it is difficult to assess whether the NHS is achieving value for money.
These concerns about overpayment emerge against a backdrop of extremely stretched NHS finances. Independent analysis has highlighted the worsening financial position, with local health systems overspending by £1.4 billion in 2023–24 due to rising demand, inflation, and workforce challenges.
A key criticism is that block contracts can distort incentives. By decoupling payments from activity or outcomes, they may reduce the financial motivation for trusts to curb unnecessary admissions or invest in community-based prevention—a crucial area for NHS reform.
However, a rapid transition to fully activity-based payments carries its own risks, potentially leading to sharp income drops for providers during periods of fluctuating demand, especially while waiting lists remain high.
A potential solution gaining traction in commissioning circles is the use of hybrid contracts that combine fixed and variable elements. This approach aims to provide a stable base budget while linking adjustments to performance, demand, and outcomes, thereby addressing overpayment concerns while retaining some of the stability offered by block models.
Ultimately, the core issue highlighted by the 18% figure is the need for fiscal responsibility. Clearer, more transparent reporting on contract performance will be essential for policymakers to maintain public trust and make informed decisions on hospital payment models that reward quality, support efficiency, and ensure financial sustainability.
