Payment models

Payment models are seen by Monitor and NHS England as pivotal in the process of implementing new models of care. It has been recognised that existing payment models do not typically promote improved quality of care or facilitate the achievement of integration objectives.


Traditionally in both health and social care activity based ‘tariff' payments or block contract payments have traditionally been utilised. Alternative payment models that are frequently used in commissioning integrated services include:

  • Capitation is a means of paying ‘a provider or group of providers to cover the majority (or all) of the care provided to a target population…across different care settings' (NHS England/Monitor 2014). These payments are a lump sum per patient with an estimate of the population to be served. An advantage of this is increased awareness of service costs and budgetary requirements.
  • Risk/Gain/Loss Share models provides an opportunity for providers and commissioners to establish a network to identify and distribute financial gains or losses.  Comparisons are drawn between the estimated and actual contract spend, Any surplus or deficit is then shared amongst the group.
  • Outcome or Incentive payment models Risk/Gain share models are frequently combined with capitation as a means of establishing a comprehensive outcomes focused payment model in which a proportion of a capitated payment is awarded pending achievement of mutually agreed outcomes. Amounts of payment withheld can vary from relatively small amounts up to the majority of the payment.

Although not meeting the requirements of integrated services or commissioning:

  • Payment by Results a long standing NHS payment model in which providers are paid for each episode of care,  adjusted to take account of the complexity of a patient's healthcare needs. PbR warrants a mention as one of the more recognised payment models. It varies from the outcomes based models in that it is determined by national currencies and tariffs rather than local agreements and arrangements

Frequently asked questions

Why use a capitated approach rather than the existing tariff system?

Providers are incentivised to provide cost effective, sustainable care and preventative interventions that meet the required outcomes. If the needs of the target population are met for a lower cost the provider will have a financial gain.

What are the most common challenges to capitated approaches?

Potential issues associated with this model include providers restricting access to services for complex cases and provider financial instability. Other issues include defining a population, requirements and costs.

Detailed datasets are required to benchmark and facilitate the introduction of a capitated payment system. Although some of this information is becoming available through the Right Care Programme there are still gaps in the knowledge.

What are the challenges to risk/gain share approaches? Risk share models can place a financial burden on the provider that may be untenable. Additionally, the contract monitoring and management procedures for this and outcomes based payments can be onerous.

Case studies and examples

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LGA support and resources

  • Better Care Fund: Risk Sharing, a quick guide advice on how to meet the risk sharing requirements of the Better Care Fund. It covers the specific risk shares associated with improving out of hospital services, reducing non elective admissions and delayed transfers of care.

Selected tools and resources from our partners