Oli Hudson and Steve How, of Wilmington Healthcare, explore how NHS England’s new system-level funding works and the impact on prescribing for high cost drugs

NHS England’s finance structures underwent huge changes last year, which began with the announcement that all trusts and foundation trusts would move to block contract payments for an initial period from April 1 to July 31.

This move, which was prompted by the pandemic, was followed in the autumn by the introduction of a new ‘system-level’ funding arrangement that sees Integrated Care Systems (ICSs) or groups of providers working together to determine how money should be spent locally.

The scheme supports integrated working by enabling large sums of money to be released to healthcare systems for distribution, rather than to individual providers, and aligns with Long Term Plan ambitions for population-health management.

In this article, we will explore how these new systems are working and the impact they will have on high cost drugs, as the key stakeholders responsible for prescribing them will now be looking closely at procurement costs too.

The background

Before the end of March 2020, hospitals that bought high cost drugs would either be reimbursed by NHS England or claim the money back via a pass-through arrangement with the local Clinical Commissioning Group (CCG), depending on who commissioned the clinical service in which the medication was supplied.

With CCG commissioned services, an NHS trust would bill a CCG for a high cost drug, prior to the consideration of any contract level risk-sharing mechanisms. The CCG would not only be responsible for settling the bill, it would also regulate spending in this area for hospitals.

That all began to change in April last year when, in response to the pandemic, the usual national tariff payment architecture, Payment by Results (PbR), and ‘associated administrative and transactional processes’ were suspended. They were replaced by block contracts managed by NHS England/Improvement (NHSE/I), and high cost drugs budgets were included in this payment.

However, a Phase 3 COVID-19 guidance letter from NHSE/I last summer highlighted the need for increased system responsibility and management to help local health economies achieve financial balance. This, in turn, led to the introduction of system-level funding in autumn 2020, which together with other joined-up finance structures already in place, will drive big changes in patient pathways as NHS service contracting permanently moves away from PbR.

Integrated budgets

The Long Term Plan indicated a desire to move away from activity-based contracting (PbR) and the COVID-19 emergency has accelerated this policy. This year, new arrangements will see CCGs’ commissioning and primary care budgets and many of the specialised commissioning budgets, together with certain other directly commissioned services, central support or sustainability funding and nationally held transformation funding, all come under a system led ‘single pot’.

The money will be used by the ICS to strategically commission services at a place-based level. This work will increasingly be carried out by partnerships of providers (ICPs) comprising Acute Trusts, Mental Health and Community Trusts, and Primary Care Networks (PCNs), which will decide how services will be implemented at a local level.

There will be a move away from episodic or activity-based payment in secondary care, with the introduction of the blended payment model. This is a flexible framework that comprises a fixed payment with one or more of the following: a quality or outcomes-based element, a risk-sharing element or a variable payment.

Current thinking is that the high cost drugs budget will sit within these blended contracts payments for CCG/system commissioned services. The CCG will still account for use, usually via Bluteq (the system for the high cost drugs management process). However, there will be a shift in financial pressure back to the provider for the drug cost as there is no pass-through to a separate CCG budget.

Traditionally, this would support the best value biologics framework with pressure to use lower cost biosimilars. However, if a higher cost innovative medicine can demonstrate better effectiveness in terms of reduced hospitalisation, the cost within the blended contract across the pathway may be less than the older biosimilar option, particularly as the blended contract terms are likely to be longer.

Under the new system, NHS England (NHSE) Specialised Commissioning will continue to retain the budget for cancer and certain rare diseases. However, as CCGs merge into ICS boundaries, a lot of the specialised commissioning budget will move to the single pot managed by the ICS. For these services the majority of the high cost crugs will still be contracted via NHS England. However, for some of the older products, such generic chemotherapy, antifungals and Cytomegalovirus (CMV) drugs, the budget will be devolved to the system single pot.

These changes to system focus are likely to affect formularies, and with the mandated introduction of 100% ICS coverage by April 2022 it is likely that formulary boundaries will follow suit, with Area Prescribing Committees resetting boundaries accordingly. Current thinking suggests that while overarching guidance may be given across the system, the ICPs at place level will decide their own local guidance.

Population health

The introduction of system-level funding will force a step-change in integrated working as NHS providers unite to form powerful alliances, with formal collaborative arrangements in place to enable them to operate at scale.

This joined-up approach was advocated in the NHS Long Term Plan, which said that ‘reforms to the payment system will move funding away from activity-based payments and ensure a majority of funding is population-based’.

As systems take on whole population budgets, they will increasingly determine how resource is to be used to make a difference in outcomes, inequalities, productivity and wider social and economic development against their specific health challenges and population health priorities – factors that will be particularly important for pharma to consider when justifying the need for a high cost drug.

There will also be a more uniform approach to procurement across the NHS as digital and data will be used to ensure that financial information relating to different ICSs is shared, including data on prescribing costs and rebates for different drugs. Data from across different ICSs will also be used to improve patient outcomes and put patients at the heart of their own care.

Impact on pharma

The new financial arrangements will bring big changes for pharma, particularly with regard to payers as, in the main, within the ICSs the providers will become responsible for managing the cost of the drugs they use. So, clinical service directors who previously passed the bill for high cost drugs on to CCGs, or were reimbursed by NHSE, will now be looking closely at their value within blended contracts.

Therefore, the price of a high cost drug will be very significant within the overall price of a procedure, and cheaper biosimilars that can save more in direct costs are likely to become increasingly attractive, unless the whole pathway cost is understood and the wider value of a high cost drug within it is clearly shown. So, those with high cost biologics are going to have to think carefully about their value proposition.

As the cost of care across whole pathways becomes more visible in the new joined-up systems, companies selling high cost drugs need to focus on outcomes and how their products can deliver value in the long run by helping systems to reduce both upstream and downstream costs.

To achieve this, it will be important to align the product with key NHS Long Term Plan priorities, such as keeping patients out of hospitals, where possible, and delivering more preventative and population-health based care.

When considering upstream costs, areas of focus for pharma could include how much a system would have to spend on staff training for certain products or how much it would cost to run infusion clinics or whether the product could be delivered via home care contracts that reduce the need for hospital visits.

With regard to downstream costs, patient outcomes will be critical. So, for example, how much could a high cost drug save in the longer term by reducing complications and readmissions to hospital? How could it support population health ambitions by, for example, improving public health and reducing the burden of long-term conditions? How could such savings impact on the wider system and enable health organisations to invest elsewhere?


Changes in NHSE finance models will have a significant impact on prescribing for high cost drugs as providers not only become directly involved in procurement but must also fund these drugs from a single pot of money that has to be used across the entire system.

These financial changes are going to drive major reconfiguration across all pathways – not just in terms of where drugs are used, but in everything from triage to follow-ups as the NHS seeks to deliver on key Long Term Plan priorities and reset services.

While this poses threats to companies with high cost drugs, which will face increasingly strong competition from biosimilars, it also brings opportunities to support the NHS and get involved in shaping these new pathways.

Understanding how the new system-level finance structures work and what they need to deliver is essential to achieving this goal. So too is the ability to create a value proposition that will resonate with providers by driving down costs across whole pathways and enabling them to improve patient outcomes via a joined-up population health approach.

Oli Hudson is content director and Steve How is programme director, both at Wilmington Healthcare. For information on Wilmington Healthcare, visit www.wilmingtonhealthcare.com