New incentives to improve performance and shift care into the community

Year of care payments

Successive governments have pledged to shift care from hospital into the community, and the 10YHP continues this trend. It argues that the health service will continue to prioritise episodic, acute interventions over preventative approaches that offer better long-term outcomes for patients unless the financial framework is reformed.

The 10YHP’s main financial policy to incentivise a transition away from a hospital-centric model of care is the introduction of year of care payments (YCPs). NHS leaders agree that, when implemented correctly, using capitated budgets (such as YCPs) can help incentivise a shift towards more proactive, preventative models of care designed to keep patients well at home. However, they identified two main risks that will need to be managed if YCPs are to work as designed. 

As YCPs would allocate resources based on the size of a population, they would force providers to manage care within a fixed budget, regardless of fluctuations in demand or complexity. Using capitated budgets of this type also depends on the development of tariffs that accurately reflect the cost of delivering care. To set such tariffs, there is a requirement for robust data on a number of areas, including patient need, the complexity of care delivered and expected demand levels. One of the key challenges with setting accurate tariffs for community services is that there is significant variation in the quality of costing and activity data across the sector. If the tariff does not accurately reflect the cost of delivering care, organisations will have to absorb a significant amount of financial risk. 

Given the financially constrained environment the NHS is operating in, organisations that are under severe financial pressure may be forced to choose between investing in preventative services, and hoping these reduce demand for acute care in-year, or reducing activity levels or restricting access to care. There have already been examples of these particular trade-offs that some organisations have been required to make to meet their financial plans over the 2025/26 financial year (Tidman, Z. 2026) (NHS Alliance, 2026). 

Recommendation: For YCPs to succeed, tariffs must accurately reflect the true cost and complexity of care. The government should commit to regularly reviewing and updating underlying cost data to ensure pricing remains realistic and sustainable. Without this, poorly calibrated tariffs risk causing financial instability or incentivising providers to limit access to care, rather than investing in initiatives designed to prevent ill health. Targeted support should be made available to integrated care boards (ICBs), which are looking to commissioning services using year of care payments to ensure that key risks are mitigated.

Patient power payments

The 10YHP proposed introducing patient power payments (PPPs), giving patients the power to decide whether a provider should be fully reimbursed for the care they received. In April 2026, the government announced that patient power payments would be trialled as part of the renewed women’s health strategy in some gynaecology services. While NHS leaders fully support the idea of integrating a closer focus on patient experience and quality of care into payment mechanisms, they have little confidence that the current proposals could work as an effective part of the financial framework.

Trust leaders specifically emphasised that patient experience is shaped by a complex interplay of clinical, operational and environmental factors, some of which sit beyond the direct control of individual care providers. For example, while the quality of care patients receive and their interactions with staff are central, wider issues such as the condition of the estate and system constraints also have a significant impact on patient experience. 
As a result, there is a real risk that providers could be held financially accountable for elements of the patient experience that are not wholly within their gift to control. 

Furthermore, patient experience is inherently subjective and framed by a patient’s own expectations of the service. Two patients could have had exactly the same experience yet have very different views on its quality. This subjectivity creates substantial volatility and may unintentionally incentivise providers to prioritise initiatives that improve how care feels in the short term, rather than focusing on interventions that deliver sustained improvements in outcomes. While trust leaders are supportive of strengthening the voice of patients within the financial framework, those we have spoken to caution against introducing payment mechanisms which are limited by an over-reliance on subjective measures. 

Recommendation: Financial flows must balance the importance of patient feedback without creating financial volatility or unintended incentives. Trust and ICB leaders are open to working with national bodies to identify how existing patient engagement tools and feedback can be more effectively used to support strategic commissioning, quality improvement and service delivery.

New financial freedoms for advanced foundation trusts

In June 2026, NHS England published an update to the advanced foundation trust (AFT) guide, setting out the additional financial flexibilities and freedoms on offer for high-performing providers (NHS England, 2026). In theory, these financial flexibilities are intended to incentivise strong financial management and support trusts to invest more strategically in longer-term transformation. 

Trust leaders have broadly welcomed the principle of greater autonomy, but many question whether these freedoms would act as meaningful incentives in the current financial context. Many trusts are not currently operating at a surplus, including those that are well-run but dealing with structural issues which they have little ability to control. Despite persistent efforts, many do not see this changing over the medium term. 

While trust leaders embrace the vision of offering greater financial freedoms to high-performing providers, this incentive is only likely to apply to a handful of trusts in the short term. Therefore, it cannot be expected to act as a meaningful driver of behavioural change, or one that will support most trusts to overcome the financial barriers that currently make it extremely difficult to generate a surplus.

Even for those that are able to generate surpluses, trust leaders questioned the practical value of the additional freedom to re-invest in capital projects, as capital spending by AFTs will still need to fall under the national capital departmental expenditure limit (CDEL). As capital budgets are set to be held flat in real terms over the course of the current spending review period, there is little confidence that the national budget will allow enough headroom for AFTs to be able to invest in their estates significantly more than they are currently able to. These incentives are seen as more symbolic than substantive. 

While trusts support the introduction of AFT status and the lighter-touch regulatory and oversight approach it promises, trust leaders are also clear that the effectiveness of the proposed financial freedoms will remain heavily constrained by the wider financial context and the continued tightness of capital investment. 

Recommendation: To maximise the potential value of the incentives provided to AFTs and to improve access to capital funding across the NHS, we recommend that the government set a trajectory to increase the capital share of health spending annually, with the aim of dedicating 10 per cent of the overall health budget to capital investment by 2035. This could potentially offer AFTs greater headroom against CDEL to invest in transformative capital projects that could bring significant health, social and economic benefits to their local communities, and avoid what little capital funding that is available being concentrated to a relatively small cohort of high-performing trusts.