How the NHS Actually Pays Providers: API, Blocks and Unit Prices

If you sell into the NHS, or manage a budget inside it, the mechanism that determines where the money comes from is called aligned payment and incentive. It is not a tariff in the old sense, and the common shorthand — "the NHS pays a block contract now" — is wrong in a way that matters for anyone trying to work out who has discretionary spend.

Two elements, not one

Under the 2025/26 NHS Payment Scheme, a provider's income from a commissioner is built from a fixed element and a variable element.

The fixed element covers agreed activity. It includes non-elective acute, maternity, mental health, community and ambulance services, expected best practice tariff amounts, and high-cost drugs and devices. Elective activity is explicitly excluded from it.

The variable element is the sole payment route for elective activity. It pays 100% of the unit price with no floors and no ceilings. That is the single most consequential design decision in the scheme: elective work is the only part of a provider's income that moves directly and proportionately with volume.

The practical reading is that a trust's incentive structure differs sharply by service line. In non-elective and community services, extra activity does not bring extra income within the year. In elective services it does, pound for pound. Any proposition that claims to increase throughput needs to know which side of that line it sits on before it makes a financial argument.

The low volume block covers most relationships

Where a provider–commissioner relationship is worth £1.5 million or less, it is paid through a low volume activity block: "a single fixed value, set by NHS England". This arrangement covers approximately 90% of provider–commissioner relationships.

Ninety per cent of relationships, but a small share of the money. That asymmetry explains a lot of frustrating commercial experience — most of the entities a supplier might deal with are on a fixed block that NHS England sets centrally, so there is no local negotiation over volume at all.

Non-NHS providers are paid differently

Independent sector providers are paid on unit prices rather than through aligned payment and incentive. The fixed-element machinery does not apply to them. For a training or service provider working with both NHS and independent sector customers, that means two genuinely different commercial conversations, not one conversation with different branding.

The uplift and efficiency numbers for 2025/26

Three figures set the envelope:

• The cost uplift factor is 4.15%, which includes a headline pay assumption of 2.8%.
• The general efficiency requirement is 2.0%.
• Base growth is 4.4%.

Every system must plan to break even. Where there are historical overspends, repayment is spread over three years and capped at 0.5% of the integrated care board's core allocation.

A warning about how these numbers get misused. The 2.0% is a general efficiency requirement applied through the payment scheme. It is not a provider-level cost improvement programme target, and there is no published figure that says "the NHS requires an X% CIP" from individual providers. Proposals that claim to deliver a named CIP percentage are borrowing authority from a number that does not exist in that form, and finance reviewers recognise it immediately. The honest version of that argument is built against costs the organisation already reports, which is the approach we describe in the five case model.

Where the cost data comes from

The National Cost Collection is the source of record for what NHS activity costs. Patient-level costing is "now mandated for all sectors", with the Approved Costing Guidance updated annually.

One caveat if you plan to cite it: the 2023/24 publication excludes high-cost drugs. Any unit cost pulled from it is therefore not the full cost of care for drug-intensive pathways, and comparing a figure from that collection against a locally derived cost that does include drugs will produce a difference that is entirely an artefact of scope.

What this means if you are proposing anything

Four things follow.

First, identify whether the service you are affecting sits in the fixed or variable element. Benefits framed as additional activity only convert to income on the variable side.

Second, if the counterparty relationship is under £1.5 million, expect a centrally set block and no volume conversation.

Third, do not model a return on investment using an efficiency percentage lifted from the payment scheme. Use the lines that are already in the accounts. Temporary staffing is the clearest of these: it is measurable, already reported, and subject to its own price controls and reduction targets, which we set out in what the NHS agency price caps actually say.

Fourth, remember that the money has to land inside an operating budget whose large lines are mostly committed. The structure of that budget — and how little of it is genuinely discretionary — is covered in how a care budget is built.

A note on shelf life

The cost uplift factor, the efficiency requirement, base growth and the low volume activity threshold are all set annually in the NHS Payment Scheme. The structural features — the fixed and variable split, elective sitting only in the variable element, independent providers on unit prices, the low volume block — have been stable across recent iterations. When quoting any of the numbers above, quote the year with them.

This article describes the published payment mechanism. It is not financial advice and does not assess the merits of any particular commissioning arrangement.