VALUE FOR MONEY
100. Finally, there is concern about value for money
(VfM). Two questions are involved:
- Was an adequate VfM assessment
made before the bids were accepted;
- Has the ISTC programme in practice provided VfM?
101. We asked the Department of Health how it had
assessed whether the ISTCs would offer value for money. The Department
supplied the Committee with a supplementary memorandum which set
out the methodology which it had used. In the absence of an accepted
public sector comparator for providing clinical services, VfM
was assured by:
- The running of an open and
- Selecting the best value (compliant) offer received,
- Rejecting any scheme which was not significantly
better value than prevailing spot-purchase rates.
102. In order to ensure that each scheme offered
better value than the prevailing spot market, a benchmarking process
was devised. An NHS Equivalent Cost was established for each scheme.
Since independent sector providers face costs which are not borne
by the NHS, such as tax, they are paid more than the NHS Equivalent
Cost. The Department set a maximum threshold that it would payconsiderably
below 'prevailing spot prices'.
103. We were informed that "the average is 11.2%
[above the NHS Equivalent Cost] in comparison with historical
"spot-purchasing" rates of in excess of 40% above NHS
However, we are unable to assess these figures because we have
not been given the necessary information on the grounds of commercial
confidentiality. The Department has declined to disclose the detailed
figures which it used to establish the NHS Equivalent Cost on
the grounds that "to release information on the detailed
process would jeopardise the ability of the Department and the
NHS to secure the best value for money in the next phase of procurement".
On the same grounds it has refused to provide us with the figures
in any Business Case (although it did provide us with a redacted
Business Case for one of the bids which had previously been obtained
through a Freedom of Information request). An independent review
of the VfM methodology used for Phase 1 was commissioned in October
2004. The purpose of the review was to establish whether the VfM
methodology was being consistently and correctly applied. The
review found that it was the case. This too has not been disclosed
to the Committee.
104. Some witnesses thought that the use of spot-purchase
prices as a benchmark was undemanding: it would be very surprising
if the systematic, high-volume procurement of services from the
independent sector through the ISTC programme was not better
value than ad hoc arrangement by which procedures were
paid for on an individual basis. On the other hand, DoH officials
pointed out that independent sector providers had to meet costs
which were not included in the tariff/Equivalent Cost such as
provision for pensions. Nevertheless, they admitted that a premium
over the NHS Equivalent Cost had been paid and the financial guarantee
of the 'minimum take' introduced to involve the private sector
and get the additional benefits they would bring.
105. A number of witnesses also suspected that the
Secretary of State in 2002 decided on an experiment to introduce
private sector providers largely irrespective of any objective
cost benefit analysis: it was a leap in the dark, based on a hunch
that the advantages brought by the private sector were worth paying
a significant premium for.
Only eight months had elapsed between the announcement of the
NHS Treatment Centre programme and the announcement that substantial
TC provision would be procured from the independent sector; this
looked like unseemly haste. The fact that officials and ministers
from the Department of Health have provided a range of changing
objectives to explain the ISTC programme also suggested that the
ISTC programme was not a carefully thought-out venture.
106. The cost of Phase 1 includes a premium over
the NHS Equivalent Cost which was paid to the ISTC providers,
but without access to the detailed figures we do not know how
big this premium was. There were other costs of Phase 1, for example
the effect on NHS finances. It is hard to see that this could
have been justified in terms of the need for additional capacity
alone. The other major potential benefit, the galvanising effect
of competition on the NHS, was not and probably could not be quantified
when the decision to go ahead with Phase 1 of the ISTC programme
was made. It is claimed that this decision was a leap in the dark
in the hope that the 'challenge' of ISTCs would improve efficiency
in the NHS. We agree.
107. Moreover, since we do not know the details
of the contracts, what figure was used for the NHS Equivalent
Cost or how it was arrived at, and since the benefits of ISTCs
have not been quantified, it is also impossible to assess whether
ISTC schemes have in practice proved good value for money.
108. In view of the high degree of uncertainty
about the wider benefits and costs of the ISTC programme, we recommend
that the NAO investigate them, in particular the extent to which
the challenge of ISTCs has led to higher productivity in the NHS.