Select Committee on Health Written Evidence


Supplementary letter from Patricia Hewitt, Secretary of State for Health (ISTC 01G)

  Thank you for your letter dated 3 May regarding your Committee's enquiry into the Independent Sector Treatment Centre (ISTC) programme.

PHASE 2 PROCUREMENT

  You raised the issue of the article in the HSJ on 27 April which stated that seven of the 24 schemes that we proposed for the Phase 2 ISTC procurement have been scrapped and the remaining 17 schemes and Extended Choice programme would be delayed by up to a year.

  Let me reassure you that I did not deliberately mislead the committee. While it is true that seven of the schemes that were originally proposed for the procurement will no longer go forward, I can assure you that all of the SHAs affected are being required to make available more Independent Sector services for NHS patients in their areas either through:

    —  local procurements;

    —  extended choice arrangements; or

    —  as in the case of NEYNL SHA, through a revised centrally procured scheme.

  There is no truth in the assertion that the 17 remaining schemes or indeed the Extended Choice programme will be delayed for up to a year.

  In making decisions about which schemes should be procured we have responded to the needs of some Strategic Health Authorities following detailed consideration of whether the rationale for their schemes remained sensible. In some of the areas a national procurement could not provide, in time, the additional services required for delivering the 18 week target in 2008 and in others it has become clear that the level of capacity required by the local NHS does not justify new ISTC schemes.

  These decisions highlight the consultative and pragmatic approach that the Department is taking to ensuring the needs of the health economies are met, with the overriding principle of ensuring that patient needs are met. I also want to make it clear that we remain committed to investing £550 million on the procurement in the independent sector: this includes £50 million from the first wave of ISTCs.

  I have also attached copies of the letters that were sent by Commercial Directorate to bidders involved in the programme on the 10 April. The first is a generic letter that was sent to bidders who had not expressed interest in any of the schemes affected. The second letter was sent was to those who had expressed interest in those schemes, and was annotated as per scheme descriptions, also attached.[1]

VALUE FOR MONEY METHODOLOGY AND BUSINESS CASES

  Unlike the PFI deals that you mentioned in your letter, the ISTCs programme is part of a rolling procurement. This means that at certain stages of the programme the release of commercially sensitive information will jeopardise the ability of the Department and the NHS to secure the best value for money (VfM). It is not surprising that bidders would like the Department to release its VfM methodology (as was put to me at the hearing) because it would reveal how much the NHS is willing to pay. It is vital that we run a competitive procurement to ensure that we are able to achieve the best VfM.

  In earlier written evidence, we have explained the overall methodology but the additional review that you mention was undertaken by a third party on behalf of the Department and we do not have permission to release their report. However, I would suggest that representatives of the Commercial Directorate meet with yours or, a small number of your members in private to explain in more detail the methodology that has been applied. If you would like to take up this offer, could your Committee Clerk please contact Ken Anderson to agree the terms of reference for this meeting.

  With regard to Full Business Cases, the Department holds 15 FBCs each of approximately 200 pages in length that include information that is commercially sensitive to both the Department and to the independent sector providers (for example, information on failed bids, details of bidder negotiations and final prices from bidders).

  We have not released the FBCs because:

    —  they contain commercially sensitive information;

    —  their release would be likely to reduce the bidder pool and thereby reduce competition affecting our ability to obtain best value for money; and

    —  unlike one-off procurements (eg PFI projects), we are undertaking a programme of related procurements. Thus, (i) information may remain sensitive after a scheme reaches financial close because its release could affect value for money on further schemes; and (ii) disclosure could lead to unequal treatment of bidders and breach procurement rules.

  If it were possible to establish what information within these documents you wish to receive my officials could establish whether provision of a redacted version of each of the documents would meet your information needs or whether the information desired would in any event be withheld in accordance with an exemption under the Freedom of Information Act. Redaction of each of the FBCs would require significant amount of time and resource on behalf of the Department so we would seek reassurance that the cost and time spent would not be adversely disproportionate to the benefit to your Committee from that information.

IMPACT ON THE NHS

  Analysis on the impact of Phase 2 on the NHS forms part of the advice that has been prepared for Ministers. These procurements are still at an early stage and key decisions have yet to be made: it is for this reason that I'm not able to release this analysis.

INNOVATION AND BEST PRACTICE IN ISTCS

  Attached is the fuller document that I promised the Committee on the innovation and best practice that the ISTCs have introduced (Annex 1).

IMPACT ON WAITING TIMES

  Attached is a copy of the slide that I presented recently to the Cabinet: it includes some additional text boxes that show when the ISTC programme was introduced (Annex 2).

IMPACT ON SPOT PURCHASING

  In addition, I also said I would provide information on spot purchasing. Spot purchase data is collated only on an annual basis, and it is not possible to conduct a statistical study of the effect of ISTCs on local spot procurement. However, the body of evidence concerning the impact on the provision of spot services is growing. For example, I would like to point the Committee towards the recent Laing & Buisson Annual Report, which provides independent analysis of the UK healthcare sector. In their 2005-06 report they noted that:

    The emergence of a new raft of ISTC providers able to quote at, or fairly close to, NHS reference costs made it clear that the days of NHS spot purchasing from the "incumbents" at 30-40% over reference costs were over, and that they would have to reduce costs and prices if they wished to be involved in any significant way in the servicing the NHS market. (Laing & Buisson, Laing's Healthcare Market Review 2005-2006, p 105).

  A specific example at a local level is the Shepton Mallet ISTC where the contestability introduced has led to a reduction in local private provider prices with providers now offering to undertake NHS work at NHS tariff prices—a reduction of between 20 and 30%.

  Further examples of independent sector companies responding to the introduction of ISTCs include:

    —  Nuffield announced that it has lowered prices to win more work from the NHS. It has also announced the development of low cost pre-fabricated office and ward accommodation called "health ports" to offer treatment more cheaply and flexibly than in traditional fixed, infrastructure.

    —  Caplo announced that it has lowered prices to provide NHS services.

    —  BUPA closed 10 small hospital/niche sites and announced plans to invest.

    —  £100 million over three years in its 25 remaining hospitals to produce greater consistency in the way they operate and drive down costs. It also planned to install IT systems compatible with NHS patient records.

    —  BMI Healthcare created Amicus Healthcare to provide services to the NHS—this operation will be lower cost and designed to provide a more limited range of care that better fits the NHS model.

  I hope that you find this information of use and I look forward to responding to your findings in due course.

Patricia Hewitt

Secretary of State for Health

May 2006



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