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:
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 pricesa 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 NHSthis 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
1 Not printed here. Back
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