Memorandum from The Hospital Management
Trust
INTRODUCTION AND
SUMMARY
The Hospital Management Trust (HMT) is a registered
charity and a company limited by guarantee formed in 1985. HMT
was founded with the specific aim of retaining the founding ethos
of charitable and religious hospitals and care homes while ensuring
ongoing development of the services needed to keep pace with modern
medical and nursing practice. An essential part of the ethos is
the view that in a country firmly committed to a health system
providing care for the majority without charge, the charitable
sector forms an important bridging link between the motives of
a publicly run National Health Service and a commercially oriented
private sector.
HMT owns three acute surgical hospitals in Sheffield,
Grimsby and Swansea and runs four nursing care homes around Britain
in association with religious Orders. Additionally HMT undertakes
significant amounts of consultancy work and works closely also
with some major medical representative bodies concerned with acute
healthcare. More detail is available on HMT's website at www.hmt-uk.org.
As a not-for-profit organisation which is nonetheless
reliant on generating income from charging for its services, the
Trust seeks to work as closely as possible to NHS tariffs and
Local Authority fee structures whilst ensuring that sufficient
surplus is generated to cover necessary capital expenditure and
prudent reserves.
When government policy shifted some five years
ago towards a greater recognition of the independent voluntary
sector, HMT was optimistic about the possibility of being able
to contribute to a greater diversity and public choice of treatment
and care. Regrettably, the encouragement by government of major
international companies and the growth of commercial organisations
in Britain has mitigated against the ability of relatively small
organisations like HMT even to tender. An immense bureaucracy
is required and major expenditure has to be incurred in even bidding
for contracts designed for national coverage.
It is ironic that what appeared to be a genuine
embracing of the voluntary and non-profit organisations which
for generations have provided much valued treatment and care in
their localities has turned out to cause the demise of many small
organisations and has placed many others—including The Hospital
Management Trust—in positions of very marginal viability
for the future.
1. What are the benefits of contestability
to the users of public services?
In the provision of healthcare in the UK the
third sector long pre-dates both the public and private sectors.
Voluntary and charitable hospitals have existed for centuries,
compared with the NHS which is 60 years old and the commercial
private sector which is only about 30 years old. This long tradition
of service is reflected in the quality of care provided. Regrettably
the not-for-profit sector has, by its very nature, proved vulnerable
to both the predatory nature of the private sector and the organisational
(and often political) inflexibility of the NHS which still tends
to a "public good—private bad" mentality and often
fails to differentiate not-for-profit and commercial organisations,
thus limiting and often denying the opportunity for patients to
benefit. At a time when the NHS can no longer be sustained in
its 1940's guise, and the private sector is increasingly in the
hands of private investors with no knowledge of healthcare per
se, true contestability should provide the kind of level playing
field which allows the third sector to demonstrate the value of
a genuinely patient-centred approach.
(a) Have services which have been transferred
to third sector organisations shown improvements in quality?
At this stage, the volume of transferred services
is so small that it is extremely difficult to measure improvement.
However, the early evidence of patient choice for independent
hospitals based on issues such as MRSA prevalence in the NHS plus
the availability of private rooms, etc, indicate a public perception
of improved quality. Key performance indicators are not sufficiently
developed on a national basis for valid comparison but HMT's own
evidence is for high-quality outcomes of surgery and very favourable
public responses based on patient opinion questionnaires.
In the long-term sector, the evidence of quality
is implicit in the very high occupancy of care homes—HMT
runs at 98% average—and waiting lists for admission from
publicly funded patients.
(b) Is loss of accountability a threat of
commissioning services? If so, how can this best be managed?
The separation of purchaser and provider roles
creates clearer accountability by reducing the "old boy network"
of protecting interests between the various parts of the NHS.
Clarity of accountability is relatively easily assured in the
construction of contractual terms and outcomes and in the assurance
of cost by a fixed-price tendering or negotiating position.
It is relevant also that both the Healthcare
Commission and CSCI processes increasingly are able to assure
public accountability through the regulatory and inspection processes.
2. Is the third sector more likely to provide
better public services than the state or the private sector?
Yes, it is more likely to, for the reasons given
in answer to (1) above, since it has neither the political pressures
of the NHS nor the financial requirements of the private sector.
Whether or not it actually does so may be harder to prove—and
will depend on a number of factors (eg the pressures which HMT
is currently experiencing). However, the current development of
KPIs, outcome measures and star ratings increasingly will demonstrate
where benefits do or do not exist.
It needs also to be remembered that the sheer
scale of the public sector mitigates against feelings of "ownership"
and identity amongst staff whereas loyalty and commitment to charitably
structured organisations are commonly observed.
(a) Is there evidence that where services
are provided by the third sector, that they are popular with those
that use them?
As said before it is early days but results
from patient questionnaires, praise and complaints studies and
published market research by a variety of organisations indicate
general popularity.
(b) Is there evidence of demand for more services
to be provided by the third sector? If so, who from?
With the advent of patient choice for acute
services and more acceptance of Choose and Book by GPs, there
is a rapidly growing demand for use of the independent sector
by patients and doctors alike. HMT's evidence is that the fact
that it is a not-for-profit organisation creates greater acceptability
amongst both groups compared with commercial organisations.
It is even more evident in the long-term care
sector that the charitable structure—and the presence of
religious Sisters providing pastoral care—is a significant
factor in choice of homes by elderly people and their relatives.
(c) Do public services provided by the third
sector more accurately reflect the changing needs of those that
use them?
Almost certainly Yes—but evidence, again,
is difficult to demonstrate. However, the mere fact that provision
has shifted dramatically in long-term care from publicly provided
to independently provided services in itself indicates a level
of dissatisfaction with the nature of public provision hitherto.
Increasingly, such evidence is being gained
in the acute sector as a result of NHS patients receiving levels
of care and treatment which would have been completely out of
their reach until recent changes in contracting methods.
(d) Is there evidence that contracting to
the third sector leads to greater scope for innovation in public
service delivery?
HMT had experience for 10 years of running and
developing a community services hospital in Suffolk. During that
time, when NHS and Local Authority services were moribund, HMT
was able to develop innovative rehabilitation delivery, day care
services, home care services, night sitting and a range of practices
which would have been quite impossible to deliver through the
bureaucratic systems within the public sector.
Although not quite the same, discussions between
HMT and NHS Foundation Trusts has indicated the possibility of
services within NHS hospitals being provided by an independent
contractor. It is giving rise to the opportunity for innovative
care pathways and treatment protocols which would take years to
develop in the NHS.
3. Does commissioning benefit the third sector?
(a) Will contractual relationships with the
state improve stability within the third sector?
Yes, insofar as they prove certainty for planning
and investment purposes. But not if they can be reneged on with
impunity and HMT's experience so far is that both local NHS Authorities
and central government have no hesitation is so doing. Caution
is needed, also, on some of the contractual terms which Authorities
seek to unreasonably impose, including undue interference with
the patient selection process and over zealous emphasis on detail
rather than focussing upon the quality of outcome.
(b) Will close involvement with service provision
prevent third sector organisations retaining the ability to be
critical of government?
It should not but this has proved a tricky issue
for third sector organisations in the past (eg humanitarian NGOs
that are heavily dependent on DFID funding). The risk to third
sector organisations in terms of potential loss of credibility
is significant but manageable. The more likely risk is that government
is over-sensitive to their criticism. The onus is on the third
sector organisations to be fair and constructive in their criticisms
and on the government to acknowledge (and value) their right and
responsibility to do so.
Unfortunately, HMT's experience is that many
other organisations (not HMT) are fearful of being critical because
of the risk of losing contracts.
(c) Is there a risk that the service providers
will become increasingly bureaucratic?
Yes. The ECN contract provides a wealth of evidence
of this. Moreover, third sector organisations, by their nature
(and especially if, like HMT, they are small), have less capacity
for this and are likely to buckle under the weight of it. This
burden could be greatly eased if commissioners actually knew what
they wanted in the first place—see (4) below.
It is important to note that the current reliance
by DH and others on European-type tendering procedures places
enormous pressures upon relatively small organisations like HMT.
Current evidence—which is still ongoing—is that the
amount of effort and man time having to be put into meeting all
the criteria to satisfy the ECN contracting process is identical
for a small organisation like HMT as it is for the major hospital
groups turning over hundreds of million pounds a year. Tying up
the equivalent of five full-time people for three months plus
the use of expensive external IT and security consultancy is a
cost and resource use which may just be sustainable once but cannot
forever be repeated every time new contracting protocols are introduced.
Quality assurance obviously is important but a good deal of current
practice is beyond the realms of reason.
(d) Is there a risk that third sector organisations
will lose their independence, their identity or their distinctive
ethos?
See 3(b) above. Yes, there is a risk but it
would be an "own goal" to allow this to happen since
these characteristics provide the USP of the third sector. Again,
it is up to the individual organisations to manage this—and
up to government to understand the issue.
Part of the resolution of this issue lies in
the public sector setting contractual terms which are sensible
without being over-prescriptive.
(e) Might the third sector become polarised
between large service providing organisations and more radical
groups? If so, would this matter?
This distinction is less valid for the healthcare
sector as for some others. It is not clear what these "more
radical groups" might be. The reality is more prosaic: there
is a very real and immediate risk that a concentration of public
service contracts with the larger organisations (in part due to
designing the tendering arrangements in ways which only the larger
ones can cope with—see 3(c) above) will almost certainly
hasten the demise of the smaller—and arguably most—"third
sector" ones.
4. Does commissioning services from the third
sector have any benefits for the state?
This should be a "no brainer". Obvious
benefits of using the independent sector include:
— the ability to concentrate limited
NHS resources more strategically;
— the opportunity to resolve much of
the purchaser/provider conflict;
— guaranteed known cost of service
provision; and
— nil cost capital investment.
Additional benefits of using the third sector
include:
— likelihood of better value-for-money;
and
— willingness to take on less profitable
services.
(a) Does the state risk losing control of
service delivery in a way which might be damaging?
If the commissioning is done properly there
is no reason to lose control, and arguably (see 1(b) above) accountability
should be stronger where services are delivered under contract.
Much depends upon the quality of NHS staff monitoring the delivery
process.
It needs to be remembered also that an essential
part of flexibility of service delivery is the ability to shift
contracting arrangements from one supplier to another—ie,
there has to be a degree of excess capacity in the system in order
to provide the incentives for assuring standards without losing
supply.
(b) What capacity will the state need to ensure
that it can be an intelligent customer of services?
There is no reason why the state should be different
from any other sector of society in being able to be "an
intelligent customer". It is worth considering the framework
used by the Office of Fair Trading in relationship to competitive
environments and thereby the maintenance of standards and protection
of the public interest. Anything over 40% of available capacity
owned by one organisation (including the state) constitutes a
monopoly which should be regarded as unacceptable and probably
the trigger point of 25% which is used to define dominance would
be a preferable indicator of choice.
(c) How is duplication of effort in order
to monitor and manage contracts best avoided?
By being absolutely clear from the outset on
the terms and conditions of any contractual arrangements entered
into.
(d) How good is the state at managing bidding
processes and defining contractual obligations when commissioning
services?
At present, the processes are immensely bureaucratic,
often ill-informed and usually inconsistent—not least because
of constant changes of people dealing with the processes, most
of them frightened of their own shadows. Probably a good deal
of the poor quality is due to inexperience within all government
services of dealing with these sorts of issues plus pressure from
political masters and the Treasury in relation to the notional
safeguarding of the public interest. Additionally, reliance upon
EC rules and looking over the shoulder at what other people are
doing does not help the process.
5. What are the financial implications of
providing services through the third sector compared with directly
providedstate services?
(a) Are services cheaper to provide?
The issue here is value-for-money and the evidence
is that the independent sector generally provides better VFM than
the public sector. The danger of the private sector is that, by
its nature, its tendency will always be to maximise profits, if
necessary at the expense of quality. One of the advantages of
the third sector should be its freedom to give greater emphasis
to quality while still having to be financially viable.
A major problem is that the actual cost of providing
health services in the public sector is still enormously obscure
despite improvements in recent years. The accuracy of national
tariffs and the accounting mechanisms of treating capital and
depreciation differ so much from normal commercial practice—even
in the voluntary sector—that value-for-money is extremely
hard to demonstrate. As a crude measure, if a third sector organisation
is able to remain financially viable whilst charging public service
rates then almost certainly it is being run cheaper than the NHS
or Local Authority services.
(b) Are there "hidden costs" such
as contract oversight?
At present, it appears that there are very significant
hidden costs incurred by the Department of Health in allocating
undue levels of monitoring and supervision to independent sector
contracts. Whether that is necessary is an issue which the National
Audit Office might consider.
It is relevant to note that with the development
of compliance requirements through the Healthcare Commission and
CSCI, the need for additional monitoring within fixed price contractual
terms should decrease as times goes by.
(c) Are the benefits of the third sector participation
in public service provision so great that it is appropriate to
have financial rules which encourage this, or should the aim be
to have "competitive neutrality" between public, private
and voluntary sectors?
Until stability within the shifting balance
of public, private and voluntary sectors is achieved, it is probable
that there should be some requirements to ensure that equal opportunities
are given to the third sector, which does not have either the
marketing muscle of the private sector or the status quo of the
public sector. The third sector is used to operating in a free
market and does not generally favour "rigging". Having
said that, the state, in its role as national commissioner of
healthcare services (a) wholly dominates the market but (b) stands
to lose most if the market fails to deliver what it needs. In
recent years the NHS has favoured the private sector (whose aims
and values it does not share) at the expense of the third sector,
with which it has most in common. It should not be necessary to
rig the market but, faced with such perverse behaviour, it may
be wise to try and protect the state from further self-harm—if
it is not already too late.
6. Are the costs and benefits to the state
the same when commissioned from the third and private sectors?
In the short term the costs, not least in view
of the state's massive purchasing power, should be similar. Over
time though, given (a) the remit of the private sector to maximise
shareholder profit and (b) the increasing consolidation of private
sector providers into large groups on which the state will become
increasingly dependent, commonsense dictates that the third sector
(if it survives) will be cheaper. As for the benefits, it seems
fair to assume that a sector with a long and proven track record
for high-quality patient-centred care will provide greater benefits
than one for whom hospitals are merely a vehicle for making money.
February 2007
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