Supplementary written evidence from the
Department of Health (CFI 01C)
I am writing further to my attendance at the Health
Select Committee on 22 March, when I agreed to provide further
information on the Government's proposals, outlined in the Health
and Social Care Bill, for developing Monitor's role as an economic
regulator for the healthcare sector.
I think it may be helpful to begin by reiterating
the Government's aim in developing Monitor's role as an economic
regulator for the healthcare sector, which is to improve outcomes
for patients and make best use of NHS resources by ensuring that
the regulated market operates effectively and by strengthening
incentives.
It is important to stress that Monitor's role and
its functions are specifically designed to protect the interests
of patients from the unrestrained operation of market forces in
healthcare. This is because the Government recognises that the
equilibrium mechanisms which operate in a normally-functioning
market—such as the balancing of supply and demand through
competitively-determined prices—would not safeguard patients'
interests in the absence of robust regulation. It is because the
Government expressly rejects the assertion that an unregulated
free market in healthcare will improve patient care that the Government's
policy is to establish a regulated market, overseen by an economic
regulator. The Health and Social Care Bill makes clear that Monitor
must only promote competition where appropriate, and that it should
regulate where necessary.
Monitor's overarching duty would be to protect and
promote patients' interests. Monitor would be expected to fulfil
this duty in carrying out its regulatory functions, which would
include:
- licensing providers of NHS services;
- regulating prices; and
- imposing additional regulation, where necessary,
to secure continued access to services in the absence of alternative
providers.
In addition, Monitor would continue to perform some
of its existing functions in relation to Foundation Trusts, including
its function in authorising Foundation Trusts, which would be
particularly important during transition, and as the registrar
of Foundation Trusts.
The Committee asked for clarification as to the estimated
costs of these functions.
The Government's estimate of Monitor's future annual
budget was set out in the impact assessment published alongside
the Bill and quoted a figure of £72 million, by 2015-16.
This figure includes funding for Monitor's residual
functions in relation to Foundation Trusts, which cost c£17
million in 2010-11.
The £72 million figure is derived from a range
of benchmark estimates, which, in turn, were based on the costs
of other economic regulators, their staff numbers and the average
cost per whole time equivalent member of staff.
The benchmarks included data from the Dutch Healthcare
Regulator. This organisation undertakes a similar role as Monitor
would, albeit in a different country. After undertaking this analysis,
the upper limit for the annual costs was considered to be £130
million, as my Rt Hon friend the Minister of State for Health
said to the Public Bill Committee on 15 March.
The Department of Health has continued to refine
these estimates since the impact assessment was published. On
8 February, we provided a written answer to a parliamentary question
from the Hon Member for Easington, which estimated a range of
c£50 million-c£70 million, over the next 10 years.
Work on estimating Monitor's future running costs
will remain ongoing in 2011 and we would be able to provide further
refinements of our estimates in due course. In the meantime, the
impact assessment we have published alongside the Bill sets out
how the costs of implementing the reforms would be far outweighed
by the benefits to patients and taxpayers.
The Committee also requested further information
about Monitor's role in promoting competition in relation to commissioning
of NHS services.
First and foremost, Monitor's duty would be to protect
and promote patients' interests. Monitor's role in promoting competition
would be a means to that end, not an end in itself, as the Bill
makes clear (Clause 52(1)).
Our vision is that commissioners would decide how
best to improve services and increase choice for their patients,
including how best to utilise competition as a means to that end.
Procurement would be transparent and non-discriminatory and patients
would choose their preferred provider, wherever possible, with
money following patients' choices.
The purpose of competition law is to protect consumer
interests, which in its application to the health care sector
means protecting patients' interests. Monitor would have concurrent
powers (with the Office of Fair Trading) to apply competition
law, within the healthcare sector, to address restrictions on
choice and competition that acted against patients' interests.
The Health and Social Care Bill does not extend competition law;
it merely creates concurrent jurisdiction between OFT and Monitor.
This would be consistent with Monitor's overarching duties and
the role of competition as a means to an end, not an end in itself.
Competition law would apply to the actions of "undertakings",
which would include the activities of NHS Foundation Trusts and
other types of organisation providing services within a market.
However, case law suggests commissioners of NHS services, including
GP consortia, would not be considered "undertakings",
for the purposes of competition law, in relation to their purchasing
activities. That is why we have proposed powers in the Bill to
introduce regulations on commissioners of NHS services, which
would provide appropriate protections for patients and taxpayers'
interests and an effective mechanism for enforcement. This mechanism
would be important, for example, in ensuring compliance with the
national tariff as a fixed price.
Our aim is to ensure that commissioning processes
are transparent and non-discriminatory such that NHS services
are commissioned from the best providers and patients are given
choice wherever possible. Our proposed approach would involve
setting out clear requirements on commissioners in the form of
regulations, which would be legally binding and independently
enforceable.
We have amended the Bill to clarify that the scope
of these regulations would be limited to requirements as to due
process, managing conflicts of interest and prohibiting anticompetitive
conduct that acted against patients' interests. We do not intend
to introduce requirements on commissioners to promote competition
for competition's sake, or for Monitor to have power to impose
compulsory competitive tendering requirements on commissioners,
and the amendments we have made to the Bill make this clear (see
Clause 63 and 64, as amended).
We have also made amendments to clarify our proposals
for Monitor's investigative and enforcement powers, which would
underpin these regulations. In summary, Monitor would have power
to investigate potential breaches of the regulations, either on
its own initiative or in response to complaints. Monitor would
be able to require commissioners to take action to prevent or
remedy a breach of the regulations, including, potentially, by
setting-aside a contract where due process had not been followed.
However, Monitor would have no power to impose fines on commissioners,
as was discussed by the Committee.
In this way, our proposed approach would build on
the existing system of Principles and Rules for Cooperation and
Competition, which would provide a starting point for the regulations,
and the role of the Cooperation and Competition Panel in investigating
potential breaches. However, we would bring forward detailed proposals
on the scope of these regulations, for consultation, in due course.
In the meantime, I trust that this letter will address
the points raised by the Committee and clarifies our proposal
that Monitor's role in promoting competition would be a means
to an end, not an end itself. Monitor's overarching duty would
be to protect and promote patients' interests, as the Bill makes
clear.
Rt Hon Andrew Lansley CBE
March 2011
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