Department for Work and Pensions: Contract management of medical services - Public Accounts Committee Contents

2  Contract management

10.  The Department has contracted with a sole supplier for healthcare professionals since it first outsourced medical service provision in August 1998.[22] Although the Department now has ten potential suppliers on a medical services framework contract,[23] it awarded contracts to just two of those suppliers for the Personal Independence Payment contract, and two of the three of these contracts awarded to date have been allocated to Atos Healthcare. The Department has had 14 years to develop a competitive market for healthcare providers but continues to depend on a near monopoly supplier.[24]

11.  Despite the risks associated in working with a monopoly provider, the Department has been reluctant to intervene to more actively manage the contract. It has adopted a light-touch approach and placed too much reliance upon information provided by the contractor. The absence of proper validation can create a risk that the Department incurs inappropriate expenditure. In response to our questions the Department revealed that in a typical month it only checked 0.1% of the individual cases that it was invoiced for (139 out of 128,000). The Department has a provider assurance team model for its contracted employment programmes but has yet to introduce an equivalent control for the medical assessment contract.[25]

12.  The contract with Atos Healthcare specifies that the Department will apply service credits where the contractor has failed to meet the specified service level. Service credits are designed to identify the cost to the Department of Atos Healthcare's non-performance against a particular target and to recompense the Department where appropriate. The system allows for Atos Healthcare to supply 'mitigation' where it considers factors outside of its control have adversely affected performance.[26] However, the Department has applied only 10% of service credits due since the start of the contract in 2005. Moreover it suspended the whole service credit regime between September 2009 and March 2010 and between June 2011 and December 2011,[27] and has put in place an interim service regime since March 2012.[28] The Department told us that the introduction of Employment and Support Allowance was the primary reason for poor performance rather than the actions of Atos Healthcare[29] but has still appeared reluctant to rigorously apply service credits to remedy poor performance or to penalise the contractor for inaccurate medical assessments.[30]

13.  Medical auditors from Atos Healthcare conduct sample audits of medical assessments and provide an A-C grading. A grading of 'C' is classified as "failing to meet professional standards". The Department has set a target that no more than 5% of all face to face medical assessments audited by Atos Healthcare should fail professional standards but it was unable to provide a rationale or professional evidence to support the reasonableness of the target when we raised concerns about it. This target does not seem particularly challenging given that in the past year the contractor has, on occasion, performed at a level of 3.5%, so we welcome the Department's commitment to set more stretching targets in the future. [31]

14.  We also expressed concern that the Department appears over-dependent on ATOS for self-regulation. The Department only validates a very small proportion of the medical assessments invoiced by ATOS and the scope and scale of the work it does to check the medical quality of the assessments is unclear.[32]

15.  The Department agrees a service level for how quickly Atos Healthcare processes medical assessments. We found that a significant proportion of cases have been with the contractor for more than 56 days at March 2012 (25% compared with a target of 3%). We also found significant regional variations in performance ranging from 1% or 2% of cases in the north to 28% in London and the Home Counties and 40% in the south east.[33]

16.  Managing backlogs has been a longstanding issue for the Department. Backlogs in completing medical assessments have resulted from the Department introducing changes to the process and from staff shortages within the contractor.[34] This led the Department to suspend the service credit regime from March 2012.[35] We understand that the Department is in active discussions with Atos Healthcare and is providing incentivised payments to the contractor to reduce the backlogs.[36]

17.  Accurate forecasting of referral volumes is also critical to reducing backlogs. The contract includes estimates of demand for medical services on which assumptions around fixed overhead costs are based. Where total actual referral volumes are more than 20% over or under these volumes for three consecutive months or more, either party can renegotiate the contract.[37] The Department provides detailed operational estimates each year but these have not been particularly accurate. For example in 2008-09, actual referrals for all service lines were 68% of contract forecasts.[38] More recently the Department appears to have improved its overall forecasting with a variance of around 3% between April and September, although there are wide regional variations of up to 30% in any one month.[39]

18.  The Department has an open-book accounting arrangement with Atos Healthcare but it would not publicly provide details of contract profitability on the grounds of commercial sensitivity although it has agreed to brief the Committee privately on this subject.[40] Consequently, it is not clear how far the Department has successfully passed risk to the contractor, or how the contractor's profits reflect the risk that it actually bears. For example, the recent award of a contract to Atos Healthcare for the Personal Independence Payment includes an arrangement whereby Atos Healthcare sub-contracts with NHS Lanarkshire which effectively passes the risk back to the public sector, but at a profit to the contractor.[41]

19.  The witnesses who spoke for people who have undergone these medical assessments (Citizens Advice and Disability Rights UK) and the Department had different interpretations on the data and performance issues relating to the decision-making process. Both Citizens Advice and Disability Rights UK were critical of the Work Capability Assessment process and its impact on claimants. Citizens Advice, in particular, reported alarming increases in the number of people consulting them about appealing against the Department's decisions.[42] The Department, however, emphasised recent improvements in performance and the better information it is collecting on why appeals succeed on so many occasions.[43]

22   C&AG Report para 1.2 Back

23   Q 31 Back

24   Q 30 Back

25   Qq 51-58; Ev 31 Back

26   Q 146 Back

27   Q 152 Back

28   C&AG Report para 3.21  Back

29   Q 146 Back

30   Qq 4, 146 Back

31   Q 142 Back

32   Qq 58, 125-131; and Ev 31  Back

33   C&AG Report para 3.14; Qq 165-168, 173 Back

34   Qq 112, 149, 227 Back

35   Q 154 Back

36   Q 169 Back

37   Q 115 Back

38   Q 118 Back

39   Q 115 Back

40   Q 35; Ev 31 Back

41   Qq 65, 69 Back

42   Qq 6-8, 12, 13 Back

43   Qq 72, 115, 169 Back

previous page contents next page

© Parliamentary copyright 2013
Prepared 8 February 2013