2013 accountability hearing with Monitor - Health Committee Contents

5  Competition and integration

64. In its report of last year's accountability hearing with Monitor, the Committee concluded that "the likely practical effect of these provisions [on competition and choice] has been the subject of considerable argument; the Committee will seek evidence of their actual effect in practice at our next accountability session with Monitor". It also committed to continue to seek evidence on integrated care pathways.[66]

65. In evidence to the Committee's inquiry into the Implementation of the Health and Social Care Act in June 2013, David Bennett told the Committee that "this regime is an attempt to avoid it become a highly legalistic, lawyer-driven process. That is not to say it could not happen, but certainly our goal will be to avoid it becoming such"[67]. However, according to Sir David Nicholson, Chief Executive of NHS England, it is becoming exactly that:

    I think we have a problem, which may need legislative change to make it happen. If I think back to the conversations we had with the most senior politicians in the Government around the reforms and changes that we are having, they were very clear that the intent behind all of this was that competition was there to serve, not to control. One of the things that we constantly said was that competition was a tool to improve quality, to be used when commissioners felt it was the right thing to do, not something that would be brought in externally; indeed, much of the conversation around the powers of Monitor was about making that the case.

    For whatever reason, legislatively and in practice, that is not what is happening. What is happening at the moment—you all know cases as well as I do—as people move to using lawyers in all of this, we are in my view getting bogged down in a morass of competition law, which is causing significant cost in the system. We do not have a total for that, but undoubtedly we will find it in time. More than that, it is causing great frustration for people in the service about making change happen. That may be because of the way in which we are interpreting the law—we are talking to Monitor—but it may be because that is the law, in which case to make integration happen we will need to change it ...

    .... Part of the problem is that when people are uncertain about what to do they tend to ask for legal advice. Once you start asking for legal advice, you get yourself into a whole set of legal arguments and controversy. Irrespective of where I, David Bennett or anyone else is, that is where people have got to. You have competition lawyers all over the place telling us what to do, which is causing enormous difficulty.[68]

66. The Foundation Trust Network argue that, "operating within this framework, NHS providers are increasingly in a position where they are unable to achieve what they need to at the required speed."[69]

67. This chapter considers two distinct issues relating to competition arising from the Health and Social Care Act 2012. These are:

·  Section 75 regulations

·  Mergers

68. Alongside provisions relating to competition, the 2012 Act gave Monitor a duty to enable integrated care. This is discussed in the final section of this chapter.

Competition-Section 75 guidance

69. The Section 75 regulations have proved an enduring theme in evidence submitted to this Committee, both in this inquiry and previous inquiries. In evidence to our inquiry into the Health and Social Care Act 2012, the Nuffield Trust argued that a lack of guidance for commissioners had exacerbated the problem:

    The controversy has escalated because of the absence of practical guidance for commissioners on how to interpret and use the new regulations on competition and patient choice. Ministers have promised that guidance will be produced by Monitor and NHS England in the near future. As a result of this absence of guidance, commissioners do not know what the scope of potential regulatory action in the area of competition and choice might be in the future, nor how vigorously it will be policed. Potentially, the scope of the regulator's duty to prevent anti competitive behaviour could be wide, judging by the recent documents published by the Cooperation and Competition Panel in between December 2012 and March 2013.[70]

70. The King's Fund made similar points:

    In the past, commissioners-who often lack skills and experience in managing procurement-have tended to adopt a cautious approach, engaging in sometimes cumbersome and unnecessary tendering processes for fear of finding themselves in breach of competition law. This risk is that, faced with further confusion and uncertainty, they become even more risk-averse, potentially undermining efforts to deliver integrated care. It is therefore essential that Monitor and NHS England produce detailed guidance to clarify how the Section 75 regulations-and competition more generally-should be implemented by commissioners.[71]

71. The importance of Monitor promptly issuing clear guidance has been repeatedly emphasised to the Committee. Most recently the King's Fund reiterated the case for this:

    In previous evidence to this Committee, we have stressed the need for detailed guidance and support for commissioners to help them sensitively navigate procurement law if they are not to become disproportionately risk averse. In the past, commissioners have tended to adopt a cautious approach to procurement, engaging in sometimes cumbersome and unnecessary tendering processes for fear of finding themselves in breach of competition law. This risk is that, faced with further confusion and uncertainty, they become even more risk-averse, potentially undermining efforts to deliver integrated care. It is therefore essential that Monitor, working with NHS England provide clear detailed guidance and ongoing support for commissioners.[72]

72. Monitor reports that since April 2013 it has received 90 requests for informal advice in this area, from providers, commissioners and patients. The ten most frequent requests between April and July 2013 are, in order:

·  I think I unfairly lost a tender-what should I do?

·  Does my service count as a health care service for the purposes of the Procurement, Patient Choice and Competition Regulations?

·  How do the Procurement, Patient Choice and Competition Regulations apply when commissioning is delegated to local authorities?

·  How do the Procurement, Patient Choice and Competition Regulations apply to integrated care?

·  I think there is only one capable provider-do I need to go out to tender?

·  A CCG has a conflict of interest in a procurement-what should I do?

·  Does patient choice apply to my service?

·  Should patients be offered a choice of provider if they wait longer than 18 weeks?

·  Is this transaction a merger and if so, what do I do?

·  What is the role of providers in reconfiguration of services?

73. These topics account for nearly 70% of the requests Monitor received. It should be noted that these queries apply to the actions of both commissioners and providers.[73]

74. Monitor's draft guidance was published for consultation in June 2013[74], and the finalized guidance was published in December 2013, after the Committee's accountability hearing in November. The evidence received by the Committee therefore related to the Draft Guidance, rather than the final version.

75. Marie Curie Cancer Care stated that the draft guidance "risks adding to the confusion" rather than providing clarity,[75] and the BMA also raised concerns about the guidance:

    It would be helpful to include comprehensive examples of circumstances where commissioners can award contracts to a single provider without running a competitive tendering process within Monitor's finalised guidance.[76]

    Monitor's draft guidance for commissioners does not offer sufficient assistance for commissioners concerned about the competing interplay of integration and competition in specific commissioning instances. Clinical Commissioning Groups should be able to promote integration without the fear of being considered anti-competitive and more needs to be done to guide commissioners as to when they can promote integration.

    Monitor's draft guidance states that commissioners may not have to tender where the benefits of tendering would be outweighed by the costs of publishing a contract notice and/or running a competitive tender process. The wording is vague and will leave commissioners open to challenge. It is a commissioner's duty to procure services within rules set down by European and UK law. The requirement to act proportionately is contained in the Regulations, but there are no details about what 'proportionality' means in law. We believe that there is a risk that providers will be able to challenge decisions made by commissioners not to competitively tender for reasons of proportionality using European and domestic competition law, which will hold more weight than Monitor's guidance. Monitor therefore needs to be exceptionally clear in its guidance to prevent such occurrences..[77]

76. David Bennett set out Monitor's position at our accountability hearing on 26th November. Discussing the application of the Section 75 regulations, Dr Bennett argued:

    I think, unfortunately, there is an awful lot of misunderstanding and misinformation out there as to what those regulations do and do not require. They are not even fundamentally about competition. They are about doing commissioning well, and in fact they say that competition is only one of the tools available to a commissioner to secure better services for their patients. They even explicitly talk about other things like, in particular, better integration of care.

    These rules, apart from that bit about better integration, are essentially the same as the rules that have been in existence for quite some time. They used to be the "Principles and rules for co-operation and competition". They are hardly changed and the regulations are pretty well the same as the old rules. The biggest change is that we have different people doing the commissioning now, for a whole variety of reasons, and I think—not least, unfortunately, because it has become an incredibly controversial issue—those commissioners are very concerned about what this means for them. Fundamentally, if they are doing good commissioning that is improving the quality of care for their patients, they should not have any problems, but this is clearly not the perception. So, on this front, above all we have to find ways of talking to these commissioners, helping them to understand what the rules really mean. There is a whole variety of things that we need to do there and I have been in conversation with David Nicholson about how we can do this. Working jointly with NHS England on this will be very helpful because they have significant influence on commissioners and how they think about these things. I am hoping that, if we can explain to commissioners what it is that the rules do and do not allow them to do, we can deal with that, but I recognise that it is a huge challenge to explain it to people and there is a whole variety of things that we need to do.[78]

77. Dr Bennett cited the inexperience of new commissioning organisations as one of the reasons why they may be behaving in a cautious way:

    ....you have a whole bunch of new commissioners, with the CCGs instead of the PCTs—they have just become very fearful, and I am afraid there is an awful lot of misinformation out there.......You were talking about the costs of it all, so that is what happens: people get anxious about it, think the only safe thing to do is to go and talk to a lawyer, and then it does get very expensive. That is what has happened, I completely agree, and that is not the way we should be spending the NHS's money.[79]

78. Dr Bennett expressed hope that the finalised guidance would assist commissioners:

    I hope it will assist. It has taken rather longer than I would have wished to go from the consultation to the final version. The heart of it is that we have been having very long discussions with NHS England about how best to explain all this stuff in a way that I hope will alleviate some of the unnecessary concerns that commissioners have.

    ....Most of the responses about which we could do anything were about trying to clarify things, and obviously we have tried to respond to those....

    ...The regulations are the regulations and our job is to produce guidance about how we will enforce them. Being clear and practical about how the regulations are to be applied is very important. Part of the reason it has taken so long is that we have been trying to produce case examples, because it is very difficult to write general guidance that will be meaningful to commissioners and people out there. They are not experts in this stuff and yet they are being asked to operate in this environment. That is very difficult. We now have a number of those in, but we need to do more, and now that the guidance is settled, I hope we can spend more of our effort on doing more case examples. That is very important. I want our people to get out there talking to these commissioners. We have 211 CCGs to talk to, but we need to do that. I am talking to David Nicholson about us doing it together again, so that they can understand that this is something that we are joined­up about.[80]

79. Monitor's finalised guidance was published in December 2013, shortly after our accountability hearing. Monitor has also supplied us with details of its plans to raise awareness of the guidance:

    Our Guidance on Procurement, Patient Choice and Competition Regulations was published in December 2013 as soon as it was signed off by the Department of Health.

    We are planning an awareness raising programme from January throughout 2014 to ensure commissioners and stakeholders are well informed about the guidance, the arrangements we propose to support trusts contemplating mergers and our consultation on the revised approach to risk assessing transactions.A key aspect of our engagement campaign is to highlight how the rules can be applied, practically, to improve patient care.[81]

80. The Committee notes Dr Bennett's argument that the Section 75 rules are, except for the references to integration, essentially the same as the "principles and rules for cooperation and competition" which have been applied for several years.

81. The Committee recognises however that many new commissioning organizations have expressed concern about the impact of these principles on their actions. The Committee therefore recommends that Monitor undertakes a programme of meetings and visits to ensure that commissioners understand the practical implications of the Guidance which was issued in December 2013.

Other parts of the sector

82. Since our last accountability hearing, Monitor has begun to undertake studies to evaluate whether particular aspects of the sector are working well for patients. In March 2013 it published its Fair Playing Field Review; in June 2013, it announced a call for evidence on the operation of the GP sector, and in November they published initial findings from a study to review the closure of walk-in centres in England.[82]

83. In its written evidence, Marie Curie argued that Monitor as an organisation does not yet sufficiently understand the third sector, and, whilst making good efforts to engage with them, needs to improve this understanding:

    Whilst Monitor colleagues working on Fair Playing Field review clearly worked extremely hard to understand the realities of the third sector during the course of the review, this required a sustained effort on the part of the charitable partners concerned.It would appear clear that the whole of the organisation needs to enhance its understanding of the charitable sector and specifically charitable providers of NHS services[83]

84. In response to this, Dr Bennett said that Monitor had made changes to the new provider licence following feedback from the charitable sector.[84] He also discussed other problems faced by charitable sector providers, including working capital requirements, contract size and the way in which charities are dealt with from a VAT point of view.[85]

85. In their written evidence, the BMA also raised a specific concern about the potential operation of competition in primary care:

    Within primary care there is a consensus emerging that larger groupings of GP practices, such as federations or alliances, are highly desirable if GPs are to cope with increased demand. This will allow them to pool resources and to provide innovative, integrated services. However, GPs are wary of pursuing such groupings due to concerns that they may be in breach of competition law. The fear that such groupings could be deemed anti-competitive by the Competition Commission is directly hampering innovation. Conglomerations of GPs such as federations and alliances could offer significant quality and efficiency improvements, and potentially make inroads to tackling problems surrounding A&E pressures. We are keen to see that such innovations are not inhibited by the competition regulations..[86]

86. The Committee recognises that Monitor's developing role as the health and care sector regulator requires it to develop a detailed understanding of a wide range of providers including primary care and third sector providers. Concerns have been expressed to the Committee by representatives of both the third sector and primary care that Monitor has not yet developed this understanding in sufficient depth. The findings of the Fair Playing Field review demonstrate the need for Monitor to develop a better understanding of the third sector, and the Committee will seek specific evidence on this matter at the next accountability hearing.


87. In June 2013, in oral evidence to the Committee's inquiry into the implementation of the Health and Social Care Act 2012, David Bennett told the Committee that, in contrast to the section 75 regulations which in his view do not represent a significant change, the involvement of the OFT and the Competition Commission in health sector mergers was a change.[87]David Bennett argued, at that time, that the length of time being taken by the OFT and Competition Commission to consider health sector mergers was due to the fact that they were still learning about the sector: "As to whether this is going to be a persistent problem, we have to see".[88] He went on to say:

    This is one of the absurdities of where we are in danger of finishing up, isn't it—that you get a trust going out of business because it has insuperable problems, trying to fix the problem and not being allowed to fix it because it would reduce competition, which is the same result? I agree. This is something the OFT needs to look at. We have made the point to them.... I think we need to wait and see how it works.[89]

88. In October, the Competition Commission announced its decision to reject the proposed Bournemouth and Poole merger. Monitor stated in its written evidence that this "has given rise to concerns within the NHS that the application of competition law to such mergers ... might prevent or slow down the process of providers restructuring."[90] Monitor report that it was with this in mind that they, the OFT and the Competition Commission published a joint statement in October on public hospital mergers. They report that the statement explains "how the three organisations will work together to reduce the numbers of mergers requiring notification to the OFT and minimise the risk of lengthy merger review.[91]

89. David Bennett discussed this with us in oral evidence. He told us that many of the issues could be addressed by Monitor providing more support and advice to trusts contemplating or planning a merger:

    On mergers, of course, what happened was that from April—and in fact before April—the OFT took over responsibility for looking at mergers involving foundation trusts, and, again, here I think that there is a huge amount of concern about the implication of the way those rules are being applied. People will cite Poole and Bournemouth as an example of where the rules got in the way of doing what some people at least think was the right thing to do. There is again a variety of issues, some of which are just about trying to help people understand what they can and cannot do, and there is a lot we can do on that front. One of the things with a merger is that it is extremely important to start with a good understanding of why it is that a merger is the right thing to do. I should say that, even where mergers have been allowed, the track record is not great. Being absolutely clear that, whatever the problem that a trust or a pair of trusts faces, merger is the right answer is the starting point, and I think we can help—it is a bit more about shortening the length of that arm—to try and make sure that they have that right.

    The next bit is about understanding what the competition issues are that they need to worry about. For whatever reason, people are hearing all sorts of strange messages about concerns which we do not, frankly, understand. So we need to do more to explain to people what are the likely competition issues and what sort of advice they need, if they do need advice, to deal with those issues. In fact, we are going to go a step further, which is to do for ourselves, in parallel with the trusts thinking about whether or not they want to proceed with the merger, some of the work that the OFT would do so that we can help the trusts to understand, or the parties to understand, whether or not they are likely to have any issues and help them think through what they would do about it. If all of that is done well, that should deal with a lot of the problems we have.[92]

90. However, Dr Bennett went on to highlight a further issue that he told us he was "not sure how to deal with":

    This is about how you think about whether competition issues should be an obstacle to allowing a merger to proceed. The way the competition authorities think about this is that they first of all ask themselves, "Is there a significant lessening of competition?" If the answer is yes, they then say, "Is this likely to be outweighed by the patient benefits that would accrue from allowing the merger to proceed anyway?" Then they try and work out exactly, or get the parties to tell them exactly, what those patient benefits would be.

    The problem is that there is a presumption that if there is a significant lessening of competition that is bad, and therefore you have to look at the concrete benefits of the merger and see whether they outweigh them. But the connection between there being a significant lessening of competition and that driving improvement in the quality or efficiency of care is a fairly tenuous connection. It is difficult. We can look at studies that tell us that competition does have some impact on the quality of care—and there are some studies done in England to show that—but to translate that into, "How fast and how effectively would that competition improve the quality of care?" is very difficult.[93]

91. The Committee asked about what input Monitor provided to the competition authorities about this, and David Bennett responded:

    As to the question of patient benefits, the more concrete thing—so, if you merge two institutions, what practical consequences will that have in terms of things like consultant rotas and so on?—we will advise the OFT on that, and in order to provide our advice, absolutely, we will take clinical advice ourselves. But, in the weighing of the impact of the lost competition against the benefits of the merger, that is now something which the OFT does. I want us to at least offer our advice to the OFT on both sides of that.[94]

92. When asked to sum up whether, in his view, the law needed changing to address this, David Bennett reiterated his point about weighing the costs of losing competition against the benefits of mergers:

    In many respects, both on the commissioning and the merger stuff, it is about getting a better understanding of the law. But I did raise this very specific point about how you weigh the costs of losing competition against the benefits of going ahead, for example, with a merger. The way the competition authorities think about it is, I think, not taking sufficient account of the way that, while competition in health might lead to improvements, there is a danger that the potential benefits of competition are overstated. Whether fixing that problem requires a change to the law, or whether it is indeed fixable by changing the law, I do not know, but that is a problem that needs to be fixed.[95]

93. Following the session, we wrote and asked Monitor for further information on how Dr Bennett's point above might be addressed, as well as what specific things Monitor had learnt from the Bournemouth and Poole experience about what it could do better next time. Monitor stated that:

    What is now clear, reflecting on this process, is that merger parties need to have a fully developed understanding of the patient benefits they expect to achieve from a merger and how they will achieve them before going to the competition authorities.[96]

94. At the same time as it responded to the Committee, Monitor also wrote to all Foundation Trusts, setting out three issues relating to mergers in health that it believes need addressing:

    (i) Making sure any merger is based on a sound analysis of the clinical and other sources of patient benefit that should accrue from the merger, and that there are robust plans in place to make sure those benefits are realised in practice.

    (ii) Ensuring that there is a realistic and shared understanding across the sector, and between the sector and the competition authorities, as to how to weigh such benefits of a merger against the costs to patients of any reduction in competitive pressures on providers arising from a merger.

    (iii) Ensuring that any statutory review of a proposed merger can take place swiftly and without excessive cost.[97]

95. In its letter to NHS Foundation Trusts, Monitor sets out plans to address the first and third of these points, including providing support to trusts throughout the merger process, and engaging with Trusts at an earlier stage in the process. Monitor also proposes to set up a dedicated team to engage with trusts involved in merger processes. The letter outlines what Monitor hopes this extra support will achieve:

    I hope...that the additional support outlined above will mean that, in future, hospital mergers will only be advanced where there is clear evidence that they are in the overall interests of patients. This should reduce the number of mergers requiring notification to the competition authorities, and, given that the OFT has said that it will give significant weight to our advice in its considerations should a merger be notified or called in for review, should also mean that the parties are better placed to engage with the process so that the review can be completed swiftly, with few transactions being subject to a second phase review (currently, by the Competition Commission)...[98]

96. With regard to the second point, "ensuring that there is a shared and realistic understanding across the sector, and between the sector and the competition authorities, as to how to weigh the benefits of a merger against the costs to patients of any reduction in competitive pressures on providers arising from a merger," David Bennett states in his letter that he intends "to continue our dialogue with the sector and competition authorities. "[99] Monitor's response to the Committee provides further detail:

    We will undertake our own (limited) analysis of the potential competition costs of a proposed merger, starting with the advice provided by any professional advisors to the parties, alongside our analysis of the benefits to patients that should arise from the merger. We will use these analyses to work with the parties to try to ensure that cases proceed only where the benefits to patients of proceeding with the transaction outweigh the costs.This should mean that many cases will not even need to be notified to the competition authorities, but where they are called in the parties should have just about all the information they need to make their case already prepared in the appropriate format, thereby speeding the review and reducing the risk of a further review.[100]

97. Monitor states in its response that "the Department of Health is fully behind these proposed arrangements for supporting trusts contemplating mergers" and that they "are seeking feedback on the arrangements from the sector".[101]

98. The Committee shares the widely expressed concern that the Competition Commission decision in the case of Bournemouth and Poole demonstrates that a new obstacle has been introduced which threatens to further slow the pace of change in the health and care sector in England. The Committee has repeatedly expressed its concern that the pace of change in the sector is glacial, and that failure to increase it threatens both the viability of the sector and the quality of the services it delivers.

99. The Committee notes that Monitor is taking steps to improve the support it provides to Trusts contemplating the merger process, following the case of Bournemouth and Poole.

100. The Committee remains concerned, however, that uncertainty persists in this area; it therefore recommends that Monitor should work with the Competition Commission, and, in future, the Competition and Markets Authority, to develop joint guidance, similar to the joint guidance it developed with NHS England on the Section 75 regulations, which demonstrates how trusts should ensure that institutional structures are not allowed to impede necessary change in the care model. Monitor would need to ensure that such joint guidance is consistent with its statutory duty to enable service integration. The Committee will seek specific evidence of progress on this matter at the next accountability hearing.


101. The Foundation Trust Network report that its members "continue to seek clarity from Monitor on reconciling obligations on enabling integrated care with promoting choice and preventing anti-competitive behaviour". In oral evidence, Monitor reiterated that the two are not mutually exclusive:

    I can say here and now that I think that innovation and better integration of services are essential. Unfortunately, this is just another example of ... a misunderstanding about the extent to which these things can happen, given the rules around competition. There is no fundamental reason why integration and innovation cannot happen without people contravening the rules, but this is where we need to help people understand that.[102]

102. In its written evidence, Monitor reported that enabling integration has formed an important part of its work this year:

    Monitor is actively fulfilling its duty to enable care to be delivered in an integrated way where this will improve the quality or efficiency of care patients receive, or reduce inequalities of access or outcomes.

    In most cases, it will be for commissioners, working with local providers, to design, develop and fund better and more integrated patterns of care.We are not prescribing a single model.

    Our role as the sector regulator is to work with others, particularly our national partners, to remove barriers and consider how to enable integrated care provision. The requirement for care to be delivered in an integrated way will feature in our policies in areas like assessment, licensing, choice and competition, and pricing (the latter two will be developed collaboratively with NHS England).[103]

103. Monitor's evidence includes the following table outlining its approach to enabling integrated care across the different areas of its work[104]:
Monitor policy area
How we are enabling integrated care
AssessmentWe are yet to assess an integrated care organisation or NHS body that provides significant amounts of social care for NHS foundation trust status. Some trusts have expressed concern that Monitor's NHS foundation trust assessment process does not sufficiently take into account the needs of organisations that take, or wish to take, an integrated approach to delivering services across health and social care.

However, we want to encourage such providers to innovate and have now ensured our assessment process can accommodate integrated care organisations.

Licensing and enforcementOur provider licence includes a specific condition that requires all licence holders not to take actions that could reasonably be regarded as detrimental to delivering care in an integrated way. We are currently developing guidance on this licence condition to illustrate how we would expect licensees to meet this requirement.
NHS payment systemOur design of financial incentives through the payment system allows us to encourage a shift to more integrated service delivery. The current "payment by results"system has often been cited as a barrier to it.

The national tariff, to be published in December 2013, removes any barriers to integrated care created by the existing payment system. Specifically, Monitor's policy around local variations in the 2014/15 national tariff allows commissioners and providers to vary from national currencies and prices when this is in patients' best interests. The local variation rules allow for innovative approaches to payment, such as the Year of Care (capitation) approach.

Competition and choiceWe do not believe there is an inherent conflict between integration, choice and competition; in our view, integrated services that seek to provide the best care for patients will raise very few competition issues. An example of this is sharing patient information to improve co-ordination. If tensions do emerge, we will always take the perspective of patient interest and suggest remedies.

We have drafted supplementary guidance for providers and commissioners to dispel concerns that choice and competition might be incompatible with integrated care.
This includes drafting frequently asked questions around integrated care. We hope that, as a result, competition will be cited less frequently as a barrier.

104. Monitor report that they are providing integrated care pioneers with "expert strategic planning support and practical advice on regulations that may affect their plans. " They also state that they will work collaboratively with pioneering sites to design, test and evaluate new, innovative payment approaches that support the delivery of integrated care (such as capitation models), and that they will share the experience gathered from the pioneers' activities.[105]

105. In written evidence to this inquiry, both the King's Fund and the BMA argue that more progress needs to be made by Monitor on developing alternative payment systems to better support integrated care. The King's Fund's memorandum states that:

    While Payment by Results continues to have a role, alternative complementary payment systems are also needed to provide incentives which support the development of innovative local models of care, particularly in the direction of integrated care. As such we welcome Monitor's decision to agree to new rules for agreeing local prices and 'flexibilities', which are now referred to as 'local variations'.

    Despite high-level support for integrated care from ministers and government, the progress in developing innovative payment systems that provide the right financial incentives for integrated care continues to be slow and there is a need for a much greater sense of urgency from Monitor to enable this.[106]

106. The BMA argues that the current payment by results system can often act as a barrier to integration, "creating perverse incentives which lead to silo type thinking and behaviour", and state that in their view, "little progress has been made by Monitor to shape the future of the payments system, and this is having a negative impact on integration."[107] They suggest that allowing providers to delay efficiency savings through a multi-year tariff could encourage providers to undertake long-term efficiency savings, and suggest that "a multi-year tariff, tied in with CCG contracts, could provide both stability and encourage innovation from providers."[108] In its supplementary evidence, Monitor provided further information on payments systems:

    The National Tariff for 2014/15 introduced new opportunities to vary national prices.Changes to the standard NHS contract also give commissioners and providers more leeway for change.We want all parties within a local health economy to start using these new opportunities to make lasting changes to the patterns of care in patients' best interests.

    However, we realise that giving commissioners and providers the opportunities to break out of current patterns of care is only a first step towards transforming the services each local health economy needs.We also recognise that not all local health economies are in a position to implement new payment variations. Many local health economies need more support from the payment system, so future National Tariffs must include information, incentives and rules that do more to help.

    We will seek to learn, along with the sector, what works in relation to enabling integrated care.This knowledge will be played into our work on an annual basis.[109]

107. The Committee continues to believe that the development of a more integrated care model is fundamental to the delivery of high quality good value care. In addition to its work as the routine regulator of the health and care sector, this report therefore contains two specific recommendations addressed to Monitor,intended to facilitate the longer term reconfiguration of the health and care sector, which are repeated here, and on which the Committee will seek further specific evidence:

a)  It should launch a review with NHS England of the structure and level of National Tariff payments designed to identify and eliminate perverse incentives and incentivise necessary service reconfiguration;

b)  It should launch a review with the Competition Commission, and, in future, the Competition and Markets Authority, of the effect of competition law on necessary institutional change to ensure that existing institutions are not allowed to impede necessary service reconfiguration.

66   Health Committee, Tenth Report of Session 2012-13, 2012 Accountability Hearing with Monitor, para 79; para 86 Back

67   Health Committee, oral evidence, Implementation of the Health and Social Care Act, 11 June 2013, Q196 Back

68   Health Committee, oral evidence, Public Expenditure inquiry, 5 November 2013, Q59 - 60 Back

69   Foundation Trust Network (AMO 0007), para 2.8 Back

70   Nuffield Trust, (HSCA 37), para 4.4 Back

71   King's Fund (HSCA 68) para 14. Back

72   TheKing's Fund (AMO 0009) para 7 Back

73   Monitor (AMO 0010), para 6.15 - 6.16 Back

74   Monitor (AMO 0010), para 6.7 Back

75   Marie Curie Cancer Care (AMO 0001), paras 19 Back

76   British Medical Association (AMO 0003) para 5 Back

77   British Medical Association (AMO 0003), paras 6 - 7 Back

78   Q41 Back

79   Q50 - 51 Back

80   Qq 57-58 Back

81   Monitor supplementary information (AMO 0013), para 1.2 Back

82   Monitor (AMO 0010), paras 6.20, 6.21, 7.5 Back

83   Marie Curie Cancer Care (AMO 0001), paras 10 - 11 Back

84   Q66 Back

85   Q68 Back

86   British Medical Association (AMO 0003), para 8 Back

87   Health Committee, oral evidence, Implementation of the Health and Social Care Act, 11 June 2013,Q150; Q215 Back

88   Health Committee, oral evidence, Implementation of the Health and Social Care Act, 11 June 2013, Q 219 Back

89   Health Committee, oral evidence, Implementation of the Health and Social Care Act, 11 June 2013, Q223, Q225 Back

90   Monitor (AMO 0010), para 6.25 Back

91   Ensuring that Patients Interests are at the Heart of Assessing Public Hospital Mergers - Joint Statement from the Office of Fair Trading, the Competition Commission and Monitor, 17 October 2013  Back

92   Q41 Back

93   Q41 Back

94   Q44 Back

95   Q70 Back

96   Monitor supplementary information (AMO 0013) , para 1.1 Back

97   Arrangements to Support NHS Trusts Contemplating Mergers, Monitor, January 2014, p2 Back

98   Arrangements to Support NHS Trusts Contemplating Mergers, Monitor, January 2014, p3 Back

99   Arrangements to Support NHS Trusts Contemplating Mergers, Monitor, January 2014, p3 Back

100   Monitor supplementary information (AMO 0013), para 1.1 Back

101   Monitor supplementary information (AMO 0013), para 1.1 Back

102   Q61 Back

103  Monitor (AMO 0010), para 5.1-5.4 Back

104   Monitor (AMO 0010)Figure 4, Policy areas that enable integrated care Back

105   Monitor (AMO 0010), para 5.7 Back

106  TheKing's Fund (AMO 0009) paras 9-10 Back

107  British Medical Association (AMO 0003) para 10 Back

108   British Medical Association (AMO 0003), paras 10-11  Back

109   Monitor supplementary information (AMO 0013), para 2.1 Back

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Prepared 26 March 2014