2Competition
Background
19.Over the last 30 years, successive governments have pursued the goal of greater integration alongside policies that sought to increase the role of choice and competition within the NHS. The NHS Health Service and Community Act 1990 created the so-called NHS internal market, with a spilt between the provision and commissioning of healthcare through the creation of self-governing trusts and GP fund-holders. The NHS internal market continued to develop throughout the 1990s, but accelerated at the turn of the century with a series of reforms, under a Labour government, including the introduction of payment by results, the establishment of foundation trusts, and an extended role for the private sector.13
20.The Health and Social Care Act 2012 took this much further, seeking to make competition the key organising principle of the NHS. It introduced, for the first time, a formal purchaser/provider split at the top of the NHS. NHS England was created as an independent commissioning board, overseeing the newly created Clinical Commissioning Groups, and itself purchasing/commissioning specialist services. Unlike many of their predecessors, for example primary care trusts, CCGs had no provider role. Patients became able to choose a range of services from “any qualified provider”–whether from the public or independent sector. The NHS provider side was overseen by the Trust Development Authority where NHS organisations had yet to become foundation trusts, while Monitor’s role as the foundation trust regulator was hugely extended to become that of a market regulator, charged with preventing anti-competitive behaviour by NHS purchasers. One impact of these changes was that more NHS services, which play a key part in integrating care, notably community services, were put out to tender. In a recent report on integrated care, the National Audit Office concluded that:
shifts in policy emphasis and reorganisations which promote competition within the NHS, such as the move from primary care trusts to clinical commissioning groups in 2013 and the Health and Social Care Act 2012, have complicated the path to integration.14
21.In our report on integrated care, we emphasised that collaboration and quality, rather than competition between providers, should be the organising principles that underpin the planning and delivery of NHS care. A mixed economy of health and care provision is not necessarily at odds with the integration agenda. Patients, we heard during our previous inquiry, often draw on a wide variety of services and sources of support, from the NHS, but also charities, social enterprises and private providers, to meet their needs. What matters is whether a patient’s care is coordinated and centred on their needs. Patients must be at the heart of any reforms. To call the health service integrated if it fails to achieve this goal misses the point. Our view was that integration is enhanced by a diverse local health and care economy, made up of mostly public, but also non-statutory, providers that work together in the interests of patients. The key question is how to enable those providing care to achieve this aim and do so without unnecessarily burdensome bureaucratic hurdles.
Economic regulation
22.NHS England and NHS Improvement propose a series of changes to the role of competition within the NHS, including the role of the Competitions and Markets Authority (CMA) and NHS Improvement (technically, powers given to Monitor under the 2012 Act). The consultation document proposes to:
- Revoke regulations made under section 75 of the Health and Social Care Act 2012 and repeal powers in primary legislation under which the regulations are made.
- Remove NHS Improvement’s competition powers and duties.
- Remove the CMA’s role in reviewing mergers between NHS foundation trusts.
- Remove the requirement for NHS Improvement to refer contested licence conditions and national tariff provisions to the CMA.15
23.NHS England and NHS Improvement’s proposals to promote collaboration and lessen the role of competition in the English NHS have been warmly welcomed by the health and care community during the course of our inquiry, especially the proposal to repeal section 75 of the Health and Social Care Act 2012 and revoke the regulations made under it. These proposals do not remove the role of competition entirely from the NHS. To do so would require more fundamental and far reaching reforms. However, competition, as a lever for improving quality, has in practice been diluted over recent years.16 Some of the mechanisms in place to regulate competition have only been used on a handful of occasions. There is still a role for competition in the NHS, but encouraging organisations to collaborate, rather than compete, is widely regarded as a better way to manage the rising demands on health and care system.17 According to the Health Foundation:
These developments represent an important shift in direction for NHS policy. The 2012 Act aimed to strengthen the role of competition in the NHS, consolidating a market-based approach to reform that has been in place since the establishment of the internal market in 1991. By 2019, however, competition rarely gets mentioned in NHS policy. Instead, the Five Year Forward View, STPs, and ICSs are based on the idea that collaboration–not competition–is essential to improve care and manage resources, including between commissioners and providers.18
24.One criticism of NHS England and NHS Improvement’s proposals we heard was that these changes could deregulate, rather than de-marketise, the NHS, without introducing an alternative regulatory mechanism.19 Market mechanisms can be, and have been, used to a greater or lesser extent as levers for improvement.20 The NHS operates a mixed (quasi) market, with a mixed economy of provision.21 NHS England and NHS Improvement’s proposals do not change this, but remove some of the ways this NHS market is regulated. We heard that where markets are used they need to be regulated, especially in healthcare, to ensure service providers behave in ways that support the interests of their customers, in this case patients, and taxpayers.22 By removing an NHS-specific set of rules, NHS England and NHS Improvement’s proposals might subject the NHS to more general rules.23 Andrew Taylor, former Director of the Cooperation and Competition Panel for NHS-funded services, argued that:
Under the Long-Term Plan, markets in NHS services will remain, albeit their role is likely to be reduced. However, NHS England’s proposals will remove many of the oversight systems that are aimed at making market-based mechanisms in the NHS achieve positive outcomes. In many ways, NHS England’s proposals will deregulate NHS markets, rather than de-marketise the NHS.24
25.When viewed alongside some of the other changes proposed by NHS England and NHS Improvement, removing regulations that govern the NHS market, including the CMA’s role, could result in a significant centralisation of power in these national bodies.25 For example, coupled with proposed changes for NHS Improvement to direct mergers and acquisitions involving foundation trusts, the removal of the CMA’s NHS-specific role could result in a scenario when the NHS at a national level can direct mergers and judge its own decisions.26 A national top-down style of command and control, which has been used extensively in the NHS’s history,27 can exert a strong alternative system of governance.28 However, we heard stakeholders, especially NHS providers, commissioners and system leaders, express concern about the degree of centralisation proposed, especially when the direction of travel, certainly since the development of STPs and arguably since the Forward View, has been towards empowering collaborative, placed-based systems locally. A greater role for local Health and Wellbeing Boards and local Healthwatch could, as the Nuffield Trust suggest, offer an alternative source of scrutiny that could fill the void left by competition.29
Competition and Markets Authority
26.In principle, we have heard widespread support for the changes to the CMA’s role in the NHS that NHS England and NHS Improvement suggest, albeit with some notable caveats. The CMA’s functions, we heard, are just one example where competition rules have added complexities and costs into the system, with little benefit in return. For example, we heard that the experience of providers who have been seeking mergers or acquisitions, in order to address workforce challenges for example, is that the CMA adds unnecessary duplication.30 The NHS Confederation told us that many of its members said “that they did not think the CMA had been the right body to fulfil the functions expected of it, and they regarded it as an unnecessary layer of bureaucracy.”31 This sentiment is shared by others across the health and care community, as well as the CMA itself, in some cases.32
Mergers
27.As mentioned above, NHS Improvement and NHS England propose to remove the CMA’s role in reviewing mergers between NHS foundation trusts. This is one example where removing NHS-specific rules could result in the NHS becoming subject to general competition rules. We heard that, while the CMA’s NHS-specific role would go, foundation trust mergers would remain subject to the general powers in the Enterprise Act, unless the legislation specifically states that foundation trusts are no longer to be considered “enterprises” for the purpose of the Act.33
Objections to national tariff and licence conditions
28.NHS Improvement sets conditions for the provider licence and the national tariff, although it does so jointly with NHS England in the latter case. Relevant bodies, under provisions in the 2012 Act, can object to the method proposed for setting the national tariff and conditions of the provider licence. Where a sufficient proportion do so, NHS Improvement must either consult on a revised set of proposals or make a referral to the CMA.34 No such referral has ever happened and the CMA does not believe it is well placed, as a general competition regulator, to intervene anyway.35 However, in the event that NHS England and NHS Improvement merge, NHS providers are keen to ensure that there remains a mechanism for independent adjudication of disputes covering these points.36
29.We warmly welcome, in principle, NHS England and NHS Improvement’s proposals to promote collaboration, especially the proposal to repeal section 75 of the Health and Social Care Act 2012 and revoke the regulations made under it. We believe collaboration, rather than competition, as an organising principle, is a better way for the NHS and the wider health and care system to respond to today’s challenges.
30.We heard concerns that NHS England and NHS Improvement’s proposals risk deregulating, rather than de-marketising, the NHS without creating an alternative regulatory mechanism. In its response to this report, we request that the Government set out its assessment of the likelihood that the proposed legislation would have the effect of deregulating competition in the NHS and how it intends to ensure patients and taxpayers are protected from any adverse unintended consequences.
31.We support NHS England and NHS Improvement’s proposal to remove the need for NHS Improvement to refer objections on the national tariff and provider licence conditions to the CMA. No referral has ever been made and the CMA, as a general competition regulator, is not best placed to intervene in these matters. Nonetheless we share the concerns of providers about the removal of this safeguard altogether and recommend that the Department, NHS England and NHS Improvement build in a mechanism for independent adjudication of challenges to these decisions.
32.We welcome the intention behind removing the Competition and Markets Authority’s NHS-specific role in overseeing mergers involving foundation trusts. The CMA’s role, we heard, has led to unnecessary cost and duplication for foundation trusts involved in mergers and acquisitions. However, to remove foundation trusts entirely from the CMA’s remit would, we heard, require the law to change so that foundation trusts are no longer considered as ‘enterprises’ under the Enterprise Act. We recommend that the Department, together with NHS England and NHS Improvement, seek legal advice on the changes that will be required to remove foundation trusts from the CMA’s jurisdiction and the implications of doing so.
National tariff
Background
33.NHS England and NHS Improvement’s consultation document describes the national tariff as:
a set of currencies (e.g. defined episodes of care), prices and rules governing the payments that NHS commissioners make to providers for NHS-funded healthcare (except for primary care services). It is intended to promote high-quality care and improve the efficiency with which services are provided. The tariff is set on an annual or multi-year basis.
34.Healthcare systems around the world use a variety of different payment systems. The national tariff is one example. The Health Foundation argue that an effective system ought to combine multiple payment methods coupled with a focus on improvement.37 The King’s Fund suggest that, rather than designing a complex set of incentives, an alternative is to move away from contracts towards a focus on building effective partnerships supported by simple arrangements that allow resources to be moved around when needed.38
35.While it can be useful, paying for activity, as the national tariff does, creates perverse incentives that are a barrier to integration. The tariff-based system has been traditionally used to incentivise hospital activity. However, there is broad consensus that preventing the need for patients to go to hospital is generally better for patients and taxpayers alike. Dr Amanda Doyle, the Chief Officer of Healthier Lancashire and South Cumbria, explained that the tariff systems works well for a traditional model of care whereby people are referred to hospital, treated, cured and then discharged, but less well for the management of patients with multiple long-term conditions where incentives should be in place to promote prevention and to reduce the need for admission. Dr Doyle explained that:
if somebody has a number of long-term conditions whereby they may have a small part of their care in a hospital setting, but a much bigger part of their care in a community or primary care setting, if a hospital provider is incentivised to increase the number of episodes of care in the hospital because of the financial regime under which they are working, you are not necessarily using your resource in the most effective way or treating your patient in the place where it is going to be most effective for their best outcomes.39
Local flexibility
36.The proposed changes to the tariff seek to give local systems more flexibility in their payment systems and more responsibility to local systems for managing resources. NHS England and NHS Improvement propose that:
- it should be possible for national prices to be set as a formula rather than a fixed value, so that the price payable can reflect local factors;
- local commissioners and providers should be able to agree appropriate payments for services patients receive from their main hospital under tariff rules, but that powers should enable national prices to apply in specific circumstances such as out of area treatments;
- once ICSs are fully developed, the power to apply to NHS Improvement to make local modifications to tariff prices should be removed.40
37.Allowing greater flexibility to adjust tariff prices to reflect local needs and circumstances is broadly welcomed, although more information is needed on the formula that would be introduced. More flexible use of the tariff, combined with the use of other payment systems, would enable local areas to use tariff payments, not as a rule, but at the margins, where this makes sense locally. A national tariff, we heard, creates problems for rural, high-cost areas, for example.
38.One of the potential unintended consequences of allowing more flexibility at a local level is that it could introduce an incentive for providers to compete on price, rather than quality. This is another example of how these proposals can be seen as deregulating market forces within the NHS. We heard that it will be important to ensure that the local flexibilities do not result in a ‘race to the bottom’ where providers compete on price, at the expense of quality.41 While the risk of price competition has been raised by many as a possibility, we have heard different opinions about the extent to which the changes NHS England and NHS Improvement propose would lead to conditions in which price competition is likely.42
39.Another potential problem is that these changes add complexity to the system, especially for certain providers. One of the benefits of the national tariff is that it has simplified arrangements. There is a concern that these changes could lead to protracted negotiations between providers and commissioners. Greater local flexibility could also end up adding complexity to the way large providers, which cover multiple areas, are paid. For example, Jon Rouse, Chief Officer of the Greater Manchester Health and Social Care Partnership, explained:
If you are a major teaching hospital, you do not want 15 or 16 different versions of a pricing mechanism for the same provision of care, the same specialty, and you are left trying to make sense of 16 different ways of paying for the same thing in different geographies.43
40.Currently, providers in specific circumstances, such as when a local service is economically unviable, can apply to NHS Improvement to request that national prices can be modified locally. NHS England and NHS Improvement propose to remove this power, as they argue it is “out of keeping” with the move towards encouraging organisations in a local system to take collective responsibility for managing their own resources.44 However, in terms of oversight, we heard that there is a strong case for retaining the ability for providers to apply to NHS Improvement to make local modifications to tariff prices, as even when ICSs are fully developed they may not be the most appropriate place to pool risk in cases where local services are deemed economically unviable.45 In addition, according to NHS Providers:
Providers recognise that when ICSs are fully formed the need for NHSI to make local price modifications should become less necessary. But, in many systems, local price modification is a matter for often complex and difficult negotiation between providers and commissioners. We think there is a good argument for retention of NHSI’s power of intervention on local price modification, especially whilst the journey to integrated local systems is in train and potentially beyond that.46
Nevertheless, the proposals to allow more flexibility in respect of pricing were generally supported by those from whom we heard evidence, as they reflect the current reality of how local commissioners and providers allocate resources.
41.We support NHS England and NHS Improvement’s intention to provide greater local flexibility over the use of the national tariff system. Providing more flexibility will help local providers and commissioners to remove perverse incentives, especially in managing patients with multiple long-term conditions. One of the benefits of a national tariff system is that it has helped to ensure that providers compete on the quality, rather than the price, of the care they deliver. In its response, we request that the Department, together with NHS England and NHS Improvement, outline how they plan to avoid and/or mitigate the concern that these changes could result in price competition.
Procurement
42.NHS England and NHS Improvement propose to repeal section 75 of the Health and Social Care Act 2012 and remove the NHS from the Public Contract Regulations 2015, and replace these regulations with a new ‘best value’ test.47 Simon Stevens, Chief Executive of NHS England, told us that these proposals are intended to ensure that commissioners can exercise discretion about when to carry out a formal procurement process, albeit with certain safeguards applied in order to protect taxpayers’ interests.48
43.During the course of our inquiry, we heard varied views on the extent to which NHS commissioners put contracts out to tender. Ian Dalton said that “any contract over £615,278 is, by and large, tendered; that is clearly a lot of contracts.”49 Other written and oral evidence we received suggested that the total number of contracts commissioners put out to tender is small.50 Research into CCG contracting carried out on behalf of the Independent Healthcare Providers Network suggests that over the last three years the total number of NHS contracts put out to tender has ranged from 6% to 12%, although these contracts only equate to a small percentage (between 2 and 3%) of the total value of NHS contracts.51
44.Nevertheless, there was acceptance that competitive tendering is more widespread in respect of community health services and mental health services. Ian Dalton, for example, argued that running a competitive tendering process has become an expected part of doing business in community health services.52
45.For those involved, procurement rules add considerable costs and complexities into the system that, it is argued, are of little benefit to patients. We heard how procurements create a transactional relationship between providers and commissioners,53 characterised by seemingly endless contracting rounds. In addition to the transaction costs and administrative burdens procurements create, we heard how the experience can be disruptive for staff.54
46.We also heard that problems stem not only from the procurement rules themselves, but also from people’s interpretation of these rules and their difficulty in understanding what is permissible within the rules. On the commissioner side, we heard that CCGs often undertake what is called ‘defensive procurement’, whereby contracts are put out to tender in order for the commissioners to avoid legal challenges.55 Uncertainty over what is legally permissible within the procurement rules has also been a barrier to providers seeking to work together to integrate their services.56
47.On the point of integration, Simon Stevens explained that “just trying to run procurements for the community health services sliver, is to completely miss the point.” He went on to explain that:
we need far more integration between both community health and primary care and community health and specialist care. Doing carve-outs of the sort you describe [for example by commissioning community health services separately] is precisely what we will be getting away from as we implement the long-term plan.57
48.NHS Improvement and NHS England propose removing the NHS from the Public Contract Regulations 2015 (PCR 2015). These regulations implement EU procurement rules. We heard from witnesses that there is legal debate as to whether the NHS in England might need to move to a more administered system than is currently proposed (as is the case in Scotland and Wales) to escape them.58 We also heard, including from lawyers and academics specialising in this area, that there are greater flexibilities that could be taken advantage of within PCR 2015 than is currently the case.59 We are not in a position to make a judgement on either possibility. But given the complexities, NHS England and the Department will require specialist legal advice about how to implement this proposed change, depending on the status of Brexit at the time that the proposed amendments to NHS legislation are brought forward.
Best value test
49.There is broad support for the principle of a ‘best value’ test, although more detail is needed on how the test will operate. We heard consistently that it is difficult to assess the merit of this proposal adequately until further detail is available about how the test will work. However, the evidence we have taken provides some high-level points about how this idea can be developed.
50.We heard that the definition of value that underpins the ‘best value’ test must be broad, with a focus not only on the efficiency and quality of care (including health outcomes of patients), but also the NHS’s ability to deliver wider public and social value. As Rob Harwood from the British Medical Association Consultants Committee stressed, it must not be a “least cost test”.60 Similar tests used in local government have three main elements, encompassing economic, social and environmental value.61 Aligning the NHS to similar concepts of value used by other public services would be an important safeguard in ensuring that a ‘best value’ test operates in the interests of patients and the public.62 There are opportunities to use a ‘best value’ test to develop the NHS’s role an anchor institution, as Jon Rouse described:
I get quite excited when I begin to think about importing social value properly into an NHS assessment of how best to commission or buy services. If you think about the amount that the NHS spends in a local economy and the good that could do if there was built into it both testing of how to provide, and obligations on who provides—around apprenticeships, around how goods are procured and around sustainability—the impact could be absolutely massive. We spend £6 billion a year in Greater Manchester on our health system. Imagine that being harnessed to that cause.63
51.A best value test must reduce, rather than add to, the burdens on providers and commissioners. The concept of a ‘best value’ test is designed to enable commissioners to exercise discretion over whether to put a service out to tender. However, a ‘best value’ test could end up being more onerous than the current process, depending on how the test is designed and implemented. There is also the prospect of such a test leading to an increase, rather than a reduction, in legal challenges, as Andrew Taylor suggested:
At the moment, effectively people are making those decisions [whether to put a service out to tender] behind closed doors and maybe someone does or does not have a go, but what you are doing is introducing transparency and rules around that kind of decision making, and that will make it much more contentious and liable to challenge.64
52.It is important that a ‘best value’ test does not allow the NHS to become a protectionist monopoly provider. There are differing views over whether a ‘best value’ test should start from the position of the NHS as a preferred provider of services. This may help to keep the test less onerous.65 However, the majority of the evidence given to this inquiry has stressed the importance of ensuring that the test does not become a means for the NHS to exclude non-statutory providers. Commissioners must retain the ability to test new models of provision.
53.While the concept of a ‘best value’ test had broad support, the language of ‘best value’ may not be the most appropriate terminology to use. Within local government, ‘best value’ has negative connotations because it is perceived as being synonymous with cost-cutting. Sara Gorton from UNISON explained:
Our members will associate ‘best value’ with a very specific set of changes that were made in local authorities to what had been the compulsory competitive tendering regime. That was softened by best value, which was introduced with the intention of allowing progressive tendering and contractual relations that did not just take lowest cost as a measure. However, the subsequent financial challenges across the sector mean that, for many staff working in that environment, best value is still associated with broad cost-cutting. Our strong recommendation would be that you should dissociate from that.66
54.We support the intent behind NHS England and NHS Improvement’s proposal to ensure that commissioners can exercise discretion over when to conduct a procurement process. The practice of procurement in parts of the NHS, particularly community and mental health services, has added complexities and costs to the system, with little added value for patients in return, and made it harder for services to integrate.
55.Given the way the NHS in England operates, the proposal to take it out of the Public Contract Regulations 2015 may well face legal difficulties. NHS England, NHS Improvement and the Department need to explore that in detail and be clear about the law, including EU law. In the meantime, however, we recommend that they should explore whether there are more flexibilities within PCR 2015 than are currently being used.
56.We recommend that the Department, NHS England and NHS Improvement work with the NHS Assembly to co-produce a ‘best value’ test. This test should be underpinned by a broad definition of value, with the quality of care and health outcomes at its heart, but also aligned with conceptions of public and social value used by other public services. As the term ‘best value’ is perceived in local government to be synonymous with cost-cutting, we strongly advise that NHS England and NHS Improvement reconsider the using the phrase ‘best value’.
13 House of Commons Health and Social Care Committee, Integrated care: organisations, partnerships and systems, HC650, 11 June 2018
14 National Audit Office, Health and social care integration, HC1011 February 2017
15 NHS England and NHS Improvement, Implementing the NHS Long Term Plan: Proposals for possible changes to legislation, February 2019
27 The Health Foundation, Glaziers and windowbreakers: the role of the Secretary of State for Health, in their own words, May 2015
28 Allen, P. BMC Health Services Research 2013, 13(Suppl 1):S1 http://www.biomedcentral.com/1472–6963/13/S1/S1
34 NHS England and NHS Improvement, Implementing the NHS Long Term Plan: Proposals for possible changes to legislation, March 2019
38 The King’s Fund, Payments and contracting for integrated care: the false promise of the self-improving health system, March 2019
40 NHS England and NHS Improvement, Implementing the NHS Long Term Plan: Proposals for possible changes to legislation, March 2019
44 NHS England and NHS Improvement, Implementing the NHS Long Term Plan: Proposals for possible changes to legislation, March 2019
47 NHS England and NHS Improvement, Implementing the NHS Long Term Plan: Proposals for possible changes to legislation, March 2019
Published: 24 June 2019