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The times we are working in now need a great deal of accelerated change and there must be no negotiating that down. So my mission statement for this part of my consultancy career is to be clear that there needs to be and will be a lot of change from the work that I do with individuals and organisations and if organisations don’t want that, then it is probably best to go somewhere else.

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The White Paper – some issues. 4. What are the transactional relationships between commissioners and suppliers and how are they organised?

Filed Under (Economic Regulator, Health Policy, Reform of the NHS, White Paper) by Paul on 30-07-2010

Over time this part of the reform programme will become less and less visible. Patients should not have to care about the way in which the NHS moves; they should be interested in its outcomes for them and the fact that they can rely on safe free speedy modern services when they need them.

But as the reforms are developed, as they are bedded in, this aspect of the reform programme is probably more important than the others. It signifies the big shift in power from the NHS HQ which at the moment resides in the Department of Health and is run by a Permanent Secretary who is the CEO of the NHS, to an organisation that is completely different – the economic regulator.

Power doesn’t simply transfer from the NHS CEO to the economic regulator. Instead this is a completely different sort of power; one that regulates a system rather than one that believes it can run it from the top.

The reform changes once and for all what has only been half formed up until now. At the moment the NHS is half a system and half a command and control organisation. Its CEO is currently left with a lot of powers but cannot ‘control’ the whole system (however hard he might try).

The reform develops the NHS fully into a quasi market where health care is bought for NHS patients from a variety of different sources. Making such a market is an active not a passive process. It needs to be brought into reality and will not simply just happen.

That will be the role of the economic regulator.

There are many other quasi markets in English society. Most notably our utilities are organised around a quasi market with some competition but also with a very powerful economic regulator to help create and maintain the market. Some people may find it alarming that goods and services such as health care can be organised through a quasi economic market and may fear what would happen if such a market did not work. Within a week the country would be in a chaotic state.

We all think health care is the most important of goods and services, and it is certainly important – but not as important as water or power. If our water system failed the country would be in chaos within a day. Yet a quasi market and an economic regulator have ensured that the water flows and the lights come on when we turn on the tap and flick the switch.

The economic regulator will make clear the rules of the relationship between commissioners and providers – and in most quasi markets this revolves around the issue of price and competition. What is the price that commissioners pay and what are the rules that commissioners and providers have to work to in negotiating their contracts?

The reforms argue that at the moment the fact that these are carried out by staff within the Department of Health will lead to the possibility of interference by the Secretary of State. Indeed there is some evidence for this from last year’s intervention by the then Secretary of State when he tried to enforce his personal preference for the NHS as his preferred provider on the NHS as a whole. When he was finally taken before the competition panel by the third sector organisation ACEVO, he was able to stop the case by preventing the PCT from tendering.

It’s right that the regulation of the NHS should be carried out by an organisation outside of Government and in this case the fact that this will be organised around Monitor is a good idea too. Monitor has demonstrated, through relationships with four different Secretaries of State, that they can hold their own as an independent organisation so they deserve to be given the opportunity to build on that record of independence.

There are three major additional powers that Monitor will be given,

  1. Promoting competition At the moment competition is the exception rather than the rule in the NHS. For the reforms to work this must become the rule. The White Paper argues passionately for informed public and patient choice. For that to work that choice must have a set of alternatives to choose between. This must mean, first and foremost, a choice for the public of GP commissioner. If the public have no choice there then there is little choice at all. That choice must then go on to some form of competition between primary provision diagnostics and all forms of care. The role of the economic regulator will be to ensure that competition makes all of these aspects of health care move. They will have concurrent powers with the Office of Fair Trading to apply competition law to prevent anticompetitive behaviour. This may sound innocuous but at the moment if the test of anti-competitive behaviour was to be the same that is applied to secondary care in the US then nearly all NHS trusts would be anti-competitive in terms of their near monopoly of services. So promoting competition is a big task.
  2. Price regulation Monitor’s role will be to set efficient prices, or as the White Paper says, maximum prices. This last phrase gives the providers the opportunity to negotiate prices that are beneath that maximum with commissioners. In setting these prices they will be required to consult the NHS Commissioning Board and to take account of taxpayer’s and patient’s interests. Of course these interests may well be in conflict since taxpayers will be interested in ensuring the money goes as far as possible. (Incidentally there is a contradiction in the White Paper here where the DH is expected to develop prices for community and mental health services)
  3. Ensuring access and supporting continuity of services Whilst National and local commissioners  will have a major role in ensuring continuity Monitor will play the final role in ensuring continued access to key services. This is the case with the other economic regulators who ensure that if, for example, a water company is about to fail there will be a continuity of services. The economic regulator will be responsible for ensuring that as providers fail the public do not suffer.

At the moment Monitor play a vital role in helping FTs to performance manage themselves. They are the organisation which intervenes if an FT drifts off of its plan and holds the FT board to account if they start to fail.

The White Paper extends the number of providers who will need this performance management to all providers within 3 years. This becomes an even bigger issue. Given the rigours of the market it is much more likely that providers will get into trouble – if no one is involved in this performance management larger numbers of FTs will fall into the failure regime.

The quicker that Monitor can pick up on this role and wrest it from the NHS HQ in the DH then the quicker the NHS can become used to looking out at a market rather than looking up to Whitehall.


3 Responses to “The White Paper – some issues. 4. What are the transactional relationships between commissioners and suppliers and how are they organised?”

  1. There are huge downsides to the present conceptualisation and practice of “competition” which, if pursued, will simply act against choice and the long-term pursuit of continuous improvement in efficiency, effectiveness and value.

    These include:
    – complete knowledge transfer from commissioner to contractor, removing the ability to be an effective commissioner within 3 years (see Harvard Business Review)

    – replacement of one monopoly by another monopoly or a series of oligopolies (watch health become like the drug, airline or construction industries!)

    – lack of differentiation in procurement policies and practices. [I don’t know of a single big successful business which would approach strategic procurement in the way being approached. Of course, that would require increased ‘judgement’ and increased ‘risk’]

    – all procurement must require an ‘open information’ basis – financial, knowledge, systems etc etc. Of course, the ‘contractors’ will object loudly. That’s why it has to be there.

    – ‘competition’ is not the same as ‘being competitive’ (in the sense of securing continuous improvement in efficiency, effectiveness, responsiveness and outcomes)

  2. Hi Paul
    Enjoying this series and hope to explore a lot of these issues in our salons.
    The water utility comparison is a funny rhetorical flourish. But please don’t extend this comparison. Markets for delivery of water are less problematic because water doesn’t have the market failures that healthcare does. I don’t know much about the water market but last time I checked my taps water comes in just two service lines. It’s easy to measure quality and I don’t need 7 years at med school to turn the tap on.
    Acute healthcare alone delivers thousands of separately priced service lines requiring several intermediaries and ample opportunities to game the market. People aren’t worried about the application of markets (and competition law) in healthcare because of a quaint emotional feeling that healthcare is ‘important’. It’s a bit more complicated than that.

  3. I stand by water being important!

    I was not saying it is the same as health but also it is not a simple product to develop. Just the same as I would hope that my doctor had their training so would I expect my water company employed chemists and engineers with almost as much training as the doctors.

    I recognise that there are two service lines but expect that the level of applied science that ensures that the water I drink in London is clean and healthy even though it has been through several people before it gets to me is a normal part of their everyday work.

    Of course health is complex but my point is that economic regulators have succesfully developed markets in services that are of equal importance.

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