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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 proposed new architecture for the NHS – The Economic Regulator

Filed Under (Economic Regulator, Reform of the NHS, Secretary of State) by Paul on 21-06-2010

The economic regulator; providing a helping hand to the hidden hand and replacing the ineffectual worrier.

My previous posts on the new architecture of the NHS proposed by the new Secretary of State have concentrated on what the new architecture for commissioning and provision looks like. This will describe how the relationship between provision and commissioning will be organised.

And that last word is the crucial one for many people who have been working in the NHS for any time. In the past, and for most people in the present, there was a belief that somebody – some real set of individuals with good intent – was organising the whole system. They were making sure that there would be enough midwives in Gloucestershire so that when a baby was born the midwife and the bed were both in the right place when they were needed.

And that if there was going to be radical change in the way in which disease x was to be dealt with then this group of people would see it coming and would make sure there were sufficient resources to deal with it.

There was a group of decent people planning all of this.

There has indeed been a group of people whose job has been to plan and organise the NHS. As I have said before, there is someone called the Chief Executive who is ultimately responsible with the Secretary of State for the whole enterprise. They run a machine in the Department of Health and in the SHAs that has the responsibility for making this whole enterprise work. That is what they think they are doing and many other stakeholders take them at their word.

So last year the Health Select Committee took the DH at its word – that they are planning the NHS workforce and have been for sometime. Given this is what the workforce planners said they did (planning the workforce) they were critical of the way in which they always seemed to get it wrong. Because they always do. The Select Committee were very strong in their criticism since over and over again when the workforce planners said that we will need 7,312 district nurses in 20 years time, they were always way out. The Select Committee thought they were being strong in their criticism. But they weren’t being radical enough.

The reason they always get it wrong was not because they weren’t clever or good enough people. The reason they get it wrong is that it cannot be done. The relationship between medicine and population creates so much change that the notion that good men and women and true can plan what will happen in the 1 million interactions between the public and the NHS in, say, the next 36 hours that knowing what will happen in June 2020 is just not possible.

But there are all these people whose job this is. And indeed there are. I have spent a lot of my recent working life with them – and they are mainly good people who take this responsibility very seriously. They worry about what they feel is their responsibility to make sure that the NHS will have all of the pieces in the right place in 10 years time. And it keeps on not happening – so they worry more.

(I am indebted to a discussion I had with GPs last Thursday about the planning of the NHS for the idea that the main practice of these people is ‘worrying’. They wanted to know what people who took responsibility for this system – of which they were going to be a much bigger part – actually did. And we agreed that ‘worrying’ was the main activity, backed up by spurts of trying to move things around. We agreed that if the GPs took on this role they would fail in place of the previous NHS managers).

The difficult lesson is that given the size and breadth of the NHS this cannot be done and the decent people who have been trying to ‘take responsibility’ have been trying to do something that planners cannot do. This is too big to plan.

State planning as an organisation that believes it can run the world by shifting bits of the jigsaw around so that they are all in the right place, cannot work. I am sure we can be better or worse at it. But believing that a group of people can sit in Whitehall and take responsibility for planning all this has become a part of the problem and not the solution.

 In the post war period – given the success of strategic planning during World War 2  (we did after all win) – there was a belief that we can plan everything and make things right. Since one of the main things we were planning for was the public and their behaviour and since the public  have increasingly moved away from the passivity of ‘being planned’ it is they the public who have thrown their biggest spanner into the works of planning. They have rightly experienced planning and planners as telling them how to live their lives and what to do.

 So the ‘transport plan’ would decide how people will move around; the tourism plan would decide where they would move around to on the weekend; and the economic plan would decide what work they would do during the week.

And the NHS plan would decide where they would go when they were sick.

Increasingly in most areas of life we realised that no one could make all this happen.

The new architecture of the NHS is the recognition of this for the NHS.

This doesn’t mean to say that nobody does anything. It does mean that what planning mostly has to do is not tell people where they are going to be in 5 years time, but it needs to look at what is happening what is moving within the system and, if it wants to have an impact, it needs to change the incentives to try and change behaviour.  

System management moves from ineffectually worrying about how you are going to tell people what to do, to creating the incentives that will encourage people to move behaviour in one direction or another.

And for the NHS this will be the job of the economic regulator.

So the economic regulator replaces most of the power of the NHS by recognising that it cannot tell over a million staff what to do. It can however construct a system which will incentivise them to move in one direction or another. Responsibility for the behaviour moves down the system and the managers of the system take the responsibility of incentivising good behaviour and disincentivising bad behaviour.

They regulate a system. They don’t take responsibility for the behaviour of everyone in a single organisation called the NHS. That is where management of organisations comes in. The people who manage the organisations of commissioning and of provision within the NHS have to take responsibility for the behaviour of the staff in their organisations. If they fail to do that their organisations will fail. If they succeed their organisations will succeed – and then the NHS will succeed.

The point of this part of the new architecture is to locate responsibility for making the NHS work at the leadership of the organisations who commission and provide health care, not in some abstraction at a national or regional level.  

So how is an economic regulator different?

Economic regulators exist in a many parts of our society and they create the rules that distribute many of the utilities that our lives depend upon. Some people will say that health care is much too important to be left to a quasi-market. But at the moment it is a quasi-market that deals with electricity, gas, communications and water. Whilst a society where the health system broke down would be in a parlous state, one where all those utilities stopped would lead to chaos and despair in a few hours.

So if you want to know how the NHS economic regulator will work look at the utilities industry.

Crucially they are separate from the Government. In election year when the Government may want people to have more money in their pockets the independence of the economic regulator makes sure that they cannot lower the price. That’s a matter for the economic regulator not the Government. When the country is faced with a recession and everyone would like a bit more money in their pockets, the economic regulator still has to think of the long term needs of the industry to be able to invest in the future and not just think of the present.

The DH at the moment – in setting prices for NHS health care – does so over the signature of the Secretary of State for Health. She or he is in charge and is responsible.

Economic regulators are responsible to Parliament through the Select Committees and not to politics through the Secretary of State. This is the most significant change and as the Coalition Health Bill goes through Parliament will be the biggest issue of contention for MPs. Many MPs will recognise that one of the main things their constituents want to talk to them about is the NHS. With a combination of the day to day separation of the National Commissioning Board and the economic regulator from the Secretary of State, MPs will not have a direct day to day route into the NHS.

As the Bill goes through Parliament they will have to find a way of giving up this power that their constituents think they have.   

And what do economic regulators do?

It is their responsibility to set the rules and incentives through which the system will work. It is not their responsibility to run the system.

Every year economic regulators set the price of utilities. Every year the providers complain it is too low and the consumers complain it’s too high.

They can respond to policy. If the Secretary of State were to say that there is a policy of moving care out of hospitals, then it would be the job of the regulator to drive incentives into the system which would help the system move towards that goal. But they could not – as the present system does – pretend to move the care from one place to another.

Having set the prices they also need to set the rules through which the system works. In my last post I argued that the consequences of not having a failure regime had lead to inefficient provision feeling that there was no real pressure to improve. Given that a provider cannot fail what will happen to you?

The economic regulator needs to outline in their failure regime what will happen to an organisation that fails. How do we ensure that people in that area still get their vital health services? So far regulators have succeeded in this task with other utilities.

If you are creating a takeover of a failed provider by a good provider what are the rules?

All of this is a matter for the regulator.

Also what are the rules through which organisations compete with each other? At the moment competition is new to the NHS and is on the edges of a lot of experience of providers. This will change. NHS organisations will compete with each other. Patients will have to have a choice of commissioner (GP consortia) and will have to have a choice of provider. New providers will come into the system that will not only compete with existing providers but will provide entirely new services – for example for people with Long Term Conditions.

Economic regulators for, say, electricity also have a duty to try and secure as wide an access as possible for their services. This will be true for the NHS and its services but will have an important added drive. Equal access for all is the prime principle of the NHS and will lay a major task on the economic regulator for the NHS.

Patients will want to know what is being done by the regulator and the incentives that they develop to ensure that what is left of the post code lottery is diminished as far as possible.

All of this is a big task. It moves responsibilities away from the DH to a new organisation and it all depends upon the capabilities of that organisation to carry out these tasks with skill and independence.


4 Responses to “The proposed new architecture for the NHS – The Economic Regulator”

  1. Thank you for this analysis Paul. It is very helpful in framing the debate for the future. I am not sure if the white paper will be as explicit and I am not sure what organisation is going to be the economic regulator. Would its functions also be responsible for ensuring competition or is there a role for the competition commission. Commissioners have tried to stifle competition even though the notion of choice has been around for a while. I still hear senior commissioners talk about using ‘commissioning levers’ to ensure that business flows a particular way. I am not all that clear about how the GP consortia will be judged for patients to be able to apply choice to them. Are they going to have to publish a prospectus outlining what services they are likely to commission and what would be the public interface with them? If you have any thoughts on these matters, I would be grateful for a response.

  2. Sunita – Thanks for the comments. I have tried to develop some idea of how all this fits together because that was what I had to do in the past when I was working with the Secretaries of State and the PM. As you say this may be a lot neater than it actually is. In the way in which architects drawings are neater than the final building.

    The real answer to your questions is that nobody really knows for sure but we can have a guess.

    I think the Economic Regulator will be built around Monitor. This will give it a lot more to do. But Monitor has shown that it can stand up to the Department, and keep itself independent, and that is what the Regulator must do. I think the functions of the current Cooperation and Competition Panel will move into the Regulator which will give it much more power – and separation from the Secretary of State. You are right that only a few commissioners have really introduced competition and I think in the future this will change.

    Your question about choice of GP commissioners is absolutely key. Unless I can choose where my NHS government money goes to as a Commissioner, then the system will lose an important part of the movement. This must be the crux of all competition. They will need to produce an outline of what you get if you choose x rather than y. I would hope that the contract that each consortia has with the National Management Board would be public so that I can see what they would do with my designated NHS money if they could.

    In February I went to the US to do some work with Community Health Care Plans where individual people on Medicaid or Medicare can choose to move to any insurance (commissioning consortia). This gives a lot of power to the member of the public who has the designated state money.

    I will write something about this for the blog when the White Paper is out.

  3. Who is the economic regulator going to be for Consortia based commissioning? Is it likely to be Monitor ?

  4. Yes. The white paper specifically says that the economic regulator will be built around Monitor and that they will make and implement the rules on competition for the whole of the NHS incluiding GP consortia

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