NHS: Competition

Earl Howe Excerpts

Monday 10th February 2014 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)]

My Lords, I join other noble Lords in thanking the noble Lord, Lord Turnberg, for tabling this topic for debate. I will begin with three simple statements, to serve as mental marker posts, as it were, before I respond to the questions that have been raised.

First, amid the many changes that we made to NHS commissioning through the Health and Social Care Act, one area of the law that has not changed one iota is the law relating to competitive tendering. That law has been in place for a number of years; it has been governed by a European directive; and, as regards the rules governing NHS procurement, the Section 75 regulations change nothing at all.

Secondly, the noble Baroness, Lady Thornton, referred to “Mr Lansley’s agenda” on privatisation. There is no government agenda to privatise NHS services—quite the contrary. We made it illegal in the Health and Social Care Act for the Secretary of State, Monitor or NHS England to have a policy deliberately favouring the independent sector.

Thirdly, the noble Lord, Lord Hunt, spoke of a deliberate policy of enforced competition and marketisation. I must correct him. It is NHS commissioners alone who will decide whether, where and how competition in service provision should be introduced. There are no obligations on commissioners to create or promote markets; nor are they required to fragment services against the interests of patients.

Those three points are key to understanding what the Government are doing and what we are not doing. I will now turn to the place and value of competition in the NHS, which has long existed. As the noble Lord, Lord Turnberg, pointed out, patients have long exercised choice over where they receive services from. I was pleased to hear the noble Lord, Lord Hunt, acknowledge that third sector and independent providers play an important part in providing NHS care; for example, in hospice care for terminally ill patients, mental health services and long-term nursing care for the frail elderly.

We have seen over the past decade the independent sector treatment centre programme and the introduction of payment by results in 2003, the advent of patient choice in 2006, and the transforming community services programme of 2008. I must point out to the noble Lord, Lord Turnberg, that it was this changing landscape that introduced greater competition to the NHS; it was not the Health and Social Care Act. There is robust evidence from a variety of sources that quality-based competition can work to the benefit of patients, and I shall come on to cite that evidence in a moment.

The previous Administration put in place a set of rules to manage that competition, known as the Principles and Rules for Co-operation and Competition, and the Government committed in their response to the NHS Future Forum report to maintain these and place them on a statutory footing so that they could continue to apply to commissioners. That is exactly what we have done; there has been absolute continuity in how the rules apply. Clinical commissioning groups work within this framework to secure the best services for patients that they can, from whichever provider best offers that prospect. In essence that is the value of this framework of rules. They will be supported in this activity by guidance from NHS England and Monitor, and through the work of commissioning support units.

The noble Baroness, Lady Thornton, asked me what I would regard as a reasonable proportion of NHS activity to be put out to tender. I have no view on this, and nor should I. The decisions on tendering are entirely up to commissioners and not Ministers. The noble Baroness also indicated that seven out of 10 NHS contracts have gone to the private sector since last April. I point out that that figure is highly misleading. It was quoted in a newspaper article, but the contracts in the sample that was quoted amount to a tiny and unrepresentative sample of the scale of NHS activity. In reality, spending on healthcare from private-sector providers equates only to around 6% of total NHS expenditure. It was roughly 5% at the end of the previous Administration.

My noble friend Lady Brinton asked whether there will be guidance from Monitor to clarify the duties on commissioners, and the noble Lord, Lord Hunt, suggested that commissioners are confused about that. Monitor has now published its guidance to support commissioners in understanding and complying with the Section 75 regulations. Monitor, along with NHS England, will undertake further engagement with commissioners to support them in understanding the requirements. I acknowledge that there is a degree of misunderstanding out there, but not everywhere. NHS England’s forthcoming procurement guidance will provide further guidance on the EU requirements.

The noble Lord, Lord Hunt, raised concerns about fragmentation and barriers to integration. To the extent that fragmentation exists, I say to him that it existed as greatly under his Government. I am proud to say that this Government are taking practical steps to make integration more commonplace throughout the country. We are supporting a number of integration pioneer sites, which will trailblaze new ideas to bring care closer together. They will be leaders of change—a change we have to see in the system if we want to offer the best-quality care.

We are also supporting the system through the £3.8 billion Better Care Fund, which will encourage organisations to act earlier to prevent people reaching crisis point, to offer seven-day services, and to deliver care that is centred on people’s needs. That idea and that fund have been widely welcomed. Therefore, our focus is for commissioners to innovate and to work with partners in the sector to design integrated care pathways for patients that allow for a seamless experience of care. I assure the Committee that the competition rules do not stand in the way of that. In fact, the Section 75 regulations explicitly allow for it.

Under the regulations, the objective of a commissioner must always be to secure the needs of patients, including through services being integrated. For example, in Milton Keynes, substance misuse services used to be delivered by several providers, resulting in fragmented care. Users found services difficult to navigate, which impacted on treatment entry and retention rates. In response to this, NHS Milton Keynes CCG and Milton Keynes Council developed an outcomes-based approach to commissioning. Existing services were brought together into one fully integrated, recovery-focused service, delivered by a third sector organisation, which enabled more effective delivery of care and efficiency savings of 15% to 20%. That is a clear example of good commissioning delivering improved services for patients.

I turn to the OFT’s role and the review of mergers. Again, it is important to realise that the NHS has long had arrangements in place to review mergers on competition grounds, and that in considering mergers the competition authorities are acting under their existing powers under the Enterprise Act 2002.

The noble Lord, Lord Turnberg, criticised Part 3 of the Health and Social Care Act. Repealing Part 3 of that Act would not remove the powers of the competition authorities. In fact, the 2012 Act was important in clarifying those powers in order to address the legal uncertainty for NHS bodies as to whether mergers between them would be considered by the OFT or the CCP. Without this clarification, providers would have been at risk of double jeopardy, with both bodies potentially seeking to undertake a review.

The noble Lord, Lord Turnberg, cited several examples of challenges being issued on competition grounds which he attributes to the existence of Part 3 of the Act. I do not want to comment on the detail of those cases—it would be wrong of me to do so—but I would point out that challenges of that kind would have been quite capable of being brought even if the Government had never introduced the Health and Social Care Bill.

[Lord Hunt of Kings Heath]

My Lords, I understand where the noble Earl is coming from in relation to the Enterprise Act. However, is it not a fact that essentially what happened was that the 2012 Act was a signal to the market that a market was being put in place? Why have a 300-page Act and why have the Section 75 competition regulations? In essence, the Government opened the door in this regard and that is why these challenges are now taking place. They did not take place before the 2012 Act.

[Earl Howe]

The market, however, did exist, which was the point that I made. The market was out there well before the 2012 Act and well before this Government came to office. It was incumbent on us to clarify and simplify the rules that the previous Government put in place. We did that through Part 3 of the Act. It was not a signal to anybody to marketise the NHS. Indeed, as I said, we explicitly provided for it to be illegal for Ministers or Monitor to prefer the independent sector over public sector providers. That is explicit in the Act, so the noble Lord cannot accuse the Government of enabling legislation to promote marketisation.

[Baroness Thornton]

My noble friend’s question was actually about the signal. If, as the noble Earl has told us, all these things existed before the Act, why did we have to have Part 3 of the Act? Why was it necessary? The only reason that it seems to have been necessary—we think that the evidence now shows that to be the case—is that it increased marketisation in the NHS.

[Earl Howe]

Let me be clear. Repealing Part 3 of the Health and Social Care Act, which is what the noble Baroness appears to be suggesting is desirable, would not stop competition law applying. It would not remove the powers that the OFT has, which were introduced by the previous Government. It would just mean that a health expert regulator—Monitor—would not be the body considering the application of competition law to the NHS. I do not believe that that is in the best interests of patients. That provision was widely welcomed by those who understood these matters.

I was asked about the case involving Blackpool and Spire. It would not be appropriate for me to comment on an ongoing investigation by the independent regulator but I stress that, in considering this case, Monitor is doing nothing that the Co-operation and Competition Panel could not have done under the principles and rules for co-operation and competition. As regards the Greater Manchester proposals which the noble Lord, Lord Hunt, raised, I can inform him that Monitor has closed that case and NHS England is pursuing its procurement of these services.

The noble Baroness, Lady Thornton, asked about Bournemouth and Poole. I want to be clear that there is nothing to stop two providers coming together if it is in the best interest of patients. The OFT has already cleared two out of three mergers. However, while in some places mergers have improved things for patients, there is evidence that some mergers can be costly and may not deliver the benefits that were intended. It is therefore right that these are examined. The competition authorities have listened to concerns raised in the system. That is why, in October last year, they set out their commitment to work together with Monitor to ensure that the interests of patients are always at the heart of the merger review process; that the process works quickly and predictably; and, importantly, that any costs can be minimised.

Monitor will take a more active role in supporting merging parties and advising the OFT. This means that some mergers may not need to go to the competition authorities at all, and that those which do can be dealt with more quickly. For example, the proposed merger involving Torbay and Southern Devon Health and Care NHS Trust—an integration pioneer—and the South Devon Healthcare NHS Foundation Trust is one of the first cases in which, with the help of Monitor, the trusts have been able to self-assess and conclude that they do not need to notify the merger to the OFT, as it would be unlikely to raise concerns from a competition perspective.

The noble Lord, Lord Turnberg, challenged me on the evidence for the value of competition. There is robust evidence, as I have already mentioned. A report of January 2012 by the Office of Health Economics states that,

“evidence both from the UK and internationally suggests that quality based competition with prices fixed by a regulator can be beneficial, producing higher quality care at the same cost on average and, importantly, not leading to increased inequity in access to care”.

Researchers at the London School of Economics have found that hospitals in areas where patients have more choice of provider have shorter lengths of stay in hospital and lower death rates than in less competitive markets. Research by York University found an increase in quality at a hospital stimulated local rivals to respond, as well as to increase the quality of their services. The research found improvements in relation to mortality rates, stroke readmission and patient satisfaction.

There are various other answers that I would like to give, but I have been advised that I am well over time, for which I apologise. I simply conclude by saying that this has been, as ever, a stimulating debate on a topic to which I am sure we will return in coming months. I hope that my comments today have at least partially clarified the legal position and wholly clarified our intentions regarding the place of competition in the NHS. I hope, too, that they have provided some measure of reassurance to noble Lords that the system is acting upon the concerns that it hears.

Committee adjourned at 6.52 pm.