Health and Social Care Bill

Lord Davies of Stamford Excerpts

Tuesday 13th December 2011 Lords Chamber

[Baroness Finlay of Llandaff]

My Lords, I have an amendment in this group which really builds on the amendment already spoken to comprehensively and efficiently by the noble Lord, Lord Clement-Jones—that is, to not impose a burden on providers in the process.

One of the difficulties in any type of regulation or inspection is that it is very easy for those who are doing the inspection to require more and more data from a provider to support whatever they view as their outcome and their inspection processes. There is a real danger in here that sometimes the regulatory processes can develop a life of their own, and, quite inadvertently, become a burden on providers. We have already seen that occur with some of the current inspection processes in place, which seem to have collected an inordinate amount of data sometimes, but have missed out on real deficits in care.

It is a paramount duty towards the safety of people who use healthcare services, and built into that of course will be good clinical outcomes, because bad clinical outcomes will be unsafe in the process. However, it is also a suggestion—and this is therefore a probing amendment—that the regulatory burden on the providers must not be excessive. They must be able to deliver patient care without diverting resources away from it in order to meet requirements from a regulator.

[Lord Davies of Stamford]

My Lords, I find it not entirely surprising that a number of us this afternoon have found it difficult to know at exactly what point we should be making the contribution that we wanted to make, because of course there is an immense overlap between the themes that all the clauses we have been reviewing today have brought forward.

All those clauses, and most of the amendments to them, necessarily derive from a single decision by the Government. This was the decision that they wanted to distance the Secretary of State from the operations of the health service and superimpose a set of bureaucracies and regulators that would in future take on the responsibility that the Secretary of State has had until now. That was a decision that has had, and will have, a lot of consequences.

Three consequences in particular are very unfortunate. The first is that there will inevitably be a lack of transparency. You may impose on Monitor the obligation to produce the annual report and occasional statements on the decisions it takes, and impose on clinical commissioning boards, foundation trusts and other bodies within the NHS an obligation to try to relate to the local public and have meetings and report to them and so on. However, you will never get the degree of close oversight that you can get in Parliament when the important decisions are taken by the Secretary of State in Parliament, where they are subject to a weekly or, when necessary, daily scrutiny. That does not apply to the functional decisions, which I will come to in a moment. That is the first inevitable cost of this proposal by the Government.

The second consequence is the cost to democracy. People will no longer feel that the health service is being delivered by their democracy, or is part of their democracy. It will increasingly be delivered by relatively remote and autonomous bureaucracies which will no doubt be staffed by the most high-minded people—a sort of platonic mandarinate who will certainly deliver the best they can for the human beings in their care. However, that is a very different concept from the democratically driven concept of the National Health Service on which a lot of us were brought up and which was, of course, the vision of Beveridge and Bevan.

The third consequence, to which I turn in specific detail, relates directly to the clause and amendments before us. Many contradictions and conflicts of interest will be created in the organisations and bureaucracy that take over the Secretary of State’s role. Until now the Secretary of State has been responsible for taking those decisions that are properly political decisions in the true sense of the word. They involve priorities, value judgments, trade-offs and strategic decisions for the future, which have properly been decisions of the Secretary of State up to now. Many of them will now be taken by someone else, particularly Monitor, which will take over from the Secretary of State the job of making sure that the whole system works. I have no doubt that the Government hope that that will work out well, but I repeat that I think that the effort, the initiative, is misconceived.

Two types of conflict will inevitably be structurally hardwired into Monitor. There will be the functional conflicts to which I have already referred. Monitor has specific, specialised responsibility for licensing and overseeing foundation trusts and making sure that problems are ironed out. That is one particular sector on the provider side of the equation. It now has a whole lot of responsibility for everyone else on the provider side and for the supplier side. There are some inherent conflicts.

There are also philosophical conflicts. Monitor is being given very many criteria. Clause 59 sets out what probably most of us would write if we were asked to write the most important targets of the health service on the back of an envelope. However, there is no attempt to establish a hierarchy and there will be conflicts between them the whole time. In the short term at least there could be serious conflicts between increases in efficiency, for example in access and improvement in care, and in all the other virtuous objectives set out in that clause.

The noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Finlay, have brought forward their own solution. They say, “Well, let us take one criteria, make that the overriding criteria and then Monitor won’t have a conflict any more”. That is how I understand the logic of what they propose. Perhaps I may disagree for a moment with the noble Baroness, Lady Finlay. It is not right to say that she builds on the suggestion made by the noble Lord, Lord Clement-Jones, because her proposal comes under different criteria. The noble Lord thinks that the safety of the patient is the most important thing, and the noble Baroness thinks that it is not to place too great a burden on providers. Both are admirable considerations, but by definition they cannot both be the overriding determining consideration where there is otherwise a conflict between desirable objectives. That will occur the whole time. These two amendments highlight the problem created by the way that the Government have decided to approach the future of healthcare in this country.

I turn now to the Government’s answer to the problem that I have set out. It is quite extraordinary. Clause 63(2) states:

“Monitor must act so as to secure that there is not, and could not reasonably be regarded as being, a conflict between”,

its responsibilities, which in this case are foundation trusts, and the rest. How can Monitor possibly act as if there is not conflict if there is a conflict? You cannot just pretend that there is not conflict and think that that means that the conflict has disappeared. That does not work at all. The same thing applies to subsection (3), which states:

“Monitor must ignore the functions it has under sections 109 and 111 when exercising … its functions under Chapter 2 … and Chapter 4”.

What exactly does that mean? It cannot be ignored. Of course, Clause 109 is about when a foundation trust runs into difficulty. When that happens the Government cannot wish away the fact that the foundation trust has a difficulty; they have a responsibility to resolve it. Perhaps they mean that there will be a department looking after the foundation trust’s problems but that it will not be allowed to speak to the departments with the general responsibility that Monitor exercises across the rest of the health service.

If that is what the Government are saying, perhaps they should say it explicitly. But if they are going to set up two separate departments which will not be allowed to talk to each other—there is a kind of negative synergy in an organisation having two functions of that sort—why not have two separate organisations? What is the logic for having Monitor at all if it will have to operate in this extraordinary way? I have intervened because the Government need to tell us clearly, before we agree Clause 63 and accept this Bill into the legislation of this country, exactly how they propose to grapple with the serious problems that their decision has created. I do not think that we will accept in this House that their decisions can simply be wished or thought away.

[Baroness Williams of Crosby]

My Lords, I can address my Amendment 274ZB very quickly. I have to admit that it arises from a fog of misunderstanding. Frankly, I do not know what this subsection means. Under Clause 63(3), there can be a Monitor intervention in a situation where Sections 109 and 111, which address themselves to various aspects of foundation trusts, can be completely waived without any regard to the fact that they are looking at competition and pricing as regards profoundly sensitive subjects. I wish that I could say that I know what it means but I do not. Instead I have put down an amendment which simply proposes leaving out that subsection. If the Minister can enlighten me, perhaps I will put it back in again. At the moment, I simply do not know what I would be putting in or out. I apologise to the House for such absurd and detailed ignorance, to which I confess with great humility. But I hope that the Minister will be able to enlighten me because so far no one else has been able to do so.

--- Later in debate ---

[Earl Howe]

My Lords, I think we will rely on Monitor to make its own arrangements and, as the Committee will appreciate, there are limits to how far it is sensible to prescribe in legislation what the arrangements should be. Nevertheless, picking up the noble Lord’s prompt, I am sympathetic to the concerns that have been raised in this general area and I undertake to discuss the matter further with Monitor.

To create legal certainty, Clause 63(3) clarifies Monitor’s arrangements to resolve conflicts further, so when preventing anti-competitive behaviour and setting and regulating prices, Monitor must ignore its transitional regulatory functions relating to foundation trusts. I hope that addresses Amendment 274ZB, tabled in the name of my noble friend Lady Williams. The meaning of this provision—

[Lord Davies of Stamford]

My Lords, the noble Earl keeps on referring to Monitor’s responsibilities towards foundation trusts as being transitional, but I recall that earlier today he accepted that in fact they would possibly continue beyond 2016, which is five years away. It hardly seems possible that he should be saying that at one moment and then at the next using the argument that since these responsibilities are only transitional, the conflict of interest will rapidly resolve itself.

[Earl Howe]

I refer the noble Lord to the remarks I made earlier. The provisions are partly transitional and partly not. It depends on which functions we are looking at.

I come back to the point I was making on the amendment tabled in the name of my noble friend. This provision says that in preventing anti-competitive behaviour that is against patients’ interests or in setting prices, Monitor must ignore the transitional functions it has as the regulator of foundation trusts. If the subsection were left out as the amendment proposes—although I know that it is only a probing amendment—when undertaking its anti-competitive behaviour or pricing functions, Monitor could also consider its transitional intervention powers. That could result in Monitor treating struggling foundation trusts preferentially by, for example, not subjecting them to its anti-competitive powers. I hope that that is helpful to my noble friend.

My noble friend Lord Clement-Jones spoke about the designation of specialist centres and expressed his view that that should not conflict with the prohibitions on anti-competitive behaviour and that, in essence, patients’ interests have to be paramount. I am with him on this and I would like to reassure him that patients’ interests would be the paramount consideration for Monitor in resolving conflicts that arise in the exercise of its functions in this way. Monitor need not take issue with decisions to designate specialist centres where this would improve quality and protect patient safety, even if it reduced competition.

I hope that those remarks are helpful and that my noble friend will feel content to withdraw his amendment.

--- Later in debate ---

[Lord Davies of Stamford]

My Lords, I shall speak to—I had better read this out; I cannot possibly remember it—Amendment 294AZB in my name. This is a probing amendment, intended to smoke out the Government’s real feelings about price competition in the health service market. There have been some conflicting signals on this, as we all know, with the general expectation that the Government intended to introduce a greater measure of price competition, and then a spectacular U-turn earlier this year, which the Government said was not a U-turn because they never intended to introduce price competition anyway. A whole lot of clauses were introduced into the Bill that had the effect of banning price competition in the NHS.

I was assured by the Minister only yesterday that the Government’s true thinking on this is best set out in the document Protecting and Promoting Patients’ Interests, and I am grateful to his officials for giving me a copy. I shall quote what it says on this subject in paragraph 35 under the heading “No price competition”, which sounds very decisive:

“We have strengthened the Bill to ensure that where a national or local tariff is in place, providers and commissioners cannot undercut this”.

That seems to be straightforward, coherent and, as I shall argue, completely wrong. Paragraph 36 says:

“Where competitive tendering is undertaken for services not covered by the tariff, bids would be evaluated in terms of best value (i.e. awarding contracts to those bidders who provide the best balance of quality and cost”.

That seems to be incoherent and complete rubbish. Once you introduce the idea of a balance of quality and cost, you are into price competition. Every time you buy a car, you compare the quality and price of the cars on the market and come to a balance between quality and cost. Every time you go for a coffee and you choose between Costa and—what is the other one?—Starbucks, you are striking a balance between quality and cost. That is clearly incoherent and the result of very sloppy thinking.

Let us assume that that is just bad exposition or bad thinking on the part of the Government, and their real conviction is represented by the first quotation—they do not believe in price competition at all. Why is that a mistake? For two reasons: first, it involves a considerable potential loss of money from public funds. Surely if you can save money with no detriment to the purposes of the health service or the interests of patients, it should be the obligation of the Government to do that.

The second reason is a little more complicated: if you deny price competition a role in the system at all, you are denying the use of the mechanism for price determination. Competition is the only way in which you can really make sure that you understand how prices are put together. If you have a tariff that does not involve any price competition, you are basically into a form of cost-plus price determination, and anyone who knows anything about this—I know a little, having been Minister for Defence Procurement; sometimes we have to use cost-based pricing because there is no competition in the product that we need to acquire—knows that if you produce prices on that basis, you find that you can never exert any downward pressure on the prices that your suppliers are quoting to you. They will put in whatever they think is necessary for that activity and whatever costs they think they ought to put in. They will use the technique that they traditionally prefer to use for producing the goods or services that you are buying. You will never be able to second-guess that or look beyond it. It is an extraordinarily wasteful system of procurement and it is completely wrong.

We should have a commonsensical agreement that we should use price competition wherever we can where it does not do damage to other desirable objectives, particularly the objective of patient outcomes. I have endeavoured to produce an amendment—it is a purely probing amendment; I am sure that it is technically deficient, and I do not intend to take it any further in its present form—that establishes one way of doing that. It says that when commissioners wish to use price competition and they find that they get an offer of a price that is more favourable than the tariff price, they should be allowed to take it, subject to checking with Monitor to ensure that there is no damage to other purposes of the health service, to the interests of patients or to the structure and capacity of the health service. In health, there are often good reasons why you might not want to take the nearest offer, and I shall come to a couple of those in a moment, but, where there are no such reasons, surely the onus should be that you should take that offer and save the public money.

There are reasons why in health it may not always be sensible or in the interests of the health service or of patients to take the lowest offer, and I entirely accept that that may often arise. One is in the case where you are making a strategic investment in a new capability. We have had examples that have struck me in the course of these debates—for example, the new stroke systems in London and cardiac systems that cover London. I do not come from London but I believe that they have been a great success. That has consisted of ensuring that a quasi-monopoly has been given to perhaps half a dozen units that contain the best expertise and the best equipment that can be brought together for these purposes. That has been found to be the best solution for maximising patient outcomes or, to put it rather more straightforwardly, actually saving people’s lives, which is clearly the priority. I totally accept that there may be decisions of that kind that need to be taken irrespective of cost. Indeed, I welcome that they should be taken irrespective of cost and I have provided in this amendment a mechanism for making clear that when that happens and there are arguments of that kind they can prevail and it can be quite clear and quite transparent why the decision has been taken.

The second reason is also rather specific to healthcare, although not exclusively so. One of the features of the economics of healthcare is that it has a very high operational gearing; in other words, a very high ratio of fixed costs to total costs. In any sector of the market where that prevails there is obviously a great temptation for people to bid opportunistically when they have spare capacity at a price that represents a return over their variable costs and some contribution to fixed costs though not necessarily a very great one. You may get some very cheap offers coming in from people who happen to have spare capacity at a particular moment. It may be dangerous to take those offers rather than ones from other suppliers, such as traditional NHS suppliers which are more expensive, because if you do that you will put those NHS suppliers out of business. By definition, if people are bidding at a price below their full costs but over their variable costs then they will not always be providing it on that basis. They will certainly not be investing in new capability or sustaining capability on that basis. One has to be very careful about predatory pricing in the health service. I totally recognise that, and it would be a very good reason for saying, “We do not want to take this particular offer because if we do we shall put out of business capacity we need over the long term that can only be sustained long term at a higher price”.

I am very open and sensitive to the reasons for not taking the lowest price in many individual cases, but it seems to me that the Government have got this thing completely the wrong way round. The default option should be to take the cheapest price. We should be saving money. We should be exerting downward pressure on cost. We should be encouraging people to come up with new, cheaper and more efficient ways of doing things consistent with the quality that we require. It goes without saying that quality should be absolute and should be determined for every diagnostic related group, every service and health service procedure. For each of these we should have a clearly defined specification of quality and we should not go below that for reasons of price. Where we can get that quality cheaper and we do not do structural damage to the service it seems to me completely crazy not to go in that direction. I am sorry that the Government carried out the U-turn in February and I hope they may now turn back again.

[Lord Warner]

My Lords, I have some sympathy with some of the remarks made by my noble friend Lord Davies of Stamford in the sense that a blanket ban on price competition seems rather misguided in the situation the NHS faces. To give one example, under the last Government the price we paid for spot purchasing from the private sector when there were peaks of demand in the NHS was often much cheaper than had previously been the case and could, on occasion, be below a tariff price for some of the services. That was in the interests of the NHS and patients. A blanket ban does not seem to me to be the most sensible way forward.

I want to speak to Amendment 291C which should have been in this group. Assiduous readers of the groupings list will see that there are two commas after Amendment 291B. Between those two commas should have been Amendment 291C and the Whips’ Office has confirmed to me that was indeed the intention, so I wish to speak to the missing amendment and I also wish to speak to Amendments 294AA and 294BA which were included in the list.

Amendment 291C adds to Clause 141 some principles that should be applied to the construction of the national tariff. We have already had one debate about the tariff and how the national Commissioning Board might be encouraged to move the tariff away from its dependence on pricing episodes of care, which tend to favour acute hospitals, to a greater emphasis on periods of care that are more appropriate to the high volume of NHS patients with long-term conditions. I withdrew my earlier amendments on this issue but discussed the issue much further with outside interests and experts to see whether there was anything we could usefully do to further this particular cause. I think the Minister was not unsympathetic to some of the ideas in the earlier amendment.

These discussions have persuaded me that there is widespread support for trying to move the tariff currencies and pricing in the direction of periods of care but also a belief that this will take quite a long time and it involves a good deal of new data collection and analysis. In the mean time, people seemed to be saying that there was some merit in being clear about what should be the underpinning key principles for developing the national tariff in the future. I have had a shot at encapsulating these key principles—drawing very much on work by the NHS Confederation and I am extremely grateful for the help and advice it gave me—so that principles of this kind could be placed in the Bill to guide those who will be taking forward the difficult but important work of shaping the national tariff. I hope the Minister will be able to agree that we should try to have some guiding principles on the tariff in the Bill even if he does not like my particular wording because this is an important issue. We need to use this legislation to try to shape an important piece of work that will stretch over quite a few years to develop a new national tariff.

Amendments 294AA and 294BAA are technical amendments that reflect concerns expressed to my noble friend Lord Darzi and me by representatives of specialist medical interests about the current wording in Clause 116 on consultation on proposals for the national tariff and Clause 128 on the responses to those consultations. Amendment 294AA is intended to ensure that the relevant specialist groups are consulted on proposals for the tariff. It does not seek to specify the particular groups—that would be left to Monitor in the light of what the particular proposals were, affecting particular specialties. The amendment simply seeks to require that specialist clinical groups are consulted when tariff proposals are made so that they are involved and can bring to bear their expertise on the tariff-setting processes that can be involved with particular quite highly specialised sets of services. Amendment 294BAA merely seeks to ensure that when there are objections to a tariff proposal, assessing the weight of opinion for or against should be restricted to specialist licence holders undertaking work of comparable complexity. This is really to ensure that any objections are raised by the people undertaking work of a similar complexity defined in the original proposals for tariffs. I know that specialist opinion will be much reassured if the Minister could look favourably on these two amendments.

[Baroness Murphy]

My Lords, I would like to make a few remarks about tariff and price setting and echo the words of the noble Lord, Lord Warner, who reminded us that there are two equally important mechanisms: tariff development, which is the responsibility of the national Commissioning Board; and price setting, which is the responsibility of Monitor. It is critical that Monitor retains the responsibility to set prices. That enables it to uphold its responsibilities for sustainability and balance the interests of commissioners and providers in the patients’ best interest. Independence in price setting is utterly critical. We have seen previously that not having independence from the executive arm in the NHS has been a disadvantage in getting the right prices which reflect the complexity of the issue concerned. I take the point made by the noble Baroness, Lady Thornton, that the development of tariffs is a very complex matter. It is work in progress but the work never stops. That has been the case in all countries that have developed tariffs and will be for the foreseeable future. We need flexibility when designing tariffs.

I say to the noble Lord, Lord Davies, that we have seen how catastrophic simple price competition has been internationally in driving down quality of service. Indeed, we have seen that in this country, too. Price competition was not helpful. In order to drive down prices and get better value, you need to start designing the tariff around best practice. This was mentioned by the noble Lord, Lord Warner. You need to design a pathway of care based on what should ideally happen to a patient, deliver the clinical pathway, cost that out and get the best practice in place. If that amounts to less than the set price, which it often does, that is the way that you can start to drive down costs while improving quality. A tremendous amount of superb work has been done in a group of mental health trusts looking at best practice tariffs for episodes of care. If we can get that work ongoing in a group of people who are dedicated to designing better tariffs, we will be able to improve price competition by designing the tariff correctly while not striving to be competitive on price alone.

[Lord Davies of Stamford]

I am very grateful to the noble Baroness for giving way. I made clear in my remarks that I believe one should start by specifying quality—that would include her point about best practice—and then allow the market to bid against that. Where potential suppliers, whether NHS or otherwise, can come in below the existing price—call it the tariff price or what you will—that will be a spur to everybody else to consider whether they can deliver that quality—I stress “that quality”—better, more effectively and more cheaply. That mechanism will be totally absent in the National Health Service if the Bill is not changed in the way that I have suggested or something equivalent.

[Baroness Murphy]

I take the noble Lord’s point. I think it is possible to introduce the mechanisms that he would like to see through the existing mechanisms in the Bill on tariff design. Those mechanisms would also address the points made by the noble Lord, Lord Butler, about the need to develop an additional payment for certain kinds of innovation tariff. The possibilities for designing tariffs are wide. We do not need to be rigid about this. I do not know how much needs to be written on the face of the Bill. It seems to me that we need to get that separate in our minds from the actual price setting which is more the role of the independent regulator, having got the design of the tariff correct. Therefore, I would like to see Monitor retain its role as a price setting regulator but I wholeheartedly agree that a lot of creative work needs to be done on the tariff to get it right for integrated care packages and proper best practice design.