National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013

Lord Hunt of Kings Heath Excerpts

Wednesday 24th April 2013 Lords Chamber

Moved by

[Lord Hunt of Kings Heath]

That a humble address be presented to Her Majesty praying that the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013, laid before the House on 11 March, be annulled on the grounds that they do not implement the assurances given by Ministers to Parliament during the passage of the Health and Social Care Act 2012 that NHS commissioners would be free to commission services in the way they consider in the best interests of NHS patients (SI 2013/500).

Relevant document: 33rd Report from the Secondary Legislation Scrutiny Committee.

[Lord Hunt of Kings Heath]

My Lords, one of the main concerns in our debates on the Health and Social Care Bill was the fear that clinical commissioning groups would be compelled to put clinical services out to tender, forcing doctors and nurses to compete with each other at huge expense and at risk of fragmentation of clinical services to patients. In response, the noble Earl, Lord Howe, told this House that commissioners would not have to create markets against the best interests of patients. He said that they would be free to commission services in the way they consider best. The regulations we are debating tonight are concerned with the circumstances in which contracts for the provision of services to patients within the NHS must be put out to tender.

When an NHS commissioner goes to tender for a service, the commissioner is already required to operate within a framework of EU and domestic law. These regulations are different from the existing regime in which NHS commissioners operate. They impose for the first time legal obligations on NHS commissioners to tender services with NHS trusts. They remove the discretion that commissioners have to decide when it is in the best interests of patients to expose the service to a compulsory competitive tendering process. We are deciding which organisation is best placed to deliver service. At the moment, commissioners can look at the needs of the NHS as a whole and make a holistic judgment about who is best placed to deliver a service. These regulations, in my contention, make it far more difficult for commissioners to take such a whole-picture approach.

Many NHS organisations, including the BMA, the Royal College of General Practitioners, and many more, have sounded the alarm about the effect these regulations will have on the NHS. Your Lordships’ Scrutiny Committee reported them with substantive criticisms for the special attention of the House on the grounds that they may imperfectly achieve their policy objective. Not least of the committee’s concerns were that because of the withdrawal of the original regulations and their hasty substitution of these ones, the Government have allowed insufficient time to enable thorough scrutiny. The committee says that it cannot be good or effective policy-making to seek their immediate implementation when they are so widely misunderstood.

The Health Minister, Mr Burns, told the other place that it was not the Government’s intention that the regulations would impose compulsory competitive tendering requirements on commissioners. But surely that is what Regulation 5 does. The only circumstance in which a CCG can avoid a tendering process is if that CCG is satisfied that the services under the contract are capable of being provided only by a single provider. The single provider test will never be satisfied apart perhaps from the case of a single rural hospital which is the only provider for acute services in a large geographical area. I fail to see how it could operate in cities such as Birmingham or London because there will always be multiple providers. Having mentioned Birmingham, I ought to remind the House of my health interests. Hence, in those circumstances it will not be for commissioners to decide, as the Minister has assured us. It will surely be for commissioners to undertake a competitive process in all cases, unless there is no remote possibility of another capable provider coming forward. This will be bureaucratic and very expensive. One question that I want to put to the Minister is why the Government have not set a contract value below which the single provider test will not apply. Why is that not in line with all other procurement regimes?

When we met the noble Earl for a briefing a few weeks ago on the regulations he gave examples of the circumstances in which services are capable of being provided only by a single provider. He particularly mentioned the possibility of bundling services together in a single contract. But, even in those circumstances, there will often be more than one provider. I remind the noble Earl that the recently published review of the economic regulator for the NHS, Monitor, entitled A Fair Playing Field, makes a number of criticisms of bundling. Monitor said that it restricted the ability of providers to enter the market and that bundling services together was likely to exclude some providers from offering services. Monitor is being asked to police the regulations. The noble Earl will have seen the letter that noble Lords have received from a number of leading charities which say that the bundling of services could put them out of reach of the voluntary sector. If that is the view of the voluntary sector, what of private companies that may feel similarly aggrieved?

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[Lord Warner]

My Lords, I would like to reassure the noble Lord, Lord Clement-Jones, that I will be speaking in this debate. I oppose the Motion in my noble friend’s name. He will not be surprised by that, although I know that he hoped that I would have more pressing engagements elsewhere. I should declare my registered interest as an adviser to two companies.

I begin, briefly, with some context in which these draft regulations sit. Much of the comment and briefing that I and, I suspect, some other noble Lords have received has an underlying assumption that, somehow, competition is bad for NHS patients. It would let in what are usually described as slightly distasteful people called private providers and should be prevented at almost any cost. Much of that seems to overlook the legal procurement framework that the NHS operates within now and within which it operated when I was a Minister some years ago.

The NHS has to operate within the terms of EU competition law, with certain constraints related to clinical services. NHS bodies operate under a set of process rules in how they conduct procurements. There are regulators that patrol the territory of competition with jurisdiction in relation to the NHS, namely the Office of Fair Trading and Monitor. That is not new. It is not a nasty invention by the coalition. We can get all fanciful about it but it has been around for some time. We may not like it, we may prefer it to be different, but that is the legal context in which the NHS has had to operate for some time.

I would argue—this may be rather uncomfortable for some of my colleagues on these Benches—that this contextual framework makes any persistent attempt to make NHS providers preferred providers, irrespective of these legal constraints, profoundly anti-competitive. I believe that it is vulnerable to successful legal challenge. We got quite close to that before the 2010 election. This set of contexts in which the NHS has to operate means that we have rather a complex area for NHS commissioners to operate in. They need a clear set of rules to guide their conduct on procurement and competition, and that is provided for in Section 75 of the legislation, which we passed after a great deal of discussion and debate. That is the context in which these draft regulations are being prepared.

They are also operating in another important context, one in which the NHS itself faces enormous financial and clinical challenges over the rest of this decade. It was the Public Accounts Committee under a Labour chairman that made it very clear that virtually every NHS trust was financially and often clinically unsustainable in its present form. Change is absolutely inevitable within the NHS, whether we have these regulations or not. A massive programme of service reconfiguration awaits the NHS to meet the unavoidable fiscal, demographic and morbidity challenges it faces. In the past two months, two acute hospital trusts have gone bust, and in my view another 20 may be well on the road to the same fate. The idea that we can somehow solve these problems without an injection of new providers with some new ideas and some better management techniques is fantasy.

[Lord Hunt of Kings Heath]

I am most grateful to my noble friend for his enormously helpful speech tonight.

[Lord Warner]

There is plenty more to come.

[Lord Hunt of Kings Heath]

I am delighted and I look forward to making further interventions. My noble friend and I very much agree on the need for a massive reconfiguration of services. We have argued that this needs to be done from the centre with authority and vigour, but what does the noble Lord say to the interventions of the OFT and the competition panel into perfectly sensible reconfiguration proposals? Does he not see that that is entirely consistent with the general direction in which the Government wish to take us, whereby in essence they are saying that the integrity of the marketplace is more important than reconfiguring these services?

[Lord Warner]

I am not prepared to second-guess the OFT before it has done its inquiry into this set of arrangements. I cannot see the point of having regulatory jurisdictions such as the Office of Fair Trading and Monitor if, every time they do something some of us disapprove of, we jump in and tell them they are out of line in undertaking that kind of investigation under the legislation on competition as it stands today. I am not prepared to engage with my noble friend in a discussion about whether the OFT has behaved reasonably. I would sooner wait and see what action it takes to investigate these arrangements, and that is the position that most of us had to take when these things happened while we were Ministers sitting in the same place as the noble Earl, Lord Howe, is today. We have to be a bit more statesmanlike about some of these things.

In the UK, we seem to prefer a situation in which we bail out what are in many cases public monopolies. We seem to forget that in our sister organisation of adult social care we have had a mixed economy for nearly 30 years, and that local government has quite amiably—

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If this House tonight decides to vote with the noble Lord, Lord Hunt, it will do two things. First, it will knock out Monitor completely, and send those who wish to protest about an unfair contract off to the courts to spend taxpayers’ money in arguing their cases for having been unfairly treated—

[Lord Hunt of Kings Heath]

My Lords, I do not understand that. Clearly, if a CCG decides that a potential contract meets the single provider test in regulation 5, for instance, a disappointed provider can go to the courts in any case.

[Baroness Williams of Crosby]

In this particular set of regulations we are giving statutory underpinning to Monitor in a way that will mean, as it did previously, a much greater opportunity to deal with most objections on the spot and not have them carry on into the courts at great expense to the taxpayer and to patients. If we turn it down tonight it will leave us without that structure altogether and we will go back to where we were.

In conclusion, while I have very strong sympathy with the view of the noble Lord, Lord Owen, that the National Health Service of the 1980s was a more true state service than anything today, I am afraid we cannot go back; we are where we are. The best thing we can possibly do is to make patients’ interests the very centre of what the NHS is all about and to recognise that this new route is the way we are going. It could, however, be very exciting and it would lead to a very much more accountable NHS than we have had in recent years.

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

My Lords, we are debating a set of regulations on which, as we have heard this evening, a great deal of passion and a large quantity of printers’ ink has been expended over recent days and weeks. I would like to begin with three very simple statements, which I hope will be helpful as mental marker posts before I respond to the concerns and questions that have been raised.

First, amid the many changes that the Government have made to NHS commissioning, one area of the law that we have 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 that govern NHS procurement, these regulations usher in nothing new at all.

Secondly, there is no government agenda to privatise NHS services—quite the contrary. The House may remember that we made it illegal in the Health and Social Care Act for the Secretary of State, Monitor or NHS England to have a policy of deliberately favouring the independent sector.

Thirdly, it is NHS commissioners and no one else who will decide whether, where and how competition in service provision should be introduced. These regulations do not confer any obligation on commissioners to create or promote markets, nor do they require commissioners to unbundle or fragment services against the interests of patients.

I begin with these simple statements because they are key to understanding what the Government are doing and what they are not doing. What we are doing, above all, is having a set of arrangements in place that will protect the interests of patients. The basic purpose of the regulations is to prevent commissioners failing to think about how the needs of their patients can best be met. Equally, their purpose is to ensure that commissioning in the NHS is protected from abuses arising from conflicts of interest or anti-competitive behaviour that works against the interests of patients. There is no encouragement in these regulations, explicit or implicit, to commission services from the independent sector, or indeed any other sector. The regulations enshrine the principle that patients must receive services from the providers, from whichever sector—public, private or voluntary—that are most capable of meeting their needs and improving the quality of services that they receive.

Mechanisms to make sure that this happened were put in place by the previous Administration. These mechanisms consisted of the Principles and Rules for Co-operation and Competition, which were overseen by the Co-operation and Competition Panel. Now that primary care trusts no longer exist, we need to carry over those arrangements so as to apply them to clinical commissioning groups. The Government committed, in their response to the NHS Future Forum report, to maintain the previous rules and place them on a statutory footing in order that they could continue to apply to commissioners. That is exactly what we have done; the panel has been transferred into Monitor, so that there is absolute continuity in how the rules will be applied.

This is a key point for noble Lords to understand. Monitor is now the sector-specific regulator for the NHS. In practice that means that it, not the courts, will be the guardian of patients’ interests and will adjudicate if allegations of anti-competitive conduct arise. In effect, it will act as a firewall between commissioners and the courts. If the House annuls these regulations, that firewall will disappear and I suggest to the House that this could not possibly be in the interests of the health service.

The regulations also make it clear that Monitor has no powers to direct commissioners to go out to tender, which brings me to Regulation 5(1). People who have looked at that regulation have stated that it requires commissioners to go out to tender for just about every NHS service. That is not so. It is not even remotely near the reality. First, the wording of Regulation 5 which refers to “one capable provider” is almost exactly the same as that of the previous Government’s guidance to PCTs. My noble friend Lord Clement-Jones was quite right in pointing this out. I shall now read from that guidance. It said that PCT boards “must act transparently” and without discrimination,

“and be able to demonstrate rationale for decisions on whether or not to competitively tender. In particular, where the commissioner decides to procure through single tender the rationale must demonstrate that there is only one capable provider to deliver the services”.

The circumstances in which a commissioner may therefore award a contract without a competition under the regulations are exactly the same as they have been up to now. There is no daylight between them.

It is worth my making a point about that guidance. It was not guidance that PCTs could take or leave but guidance that was declaratory of public procurement law, which applied to PCTs, so those who think that we are replacing a rather loose arrangement with something more stringent are mistaken. The law was binding before and it is binding now. These regulations are declaratory of the existing legal position, just as the previous Government’s guidance was. However, we also need these regulations to ensure that the various protections for patients and commissioners afforded by Monitor, as agreed during the passage of the 2012 Act, are in place.

We have heard concerns this evening from the noble Lord, Lord Davies, about what might happen to the unbundling of hospital services. I would like to put that misconception to rest. Elective hospital care is not relevant to these regulations. The previous Government brought in a policy known as “any willing provider” for elective hospital services. We have continued with that policy, which means that patients have a free choice between hospital providers who meet NHS quality standards and contractual terms. There is therefore no question of tendering for those services.

In the main, the services where tendering might be relevant are those delivered in the community and certain more specialised services. Again, the overarching principle to guide commissioners is Regulation 2—to do what is in the best interests of their patients. In some circumstances, tendering may be appropriate, but in many cases it will not: for example, where there is only one provider capable of providing the integrated package or pathway of services which the commissioner wishes to secure for its patients. In another situation, they may judge that only one provider is able to meet the clinical quality and safety standards that they require. They may decide not to tender where they conclude that it is necessary for services to be co-located because of the interdependencies between them—a point raised by the noble Lord, Lord Davies, once again—in order, for example, to ensure patient safety.

It is worth looking at the actual wording of Regulation 5(1), which says:

“A relevant body may award a new contract … without advertising … where the relevant body is satisfied that the services to which the contract relates are capable of being provided only by that provider”.

The relevant body has to be satisfied. This means that a commissioner needs to go through a process to make sure that it is taking sensible decisions that genuinely address the interests of its patients. In other words, it must have a rationale for what it does and be satisfied that it is doing the most appropriate thing. As long as it has that rationale, that is where the matter ends. I repeat: in those circumstances there is no one who can oblige the commissioner to go out to tender.

Those who maintain that these regulations usher in a lawyers’ charter are not looking at the evidence. The evidence to date tells us that only a tiny handful of cases have been referred to the Co-operation and Competition Panel in the space of several years. I can tell the noble Baroness, Lady Hollins, that none has gone to court. Since the rules on NHS procurement are staying exactly the same, I fail to see why we should expect a sudden avalanche of challenges to commissioning decisions.

As I said during the passage of the Health and Social Care Act, there is no requirement in these regulations or anywhere else to create markets. Nor, as I have said, is there any requirement for commissioners to unbundle or to fragment services to facilitate competition: in other words, to separate out individual services so they could be provided by a larger range of providers. The decision whether and when to create these conditions and the services to which they apply remains entirely with commissioners.

One of the arguments produced by the noble Lord for annulling these regulations is that they lack clarity, particularly Regulation 5(1). I suggest that is a specious argument. First, the law has not changed. Secondly, employees of commissioning support units, whose job it is to support CCGs in commissioning decisions, are very largely the same people who did exactly the same jobs in PCTs and are entirely familiar with this area of the law. Thirdly, there is already guidance out there, produced by the NHS Commissioning Board Authority last year. Fourthly, Monitor will be providing further guidance to support commissioners in understanding the circumstances in which single tender is appropriate, including specific case studies. This guidance will be consulted on shortly. Monitor will continue, as the Co-operation and Competition Panel did before it, to provide informal advice to help commissioners understand the regulations. We really do not have to worry about lack of clarity here.

I turn now to one or two of the specific questions that were posed in the debate. The noble Lord, Lord Owen, asked why other countries have not applied these procurement laws. All member states in the European Union have been required to transpose the EU directive on public procurement into their own national legislation. In fact, it has been applied in Wales and Northern Ireland through the Public Contracts Regulations 2006.

The noble Lord, Lord Hunt, maintained that the OFT’s role in mergers is evidence of the Government’s agenda to marketise the NHS. First, that issue is in no way related to the regulations that we are debating tonight. Perhaps I could remind the noble Lord that the OFT is acting independently under the powers conferred on it under the previous Administration through the Enterprise Act 2002.

With regard to the Competition Commission gagging clinicians in the Bournemouth and Poole merger case, I suggest that that is not relevant either. My understanding is that those arrangements are simply to prevent the merger proceeding further while it is being reviewed. They should not get in the way of providers co-operating with each other in the usual way in the interests of patients. The noble Lord said that Monitor is anti-bundling and that it would be policing the regulations at the same time. That is misleading. Decisions about whether or not to bundle services are not for Monitor to make; they are squarely for commissioners to take in the best interests of their patients, and Monitor is under a duty to enable integrated services.

The noble Lord, Lord Owen, raised concerns about charities. I have seen the brief from National Voices, Marie Curie and others in this regard. Those concerns are helpful in illustrating the point that there is no one-size-fits-all approach to the commissioning of services. It is interesting that some stakeholders have raised concerns about unbundling leading to fragmentation, while others are concerned about the effects of bundling too many services together. In practice, it is for clinically led commissioners to take decisions on whether or not services should be bundled in the best interests of patients. That is their job, and these regulations do nothing to require them to bundle or unbundle, as I have said.

The noble Lord, Lord Davies, asked me whether the regulations take into account the financial viability of hospitals and economies of scale. First, I remind the noble Lord that these regulations are not relevant to the vast majority of elective hospital services, so they do not herald the prospect of large numbers of services being hived off. Secondly, it is for commissioners to make decisions about the need for services to be bundled or co-located, as I have said. It is not in their interest to destabilise providers. Thirdly, the NHS tariff is being improved in order to ensure that it is properly reflective of the costs faced by providers. This would mean that profit-making services would no longer need to cross-subsidise other services.

The noble Lord, Lord Hunt, asked me why there is no contract value threshold below which commissioners do not have to go out to tender. Where the value of a contract is such that it would be disproportionate for the commissioner to hold a tendering exercise, there is no requirement under the regulations or the law to do so.

The noble Baroness, Lady Hollins, said that Monitor should publish figures relating to the cases that it considers. Paragraph 21 in Schedule 8 to the Health and Social Care Act 2008 requires Monitor to publish an annual report on the exercise of its functions and lay a copy before Parliament, and to provide the Secretary of State with such other reports and information relating to the exercise of its functions as the Secretary of State may require. We would also expect Monitor to publish reports on cases considered by it, as the Co-operation and Competition Panel has to date.

I of course took due note of the criticisms made by your Lordships’ Scrutiny Committee. However, I would say that there was a formal public consultation on the requirements of the original set of regulations between August and October last year. Engagement events were held up and down the country. The response to the consultation demonstrated broad support for the proposals from a wide range of stakeholders. The revised regulations did not substantially change the policy, and for that reason I suggest to the Scrutiny Committee that further consultation was not necessary.

Let me be clear about what we would lose if the regulations were not in place. The main thing that we would lose is the adjudication role of Monitor as an expert health sector regulator with an overarching statutory duty to protect and promote patients’ interests. That would mean that NHS commissioners would be exposed to the full force of public procurement law, as interpreted by the courts. I firmly believe that in that situation we would be more likely to secure the very kind of risk-averse behaviour by commissioners that some have argued today must be avoided. In addition, without the regulations, patients’ right to choice under the NHS constitution would not be protected; commissioning processes would be much less transparent and accountable; we would lose safeguards to protect against and address conflicts of interest, discrimination and anti-competitive conduct that work against the interests of patients; and requirements to ensure that the objective of procurement must always be in pursuit of meeting the needs of patients and improving quality would not be in place.

Although in one sense, the regulations can be seen as unexceptional, because they largely carry forward existing rules and arrangements; but in another sense they are more than that. They are vital for anyone who believes that the central interest that the NHS should have at its heart is that of the patient. With that observation in particular, I urge the noble Lord to withdraw the Motion.

[Lord Hunt of Kings Heath]

My Lords, we have had a long debate and I know that the House will want to come to a decision very soon.

I agree with the last comment of the noble Earl, Lord Howe. These are very important regulations, although there is disagreement about what they mean when it comes to practice in the field. The essential test of the regulations is whether they accord with the assurances given by Ministers during a difficult time in getting the Bill through your Lordships’ House and the other place as to whether clinicians would be free to commission services in the way that they considered best.

The noble Earl, Lord Howe, is always reassuring and was so tonight on the content of the regulations. If you read them and the comments of your Lordships’ Scrutiny Committee, you will see that that simple statement—that clinicians will be free to commission services in the way that they wish to—has been hedged in by the product of many statutory rules contained in the regulations. When it comes to Regulation 5, there is a division of opinion between the Government and the Opposition, and between lawyers, as to what the single capable provider test means. It is arguable that the health service will be confused as to whether it can define a local service as one that can be provided only by one provider, or whether, in many parts of the country, similar services will provided by different organisations within the facility of the CCG. There will be considerable doubt whether the CCG will be able to go ahead and award a contract without some competitive tender process. That is at the heart of some of this argument.

I do not accept the idea that Monitor’s involvement will somehow prevent legal action from ending up in the courts. The general confusion about these regulations will inevitably lead to cases coming before the courts. The advice that will be given to many CCGs by their legal advisers is to act defensively and to go out to more competitive tendering than the noble Earl has suggested.

The noble Baroness, Lady Williams, and the noble Lord, Lord Walton, are of course strong supporters of the National Health Service. I say to them that every day, up and down the country, a market is unfolding in the NHS. People in the NHS believe that that is happening. They are seeing contracts already being won by the private sector. They see themselves being undercut, and they worry about the fragmentation of services and about the overall intent of the Government.

Of course the NHS is not perfect but, my goodness, it enjoys tremendous public support. I have worked with the noble Baroness, Lady Cumberlege, over many years. She referred to international comparisons. I end by referring her to the US Commonwealth Fund, which produces an evaluation of the most developed health care systems in the world. Its latest evaluation placed the UK as No. 2 overall. It placed the US, where the system of markets and competition is most to the fore, as No. 7. When people look at the NHS internationally, they see a lot of things that they wish to commend, not least of which is the integration of purpose and the support from the public. My concern is that at the end of the day I think the noble Earl is right: these regulations are vital. The problem is that they hold open the door to a competitive, marketised service in which I am afraid that, despite the wording that has been used tonight, the interests of patients will be not first but last. I wish to test the opinion of the House.