Understanding and experience of regulatory framework under HSCA 2012

As actors’ understandings of the rules under which they operate are crucial in determining their behaviour, participants were asked about their understanding of policy, guidance and the regulatory framework regarding the use of competition and cooperation in commissioning NHS services.

Commissioners in each site considered the current policy confusing as they were expected to drive competition and integrate services, which they found to be contradictory:Those two drivers can compete against each other. (Commissioner 3, CCG4, May 2014)

Some commissioners were awaiting guidance on how to implement policy, or commented that where there was guidance, interpretation was likened to ‘trawling through treacle’ (Commissioner 1, CCG1, May 2014). This commissioner considered that the ambiguity led to people overcomplicating policy implementation.

When asked about their understanding about whether the current policies required them to tender all services, commissioners were convinced that this was not the case. There was a consensus that although there was no mandate to tender all services, there was a requirement to justify the occasions when competitive procurement was not pursued.We don't have to tender all services, there are exceptions. But I think the default position is that we are expected to tender services, as a generality. So we have to, I think, the expectation is that you will explain why you haven't. (Commissioner 1, CCG2, November 2013)

Lack of explicit, unambiguous guidance, about the role of competition in commissioning clinical services, could in some cases play to commissioners’ advantage by increasing their freedom. However, it also increased the freedom of providers to challenge commissioning decisions and/or to interpret the regulatory uncertainty to their advantage. A commissioner from CCG1 cited a case of a private provider offering maternity services in the region and expecting to be paid by the local CCGs despite not being commissioned by the CCGs. Such provider behaviour, driven by patient choice and effectively bypassing commissioners, undermined the level of control commissioners had over their local health economies. In general, the interviewee remarked that often commissioners’ strategy was to comply with the national framework but immediately find ways round it to adapt to the local circumstances (Commissioner 1, CCG2, November 2013).

Provider managers were also confused about the meaning of the competition rules. They echoed commissioners’ concerns about the vagueness and complexity of the formal rules and a need for better guidance.

The lack of sufficiently specific guidance about the HSCA 2012 resulted in commissioners having to consult sector regulators. Commissioners were often quite critical of the role of sector regulators, mainly due to their alleged inability to provide clear guidance in particular cases. One commissioner expressed the view that sector regulators (as interpreters of national policy) could not decide whether the priorities lay with increasing competition or with fostering integration among providers. Such a view was a consequence in part of the decision to reject a merger proposal between the Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust and Poole Hospital NHS Foundation Trust hospitals taken in October 2013 by the CC, which sent shock waves through commissioning world.You know, the debacle of Poole and Bournemouth, crikey. You know, 10 years ago that merger would have just happened. They'd have done a public consultation and whatever, but it would have just happened because it was the right thing from a quality patient side of things and the right thing from a commercial viability, and recognising really in Poole and Bournemouth, (…), there's no choice. (Commissioner 3, CCG1, April 2014)

Another CCG1 commissioner expressed their disappointment over the lack of clear guidance from Monitor after the CCG came across the private maternity provider billing them for activity which had not been contracted (as mentioned above). Monitor's stance was seen as ‘very wishy-washy’ and their interventions were not ‘effective’ or ‘timely’ (Commissioner 4, CCG1, April 2014).

A further complex issue on which the CCGs wanted to consult the regulators related to opening up services to competition when these services were not a commissioning priority. Commissioners from CCG1 were approached by potential providers (in this case a GP practice) wishing to provide CHS when the commissioners were not prioritising this issue. (In fact, the question of a GP practice wanting to provide CHS was problematic for other reasons: CCGs are GP membership organisations, giving rise to potential conflicts of interest due to GPs’ dual role as commissioners and providers of services.) In another case, a commissioner from CCG3 was concerned that Monitor might intervene and put a stop to the ‘controlled market approach’ which CCG3 pursued (Commissioner 1, CCG3, August 2013). The worry remained that if one were forced to follow a strict interpretation of the rules, decisions such as not putting some services out to tender, would not be allowed.

In common with commissioners, the regulation of the health sector was seen as muddled by provider managers, with Monitor having conflicting duties. One felt that the relationship between the different regulators was not clear and there was no overall organisation responsible for regulation:The interactions between the different regulators is confused. No, there used to be … an organisation that was clearly responsible for … holding the ring, in the shape of SHAs [Strategic Health Authorities], that's disappeared. (Provider 2, NHS, acute, CCG2, March 2014)

An independent provider manager noted that Monitor did not show much interest in the place of small providers in the NHS market, and was focusing its attention on large NHS acute hospitals.

Changes in understanding of the regulatory framework after the publication of The Five Year Forward View

Commissioners in all the case study sites, who were reinterviewed in 2015, after the publication of the 5YFV, noted a change in tone of national policy messages towards greater promotion of collaboration in commissioning. They thought that the 5YFV legitimised local cooperative initiatives aiming to transform services and it allowed them greater latitude in deciding whether to tender out services. However, at the same time, commissioners pointed out that none of the underlying rules guiding procurement of clinical services had changed as a result of the 5YFV and warned that the rules could not be disregarded completely.I think over the last 12 months, it's almost as an unwritten rule there does seem to be a relaxing of the rules around the need to go to full procurement. If you can demonstrate it's in the best interests of the patient, you can stick with your local patch and it is seen to be almost an unwritten rule, and if you ask me to go and find a document that says this is how you should do, I'd struggle, but it's how everyone seems to be operating now. (Commissioner 1, CCG3, July 2015)

The different national bodies, some in favour of cooperation (NHS England) and some still promoting the use of competition (Monitor) were sending conflicting messages. Most of the reinterviewed commissioners saw a need for competition to remain available to them as a commissioning tool to use at their discretion.

The follow-up interview we conducted with one of the providers in 2015 highlighted many important changes in the way providers perceived the rules in respect of competition and cooperation in commissioning of the NHS services compared with 2013/14. This interviewee noted that the publication of the 5YFV did not change his understanding of the policies and rules about the use of competition in commissioning. However, it had encouraged, and to an extent legitimised, collaborative ways of working. Different providers, and the CCG4 CHS trust in particular, had been increasingly engaging in testing the rules by getting together and working more collaboratively, pushing ‘the art of the possible’ (Provider 5, NHS, community and MH, CCG 4 October 2015). Such grassroots local developments driven by the genuine pressing concerns over costs and quality of services tended to override strict interpretations of the legal framework that so far remained unchanged.

Use and experience of competition and cooperative mechanisms

In order to understand how competition and cooperation were used locally in our case study sites, we investigated the major service delivery issues, so that we could see how they were approached.

The urgent need to find savings had been made clear by NHS England in July 2013 and dominated local agendas. Each case study site was engaged in efforts to move care out of hospital into the community, in the hope that money would be saved.The game-changer is going to be the Call to Action, 30 billion [funding gap]. There's got to be major strategic change of hospital services and delivering care in the community, sustaining people and people sustaining themselves through self-care. We just haven't got the money and we're not going to. (Commissioner 1, CCG4, November 2013)

In order to tackle these big service reconfiguration challenges, the four CCGs were generally exploring collaborative approaches. Commissioners on the whole took the route of coordinating cooperation between themselves and providers. They did not use competitive processes to make major changes. The complexity of the issues involved in such reconfigurations required an iterative approach using a series of meetings with local providers at which actors were encouraged to come to a collective agreement about how changes would be made.

Commissioners in all sites were exploring the option of using outcome-based commissioning approaches as well as lead provider models for a range of different services. In two sites—CCG4 and CCG1—the outcome-based commissioning approach was going to be used to redesign the provision of CHS. Commissioners hoped that prime provider models and outcome-based contracts would remove cost pressures associated with the ‘open chequebook’ (Commissioner 3, CCG1, April 2014) pricing structure of PbR by moving to capitated budgets. These new organisational models were likely to reduce the amount of local choice available to patients by the formation of larger organisations and the reduction in the number of possible organisations to choose from. Although these approaches could have involved competitive tendering, they did not do so in our case study sites. Instead, providers were encouraged to stop treating themselves as ‘little entities’ in a competitive game looking after their own interests and to start to acknowledge that lack of money in the local health system required a change of mentality (as well as more efficient processes). The way our case study sites embarked on tackling such challenges was by talking with existing providers, gathering intelligence and data needed for service reviews, assessing the performance of services and areas that required change and finally looking for contractual levers to use to deliver the change. Going to the open market was seen as an option of last resort in respect of big service delivery transformations, and collaborative methods were preferred.

Although competition was not used to bring about large-scale service reconfigurations, commissioners in our case study sites did use competition for the market, using competitive tendering, in respect of smaller services. Table 3 contains an indicative list of services, which were put out to competitive tender in the four CCGs or their PCT predecessors. It shows that the services, which were put out to tender, were mostly primary care, community and diagnostic services. Individual services delivered in acute hospital settings were not often tendered, and no services in a whole hospital had been subject to competitive tendering. Commissioners in CCG3 indicated that their local health economy culture was a collaborative one, and that they did not wish to use competitive methods, if they could be avoided.

We asked commissioners to tell us about their experiences of tendering out a service, once they had decided on this route. Some commissioners stressed the importance of testing the market prior to issuing a formal invitation to tender. This was seen as necessary to ascertain provider interest in order to avoid the situation of having to go through a costly tendering process to end up with the same or a worse quality provider. Hosting provider engagement events was seen as a way to gauge provider interest and served as a general tool for mobilising existing providers to improve their performance. The use of adverts and market engagement events was a warning sign for incumbent providers that they ought to take commissioners seriously.The decision to procure something in terms of any service, no matter what it might be, does sort of stimulate the market and people then start to look at—to you as an organisation, knowing that, you know, you use—you're using a procurement route more than you won't, in terms of delivering services. (Commissioner 2, CCG2, December 2013)

When assessing the bids, commissioners applied a number of criteria to assess the suitability of potential providers. In particular, they looked at whether providers were financially sustainable and capable of delivering the service.Quality, value for money, safety, governance. What else would you look for? Whether the capabilities of whether somebody's big enough to deliver it, if it's big? If we're talking about the community services, if it was are they big enough? Have they got the track record? So have they got expertise in this area? (Commissioner 4, CCG1, April 2014)

Commissioners from CCG4 stated that they would have made more use of competitive tendering to procure services but felt constrained by the lack of resources to run such processes. One commissioner noted that one would need ‘a whole army of people’ to use competitive procurement on a large scale (Commissioner 3, CCG4, May 2014).I would be more aggressive and probably more prone to tendering if I had more resource devoted to it and I would be moving resource from serious redesign or basic commissioning function into procuring and doing things in a more structured market interventionist way. (Commissioner 1, CCG4, November 2013)

Most commissioners noted how time consuming and expensive tendering was. The CCG4 commissioner reflected on the high costs of the primary care MHS procurement.We did it in-house led by the Commissioning Manager for Mental Health, but we had two Project Managers, you know, it wasn't cheap to do this. And in total, we probably—I think we spent a quarter of a million pounds doing the specification, the involvement and then the procurement. You know, most of it was on salaries for the Project Managers and legal cost in terms of getting expert advice from [legal firm], to make sure we ran the process. You've got to get it right, because you could be challenged. [The incumbent provider] tried to challenge us and we had to send them all the documentation. (Commissioner 1, CCG4, November 2013)

We also asked providers about their experiences of participating in a tendering exercise. They reported that tendering was very resource intensive for them, and that it was made more difficult by the lack of experience of many commissioners. This affected the efficiency of the processes. Moreover, several providers were concerned that commissioners were relying on them to provide information required to write the tender specifications, rather than being able to do this themselves. Many providers noted that commissioners were still not able to specify the service at later stages of the process, and relied on each provider tendering to give details about what the service should comprise.

Furthermore, market engagement exercises were described as a ‘courting process’ which was difficult to manage from the incumbent provider's point of view. The provider was trying to convince the commissioner that tendering the service was not necessary, but at the same time trying to remain part of the tendering process. It was a difficult balancing act for an acute provider, which wanted to maintain their chances of winning the bid, knowing that at the same they might disclose something that would feed into the service specification and work to their disadvantage.The level of trust that, you know, how open you are and how much you're giving to a specification because if you give too much, they use that for the specification that someone else can then win for. So it's quite a difficult one. (Provider 4, NHS, acute, CCG3, December 2013)

Once the formal tendering process was underway, it was characterised by one provider as ‘chaotic’ due to the short notice periods for submitting the paperwork. A common complaint was the large amount of resources that NHS providers had to dedicate to pursue competitive tenders.We lose sight of while every provider's bidding for this work the resource involved to answer them and particularly the stages depending on what process they use is substantial. So, you know, you've got a pre-qualification questionnaire, then you have an invitation to tender, then you have a presentation, then you've got mobilisation. And the amount of resource and financial input into them is significant and you question how much that benefits the patient. The outcome possibly does but if you've had seven organisations doing that and only one is successful. (Provider 4, NHS, acute, CCG3, December 2013)

In fact, some providers could not afford to bid, due to their poor financial situations.I think the challenges are making sure that you have sufficient money to invest in bidding for things, because it takes a lot of time and effort, particularly from an Operational Team, a Clinical Team, but also the finance and information you support. And traditionally, you know, ‘cause we don't have any money, we're poor, we don't have a budget set aside, so you're asking people to do it on top of their normal job. (Provider 4, NHS, acute, CCG4, April 2014)

Often the information released by commissioners was not sufficient for a provider to make a cost benefit assessment before deciding whether the tender would be viable.We've recently bid for a [XX] service in [locality X], now we made a tactical decision in doing that to actually massively inflate the costs, the price, because the case mix information on the service was none existent, so they told us the kind of service they want, they couldn't tell us how many of what, well, I mean, again, it's just…as far as I'm concerned, it's appalling! (Provider 5, NHS, acute, CCG3, December 2013)

As part of our research into how commissioners were using competition in the NHS, we investigated whether CCGs had a strategy to develop the market for non-NHS independent providers. This is an interesting question because it indicates the extent to which commissioners saw competition as a method of increasing diversity of supply. None of the sites had a deliberate strategy to enable greater involvement by for-profit providers in the provision of services. Instead, they appeared as contractors to the NHS on an ad hoc basis.We've used the independent sector to develop services that are substitutional for secondary care, or to outplace secondary care services. We've used them equally for some aspects of what's traditionally been community provision. So it's case by case. I don't think we have a—there isn't a kind of an overarching policy imperative to either grow or restrict the private sector. We use it where it's relevant. (Commissioner 1, CCG2, Nov 2013)

Some commissioners were at pains to point out that they were careful to treat all providers equally, irrespective of whether they were NHS or not. One CCG (CCG4) was more enthusiastic about their entry into the NHS quasi-market than the others. On the other hand, all of the CCGs were actively engaged in supporting local third sector organisations. Providers did not agree that they were all treated equally, and, in particular, some independent providers complained about being at a disadvantage. It appeared that, on the whole small and medium size independent providers did not experience the same level of communication and engagement from commissioners as larger independent providers or NHS trusts.The two [NHS] trusts are kept informed but we're just treated terribly, I would say. We're not kept informed with things, although they do come to us often if they need—for instance, the hospital were under pressure, winter pressures, and they didn't have enough doctors. The commissioner came and said, I wonder, could you put some of your GPs in there just for the next fortnight, just to take some of the pressure off A&E? They'll do that all the time but they won't keep us informed about anything else that's going on around our contract, et cetera. (Provider 6, independent, CCG3, March 2014).

Apart from a specific local commissioning climate created by their main commissioning CCG (eg, in CCG3, where the commissioners did not favour the use of competition), the different types of providers (acute, CHS and MHS) faced different constraining factors. Many of these constraints were determined at the national level, importantly, different pricing mechanisms for different types of services. Furthermore, owing to their different sizes, and types of services being delivered, the market horizon of some providers stretched beyond one particular CCG area to other CCGs and to markets created by different types of commissioning bodies, for example, local authorities. Thus, the position of a particular provider within the NHS was a product of the number of factors such as the nature of the local market, the type of services they provided and whether they were able to reach to other markets.

Providers in our sites had a first-hand experience of how the principles of competition and cooperation worked together in healthcare delivery practice. Providers had to comply with dual incentives to cooperate and compete with other providers in the system and, importantly, to engage with commissioners in service planning. This led to circumstances in which providers sometimes collaborated with their competitors and competed with their collaborators. This applied to all types of providers, including independents.

Providers expressed concern about barriers preventing fair competition. One important issue was the different pricing mechanisms for acute and out of hospital care. An interviewee contrasted the position of MHS (which had block contracts, effectively a fixed budget) with that of the acute trusts, which could expand their provision due to being paid on a cost per case basis through PbR.A third of our Trust is Specialists, mostly Secure Services. But we can't say, “We're fantastic at Secure Services, we'll take five more patients,” and get paid for it, because we're just on a block [contract]. So we've got no way of flexing up on services that we're good on. If you work in [local acute trust], big, gleaming, enormous university hospital, and they decide, “Actually, we've got some real Specialists in trauma,” and the Air Ambulance starts flying people in from [locality X] who have trauma, they may not get exactly the money that they want, but no one turns round to them and says, “We can't pay you for that”. (Provider 1, NHS, CHS and MH, CCG2, April 2014)

Whether competing or cooperating in respect of gaining (or trying not to lose) patients, all providers noted that they cooperated at the clinical level, to ensure that patients moved smoothly between organisations. Other reasons for collaborating included partnerships to deliver non-clinical services, participating in local service transformation programmes and forming partnerships to compete together for tenders.

Many interviewees distinguished between being ‘forced’ to compete or ‘forced’ to cooperate by different parts of NHS organisational hierarchy and choosing to compete or cooperate because of the provider's internal decision-making. Top-down ‘enforced’ competition seemed to have affected CCG commissioners and providers and was viewed as counterproductive.They tried tendering Pathology, but that was an interesting example because that was being forced by the old Strategic Projects Team in [one region] Health Authority, and it was—it's fascinating as an exercise. (…) They tried imposing the same sort of model in the [region of CCG2], and so long as an SHA was there to wave the big stick, the PCTs played along with it. And 6 months after the SHAs were abolished, the CCGs said, “No, we're not going to do that anymore. We never wanted to do it in the first place. You were forced—you forced us into it.” There's a huge degree of inertia in all parts of the system. (Provider 2, NHS, acute, CCG2, March 2014)

In addition to understanding how providers competed and cooperated with each other in our case study sites, it was important to understand providers’ perceptions of their relationships with the commissioners. We found that, in different circumstances, providers experienced threats of competition and encouragement to collaborate with the commissioners and each other. They took the view that both of these techniques were being used by commissioners to influence their behaviour, and thus improve services. Providers of services out of hospital were more susceptible to threats of tendering than acute providers. CHS and MHS providers thought that the balance of power rested firmly with the commissioners. This is because CHS were more likely to be put out to tender and because block contract payments prevented expansion of services on providers’ initiative.The commissioner has all the power here because they can tender. And if I don't win the tender, I lose it. (Provider 1, NHS, community and/MH, CCG2, April 2014)

However, all types of providers could see the advantages of being encouraged to collaborate, and of having good working relationships with their commissioners. These might even obviate the need for commissioners to put services out to tender.

Changes in behaviour following the publication of The Five Year Forward View

The 5YFV (2014) emphasised the need for NHS organisations to cooperate with each other, and did not appear to favour the use of competition as a mechanism to improve services.

The follow-up interviews conducted in the latter part of 2015 painted a mixed picture of commissioning practices in the four case study sites. On the one hand, all the case study sites were undertaking major local service transformation using collaborative working with providers (and had been doing so before the 5YFV was published). Interviewed in 2015, the CCG2 commissioner stated that collaboration was their default approach, ‘a kind of way of life’ which was ‘punctuated by odd moments where I have to formalise things…on occasion into contractual or permanent or competitive relationships’ (Commissioner 1, CCG2, July 2015).

On the other hand, three out of four sites (apart from CCG4) were using competitive tendering to procure some smaller, more peripheral services. CCG4 did not rule out doing so in the future. This use of competition included CCG3, which had not undertaken any competitive procurement on its own in 2013/2014, and had been the least keen to do so at that time. By 2015 CCG3 had also been using a full procurement route for commissioning some of the services which experienced ‘poor quality, poor outcomes’ issues (Commissioner 1, CCG3, July 2015) or in order to increase patient choice.It was the first time we've ever done this within [CCG3 area], a full procurement. So it went out to tender and a preferred provider was appointed, not [the local acute provider], although to be fair to [the local acute provider], they've now come to the table and are working with the new provider, but as a result of that, we have created a much better service for the patients because it's more locally focused. It's not hospital focused. (Commissioner 1, CCG3, July 2015)

This CCG3 commissioner had found the competitive approach useful in this case as it injected new ideas into a ‘very conservative’ local landscape. (Commissioner 1, CCG3, July 2015). Another CCG3 commissioner did not exclude the possibility of competitive tendering being used in future commissioning (Commissioner 2, CCG3, October 2015).

Although noticing shifts in policy rhetoric towards cooperation following the 5YFV, in their day-to-day practices, commissioners were exercising their own judgement and making use of all tools available to them. In fact, taking account of CCG3, we can see that, over time, a wider range of commissioning mechanisms were being used.

Competition was being used alongside work on various projects to integrate services. However, the problem was how to integrate different integration work streams under one strategy.You've got to understand how many bids there are going on, and that's the confusing thing. We're a pioneer. [Acute trust] are a vanguard for the care homes. I believe they've got a bid in as well with a group of other providers around something else, and there's so many things going off at the moment it's hard to keep a track. (Commissioner 1, CCG1, August 2015)