Making markets work for patients: are commissioners up for it?

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It's now nearly two decades since the introduction of a separation between purchasers and providers in the NHS. In that time purchasers (as they were then called) should have come a long way in grappling with an essential commissioning task: understanding and managing markets.

But with PCTs scoring worst on the World Class Commissioning competency of 'stimulating the market' it's clear that there is still some way to go. The question is, does the NHS really understand what a complex and difficult task this market management is going to be?

There have been significant changes to the original 1992 internal market: fixed prices, explicit patient choice, practice-based commissioning (a retooled version of fundholding), a focus on the roles and competencies of purchasers through World Class Commissioning and emerging competition regulatory arrangements. Taken together it now seems that the NHS is at last thinking hard about how PCTs might use markets, and how those markets might operate and be structured for the benefit of patients and taxpayers.

The fundamental question for PCTs is how, having identified their population's health care needs and decided on priorities, they use their purchasing position within the economic framework of the NHS to get value for patients.

Does, for example, a new community-based sexual health service that a PCT has assessed is needed by its population necessarily have to be purchased from the existing main acute provider? Should there be a competition for the market through tendering and picking the best bidder? Or would it be better to have competition in the market by encouraging multiple providers with patients or their GPs making the choices? Could the PCT use the threat of a competitive contest to gee up their existing providers to develop a community service?

These are difficult questions (no one said purchasing was easy). They are doubly difficult because there is little basis to presume that one form of market structure is always preferable for, say, the provision of a particular service, or that the same market arrangements (or lack of them) will provide the best outcome in two different PCTs. There is a good deal of 'finger-in-air' about all this. Context, institutional arrangements and local history all matter.

There are, however, some lessons to take from economics. For example, generally monopolies are bad; and broadly competition in the market leads to innovation and higher quality. The trouble is that sometimes monopolies can be good and competition bad. The worry will be that the costs – to patients and the NHS – of getting the market arrangements wrong could be serious.

The way through this is to carry out the best analysis possible of local markets: assessing what services need improving (or providing), examining the risks inherent in any provision arrangement (which will include collaborative, non-competitive deals too), and carrying out thorough reviews of the potential for competition, including the nature of that competition. This kind of analysis is currently being attempted in a number of SHAs, such as South East Coast and South Central.

A big question, given the scale of the work, is whether the NHS is devoting enough resources to the this aspect of commissioning or indeed to commissioning as a whole. One outcome of the current, largely management consultant-led, work on market management in a number of SHAs needs to be an assessment of the true cost of commissioning, of doing the job well. It's not difficult to imagine a need to at least double commissioning resources.

As the Chair of the Co-operation and Competition Panel (CCP), Lord Carter, noted at a conference at The King's Fund earlier this week, a crucial aspect of market management is the regulatory, rules-based system in which PCTs and providers are required to operate. The Department of Health's principles and rules for co-operation and competition state that in effect any market arrangement or change in arrangements (a merger, say) could be permissible if it was in the interests of patients. Which is obviously fine, and lays down a benchmark for PCTs, but it also requires the regulator (the CCP) to make judgments about the costs and benefits of local arrangements.

The CCP is in the throes of working out how it will do this given the nature of the 'product' (health care), the unusual price arrangements (fixed) and so on. And the Department of Health has already begun a review of the co-operation and competition rules it set out in the 2008/9 Operating Framework. Whatever the outcome of this review, the CCP's broad cost benefits approach to reaching its decisions will not just be a technical exercise. For example, there will be times when it will have to confront the trade off between costs falling on one group (eg, the taxpayer) against the benefits accruing to another (eg, patients).

The stakes are high in all this: if PCTs do not take the market bull by the horns then this 20 year flirtation with the market will be seen as a failure without ever having been tried in earnest.


John Kapp

Comment date
30 May 2009
I agree that my PCT has not even started to consider these important issues. I have written many papers about this for them, but they have always fallen on deaf ears, see sections 9.28 and 9.34 of
I am a former engineer/economist who used to write feasibility studies for the World Bank

James Bunt

Comment date
11 August 2009
I have worked at PCT level on IS Wave 1; procurement strategy and process and tendering in ployclinics and prisons. At PCT level there is such a constant flow of routine work and so little planning time for execs that a radical re-think of how commissioning works is required. It may be a boost in resource is needed but perhaps over the next 2 years a focus on skilling up all commissioners in procurement, contracting management and commercial skills is what is required; effectively refocus resource to the hard end of the commissioning skills spectrum. As I was told by a proud Greek the Spartans only sent 300 to the pass at Thermoplyae not because it was all they could spare, it was because they were so well trained it was all that was needed.....

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