Procurement Options

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Introduction The overriding aim of World Class Commissioning is about adding life to years and years to life. It is about creating the conditions for the optimal production of health and wellbeing. Procurement on the other hand is, in the main, about constitutional requirements to satisfy the rules applying to competition. The objective of this project is to align the procurement framework with the production of health and wellbeing. The key issues identified for resolution in this study are: • How to set up a procurement framework that does not fetter clinical and managerial leadership nor confuse it with incumbent stakeholder vested interest, either during or in lieu of a competitive process. • How to close the gap between services to the individual and those that meet the needs of families and communities. • How to align the contracting and procurement framework with the policy intent of World Class Commissioning and deliver improved productivity in health and wellbeing. This report has been produced for the third stage of the category sourcing programmes review control process, as detailed in the Project Initiation Document. It is the diagnostic account of the main issues and work that will be needed for effective market development and market stimulation.

Background The work has been undertaken in two stages. Stage one looked at the demand side issues and these matters are largely covered in the Project Initiation 2

Document, titled Successful Futures, Positive Futures and are advanced in the NHS SOTW Road Map, titled, 'Rethinking Relationships'. Both documents are available online at: http://www.cpmitraining.co.uk/cpmiaf.html

Stage two examined the supply chain and focused on provider impact, market position and strategic relevance. This part of the programme involved an assessment of the providers ability and agility to meet and successfully execute commissioning strategy. Included was spend and patient flow analysis, as well as a review of the overall market structure, competitive dynamic and provider behaviour. Findings – stage one and two. There are three main learning points. Firstly, that the introduction of competition in areas concerned with clinical and managerial leadership is counter productive and works against joint supply. Secondly, services are conditioned to meet the needs of individuals and fail to look beyond that which their organisation, alone, can provide. This does little to address the needs of families and communities. Thirdly, commissioning models based solely on supply side service substitution, will in the long term, fail to meet the universal service obligation. In short, this method of commissioning is flawed. Discussion Points World Class Commissioning is surprisingly silent on the role of competition when buying health services, other than to say the threat of competition is needed. This leaves it to commissioners to work out the extent to which competition is used and which competition model applies. Nevertheless, commissioners must at all times comply with the law. Where does this leave us? 3

It requires a closer look at the problem(s) and with greater precision, how we define them. In the past few years we have learnt far more about provider competence than commissioning competence. No matter how well we think we have procured or commissioned, it accounts for very little without defining what is meant by health productivity. Or to put it another way, the production of health outcomes at the patient group level and wellbeing at the level of population as a whole. It is about adding life to years and years to life. Defining the problems Process, Procedural and Ideological Problems For those tasked with responsibility for procurement it is easier all round to use open and restricted procure procedures. Putting well specified contracts out to tender provides the shield of transparency against contestability. In this way, the delegated or devolved procurement arrangements are in themselves prescribed procedures, and in theory, can be safely left in the hands of others. Sounds simple. The reality for commissioners is that post award service delivery is rarely in keeping with the original service requirements, specified in the tender. More often than not, a fixed price tender becomes a cost plus agreement and has the overall effect of setting aside the obligations placed on the provider, that were agreed in the first instance. While this constitutes a formal and binding agreement in EU law, it is not the agreement that was originally tendered for. Failure to deal with this commissioning reality, while adheringto idealised models of procurement and commissioning, creates a negative impact on decision makers. It intensifies otherwise benign competitive rivalry, requiring more time spent managing or manipulating contestable markets, strategic gaming, refereeing providers and working out which budget line to place transaction costs. This is not World Class Commissioning. However, the problems described above are symptoms of how competition law itself is defined. It is incumbent on World Class commissioners to define the extent to which 4

competition or cooperation will yield a greater return on investment. These are ideological considerations. They are concerned as much with economic theory as they are the affordability of the principles of universality. Specialised services have emerged, largely as a consequence of liberalised markets bringing into focus the ideological tension between the public health response and practice based commissioning.

The Agreement and Variation Problem As long as the primary focus of procurement is a narrowed compliance or appearance of compliance with EU law, serious errors are inevitable; understanding of the totality of statutory permissions will never be realized and four problem areas exist. The four problem areas pertain to Commissioning Managers, given that by and large the responsibility for reaching agreement about service delivery is usually undertaken at an operational or delivery level, Firstly, Joint Commissioning Managers are effectively leaving themselves open to legal challenge or allegations of process abuse, corruption and fraud; secondly, the prevailing commissioning model of supply side service substitution is at odds, theoretically and practically, with the overarching performance management framework for the industry, diluting service expertise and weakening the case for Third Sector Commissioning; thirdly, ideological considerations are transferred to front line clinical services, making an already impossible job all the more complicated; fourthly, the term agreement has its basis in EU and UK competition law, however, current decisional practice is out of step with that required to operate safely within the law.

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What is clear from correspondence and consultation in the production of this report, is that much of what might be considered innovation, is in reality the creation of strategic alliances that increase the bargaining power of some providers over others. With little or no leverage in the system as a whole, other than provider rivalry, finding and holding the strategic centre becomes almost impossible. To this end, the agreements made must include as a minimum: –

a sub-regional concordat, for collaborative strategic purchasing for partners across the South of Tyne.

–

A five year commissioning, procurement and contracting strategy

–

a World Class Commissioning gateway review and reporting process

These agreements are more likely to be achieved if commissioners can assume:

• all patients have the same condition(s)/problems within a known range of severity • patient demand and flow is measured and assessed by the variation in census over time and across the whole system and not according to volume of population served at provider level •

all providers are equal in their ability and agility to provide quality care

A critical issue to consider here, is the extent to which both commissioner and provider have internalised supply-side service substitution, as the only game in town. In reality, 6

provider rivalry can and does affect patient flow and subsequent resource distribution – it is unfair and arbitrary. If we accept variation is intrinsic in health care and may occur as a result of the spectrum of problems patients present, combined with the ebb and flow of patients passing through the system and the differing skill levels and techniques among providers, while advocating a commissioning model that supports and encourages competition in areas of clinical judgment and professional expertise, we are asking for trouble. Put simply, competitive rivalry among senior clinical and managerial staff is the single source of systemic non random variation. For this to change, a decision about the model of competition must be agreed. It is also about calling time on personality driven commissioning.

Health Distribution, Productivity, Wellbeing and the Market For as long as I can remember the need for separate and specialist services for the vagrant alcoholic, homeless mentally ill or mentally disordered offender has long been accepted as the best way to ensure access to primary and secondary health care.

However, tackling the access barriers to universal services has, for this stigmatised patient population, proved greater than most would find acceptable. Even with serious Public Health problems like HIV, Hepatitis and TB, health inequalities continue to persist. These are further compounded by structural constraints, like GP registration, poor quality and unsustainable accommodation, poor pathway planning and worklessness. Traditionally, these factors combined have resulted in a low uptake of services and low health gains. If we are to add life to years and years to life, a radical adjustment in how the industry responds is required.

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The starting point of any discussions must be, have voluntary organizations, the new community group CIC’s and small enterprise, GPwSI based social enterprise and pharmacy behavior, had a greater impact on patient demand, driven up health productivity and, in theory, had a positive additive effect on the production of wellbeing for the wider population. In the absence of a reliable micro base line for this activity, understanding of the Pigou-Dalton health transfer principle is crucial. This method of weighing lives interacts directly, with definitions of competition and the decisional practice of commissioning to meet the universal service obligation. The health transfer principle states that an individual’s wellbeing is induced from their social ranking and evaluated against other health distributions which apply to all individuals with the same attributes. The health transfer principle is a transformational formula. A rub or choke point may come, when an increase in the weight given to the health transfer for individuals within a priority patient group, exceeds that given to the wider population with the same attributes. Last but by no means least, understanding and stating which model of competition applies will not only add value to purchasing generally, it would provide a more objective measure of health productivity. All this said, greater understanding of the interaction between the health transfer principle, procurement and competition law is still required. This interaction is central to health productivity and the realization of the transformational intent of World Class Commissioning within EU law.

The Competition Problem The wisdom gained and methods used throughout the Sunderland APPS process and the new techniques and methods used in the category sourcing programme, are uniquely aligned to a model of competition. This model is known as the Harvard School or Structure, Conduct, 8

Performance (S-C-P). The footprints of this model remain intact in the current EC definition of competition as ‘effective competition’. The methods used in the category sourcing programme brought into sharp focus demand side deficits in market planning and tested supply side ability to engage in agility planning. During this process a number of the pre-conditions for assessing the role of and nature of competitive process, were satisfied in accordance with ECR11375[1998]4CMLR829 para.143. That is to say, we have defined the market structure, examined barriers to entry and looked at incumbent provider power. Presently, the over arching competition model that appears to be in use is known as the post Chicago model. This model is characterized by supply side service substitution, zero-sum gaming, contestability, transactional costing, intense provider rivalry and personality driven decisional power. It is fundamentally a question of which model of competition is to be applied. World Class Commissioning is aligned to the Harvard School, yet the post Chicago model is not without merit. The key is knowing which model to apply to what. Or not apply competition rules at all, by meeting the conditions for exemption.

As Mark Brittnell, puts it, ‘ the absolute purpose [of World Class Commissioning] must be to transform the health status of the people that we work with and the communities in which we live.’ The competency framework for Word Class Commissioning is just the start of this journey.

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Problem Resolution and Procurement Options Deciding which procurement options can be applied means we must first distinguish between strategic procurement options and procurement procedure. This exercise has been constructed to allow for an examination of the strategic merit of the various procurement options. It is not concerned with procurement procedure, although proper procedure has been followed. The procurement options were weighed on a risk register as shown below:

Procurement Option/Risk Matrix Option/R isk Matrix

Speed of executi on and resourc e release

Closing the gap between the individual,fa mily and community

Increa se the deliver y of joint supply betwe en partie s

Realise efficiency savings both strategica lly and operation ally by reducing person effort

Enhance Commitme nt to outcome focused commissio ning

Support Collaborati ve planning and contract harmonisa tion

Meet s with EC Law

Strategic Partnership

–

–

–

✔

✔

–

✔

Renegotiation

–

–

✔

✔

✔

✔

–

Re-tender

–

–

–

–

✔

–

✔

Cesation in Whole or Part Market Testing with In House Bids Externalisati on

✔

✔

–

–

–

–

–

–

–

–

✔

–

–

✔

–

–

–

–

–

✔

Joint Commission (local or subregional)

✔

✔

✔

✔

✔

✔

✔

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Appraisal This has shown to be a one horse race. Joint Commissioning, is uniquely placed as both a purchasing mechanism and procurement option. It is characterised as being about target driven improvements in the delivery of direct services, funded from a variety of pooled sources. It is used to level down where there is a need to seek rapid prioritised improvements in health and social wellbeing, for problem specific populations that when integrated into universal services, have an uplifting effect on health outcomes and wellbeing for the population as a whole. In short, Joint Commissioning is the only procurement option available to commissioners today. If done properly, the increased health productivity of a problematic population, will increase the total wellbeing of the population as a whole. In the longer term, the development of a strategic partnership is worthy of consideration.

Nevertheless, this could only be determined following: •

the completion of a contract harmonisation and efficiency programme

• the development of a micro-baseline by which to assess the efficacy of treatment methods provided at the level of a general practitioner •

having given full and detailed consideration to the redistributive effect of Public Health in areas like family support, early years education, housing and employment.

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So where does this leave us? The review of the Sunderland APPS process and the feasibility of its adoption and extension across the South of Tyne NHS PCT’S , threw fresh light on our existing knowledge about how to manage and develop the market place. For purchasers and providers alike, sustainable success is a matter of strategy execution and overall performance based on two fundamentals: execution – how quickly a provider can convert intentions into actions, and agility – the degree to which a provider can successfully deal with change in its environment. Using a self report inventory called The Organisational Stack, adapted from the work of Booz&Co, the organizational DNA of each provider was examined. The study revealed that no one sector, organizational type or age of organization held an overwhelming edge in its ability to convert decision making into action nor to adapt quickly to change. Two organizations that afforded high status to motivational and structural factors respectively, appear to be effected by market position. This said the variation was relatively minor and did not skew the overall distribution of influence on decision making rights and information flow. The study included two online questionnaires that were completed by providers. The responses were then used to assess: (i)

existing contracting arrangements

(ii)

provider willingness to support collaborative commissioning and contract harmonization

(iii) the development of a sub-regional platform.

The findings of the questionnaires showed that all respondents believed that between 50 and 75% of their work was jointly or collaboratively planned, 100% believed that commitment to joint or collaborative working was the single biggest attribute required to meet need and 80% cited the 12

provider/commissioner relationship to be of the greatest importance.

Responses to domain questions for example collaborative working - what hinders and supports collaboration, were then compared with the provider self assessments made in The Organisational Stack. Responses in favour of collaboration would also signal high priority being given to key questions about information flow generally, but also about cross organization information flow more specifically. While there was variation in the ranking of these attributes among respondents, they were not to the extent of requiring risk mitigation. Using linear and matrix algebra to assess the domain sets in relation to each other, this part of the study shows remarkably little differences between providers with a mean distribution of 25(+/- 3). While the initial focus of this project sought to determine the extent to which the Sunderland APPS Scheme could be used at a sub-regional level, much more has been learned about the people involved, their commitment to better services for this patient population and of the conditions needed to maximize this energy. There is unanimous support for sub-regional commissioning but more importantly there is a stated provider need to agree an overall system design.

Recommendation A suggested route to excellence is offered in the document ‘Rethinking Relationships’ the added onus is to work toward this by demonstrating compliance with the following Article 81(3) conditions: 1. Agreements made must lead to an improvement in the production and distribution of health, promote economic progress and make efficiencies. 13

2. Individuals, families and communities must be the primary beneficiaries 3. Efficiencies sought include the pooling of existing resources or the realignment of resourcesat a subregional level, but cannot be made under conditions of competition at a local level. Conditions 1 and 2 above must be satisfied and exemption from competition must not last longer than 2 years. 4. Agreements must not afford the possibility of eliminating competition. They must result in the harmonization of contracting arrangements, efficiencies in back room administration and improve the overall product on offer to providers and the public. Conclusion Commissioning, be it joint commissioning as a purchasing and procurement option or world class commissioning as a visionary framework, is an evolving art. Health and welfare economics are not, and rely increasingly on economic theory and science to determine how we add life to years and years to life and ultimately, how much it will cost. World Class Commissioning bears the hallmarks of the Harvard School S-C-P model of competition and does at this time afford commissioners some flexibilities. This is both courageous and risky. It is courageous as it asks that we apply ourselves directly to some of the most pressing issues of health inequality for this target population and have the confidence to trust explicitly the clinical judgment of front line professionals to spend public money wisely. It is risky because this has never been achieved in primary care before and practitioners will find themselves in office, rather than being in opposition. Under conditions of intense provider rivalry, it is inevitable that new problems of governance will emerge. Without the framework afforded by World Class Commissioning, the options available today would not be possible. In the short to medium term this is to be welcomed. It is welcomed, if only 14

to steady the market and offer an authentic enablement programme to an emerging new market of providers. Whilst trimming and re-shaping other incumbent providers from a subregional platform. Nevertheless, in the long term the only real measure of success will be the return on investment or per capita spend and a cost and volume/ health productivity price ratio - in these conditions the post Chicago model may yield the greatest return.

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