Navigating a competition minefield − an HSJ roundtable

There can be few topics as contentious in the NHS as competition: even those who support it have no doubt that the implementation of competition law is posing a practical problem to many organisations.

• BREAKING: Bournemouth and Pool merger is blocked

Before the Competition Commission made its final decision on the merger between Poole Hospital Foundation Trust and the Royal Bournemouth and Christchurch Hospitals Foundation Trust, HSJ − in association with healthcare law firm Capsticks − brought together an expert panel to debate the challenges and ask whether things could be done differently.

HSJ editor and roundtable chair Alastair McLellan posed the question: “What are we here to talk about? It’s pretty simple… the complex situation the NHS faces in complying with competition law while reconfiguring services.”

He pointed out NHS England chief executive Sir David Nicholson had spoken of his concern that competition law was being applied in a way that was not having the intended results.

“Is competition getting in the way of general improvement of services - either in reality or because of its perception?” Mr McLellan asked.

Procurement poser

David Bennett, chief executive of Monitor, set out how he saw this complex landscape involving two overlying issues − competition itself, and procurement of services. The controversial S75 regulations mostly talked about procurement not competition, he said, and going through a tendering process was just one of the options available to commissioners. But S75 also said commissioners should consider integration of services.

‘It’s worth stressing that the roles have not fundamentally changed - really the single biggest change is who is doing the commissioning’

Any commissioner who went through an “open, transparent and systemic process” in deciding how to meet the needs of their community should be fine, he said.

But, turning to competition, he said it was “of value to patients under certain circumstances”. Competition could put pressure on providers to improve the quality and efficiency of services − “but it is only one of the ways that they can be encouraged to do that”.

Monitor, as a sector specific body, had been given powers alongside the Office of Fair Trading to apply the Competition Act. But the responsibility for looking at mergers remained with the OFT and Competition Commission.

“It’s worth stressing that the roles have not fundamentally changed - really the single biggest change is who is doing the commissioning,” he said.

Inaccurate mythology

But Mr Bennett conceded there were issues around how the system operated. One was that competition and privatisation tended to get lumped together. “It is seen as a road to privatisation by some people. I see no evidence that this is the case,” he said.

There was an “inaccurate mythology” about what the rules required people to do, and not everyone had been well advised. He was aware of a case in which an NHS body had been told there was a serious competition issue, despite the competition directorate in Monitor saying there was no such issue.

‘The cultures of the competition authorities and the culture of the NHS are very different - which is not to say that either of them is bad’

“I think another problem is that the underlying corporate strategic planning that leads to the decision to undertake a transaction has not always been done as well as it should be,” Mr Bennett said. This created problems when organisations were asked to demonstrate that benefits to patients could only be achieved via a merger. “It is difficult to do that if you have not fully explored all the strategic options available.

“It is increasingly important to be certain that merger is the right answer… not least because we know that somewhere between two thirds and three quarters of mergers in the private sector fail. It is difficult to get this right. It is not something that people should be readily reaching for.” There were plenty of examples of NHS mergers that had not delivered the expected benefits.

And Mr Bennett added that there were a set of assumptions about the importance of scale for which he struggled to find concrete evidence. “There are also clinical reasons for consolidating services but it is not necessarily always the solution to make things bigger.”

He said that the Competition Commission was used to working with the private sector and was not used to understanding the deeply political nature of what goes on in the NHS. “The cultures of the competition authorities and the culture of the NHS are very different - which is not to say that either of them is bad.”

Early lesson

Mr Bennett conceded that Monitor had some lessons to learn, pointing out the Poole-Bournemouth merger was the first time the current process had been used. While it had been time consuming, the Royal Free and Chase Farm one had been far quicker.

But there was a more general issue around getting the evidence competition authorities want to see − it was a chicken and egg situation as it was hard to produce firm evidence before mergers happened.

“There is a perception that it will be faster, easier and less risky and uncertain to go down the road of merger. But, if we take the view that competition can drive up the quality of service provision, then we are less sure,” he said. “There is certainly a possibility that, in the course of getting to the end state, there will be some trusts among the losers.”

‘There is not enough thinking going on about the initial shared strategic options that lead to the conclusion that a merger is desirable’

And he said it was difficult to look at the two routes, both intended to deliver better quality and efficiency, and be certain which would work better.

Mr Bennett said Monitor would continue to work on the interaction between competition and foundation trust governance. “We need to learn how to get that as smooth as possible.”

And he revealed that Monitor was talking to the OFT and the Competition and Markets Authority (which will take on some of the OFT’s powers, as well as those of the Competition Commission) about how this could be achieved.

“There is not enough thinking going on [about] the initial shared strategic options that lead to the conclusion that a merger is desirable. I want to see whether we can agree… that we will get involved at an early stage with a view to advising whether the proposed action makes sense from a FT governance point of view but also from a competition view.”

This would need to be efficient and not hold things up. The aim would be to get to the point where, if something did need to go forward to the OFT, there was a high likelihood of it being compliant with the rules.

Monitor was discussing with the OFT and CMA whether they would “take significant note” of what it said about any proposals.

“I am hoping that we will get to a place where the merger parties will only be proposing things that OFT/CMA are comfortable with and will reach a conclusion quite quickly,” Mr Bennett said.

Chris Bown, chief executive of Poole Hospital Foundation Trust, said: “I am not anti-competition. I think the issue is about proportionality.”

Different cultures

He acknowledged that the bodies involved had been given a challenging job. “But clearly it is two worlds colliding. It is not just about NHS boards, it consumes the whole organisation. I don’t think either us or Bournemouth were prepared for the enormous difference in culture that we struggle with.

“The lack of experience of the sector shone through… it is not their fault but at times we have had the danger of spurious conclusions being made because of the lack of knowledge of the sector.”

The level of evidence required around the benefits of mergers, whether those benefits were merger-specific and that they would be delivered was also considerable.

‘In vast areas of the country we need to stop trusts going bust’

“We feel that the level of detail needed to convince the Competition Commission exceeds what we have been used to in the NHS at this stage, prior to public consultation,” he said, adding he was surprised what little weight had been given to the supportive views of commissioners.

Mr Bown added that more emphasis had been given to the changes to deliver profitability than others with clinical benefits. There was a need to give the “public interest” more weight.

The role of the FT financial failure regime also needed to be better understood: while Poole would struggle financially from the next financial year without a merger, it was not a case where assets would be frozen. “We will not be exiting the market à la Woolworths.” It did not comply with the idea of a failing firm, which the Competition Commission found difficult.

Mr Bown thought it would be useful if the health secretary had an override to provide some sort of public interest intervention. “I think David’s point about Monitor having a much earlier role in the process would be helpful,” he said.

‘I would say that 75 to 80 per cent of local health economies will need to do some sort of merger over the next five years’

Chris Hopson, chief executive of the Foundation Trust Network, pointed out the Chase Farm-Royal Free merger was in a competitive area - with many competing providers locally - but that these conditions did not occur across the NHS.

“The idea that someone will set up a maternity and A&E provider in Dorset is fanciful in the extreme,” he said. “In vast areas of the country we need to stop trusts going bust.”

Mr Hopson wanted the OFT and CMA to put more emphasis on Monitor’s advice and a better balance with FT governance and trust regulations.

“The competition and choice element of Monitor seems to be ruling the other side - which is trying to prevent trusts going bust,” he said. In its recent statements on service reconfiguration in Bristol, for example, the Co-operation and Competition Panel part of Monitor had prioritised impact on competition over the need for service reconfiguration to provide a stable situation.

The issue might not be the quality of advice trusts got but the quality of regulation.

“We as a sector need to work with you and the OFT about how these operate. I would say that 75 to 80 per cent of local health economies will need to do some sort of merger over the next five years which will come up against the rules,” Mr Hopson said.

Lack of analysis

Sharon Lamb, partner in the commercial team at Capsticks, said that sometimes mergers were presented to them without evidence of background analysis. Monitor could advise on the costs and benefits but there was a need for a clearer understanding of what the OFT saw as the market and a substantial lessening of competition.

This would enable people to understand how much trusts needed to rely on the benefits case for their proposals which could make the process easier and cheaper. But inevitably some benefits and costs were slightly speculative, which made it difficult to tell whether something would be passed.

‘Clinically we have significant risks in children’s health services. We know that we are running on rotas that are unsafe’

Gerard Hanratty, partner in the clinical advisory team at Capsticks, called for feedback and discussion with those advising the NHS over interpretation of the competition issues. He said one thing which had come out of recent discussions with the Competition Commission was that mergers were very much a provider issue while consultation and reconfigurations were based around commissioners. “We have to get a situation where they come together.” Commissioners needed to understand they could not present providers with a position which meant they had to go to the OFT.

But limited resources meant commissioners were struggling and needed a lot of support on these issues. “They are going to have to work a lot more with the providers. They have got to pool resources… and put together a case which benefits everyone.”

The timeline for changes presented a challenge when organisations had to save money in a short time. Even a simple change could take 12-18 months.

What do patients want?

Royal College of Paediatrics and Child Health president Hilary Cass said there was a lot of muddled thinking about the drive for choice. It was said to be important to drive up quality and also that it was what the patient wanted - both of which she challenged. “If you ask patients whether they want a choice of two hospitals, they want the hospitals they are used to and where they will be treated safely. Sometimes the two are in conflict.

“If you said to a patient that you could have a choice between two hospitals which are not sustainable and have a certain amount of clinical risk or a hospital where there is low risk, they are likely to choose the latter. Clinically we have significant risks in children’s health services. We know that we are running on rotas that are unsafe and not meeting standards and we cannot sustain services on the numbers of sites that we have.”

Need for public debate

But she said there was a need for mature debate with the public. “We need to articulate the clinical benefits more clearly.”

There could be ripple effects from changes and not every NHS service would be profitable. “I would like a system that more effectively weighs clinical benefit and safety over and above other aspects,” Dr Cass said. But she pointed out in some other countries in Europe services covered smaller populations - possibly because the European Directive on Working Time was not applied as it was in the UK.

‘At times it has felt that we have all of the difficult and challenging bits of the market but none of the benefits and freedoms’

Former chief executive of Circle Ali Parsa recalled a debate in which Tony Blair was warned he could not “make a bastard of competition in public service - either do it all or not”.

“Our problem has been that we don’t have the fundamental debate behind it all. Do we as a nation care whether our NHS services are provided by the private sector or the state? If we don’t, we should do what the Germans have done and say this is a hospital which has become unviable and who will run it?

“I would run any service. I don’t believe that there is a service that we can’t reconfigure. We tried this in Hinchingbrooke and this year Hinchingbrooke will break even.”

In such circumstances, however, companies needed a free hand to transform services - not be told they had to continue to employ the same workforce.

But Mr Hopson said it was important not to mix up the question of ownership and competition. Bournemouth and Poole would be clinically and financially unviable whether run by Circle or not.

And Mr Bown added: “For us and our circumstances even if we had all the money in the world the issue is around clinical services. We are only six or seven miles apart. We are largely complementary. At times it has felt that we have all of the difficult and challenging bits of the market but none of the benefits and freedoms.”

Role of Monitor

Responding to these points, Mr Bennett said there were circumstances where competition would be the right answer but it was only one mechanism to get what was needed.

He said the split of roles between Monitor and OFT was not helpful. “I do understand the point. That’s why we are in negotiations with the OFT that we do more and they rely more on what we do.”

And he told the rest of the panel: “You called for political courage and I have given up on that. It is not going to happen. I think politicians will follow public opinion. The challenge that all of us in this room and many others face is to talk directly to the public. I think the group the public will most listen to are clinicians.”