Devising an NHS competition framework is as challenging as ever

Few, if any, of the 2012 reforms generated as much ire as those that established Monitor as a competition regulator and put the NHS’s competition rules (established in softer guise under previous Labour governments) on a statutory footing.

Supporters may have hoped that the new rules would eventually become part of the furniture, but that looks as far off as ever.

Our briefing on procurement and competition law attempts something rare in the current debate: a purely technical discussion of whether an incoming government could dismantle the current rules given the relationships between UK and EU law.

Reader, brace yourself for an unforgiving landscape – hacking through a near impenetrable thicket of treaties, directives, laws, regulations and case law.

I will not spoil the process of discovery by revealing the answer here. A more challenging question is whether tearing up the rule book would be a good thing.

Your response to that question will probably depend more on gut feeling than hard data on the role of competition in the NHS.

• Sprigge: Competition cannot be ignored in a reconfigured NHS
• More news and resources on NHS competition

Evidence versus ideology

Even the fiercest proponents of competition in healthcare have to admit that the evidence base is a bit thin and that ideology fills the gap.

Of course, the evidence is just as thin that healthcare is best delivered through state monopolies.

If you believe that competition has an important role to play then, like economist Adam Smith, you probably recognise the need for regulation to protect the competitive playing field.

‘There has always been a fierce debate about the costs and benefits of competition law’

It might be some reassurance that the current competition rules for the NHS stand on the shoulders of 125 years of economic thinking, legislation and case law, from the Sherman Act 1890 to the Treaty of Rome 1957.

However, there has always been a fierce debate about the costs and benefits of competition law: how effectively it deters misconduct; whether it inadvertently discourages desirable behaviours; and the costs of compliance.

Cost benefit analysis

In other sectors, regulators pay consultants to estimate the effect of enforcing competition rules, leading to reassuring headlines that the benefits are many times larger than the costs (as well as some more questionable assumptions in the body of the reports).

In the NHS, Sir David Nicholson’s complaint was that commissioners and providers are spending large sums on competition lawyers to comply with the rules – although we aren’t aware of data to support this.

‘For opponents of competition, the current rallying cry is that they prevent the collaboration’

For opponents of competition and the regulations, the current rallying cry is that they prevent the collaboration needed to develop the new care models in the NHS Five Year Forward View.

Monitor has suggested such critics simply oppose competition, rather than being genuinely confused about what the rules mean or how to comply with them.

There is likely to be some hyperbole on both sides and it’s surely going too far to suggest that the rules prevent the forward view’s models of care.

However, few people could claim hand on heart that they fully understand the section 75 regulations that set out how commissioners should procure NHS services or find it easy to determine when agreements that restrict competition are permissible.

Silencing critics

Of course, NHS England and Monitor have an opportunity to silence the critics as they work in partnership with the new vanguard sites.

Regulators used to be more willing to give informal “comfort letters” or to give their blessing publically to particular arrangements.

‘There are limits to the regulators’ discretion’

Those practices have fallen out of favour - some with good reasons - but perhaps they are what’s required here.

Nevertheless, there are limits to the regulators’ discretion. Monitor can take a more pragmatic stance on enforcement but it can’t simply disregard the legislation.

All of this will add fuel to the much broader discussion about the costs and benefits of harnessing competition across the broad range of healthcare services.

We can find ways of nurturing competition on the most barren soil – we even have “benchmark competition” between regional water monopolies – but it may not always be worth the bother.

Complex relationships

In healthcare we need to count the transaction costs of managing complex relationships through commercial contracts (think Hinchingbrooke), the costs of complying with the rules and the costs of the regulatory system.

Given the uncertainty around the tariff and the failure regime in place for failing trusts, devising an appropriate regulatory framework seems as challenging as ever.

‘Devising an appropriate regulatory framework seems as challenging as ever’

All of this might point policymakers towards a more pragmatic and targeted use of competition in future, even if the tactical use of competition to rouse public providers raises its own challenges.

If so, the clamour to change the rules seems set to continue. And so will the debates on how much the government can modify the rules given EU law. You will need to read our paper to find out.

This article was originally published on the King’s Fund website.

Ben Collins worked as an independent consultant before joining the King’s Fund. He advised the Department of Health and Monitor on regulatory policy, including the rules for commissioners and providers on procurement and competition

This article was first published on the King’s Fund website on 18 March 2015.