High temp costs: A competition issue or held back NHS wages?

HSJ reported last week that Simon Stevens said there is a clear case for clamping down on the “egregious prices” being charged by some staffing agencies. He confirmed yesterday that the NHS will now take collective action to tackle the high cost of agency staff.

Clinicians leaving permanent positions at NHS organisations for the higher remuneration available for locums and other temporary staff have no doubt caused some of the increase in temporary staffing costs. For example, HSJ reported on the £300,000 paid to consultant dermatologist locums in Nottingham.

With wages being held down in the NHS, the attraction of such a shift has been made greater – a point made by health economics professor Alan Maynard in Health Policy Insight, among others.

‘The imbalance between demand and supply is being reflected in the temporary staff prices’

Moreover, with clinician numbers overall in short supply, the imbalance between demand and supply is being reflected in the (unregulated) prices charged in the temporary staffing market rather than in the regulated NHS labour market.

This is likely to be forcing up temporary staffing costs even higher than might otherwise be the case.

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What’s behind the prices?

Given all this, it is an interesting question whether the “egregious prices” referred to are simply a result of wages being held down in the NHS in combination with an overall shortage of clinicians, or whether these prices also reflect bad behaviour on the part of staffing agencies.

The key to whether staffing agencies are ripping the NHS off is the size of their fees, not the total amount they charge to the NHS for staff - the bulk of which is paid to the temp they have supplied to fill the position.

‘Maybe there is a competition problem in the temporary staffing agency market’

If competition is working effectively in the staffing agency market, agencies will compete with each other to put staff onto their books, while at the same time competing with each other to place these staff into NHS organisations. It’s a situation known in competition parlance as a “two-sided market”.

Agencies have an incentive to offer the highest rates possible to temp staff to attract them to their agency, but this is constrained by the rates they can get from NHS organisations for these staff.

Agency fees are part of this overall equation. If agency fees are too high, and competition is effective, agencies should struggle to place temps with NHS organisations and/or attract temps to their agencies.

However, if agency fees are higher than is justified – as Central and North West London Foundation Trust chief executive Claire Murdoch seems to think is the case – then maybe there is a competition problem in the temporary staffing agency market.

Competition checks

Fortunately, the NHS has just the tool to assess whether this is a problem: the Cooperation and Competition Directorate at Monitor.

Market investigations by competition authorities, such as the ones Monitor is able to carry out, exist to look at just this type of issue.

Monitor should be able to assess whether staffing agencies are behaving in a way that is impeding effective competition and resulting in the NHS paying more than it should for temporary staff. While the temporary staffing market is on the edges of Monitor’s jurisdiction, it would be a brave agency that refused to cooperate with an investigation by Monitor.

‘If Monitor were to uncover evidence of anti-competitive behaviour, then it could take action’

If Monitor were to uncover evidence of anti-competitive behaviour, as seems to be the basis of some of the concerns being raised, it could take action under the Competition Act (or work with the Competition and Markets Authority to do so).

Staffing agencies breaking the law could be punished appropriately. Alternatively, it might – having reviewed the issues – suggest ways in which NHS employers of temp staff can themselves avoid being ripped off.

Of course, if the problem is not one of anti-competitive behaviour in the temp staffing agency market, and is simply a result of wages being held down in the NHS, combined with a shortage of clinicians, the NHS can simply exercise its own market power to regulate the price it pays for these staff.

Whether, in the long run, this is an effective way of keeping staffing costs down or just pushes the problem elsewhere is, however, another matter.

Andrew Taylor is the founding director of the Cooperation and Competition Panel for NHS funded services

• This piece was originally published on Andrew Taylor’s website NHS Competition Regulation