The harsh impact of competitive tendering

In 2010, the last year for which international comparisons are readily available, the UK spent 9.6 per cent of its national wealth on healthcare. That’s public and private healthcare combined, not just the NHS. This places the UK just above the 9.5 per cent average for the 34 advanced nations that comprise the Organisation for Economic Cooperation and Development.

‘Competitive tendering absorbs time and money; tenders do not write themselves’

Most other western European countries commit more resources to healthcare. In France and Germany it’s 11.6 per cent; in the Netherlands it’s 12 per cent; New Zealand spends 10.1 per cent; and Canada 11.4 per cent. The leader, by some distance, is the US, which in 2010 used 17.6 per cent of its entire gross domestic product on healthcare.

However, more money doesn’t necessarily imply better outcomes. In 2010, life expectancy at birth in the UK stood at 80.6 years. In the US it was 78.7 years.

The comparison is, of course, more complex. The US has significantly better survival rates for breast and colorectal cancers. Hospital stays in the US cost about 60 per cent more than the OECD average, partly because of the routine use of expensive diagnostic equipment. But one statistic that stands out is the American system’s higher administration costs. In 2010, the US spent $856 per capita on administration and public health. France spent $300 and Germany $281.

We don’t have a directly comparable figure for the UK. However, 2010 was also the year when the Commons health committee, reporting on NHS commissioning, estimated that transaction costs in the English health system perhaps account for 14 per cent of the total NHS budget.

Buried report

Their report appeared less than two months before the 2010 general election and was quietly buried. It’s remembered, if at all, for stinging criticism of DH leaders, who couldn’t quantify the transaction costs of the NHS market (“The suspicion must remain that the DH does not want the full story to be revealed,” it said), and for its deeply unfashionable proposal that “after 20 years of costly failure, the purchaser-provider split may need to be abolished”.

‘Bid teams will be created. Priorities will be realigned. Consultants will be engaged. Money will be spent’

Mere footnotes to the subsequent story of Andrew Lansley’s white paper, the Health Act and the creation of the new commissioning regime? Not quite, because the context of the health committee’s report was resource constraint: what’s now known as the “Nicholson challenge”.

Yet a legal duty to promote competition has edged the NHS in England closer to the more costly US model. And in recent months we have effectively committed huge resources to competitive tendering processes, with no clear assessment of the costs involved.

Competitive tendering absorbs time and money; tenders do not write themselves. NHS commissioners now have a legal duty to use it for all care delivery “unless the CCG is satisfied that the services can only be delivered by a single provider”.

Interviewed in April in HSJ, David Bennett, chief executive of Monitor, said his organisation “would be mad to enforce [the competition regulations] in a way that leaves commissioners spending all their time running competitive processes because they’re terrified they’re going to get into trouble if they don’t”. The “madness” Bennett decries is the supremely wasteful distraction of 211 CCGs each inviting bids for between 60 and 600 contracts.

Knock-on effects

That isn’t the half of it. Multiple providers, from within the NHS, the social enterprise sector and private firms, will respond to each CCG invitation. Bid teams will be created. Priorities will be realigned. Consultants will be engaged and management time will be consumed. Money will be spent.

Strategic plans and tactical approaches will be the topic of countless away days, asking: Which contracts should we bid for? How far afield geographically should we chase new work? How will we manage the new contracts if we win them? And which tendering partnerships will strengthen our bids, nobble the competition or both?

Already the burden of any qualified provider is stretching NHS provider managers. That workload is about to expand exponentially. For providers, real jobs are at stake and in some cases the very viability of the organisation.

‘Regulations issued under the provisions of the Lansley reforms are legally enforceable. Anticipate court actions, test cases and legal fees’

Commissioners, despite Monitor’s pronouncements, have little option. Especially in urban areas, few services are genuinely the preserve of a single provider. There is no escape clause on the grounds of reasonableness or administrative capacity. Any attempt by clinical commissioning groups to preserve the status quo, or seek a quiet life, will be policed not by Monitor, but by would-be private providers keen to grow their businesses and experts in tendering for government business.

Regulations issued under the provisions of the Lansley reforms are legally enforceable, not the subject of Monitor guidance. Anticipate court actions, test cases and legal fees.

These overheads and management distractions are familiar from the US. But the proportion of England’s GDP spent on healthcare isn’t growing to US levels, so how will we afford them? As yet, we can’t even begin to quantify them.

Noel Plumridge is an independent consultant and former NHS finance director, noelplumridge@aol.com