Anti-competitive, excessively broad, long-term service contracts as a substitute for legislated reform of the NHS in England? -- re manchester out of hospital care tender

In my previous post, I had tried to scope the potential impact of Brexit for NHS procurement in England. There, I stressed the peculiarities derived from the traditional purchaser-provider split that has characterised the activities of the English NHS since the 1990s. That split has evolved beyond a pure "public management" tool and, over the past 25 years or so, resulted in the emergence of mixed markets where public and private undertakings compete for the provision of certain services that are procured or commissioned by a different (buying) branch of the NHS. Those markets are controlled by competition and public procurement rules, which are in part of EU origin, and in part purely domestic instruments -- such as the Health and Social Care Act 2012 and the NHS (Procurement, Patient Choice & Competition) No 2 Regulations 2013.

I also stressed that this domestic policy aimed at creating an "NHS internal market" with clear elements of a mixed economy was (and is) not mandated by EU law. In my view, there is nothing in EU law that obliges member states to open up public healthcare services to competition (see Art 14 and Protocol (No 26) TFEU). EU law simply sets specific rules and constraints applicable to situations where member states independently decide to open up those markets to competition. My arguments for this are largely along the same lines of those maintained by Hervey & McHale (2015, see ch 9).

Therefore, if policy-makers identified the NHS purchaser-provider split as a problem for the introduction of reforms in the way NHS England operates, with or without Brexit, it would be possible to move back to a fully integrated public healthcare system without infringing EU law. Or, in other words, there is no reason why policy reform aimed at undoing the purchaser-provider split in the English NHS could not fit within the blueprint of EU law. 

However, the way in which such change of model can be legally delivered is not without constraints, both under UK and EU law. In my opinion, it is not possible for policy-makers to move away from the current "NHS internal market" without changing its basic regulatory framework (ie without legal reform), and decisions aimed at bringing the existing mixed markets under public control under an appearance of compliance with public procurement and competition law are highly problematic. An on-going project to alter the market for the provision of out of hospital care services in Manchester offers a clear example of this. Given that Manchester's is the first in a series of parallel on-going projects, this can well serve as a cautionary tale.

As part of the implementation of a sustainability and transformation plan (STP), Manchester authorities responsible for health and social care (including three Clinical Commissioning Groups, CCGs, and the Manchester City Council) tendered a contract for the creation of a ‘Local Care Organisation’ (LCO) for a range of out of hospital health and care services for Manchester. The LCO would aim to "deliver sustainable, high quality, safe and affordable prevention, primary, community, secondary health and social care services, through a blend of direct and sub-contracted provision." Furthermore, the contract notice also indicated that "Over time, some services currently provided in the acute sector may be transferred to the LCO; commissioning intentions may result in the transfer of some low acuity, non-surgical (or non-complex surgical) services, into the LCO from year 3 (2020/21) at the earliest, and possibly thereafter over the contract term." In short, this was a contract for the provision of virtually all health and social care services with the exception of in-hospital services. The tendered contract was for a duration of 10 years and an estimated value of £5.9 billion, and was designed as a single block, thus excluding the possibility of awarding it by lots. This was the biggest ever NHS tender at the time of being launched, but other similar contracts are already being sought by local NHS commissioners (see here).

It is worth stressing that the contract was advertised on 14 March 2017 and expressions of interest had to be submitted by 28 April 2017, which does not seem like a particularly long time frame, given the complexity and duration of the contract. The tender notice also explicitly indicated that "The contract will be awarded without further advertisement of this opportunity and there will be no further opportunity to express interest", which clearly created time pressure and possibly discouraged potentially interested tenderers that did not consider it possible to submit a competitive (or even a complete) qualification questionnaire within 6 weeks.

Unsurprisingly, it has now emerged that only one offer has been received fro this contract, and that this offer has been submitted by "the Manchester Provider Board, which is a consortium made up of Manchester City Council, local GP federations, the city's three acute trusts [ie hospitals], community service providers and the Greater Manchester Mental Health Trust". In my view, there are two plausible reasons for this less than competitive outcome: first, that the tendered contract exceeds the delivery capabilities of any given organisation (as demonstrated by the fact that the only offer comes from a collaborative effort that aggregates virtually the entirety of the public providers -- which probably also count on continued reliance on private providers); and, second, that the entities participating in the design of the Manchester STP had, at least, a clear time advantage to prepare their tender (if not also information not available to other potentially interested tenderers). On the whole, it seems that the advertising of the contract was never intended to create real competition, and is simply a formal step aimed at creating an appearance of legality of this strategy aimed at side-stepping the (NHS) market.

I am concerned about at least three dimensions or implications of the strategy followed in the (partial) delivery of the Manchester STP through the tendering of such excessively broad, long-term services contract in less than competitive conditions.

First, at the immediate level of the tender, I am concerned that its design is anti-competitive and potentially breaches the requirements of the principle of competition established in reg. 18(2) and (3) of the Public Contracts Regulations 2015 (in transposition of Art 18(1) Dir 2014/24, on which see here), which requires contracting entities not to artificially narrow competition, in particular by favouring or disadvantaging certain economic operators. Similar issues of interpretation of the requirement of effective competition in the tendering of procurement contracts in the health sector has arisen in other jurisdictions and, in the specific case of Finland, there is an important precedent against the creation of exceedingly large contracts leading to a single potential supplier (for discussion, see here). If I am right and there is a breach of this principle, the whole procurement process should be quashed (although it also seems clear that litigation is unlikely at this stage).

Second, and at a more general level, I think that the effort behind the STP is not merely aimed at streamlining the functioning of the existing NHS market for the provision of out of hospital health and social care services, but rather at setting aside that market altogether. Rather than simply searching for better service delivery through aggregation in the patients' interest (within the limits of the NHS (Procurement, Patient Choice & Competition) No 2 Regulations 2013 -- for discussion, see here), this aims to deliver a change of model for the management of the NHS (and ancillary social services) and clearly exceeds the policy-making space of the procurement regime. If this is the case, I do not think that this can be done through the procurement of a massive umbrella contract capable of eating up the NHS market (while also indicating that there is space for subcontracting and for the future placement of additional services under that umbrella). Legal reform is necessary, in particular to ensure full debate in Parliament of the move away from the purchaser-provider split, as well as the broader implications of the (apparent) project of de-marketisation of the NHS. This is necessary because a change of model is not without consequences, in particular if (foreign) investors in private health care providers raised claims against the UK Government for what could amount to an expropriation in terms of international investment law, as well as a potentially disproportionate (ex post) restriction of EU fundamental freedoms of establishment and movement.

Third, and looking at the future, I am concerned that the delivery of this macro umbrella contract will be highly challenging and difficult to achieve within the terms of the original contract (although I have not seen them). It seems clear that such a long-term and broad contractual object will require permanent adjustments and modifications, which may trigger litigation down the line. The fact that a single contract has such a large scope creates legal risks of its own, in particular if it was to be set aside or terminated in the future. I am sure that there will be contractual provisions aiming to minimise disruption in the provision of such crucial health and social care services should contract execution run into serious difficulties, but it is hard to see that all contingencies can be covered.

Overall, I do not think that EU law (or domestic law) opposes or prevents the end result that the Manchester (and other) STPs aims to achieve. However, they do oppose and raise significant issues in the way that this very fundamental change (ie reversion) of the NHS internal market model is being delivered. Before the Manchester strategy is rolled over or mimicked in other areas, I would suggest that a deeper rethinking and a commensurate reform of the applicable legal framework is necessary. It is clear that the Government is not in the best position to undertake such a large scale project in the context of the Brexit negotiations and the aftermath of the June General Election, but allowing for such reform to be carried out under the radar of Parliamentary scrutiny seems to me both politically wrong and legally risky.

 

NHS England [On-going] Consultation on management of conflicts of interest

Following the National Audit Office (NAO) 2015 Report on Managing conflicts of interest in NHS clinical commissioning groups, which led to a revision of NHS England's Statutory guidance on managing conflicts of interest for clinical commissioning groups in June 2016, it is interesting to note that the on-going [closes on 31 October] public consultation on the broader issue of Managing conflicts of interest in the NHS includes a section on conflicts of interest in procurement.

The management of conflicts of interest in procurement is an interesting area of growing practical relevance, but also one where the law applicable to the activities of NHS England is increasingly complex and in need of consolidation (see the main findings of a recent research project I carried out at the University of Bristol Law School here). In that context, the adoption of additional guidance seems appropriate, although it should be carefully designed to ensure that it does not conflict with mandatory legal requirements.

The Managing conflicts of interest in the NHS consultation document is interesting in many aspects and puts forward a rather specific and quite polished view of the need to increase the transparency of both the rules and the decisions concerning the management of conflicts of interest across the activities of the public health system in England. However, it also contains some principles and rules which, in my view, could be improved and I hope that they will be revised as a result of the public consultation. With that aim, I have submitted a response to the consultation, which I am happy to share with anyone interested via email (a.sanchez-graells@bristol.ac.uk). I would also encourage anyone with a couple of hours to spare to contribute to the public consultation before it closes on Monday.

I will write again about this once the final recommendations of the Task and Finish Group of experts are published.

Announcing event on public procurement, competition, conflicts of interest and NHS commissioning (Bristol, 23.06.16)

 (c) Dominic Lipinski/PA, via Guardian.
I am organising the event "Taking stock of NHS governance after the 2013 reforms: Public procurement, competition and conflicts of interest in NHS commissioning". It will be held by the University of Bristol Law School on 23 June 2016 in the interesting premises of OpenSpace, with the generous sponsorship of PolicyBristol and Bevan Brittan. Registration is now open here.

This event has two main objectives. First, it intends to bring together Clinical Commissioning Groups (CCGs), NHS Trusts, legal practitioners and academics, so that we can collectively take stock of this aspect of the new NHS governance framework almost 3 years after its adoption. Secondly, and more specifically, it aims to explore issues of interaction between public procurement and competition rules in relation to potential conflicts of interest in NHS commissioning. This exploration should allow for the emergence of some initial lessons-learned, as well as help shape research agendas in this area of public governance, which will undoubtedly gain relevance over the coming years.

The panel of academic and practitioner experts that will participate in the event include:
Through interaction of experts and participants, in particular, the event aims to:
  1. Assess how the sectoral rules created by the National Health Service (Procurement, Patient Choice and. Competition) (No. 2) Regulations 2013 compare with general regimes applicable to conflicts of interest under public procurement and competition law.
  2. Explore the implications for CCGs and NHS Trusts of any potential discrepancies between the sectoral regime and general public procurement and competition rules, with a particular focus on the remedies that can be enforced against them, which in turn determine their operational risks and potential liabilities.
  3. Assess the need for any further reforms of the system once the Public Contracts Regulations 2015 become applicable to health care sector in April 2016.
Thus, this event aims to clarify the current and future public procurement and competition law constraints on NHS commissioning activities, as well as to facilitate knowledge exchange between CCGs, NHS Trusts, academics and legal practitioners in this field of economic law of increasing relevance.

The event is divided in two parts. The morning sessions, consisting presentations be leading academics and solicitors, are open to all, and in particular to academics, PhD students and legal practitioners. The afternoon sessions are reserved for a workshop on practical issues and future challenges is reserved to CCG and NHS Trust members only. This workshop follows up on the discussions held in the morning sessions. It is intended to provide a time for CCG and NHS Trust practitioners to brainstorm and exchange ideas on the main practical issues and future challenges for NHS Commissioning under the combined application of2013 Regulations 2013 and the PCR 2015 to the tendering of NHS contracts.

Overall, then, this event aims to facilitate knowledge exchange between CCGs, NHS Trusts, academics and legal practitioners in this field of economic law of increasing relevance. If you are interested, please register here. For further details, please contact me: a.sanchez-graells@bristol.ac.uk.

Why are NHS Commissioners 'undertakings' and, consequently, subject to competition law?

Some months ago, I held an interesting email exchange with some readers of my paper New Rules For Health Care Procurement in the UK. A Critical Assessment from the Perspective of EU Economic Law. They basically challenged my understanding of the National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 on the basis that NHS Commissioners could not be considered undertakings and, hence, their decisions should remain outside the scope of application of competition rules.
 
However, I thought and still think that NHS Commissioners are 'undertakings' for the purposes of (EU) competition law enforcement. These are the main reasons why I think so (apologies to non-competition law readers for the amount of 'slang' in this post, which reproduces parts of the email exchange.
 
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Regarding the treatment of NHS commissioners as undertakings, I think that the FENIN/Selex exemption is inapplicable and probably I should have made this clear in my paper (I simply assumed that this would not be controversial). As you probably know better that myself, the reason for that is basically that (most) GPs are engaged in economic activity as self-employed providers of services to the NHS (http://www.nhscareers.nhs.uk/explore-by-career/doctors/pay-for-doctors/) under the so-called General Medical Services Contract (http://www.nhsemployers.org/PayAndContracts/GeneralMedicalServicesContract/Pages/Contract.aspx). Indeed, they hold contracts for the provision of those services and, consequently, everything that they procure or commission needs to be assessed in light of such ‘downstream’ or parallel economic activity (which, in my view, immediately deactivates the FENIN/Selex exemption). Moreover, GPs located in a given area are in competition between themselves in order to attract patients and retain them, and that has an impact on their level of remuneration by the NHS. All this indicates that they do engage in economic activity ‘downstream’ or in parallel to the services and goods that they commission and purchase in their public procurement (‘upstream’?) activities. That is enough to justify the direct applicability of competition law (EU and domestic) to their activities.
In my view, this conclusion is robust even if those services are generally not directly paid for by the end users in most of the cases, since that should not affect either: 1) their inclusion within the scope of application of EU internal market law (C-372/04 Watts, dealing particularly with the NHS, although with hospital care provision), or 2) the fact that GPs are undertakings, as the requirement of provision of services in the market for remuneration does not require direct payments; under the classic formulation of the concept of an undertaking, it encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed. So, I guess that the largest point of disagreement between us is that you may consider that GPs (individually or collectively as part of a Clinical Commissioning Group, CCG) are not engaged in economic activity. However, as self-employed providers of services, I think that that assessment would not be in line with the generally functional approach to the concept of undertaking and that it is not covered by the FENIN/Selex case law. I do not think that GPs would be covered by the ‘social’ exclusion for systems based on solidarity either, given that the system in the UK promotes choice and competition and, by itself, that goes against the requirements of mandatory participation that the CJEU has included in its sickness funds-relate case law.
Finally, I also think that there would be a possibility of circumventing any possible exclusion of the (direct) applicability of the rules to the GPs and CCGs as undertakings (or groupings/associations of undertakings) via a State action doctrine approach (basically, on the basis of Cipolla) given that the UK as a State has delegated economic decisions on a type of organs (CCGs) that are in a structural (mild?) conflict of interest when they adopt commissioning (economic) decisions and, consequently, liability (of the UK) could be found on the basis of Art 4(3) + 101 TFEU. That would clearly justify the consideration and application of EU competition rules by Monitor as the ultimate watchdog in charge of ensuring compliance with (EU and UK) competition rules—as it is indeed co-competent with the new CMA in the healthcare sector. Again, you may consider this a weak legal basis, but I would disagree with that.