Use it or lose it: smarter NHS contracting

The Bureau for Investigative Journalism reports that £500 million was spent on private health clinics in the NHS that in their view represents poor value for money. No doubt commentators will point to the private aspects of these contracts as evidence that they failed. A few comments on their Report:

  1. The contracts were pre-paid block contracts, and in most cases the complement of procedures paid for were not used. Now whose fault is that? In the same way as hospitals do not go around soliciting business from GPs, these clinics need referrals. The question in my mind is was there so much capacity that the pre-paid procedures weren’t needed? How many patients did not get treated because of a failure to use these contracts? Of course the same thing can happen in the NHS, just people don’t see it as quite the same waste of money as when private contractors are involved. But they are the same.
  2. That the Department of Health is buying them back is the Department’s problem, which the taxpayer has to deal with. I’m not sure what the point of buying them is, especially since they will close and their treatment capacity lost to the doctors. Is there that much excess capacity in the NHS that they can take out that much capacity? The Report doesn’t clarify what is actually going to happen next. I don’t disagree with them about this being a poor use of money, but the decision to remove these facilities from available capacity is a bad decision, regardless of who runs them. The firms running them have excellent clinical performance track records in the main.
  3. The original contracts were commercially naive. But the UK’s NHS has a very poor track record with commercial suppliers, and so to get anyone interested at a time when there were serious shortages of capacity (and still are of course), they had to underwrite some of the risk. Of course, what might be thought of NHS facilities such as Foundation Trusts are increasingly not publicly owned as such but owned by the organisations that run them, and there are similar contracts with them. (GP premises are also private) Keep in mind, too, that pre-paid block contracts are an acknowledged (but poor) way for buying hospital services, so NHS facilities have also benefited from this — but just to be clear, many NHS facilities over-provide on these contracts, run out of money, usually 9 months into the contracts, then have to pull back in the last quarter. With payments based actual activity, you pay for what you buy, which explains in part why NHS facilities are running out of money — they cost more to run than the activity they are providing based on the income they derive from that activity. Nothing to do with being a public or private organisation, but a lot to do with how contracts are structured and of course how the hospital is managed. One hopes that more sophisticated contracting will emerge.
  4. NHS contracts are generally risk-free, that’s why there is the current fuss over competition in the NHS, as it would introduce risk. If risk were introduced, it would naturally level the playing field for private providers. But with risk-free public contracts, all the private providers wanted was the same contract conditions as NHS providers. The sensitivies around this, though, tend to favour a default assumption that the publicly owned, if that is strictly true anymore, institutions are better value-for-money than the private ones, when it comes to clinical activity.

This Report focuses on the expenditure of money without asking the next level of questions which go the heart of how and why money gets wasted in healthcare and why the NHS has so much difficulty with its contracts (let’s not get started on NPfIT).

But the Report is useful by illuminating the financial consequences of poor commercial decisions within the Department and the NHS. I just wonder whether there has been any learning as a result.

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