What does the Health and Social Care Act 2012 (the Act) change about the approach to procurement and competition in the NHS and what does this mean for the commissioning bodies?

After 14 months of controversy, the Act finally received Royal Assent on 27 March 2012. The Act makes significant changes to National Health Service legislation and is the most extensive reorganisation of the NHS to date. This article looks at competition, procurement and the insolvency regime arising from the Act.

Competition law

Monitor’s proposed role to promote competition in the Bill attracted plenty of contention and was subsequently removed in the Act. Its core duty is to protect and promote patient’s interests. It would not have a duty to promote competition as an end in itself but only to address anti-competitive behaviour in the provision of health care services.

The Act gives Monitor concurrent powers with the Office of Fair Trading to investigate anti-competitive activities and abuses of dominance (s72 Part 3, Chapter 2) both under UK and EU competition law. Monitor also has power to enforce remedies in respect of breaches of competition law such as imposing fines, imposing interim measures and applying to disqualify directors. Furthermore, Monitor is given powers under the Enterprise Act in respect of market investigations references to the Competition Commission where there is reasonable grounds to suspect anti-competitive behaviour (s73). Monitor will have to consult the Office of Fair Trading as to who will exercise this power.

The Act also confers a duty on Monitor under Part 3 of the Enterprise Act to make a reference to the Competition Commission in respect of mergers involving NHS foundation trusts (s79). This applies where a foundation trust ceases to be distinct and whether it is a merger of activities between foundation trusts, NHS trust or private company in respect of health services.

There was concern that the Act opened up the scope of the application rules to healthcare providers. However, competition law only applies wherever there is competition between "undertakings". In the absence of an established body of case law on the subject, it is difficult to predict whether NHS bodies would be considered as an undertaking for the purposes of competition law. It is possible that the introduction of 'any qualified provider' and private sector companies engaging in commercial activities in respect of the health care services could make them more likely to be considered as undertakings. Watch this space.

Procurement law

The current procurement law contained in The Public Contracts Regulations 2006 (PCR 2006) has always applied to NHS purchasing of goods and services which are required by the NHS health providers for the provision of health services.

Additionally, the EU Treaty principles such as transparency, non-discrimination and equal treatment always apply to procurements with cross border elements. The application of these procurement laws at UK and EU level have not been changed by the Act. Clinical commissioning groups will also be subject to procurement laws.

However, the Act makes provision for regulations relating to procurement to be made under it (s75) and these are to work alongside the existing procurement legislation. These regulations will be imposed to ensure that NHS bodies:

  • Adhere to good practice in relation to procurement
  • Protect and promote the right of patients to make choices with respect to treatment or other health care services provided for the purposes of the NHS
  • Do not engage in anti-competitive behaviour which is against the interests of people who use such services

There could be a risk of confusion with having two parallel sets of procurement rules and risk of the regulations under s75 being inconsistent with the current procurement legislation. It will be interesting to see how these two sets of procurement regulations will interact and how integration of health services by commissioners will be fulfilled. It may be possible that Monitor will impose the Principles and Rules for Cooperation and Competition (PRCC) which are currently non-legally binding guidelines. Monitor’s powers to impose requirements under s75 could mean that anti-competitive behaviour may apply where otherwise it would fall outside of the reach of the Competition Act.

Furthermore, it may impose requirements in respect of procurement that would not be subject to the full requirement of the regime under PCR 2006. Interestingly the Act also provides that any failure to comply with s75 requirements will be actionable however it may restrict a person’s ability to bring both a claim under the regulations and the PCR 2006.

In particular it prevents a person who has brought such an action under the PCR 2006 from bringing such an action under s75 regulations. The circumstances under which it would prove to be preferable to claim under one and not the other will depend on the nature of the requirements under s75 and Monitor’s approach to enforcement.

Some critics say that the Act imposes more financial and administrative burden on NHS bodies and that commissioners will be less equipped to deal with legal procurement compliance than private sector bodies. NHS providers will need to seek advice on the implications of such regulations and it will remain to be seen how this may inhibit the drive towards delivering costs savings and efficiency gains through the procurement route.

Application of insolvency law to NHS/NHS provider failure

The Health and Social Care Bill (s113) initially set out to make new changes to the failure regime which meant that NHS trusts would be subject to general insolvency rules and would have been treated the same way as private providers if they failed. These proposals were abandoned in favour of the same unsustainable provider regime that was set out in the Health Act 2009. The regime means that Monitor can step in and make an order to appoint a trust special administrator where it is satisfied that a "foundation trust is, or likely to become, unable to pay its debts" (s174). The administrator’s role would be to secure continued provision of the trust’s services and their focus will be on saving the services that need to be continued rather than saving the trust itself as an organisation. In the event the decision is to dissolve the trust, then Monitor will dissolve the trust and make an order to transfer the property and liabilities to another foundation trust.

The Act also gives Monitor powers to appoint a health special administrator. The administrator’s role is to secure the continued provision of services, provided by companies delivering essential NHS services, as determined by commissioners of that service (s176-178). It remains to be seen whether that criteria will differ from those services secured in trust special administration. The health special administration scheme also includes powers to transfer rights and liabilities to other companies. Details of how this scheme will work including the application of insolvency law and the requirement for Monitor to indemnify the administrator will be set out in regulations.

The underpinning purpose of the two regimes is to ensure that there is minimal impact and interruption to services and that there is always continued provision of health services.

Monitor must publicly identify the unsustainable local services and it has the flexibility to set specific conditions through its licensing regime to prevent provider failure. The concern here is that licensing conditions may be unnecessarily onerous particularly on small providers. Monitor is also responsible for providing funding arrangements to help finance providers in trouble. One of the likely sources of funding will come from levies imposed on providers of NHS services. For the protection of providers, levies will be subject to limits set by the Secretary of State and consultations (s139-143). The optimal approach to funding the continued provision of services, in the event of insolvency, has yet to emerge.