The Co-operation and Competition Panel for NHS-funded services has been established by the Secretary of State for Health to act as an advisor on the application of the Principles and Rules for Co-operation and Competition (PRCC). Its sponsors are the Department of Health (DH) and Monitor, the independent regulator for NHS foundation trusts. The panel's advice to these and other NHS bodes will be published on its website.
The panel does not have a statutory role and no independent powers of enforcement. But its advice will be influential as it may lead the Secretary of State to exercise (or threaten to exercise) its powers of direction against errant NHS primary care trusts (PCTs) and acute trusts. Furthermore, as of 1 April 2009, the PRCC will also be enforceable against foundation trusts.
While foundation trusts are not subject to the imposition of statutory directions, Monitor has amended the compliance framework for 2009/10 to make contravention of the PRCC a significant breach of the foundation trust authorisation. This represents a strengthening of the PRCC, which will now be enforceable (either by the Secretary of State or Monitor) against all NHS trusts.
The PRCC were published in April 2008 by the DH as part of the NHS 2008-09 Operating Framework and enshrine a set of DH policy rules and principles. These rules are designed to foster patient choice, transparency, fairness and competition in the provision of NHS-funded services. The PRCC contains 10 principles and 31 associated rules. They range from an obligation on commissioners to procure services from providers best placed to deliver the needs of their patient population on a transparent and non-discriminatory basis to the rule that providers and commissioners must not restrict choice by engaging in collusive behaviour or any other action.
The panel will consider complaints or appeals to decisions taken by other bodies on issues relating to the PRCC including:
- the procurement of clinical services;
- the competitive conduct of commissioners and providers of NHS healthcare services;
- mergers and joint ventures involving an NHS body; and
- advertising and promotion of NHS-funded services.
The panel will provide recommendations on cases to the Secretary of State and Monitor who will then make the ultimate decisions. However, the sponsors have committed (in a published Memorandum of Understanding) to consider the advice and publish their final decision, including reasons for amending or rejecting the advice.
The panel has been initially established for an 18-month period up to April 2010. Its remit is wide. In addition to providing advice on cases and appeals, it will advise the DH and Monitor on the development of policy on wider competition issues.
The panel is made up of Lord Carter of Coles (acting as Chairman) and a number of part-time panellists who have been drawn from various backgrounds, including law, economics, business and healthcare. It is served by a secretariat comprising competition lawyers, clinical specialists, economists and case managers.
The panel has introduced a number of draft guidance documents which set out its approach to the different types of cases that it may undertake and how it will discharge its responsibilities under the PRCC.
Interesting points to note in the guidance include the following:
The panel will consider, within an initial 10 to15-day period, whether it should accept a conduct case or procurement appeal. It will not do so if legal proceedings have been commenced or, clearly, if the matter falls outside the scope of the PRCC. The panel will consider whether it is the most appropriate body to consider the issue but will not decline to take the case simply because the Office of Fair Trading (OFT) may have jurisdiction. That said, where the panel finds serious collusion amounting to cartel activity caught by the Competition Act 1998, it will refer the matter to the OFT.
The procurement criteria also require that any local Strategic Health Authority (SHA)-led dispute resolution procedures have been exhausted before the panel takes the appeal.
In relation to mergers, the panel will review mergers where the turnover of the merged entity exceeds certain thresholds (£70 million for acute and mental health trusts, £35 million for community service providers and £15 million for primary care providers) and will expect the parties to pre-notify such mergers for approval.
Timing and process
The panel envisages a two-stage process for merger and conduct enquiries, with a 40-day phase 1 review and, where the panel has significant concerns requiring further investigation, an 80-day phase 2 investigation. Non-binding informal advice will be given on mergers and conduct cases, though the panel recognises that parties may choose to wait until it has built up some case experience before taking up this option. Pre-notification discussions for mergers are envisaged. Non-case specific inquiries do not have specific guidance nor a set timetable, but the Panel intends to follow the timelines set out for phase 1 and phase 2 investigations.
For mergers, recommendations (to approve, block or approve with conditions) will be made to either the Secretary of State or Monitor, depending on which institution has statutory responsibility for clearing the merger.
In relation to conduct cases, the panel may recommend remedial action to the DH or Monitor.
In relation to procurement disputes, a party should notify the panel of its request for an appeal within 25 days of the relevant SHA decision. SHAs have their own dispute resolution procedures in relation to PRCC matters and these are set out on their individual websites. As with conduct inquiries, procurement cases can be brought by private or third sector providers, as well as NHS trusts or foundation trusts. The timetable envisaged for procurement cases (and advertising appeals) is 50 days from acceptance. The output of a procurement appeal will be recommendations to the SHA in question.
The procedures for mergers, conduct and procurement cases all envisage an evidence-based approach with third party consultation, transparency and hearings.
The panel will assess whether proposed mergers have an adverse effect on patients (AEP) and taxpayers (AET). This will involve examining the range of services affected and determining whether sufficient choice and competition to ensure that high-quality standards of care and value for money will remain following the merger. A market-based approach will be undertaken to consider:
- the unilateral and co-ordinated effects of horizontal mergers;
- the foreclosure effects of vertical mergers;
- competition enhancing efficiencies; and
- resulting patient benefits.
In relation to conduct cases, the guidelines emphasise the benefits of competition in the market – innovation, productivity, quality and diversity of choice. The panel will investigate conduct that could frustrate the achievement of these competitive benefits, breach the PRCC and result in an AEP and/or an AET. This is assessed by reference to classic competition law infringements, such as price fixing, market sharing, exclusive dealing, refusal of access to essential inputs and even predatory pricing. Offsetting benefits to patients will also be taken into account in assessing conduct.
The panel acknowledges that PCTs have discretion as to when and how to tender for services and refers to the May 2008 PCT Procurement Guide. The panel also acknowledge that EU procurement law may apply in parallel. The guidance refers to common procurement scenarios, which give rise to issues, such as:
- tender design which limits eligibility and thus competition for a contract;
- the award of a contract not being based on the transparent evaluation criteria; and
- in relation to decisions not to tender, the panel will look at the consistency and reasonableness of the PCT's approach.
Advertising cases relate to the framework of rules which govern the types of promotional material that providers of NHS services produce. These rules play an important role in ensuring that information provided to patients is accurate and fair and that the reputation of the NHS is not damaged.
The panel is currently undertaking a consultation period which closes on 30 April 2009 and is inviting comments on the guidance and how they may be improved.
The panel's guidance refers to a number of developments in the NHS which, in the DH's view, gave rise to the need for the PRCC:
- Investment in improved access to care and patient choice;
- A purchaser/provider split and competition between providers;
- Payment by results and following the patient;
- A wide range of providers, with autonomous foundation trusts, independent sector providers and third sector organisations;
- Relationships based on legally binding contracts; and
- UK and European law increasing the risk of legal challenges, in particular, where principles of transparency and non-discrimination in procurement are not respected.
The aim of the PRCC is to provide clear and enforceable rules within the NHS to enable competition and choice and thus drive services quality, innovation and efficiency. Although the panel is billed as an advisory body, it is effectively tasked with policing the new rule framework with actual sanctions reserved to the Secretary of State and Monitor.
It has been suggested that the DH's motivation for establishing the PRCC and panel was the lack of jurisdiction of the OFT and courts over NHS affairs – and thus the introduction of order into a lawless NHS. However, all the developments listed above point to the establishment of markets within the NHS and thus the inevitable encroachment into the NHS of UK/EU competition and procurement law.
Whatever the motivation, the PRCC and panel, as well as the local dispute resolution procedures that have been established to enforce the PRCC, certainly represent a significant initiative to establish a sector-specific competition and procurement rule regime.
Given the similarity of the PRCC to competition and procurement law, a positive result may be that the OFT and courts will have less reason to get involved in NHS affairs. The OFT may, in deploying its resources, be grateful for the opportunity of leaving the politically charged, novel and fragmented markets of the NHS to the panel.
A negative result may be that NHS providers and commissioners will need to have regard to and comply with a parallel set of rules under the PRCC and UK/EU law. While the PRCC and guidance are clearly inspired by and based on competition and procurement law, they are not identical to these areas of law. There is no indication that case law will guide the panel's recommendations and no guarantee that legal compliance will be sufficient to satisfy the PRCC. This may create uncertainty, confusion and increased compliance costs.
In relation to mergers, the panel procedures add a further layer of compliance by creating a notification mechanism to enable the Secretary of State and Monitor to take full account of the competition implication of NHS mergers. Less clear is the role that the panel will play in relation to mergers and joint ventures between, for example, a foundation trust and independent sector provider and the extent to which it will be replaced, for these mergers, by the OFT.
Independent and third sector providers may have less reason to be directly concerned by the PRCC as there is no direct legal mechanism by which the PRCC can be enforced against them. Nevertheless, PCTs will continue to have a considerable market management role in their position as monopoly buyers of NHS services in their area. They may find ways of ensuring that the PRCC is adhered to by all providers – through, for example, the design of tenders or contractual mechanisms. Independent sector providers may also find themselves in the role of complainant seeking the panel's support to find ways of entering new markets, possibly in the face of resistance from incumbent providers. The independent sector may therefore want to keep the panel on side.
All providers will also be mindful of the developing relationship between the panel and the OFT. There may well be concerns that serious breaches of the PRCC competition rules will be passed on to the OFT along with a full briefing and a recommended course of action. The OFT may then find that they are dragged into the healthcare fray. The panel may be a catalyst for the use of the OFT's far more extensive powers, including fines of up to 10% of turnover and, in cartel cases, even criminal sanctions.
Relevant to the cost of compliance, the guidance indicates that it will take a rigorous, evidence-based approach to its investigations. While this should deliver the best results, the concern is that it will impose significant compliance costs on parties which make complaints or take appeals to the panel, as well as third parties asked to give evidence. This may deter under-resourced trusts and other providers from approaching or cooperating with the panel.
The panel has significant challenges ahead. It is not truly independent of the DH and its recommendations will only cut any ice if they are followed by the DH or Monitor. Political influence may therefore impact both on the panel's conclusions and their implementation. This may also deter independent providers from bringing cases before the Panel. Nonetheless, the application of competition law principles to the provision of services in the NHS is a brave and exciting new world.