Renegotiating or exiting NHS contracts may seem an obvious way to make savings but the process must be approached with caution, advises Robert McGough

With the NHS under pressure to make cutbacks, a natural reaction for managers is to review contractual arrangements with a view to renegotiating, exiting early or making savings. However, such an exercise can prove extremely difficult, not only because both parties may well need to be agreeable to opening up such discussions, but also because there is likely to be very little incentive on the other contracting party (whether public or private sector) to agree any changes, unless the financial viability of the arrangements as a whole is in question.

Primary care trusts are most likely to try to renegotiate in the area of over performance, or reclassifying/removing services as part of service reviews within their commissioning contracts. For example, in relation to equitable access schemes, a number of PCTs have either renegotiated with providers due to over activity, or are even looking to close centres and deal with the consequential claims from providers for compensation on early termination.

The equitable access scheme allowed for the creation of GP- led health centres that treated both registered and unregistered (walk-in) patients. These alternative provider medical services forms of contract have proven popular for PCTs, as they allow greater flexibility than the standard personal and general medical services contracts. Contractors are generally paid under the contract for the number of patients they treat and therefore robust reporting mechanisms are required in the contract to prevent “over-performance” by a contractor (ie treating too many patients).

Renegotiating such provisions during the contract term may therefore not be an easy task. Where over-performance occurs, renegotiating activity levels and payment can present a difficult problem for PCTs - while they must maintain control over the activity they pay for under the contract, they also cannot allow patients to be turned away when they require treatment.

Wrongful termination

From a contractual perspective, managers looking to renegotiate any legally binding agreements should be aware of and follow the variation or change control procedures contained in those contracts. In particular, where a trust wishes to terminate a contract early, it should be fully aware of the consequences (ie of whether early termination can result in compensation being paid to the contractor and how compensation is calculated).

If there are no compensation provisions within the contract, this would not stop a contractor making a claim for wrongful termination and seeking damages (and its legal costs) if appropriate, where the PCT acts outside of its contractual rights.

PCTs also need to be aware that the pressure to cut costs exists in an environment where patients and the wider public have been given increased rights to be involved in decisions that may affect how services are provided. The rights given to patients by the NHS constitution have been backed up recently by the mantra in the recent white paper of “no decision about me, without me” and the pledge to improve progress towards “patient-led” services.

If the proposed contractual change has an impact on the manner in which the services are to be delivered, or the range of health services available, then the trust considering the changes will have to evaluate the extent to which it is under a legal duty to involve the users of the service in those decisions, whether by way of formal consultation or some other form of patient and public involvement.

In addition to seeking to renegotiate existing contracts, it would also be effective to ensure any contracts that are about to be entered into contain suitable provisions in respect of exit and liability, as well as robust and effective reporting provisions to manage performance. PCTs in particular should look at the activity levels across their area to evaluate where renegotiation of activity levels would be effective in reducing costs.

Where a particular contractor is overperforming, a reduction in activity levels might need to be managed through the contract and will then reduce the likelihood of out-of-contract payments or dispute.


Top tips

Exercising a decision to renegotiate or terminate an existing contract should be made with caution - it is essential to consider:

  • the contractual position (what the contract says, or doesn’t say, with regard to early termination)
  • if the consent of a third party is required, what incentive there is for them to agree a termination or variation to the terms
  • the issues of patient and public involvement
  • whether the matter could become contentious if the parties or the wider public do not agree.