Over the past couple of years, there has been a spirited debate about whether price competition should be allowed in health and whether NHS trusts should be the preferred providers of services.

To date, the verdict in both cases has been “no”, but nevertheless both seem part of the fabric in mental health. When it comes to admissions to inpatient facilities, it is common practice for capacity to be filled first at a local mental health trust before patients are referred elsewhere.

‘Block contracts with mental health trusts provide a substantial financial incentive for commissioners to ensure that their capacity is fully used’

Once the local trust has reached capacity, and depending on the locality, patients may initially be referred to others in the vicinity, and only when these are full, to facilities run by independent sector providers.

Patient choice rights in mental health only extend as far as having a right of choice of professional within the provider to which the person has been referred, not to a choice of provider.

Prices and providers

The presence of block contracts with mental health trusts provide a substantial financial incentive for commissioners to ensure that their capacity is fully used.

When capacity is required from the independent sector − which can be frequent − services are purchased on either a spot basis or under longer term arrangements.

With spot purchasing, providers are asked to quote a price when the need for a referral emerges. Under longer term arrangements, providers are appointed to framework contracts. Prices may be set in advance as part of the appointment process, or through “mini-competitions” held when an admission is required.

Below the radar

Independent sector operators, in addition to being providers of marginal additional capacity to local mental health trusts, can seek to grow their NHS revenues by offering niche services that are not readily available at NHS or other providers in a locality. People who would otherwise be referred to providers in other regions are able to be treated locally.

So, here we have a set of NHS trusts operating as preferred providers, with independent operators competing on price to offer marginal capacity, while also developing and offering specialised services that go beyond what other local providers offer.

It is almost the opposite to what happens in the acute sector and, what’s more, has been operating quietly below the radar in mental health at a time when competition in health has led to much controversy.

Andrew Taylor is a partner at Aldwych Partners