Reports of the demise of private sector involvement in the NHS last year were premature, as Department of Health commercial director Channing Wheeler is developing the tools to allow local managers to turn the service into a market. He talks to Sally Gainsbury

Channing Wheeler took up the position of commercial director general at the Department of Health the same month Gordon Brown was made premier. Paranoia and elation ensued from opposite sides of the debate as business and unions speculated Mr Brown would oversee a winding back of private sector involvement in the NHS.

A month later Alan Johnson, the new health secretary, used his first appearance at the Commons health select committee to announce one of the controversial independent sector treatment centre scheme contracts was being cancelled over concern about the quality of patient care. The remaining 17 treatment centre schemes - many in development since 2005 - were put on hold during "revalidation reviews". By the end of November, seven of those had been cancelled, leaving all bidders sore and some seeking compensation.

But reports of the demise of private sector involvement in the NHS were premature. While some members of Mr Wheeler's office were busying themselves checking treatment centre plans against local need, others were developing the framework for primary care trusts to buy in private sector support for their commissioning functions.

That is just the start. Asked to describe his vision of private sector involvement in five years, Mr Wheeler tells HSJ: "Independent sector providers will weave and integrate with the NHS and I hope we will start to just think of NHS-registered providers of care, so it doesn't matter whether they are acute trusts, foundation trusts, independent sector or voluntary providers."

The vision will be achieved not through further large-scale central procurements led by the commercial directorate, but through the "evolution" of patient choice in an NHS market governed by transparent rules, Mr Wheeler says. This will be complemented and aided by the "natural evolution", again, of the commercial directorate.

His team is still involved in several national procurements - most significantly new GP services in under-doctored areas under the Fairness in Primary Care banner. But Mr Wheeler has refocused the commercial directorate on a more subtle role in promoting the skills and rules required to run a smooth and fair NHS marketplace.

Rules of engagement

The directorate's principles and rules for co-operation and competition were set out in an appendix to the operating framework for 2008-09, which forbids, for example, the privileged treatment of a PCT's own provider arm over an external service provider, or predatory pricing to shut competitors out of a market.

"It became very evident to me that the NHS didn't need the centre to do things for it, but for it to enable, facilitate, educate and to develop tools to implement world class commissioning and a rules-based system to help transform the NHS into a market," Mr Wheeler says.

Instead of citing how many millions of pounds worth of NHS activity is likely to transfer to private providers, or the Next Big Procurement, Mr Wheeler and his senior officials refer frequently to "sending signals" out to the market as to where they might turn their attentions next, or how future services might be developed.

So rather than run the actual procurements for junior health minister Lord Darzi's promised 250 new primary care centres, the directorate has prepared detailed "road maps" and procurement proformas to help guide primary care trusts to do it themselves.

The guidance has been available on the DH website since last year - long enough for more than 4,000 hits and downloads, Mr Wheeler notes - but was only recently spotted by the Conservatives, who called the procurement advice a "secret blueprint" to replace "local family doctors" with "big, probably private" companies.

"I'm an official, I don't follow the politics," says Mr Wheeler. But he is clear that although the procurement will be PCT-led, it is an opportunity for private providers. "We expect to bring in some new models of provision and some new providers who are not currently providing those services in the NHS," he says. "We also expect entrepreneurial GPs to respond to some of these procurements and to win them and to expand what they are able to do for their communities... but it will clearly allow the entry of some new providers into health centre services."

In keeping with the transfer of responsibility for procurement and contracting to the local NHS, the commercial directorate's expertise is also in the process of becoming regionalised. Seven of the 10 strategic health authorities have appointed commercial leads, and the directorate is working on recruiting individuals to the remaining three positions.

Mr Wheeler says that regional expertise will support PCTs in their individual procurements and boost SHAs' role in ensuring NHS market rules are applied properly.

"There are a whole lot of needs the NHS has that commercial capability can help it develop and accelerate. So rather than keep those resources at the centre and try to do things from there, it makes a lot more sense to put them out there in the field with the SHAs and to work side by side with them."

Mr Wheeler acknowledges there has been a sense among many PCTs that the treatment centres in phase two were somewhat foisted on them. Not on his watch, Mr Wheeler says.

As for the phase two bidders that complain they spent up to two years preparing detailed bids only to find their schemes were no longer deemed necessary, Mr Wheeler admits the procurements "took a very long time", but says all the remaining procurements will be completed by the end of his first full year at the DH.

His directorate is also exploring solutions to the complaint from private providers that they are significantly disadvantaged by being unable to enrol staff in the Treasury-backed final salary NHS pension scheme.

For providers that feel the NHS has treated them unfairly, the directorate is fleshing out how the competition and collaboration panel will work. Likened to the independent reconfiguration panel the competition panel will be made up of individuals "of good repute" independent of both DH and NHS.

"We recognise that once you set up a system with rules you also need a process to manage disputes for people who might feel the rules aren't being followed," says Mr Wheeler. The panel is due to be launched in October and will not hear disputes until they have exhausted local PCT and SHA mechanisms, also to be fleshed out.

Vertically challenged

Many of the tensions and frustrations that may result in a referral will be far from simple to resolve. One grey area is the limits and rules surrounding the "vertical integration" of primary and secondary care services under one provider interest.

Concern about hospitals - particularly foundation trusts - "sucking in" acute work through canny creation of demand has led to a sense that acute trust involvement in primary care, for example, is frowned on. Although the operating framework stated that in 2008-09 such integration was "permissible", the "express consent" of the DH must still be given to any contracts involving the running of GP-style services by hospital providers.

That precaution has led to accusations of unevenness from NHS hospital providers that view GP practice based commissioning as a form of vertical integration equally vulnerable to conflicts of interest.

Mr Wheeler emphasises that, in terms of the 250 Darzi procurements, the DH - and indeed prime minister - has effectively already given its express consent to foundation trusts that wish to bid.

"The first consideration will be: will it be of benefit to patients? There are clearly examples around the world where vertical integration has created systems with very efficient and effective clinical pathways with good outcomes for patients. So it's those kinds of things that would be potentially evaluated," says Mr Wheeler.

The directorate acknowledges that conflicts of interest can equally arise through practice based commissioning arrangements as they can an expanding hospital.

But officials point to the contractual rules set out in the operating framework which state that financial interests should be declared to the patient as well as made clear on the NHS Choices website.

Although a market logic has been unleashed within the NHS, the rules still imply that the best interests of patients will override those of the hidden hand, says Mr Wheeler. While exceptions can be granted by SHAs, in general the system will not allow competition on price, so all acute providers must operate at the payment by results tariff.

While that may mean the incentive for efficiencies is less direct, Mr Wheeler is confident competition for patient patronage will up the game. Providers will strive to innovate because each will want "more headroom" for under the tariff.

"If you have no choice and you are the only game in town it is easy to become complacent, even if you don't want to. We are operating with taxpayers' money. And the taxpayers are the patients who are coming to see us and they need to get what they are paying for and need to get the best healthcare system in the world."

HSJ's Delivering World Class Commissioning conference is in London on 10 July