Controversial and divisive: Whitehall's own Big Brother

If the Department of Health's commercial directorate were a television programme it would be Big Brother. Like the TV programme, it has some larger than life characters. It is controversial, provoking strong and opposing reactions, and it has changed the landscape of healthcare delivery.

The commercial directorate is responsible for saving and/or spending (depending on your viewpoint) millions of pounds of taxpayers' money.

Now there is a new boss at the helm. Chan Wheeler, a former senior executive from UnitedHealth Group, last week started work as director general, joining chief executive David Nicholson's NHS leadership team.

In the run-up to this, HSJ interviewed a number of former senior staff about life at the commercial directorate, what it achieved, the times when it had failed and just why it is so controversial. They range from one man who left because, as he put it: 'I could not stomach the ethics of what I saw going on around me,' to the man who says 'as a taxpayer, and never mind personally, I was never unhappy with anything that we did'.

They variously describe life as shocking, jaw dropping and the most exciting thing they have done professionally.

The directorate was set up in 2003 to make the NHS more commercially focused and to facilitate use of the independent sector. Some read that as smashing the medical cartels in whose interest waiting lists lie; others read it as privatising the NHS.

For Ken Anderson, its first director and the only ex-employee prepared to talk on the record, it was a case of 'getting the best deal for NHS patients. That's what I was interested in.'

Mr Anderson, a tough-talking Texan, joined the DoH from support services provider Amey. Initially he was a project director for the independent sector treatment centre programme but later became head of the new commercial directorate and then director general of commercial development with a seat on the management board. He left in January to become managing director of investment bank UBS.

The directorate expanded rapidly, taking in not just ISTCs but also responsibility for delivering huge savings in NHS procurement and efficiencies in the arm's-length body review. It also took on a strategic role, providing sound commercial input into DoH reviews and policy decisions.

Mr Anderson is categorical about the benefits it has brought not just to the NHS but to patients, too.

It has been responsible for massive saving to the public purse, he says. This is backed up by the latest figures from the DoH (see 'Highs and lows',.below), which also argues that the ISTC programme and extended choice network has driven down contract prices and put an end to spot purchasing.

Yes, he agrees, the ISTC programme was contentious. 'But regardless of what anybody says it has treated over half a million people. They [critics] talk about inconvenience to doctors and other health workers or upset to the stability of health trusts but I have never heard a patient say they would rather not be treated.'

He recalls a conversation with former health secretary John Reid. 'He said that we were in danger of developing a two-tier system where rich people would go to private facilities. He wanted everyone to be able to go to those places. That's what we have achieved.'

Mixed results

Others see it differently, citing the well-documented problems of the national contracts that required PCTs to pay for the whole value regardless of throughput as well as questions over quality and outcomes raised in an as yet unpublished Healthcare Commission report.

They also question the precise level of savings claimed for the directorate. One critic of the process says: 'For the Supply Chain Excellence programme (set up in 2005 to make efficiencies in procurement), AT Kearney and Deloitte devised a benefits tracking tool that basically asks suppliers what they believed the NHS has saved over previous purchase prices. This doesn't measure savings in any meaningful sense.'

Mr Anderson disagrees. Figures are verified by Office of Government Commerce Gateway Reviews, a peer-led process that scrutinises finances, and form part of the chancellor's report to parliament on Gershon savings. But guess what? The reviews are confidential.

Another ex-employee adds: 'OGC were all over us. It was very rigorous. The Treasury is not known for being a soft touch and I think you have to have a bit of faith in a process chaired by the Treasury.'

Another criticism is its use of interim employees and consultants from the big firms such as Accenture, Deloitte, AT Kearney and McKinsey. In 2004-05 the directorate spent£67m on consultants out of its total budget of around£160m. HSJ's sources indicate that out of a staff of over 230, fewer than 10 people were ever on permanent contracts. Their rates ranged from a few hundred pounds a day up to, by one disputed account,£2,000.

Does it matter? Mr Anderson and the DoH defend the approach. Much of the work was project based. 'It's more expensive to put people on permanent civil service contracts for this sort of work,' he says.

Another source - albeit one who was on an interim contract - adds: 'No-one was on£2,000 a day, although some were on£1,000. All the rates were market tested. Yes it was expensive but it was not money spent willy-nilly.'

Even so, he felt uneasy. 'I was on a temporary contract for over two years and that is an issue. It's not right to have everyone on interim contracts. Someone needs to be mindful of getting the right mix of permanent and temporary people. I would hope that the new commercial director general will be mindful of that.'

The Commons public accounts committee, National Audit Office and cabinet secretary Sir Gus O'Donnell also feel it matters. A report last week from the committee said Whitehall could save£500m a year by relying on advice from civil servants rather than paying nearly£2bn a year for the 'profligate' services of consultants.

Public sector spending on consultants had risen by a third in three years, it said, largely due to increases in spending by the NHS on IT and project management skills.

This came hot on the heels of an NAO report that came to similar conclusions and prompted a letter from Sir Gus to all government departments asking for 'more intelligent use' of consultants.

Top-level links

It is not just the numbers that cause concern. Critics of the directorate point out the close links between top-level interims, many of whom worked with Mr Anderson at Amey. They point to multi-million-pound contracts awarded to companies that have interims on project teams.

But Mr Anderson and others were adamant that robust procedures were in place to manage this, not least the independent scrutiny of the OGC. 'Business was never allowed to follow a consultant. Decisions were made on the back of capabilities, everything was tendered and above board,' says Mr Anderson. 'It may look from the outside that you could go out and do deals with your brother-in-law but it's actually really hard to do.'

From 2003, Sir William Wells chaired the Commercial Advisory Board, tasked with promoting the directorate to the NHS. From 2000 until December 2005 he was also a non-executive director of Exel, which merged with DHL in December 2005.

In September 2006, DHL won a 10-year,£700m contract to run the NHS supply chain. The directorate oversaw the tendering and evaluated the bids.

One source feels this was a clear conflict of interest and claims his concerns were never pursued.

Well, that would be because there was no conflict of interest, says Sarah Jones, a spokesperson for NHS Supply Chain, which DHL now manages. Sir William ceased his role as soon as Exel became DHL in 2005, before DHL was the preferred bidder for the project. The DoH confirmed they saw no conflict of interest here.

Another aspect of the directorate's role played up by Mr Anderson is the way in which it has improved the relationship between NHS managers and NHS suppliers. One of its achievements has been to set up a series of call-down contracts - a list of suppliers for a given product that are deemed capable of delivering at the right price.

The process has been painful for some suppliers, he suggests. 'Suppliers used to treat the NHS like infants. We have turned that around. The NHS gets a lot of respect now.'

The Healthcare Suppliers Association, which speaks on behalf of industry, declined to answer this.

Evidence about whether these call-down contracts have been valuable is scarce. A June 2007 public accounts committee report on the use of temporary staff found that trusts could significantly reduce their bills by using agencies approved on just such a contract - but they weren't using them and therefore wasting money.

Within the NHS, very few people have direct contact with the directorate, although there is a general feeling among managers that procurement is on the agenda in a much larger way than ever before - and that is due to its work in restructuring and outsourcing.

NHS Confederation chief executive Dr Gill Morgan says: 'It has been invaluable in bringing a different way of looking at things and challenging the conventional way of doing things.'

Two outstanding challenges remain, she says. The first is to get commercial and procurement expertise out of the directorate and into the service. 'They have not been very good at that. There have been some attempts with the collaborative procurement hubs but it has not gone far enough.'

The second is defining where the boundaries between commerce, commissioning and procurement lie.

'When you are talking about procurement of equipment it's a pretty clear-cut area,' she says. 'What's less clear is when you start talking about people and clinical services, how you put together a clear needs analysis, how you translate that into a contract. I imagine that will be at the heart of the debate between David Nicholson, Mark Britnell [director general for commissioning and system management] and Chan Wheeler over the next year.'

Highs and lows

Low points

• Dr Foster Intelligence. The commercial directorate wrote the contract for a deal that was heavily criticised by the NAO.
• Outsourcing PCT functions. The directorate wrote and published a tender for£64bn worth of PCT business - before the policy was announced. Forced an embarrassing retraction by health secretary Patricia Hewitt.

High points

The DoH says the directorate-led procurement stream is set to make savings of£3bn in 2007-08, including:

• £600m by NHS Purchasing and Supply Agency.
• £1bn on drugs.
• £300m attributable to the Supply Chain Excellence programme.
• £130m and 615,000 procedures attributable to the ISTC programme.