Talk to me: PCTs hone their haggling skills

From an early stage, it was clear that “stimulating the market” would be the part of the Department of Health’s world class commissioning process that primary care trusts would struggle most with.

The skills required of commissioners are new ones – when PCTs are in many cases still gathering the information required to understand their existing markets.

The quantum leap is best described by the requirement in competency seven of the world class commissioning programme that the PCT should “communicate with the market as an investor, not a funder, using and specifying an approach based on quality and outcomes”.

But the techniques are complex, requiring PCTs to be able to look forward and anticipate how services will evolve, spell out to providers what they will want in the future, feed patient, public and staff views into conversations with providers, and get best value.

NHS Confederation policy director Nigel Edwards points out that PCTs have until now been using contracts largely as performance management tools.

And since independent sector health providers are a relatively new concept, there has not historically been a market to stimulate, he adds. No wonder this competency has proved difficult.

Confederation of British Industry health policy adviser Chris Heathcote says there are only “a dozen or so” PCTs that are managing markets in their areas successfully.

‘Risk averse’

He says: “There are examples of where in the service it’s happening but doesn’t take off. Some PCTs, even if they can recognise [a clever idea], aren’t willing to take it up because the incentives aren’t there and they can be quite risk averse.”

He says he’s also aware of ideological barriers: “PCTs don’t in some cases want to destabilise their acute trusts.”

Mr Heathcote says he was alarmed by HSJ’s revelation that only a third of PCTs had decommissioned a service in 2007: “We’re not saying that the only measure of success on stimulating the market is that a lot of services are being decommissioned, but we find it hard to believe that kind of rigour is going into it and leading to such a small amount [being decommissioned].”

He also criticises PCTs for producing 100-page tender documents for small services worth “a few hundred thousand pounds” where the effort of going through the tendering process is likely to cancel out any profit a provider could make.

So is it possible for a public sector organisation such as a PCT to manage a market effectively?

Healthcare Commission chief executive Anna Walker thinks so.

She uses the example of local authorities, which were told 20 years ago that commissioning for value for money was a fundamental requirement, leading to a boom in outsourcing.

Ms Walker has experience of creating markets in formerly nationalised sectors, having worked at both the Department of Trade and Industry overseeing energy markets and at telecoms regulator Oftel.

She says: “In energy, the objective was to create competition. The objective here isn’t to create competition, it’s actually to create the best possible service for patients.

“What PCTs have been told is that if that means going outside the NHS, so be it. That’s very different from creating a competitive market for its own sake.”

Ms Walker predicts specialist services will be the first segment to be commissioned from the private sector, as is already happening in mental health.

And she thinks PCTs could use the threat of decommissioning better without actually having to decommission services: “If that provides better services for patients, that’s great.”

Defend your decision

Two very different PCTs that are having some success with market management are Birmingham East and North and Cumbria, both of which were in the small elite that scored two for market stimulation in this year’s world class commissioning results.

Birmingham East and North director of redesign and commissioning Andrew Donald says his PCT has made a decision not to put some services out to tender: “If people think they’re going to tender a£180m acute service, they’re barking up the wrong tree.

“It’s a state of mind – there’s a danger you could have competitive tendering mania, which I don’t subscribe to.”

Mr Donald thinks stimulating the market should be fairly easy for PCTs, as long as they think cleverly about it: “If you want to stimulate the market, you put an advert out to anyone who’s interested in providing the services and get them in.

“In practice, you don’t have to go out to competitive tender… the DH guidance on procurement was basically saying you have to make a decision based on a number of tests around the size of the contract.

“The key bit is whether you’re able to defend the decision you make.”

Mr Donald warns not to fall into the trap of interpreting competency seven as simply about systems and processes. He thinks a strategy should underpin every decision to go out to tender.

Cumbria PCT assistant chief executive Anthony Gardner faces very different problems in creating a market.

He says the competency caused the PCT “a little bit of angst” because the geography and nature of Cumbria makes it difficult to get contestability.

But PCT managers were concerned that if they pointed this out during the world class commissioning assessment process, it might sound as though they “just hadn’t bothered because it was too difficult”.

Mr Gardner says: “We’ve taken quite an assertive approach – we’re going to do the right thing for Cumbria while making sure we don’t destabilise the NHS economy.

“In particular, that’s led us to the conclusion of care closer to home. We’re doing far too much in the acute sector.

“In our strategic plans, first and foremost, we’ve got to get the level of quality and accessibility right in existing providers, then build on that by looking at particular areas and saying we can introduce contestability in these areas without destabilising the whole economy.

“It’s probably a more thoughtful approach than in an urban area where you could go for straightforward contestability.”

The signs coming from the co-operation and competition panel are that provided PCTs can justify their decisions, they will not be expected to tender everything slavishly.

Panel chief executive Andrew Taylor says: “We recognise it’s not possible to tender everything at once.

“There are going to be a number of things that on practical grounds aren’t going to be tendered.”

Mr Taylor says PCTs will be expected to have a plan about how they are going to engage in tendering exercises.

They must then prove that any decision not to tender is consistent with that plan and that the plan is reasonable.

“We’re not going to be in the business of second guessing PCTs – it’s not up to us to substitute our judgement for theirs,” he says.

Growing up

Private providers feel PCTs must build more mature relationships with them, particularly at more junior levels.

Care UK managing director Mark Hunt says one PCT chief executive recently introduced him to the rest of the PCT team by saying “look – he hasn’t got two heads”.

Dr Hunt says: “Even when we have a contract with some PCTs, they don’t invest the same level of time in relationship handling as they do with their NHS contractors.

“One of the most important things in commissioning is relationship handling and I don’t think the focus or attention is being put into market testing, having a relationship with independent providers and having meetings about what’s possible.”

Nigel Edwards agrees: “People are worried they’re going to get taken to the cleaners. The reality is that taking your client to the cleaners is not a clever long term strategy because they will at some point rumble you, so the risks are probably less than you imagine.”

He says commissioners will require “huge maturity and a change of mindset” to succeed in stimulating the market, and must be able to do “the soft stuff ”, such as ensuring all players are included and relationships “are not conceptualised as a crude game of win-lose, or equally a cosy game of how can we all win by not rocking the boat”.

He says: “That’s why this competency’s so important but also why it’s yet to be developed – because it’s very subtle, quite difficult and new.”

PCTs should take heart – the “softer” competencies around managing relationships and providing local leadership were where they performed best this year.

Extending those skills into the private sector could be the key to cracking market stimulation.

Market forces

What does stimulating the market mean?

• Establishing and developing formal and informal relationships with existing and potential providers

• Patient, public and staff engagement skills

• Signalling to current and potential providers their future priorities, needs and aspirations

• Provision analysis and monitoring skills, including gap assessment, risk assessment and management, market segmentation, simulation tools

• Project management skills, including change management support for provider organisations

• Negotiation skills

• Presentation and influencing skills

Source: DH world class commissioning

The HSJ Commissioning Challenge is on 24 March, www.hsj.co.uk/conferences