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Out-Law Guide | 27 Feb 2012 | 4:19 pm | 9 min. read
There is a drive for greater efficiency and competition in the English health service (as elsewhere). This means that National Health Service (NHS) organisations are increasingly having to use collaborative approaches in their activities. This is also the case for those organisations with a continuing need for improved facilities in an environment where public capital is hard to come by. This has led to a greater use of novel commercial structures and processes in the NHS.
This is a guide to the different kinds of projects procurement that are undertaken in the health service. It also includes a guide to the structure of the health service to aid understanding of a complex network of bodies for those involved in health projects.
Procuring capital health projects
Hospital projects can be procured in a number of ways. One way is for them to be fully publicly funded. Other ways include:
Since 1996, the private finance initiative (PFI) has been the main procurement route for large developments. This is a way of creating public-private partnerships (PPPs) by funding public infrastructure projects with private capital. Authorities who do not qualify or who opt out of the PFI route can set up a standard PPP arrangement.
Under PFI, the contracting NHS organisation appoints a private provider to design, build, finance and operate a facility. The private contractor will typically be able to recoup their capital investment through charging the authority a service fee for its operation of the facility.
PFI is a structured process, with a standardised bid process and standard form contractual documents. There are strict EU requirements with regards to procurement, timescales and transfer of risk.
On 5 December 2012 the Government published “A New Approach To Public Private
Partnerships”. This policy document sets out the conclusions of the Government’s “Call for Evidence and review of PFI” and introduces a new approach for involving private finance in the delivery of public infrastructure and services. This new approach, called PF2, is the Government’s successor to the PFI for the delivery of infrastructure and services through public private partnerships (PPPs).
The Government believes that private sector investment, innovation and skills should continue to play a role in the delivery of public infrastructure and services, whether that be through conventional procurement models or through PPPs. Well-structured PPPs can have particular advantages when used for appropriate projects. They can deliver a built and operational asset to time and budget while at the same time providing innovative solutions and effective risk transfer.
PF2 harnesses the key advantages of PPPs and continues to draw on private finance
expertise. Mindful of past concerns surrounding PFI, the PF2 model contains a number of reforms designed to eliminate waste, improve efficiency and align public and private incentives; these will promote a new form of partnership to achieve better provision of infrastructure and services. PF2 also responds to economic conditions in its approach to financing infrastructure. Differences from PFI are likely to include a public sector equity stake, alterations in risk allocation in respect of land and strict limitations on procurement periods are also being introduced.
For more information about public private partnerships, please see our separate Out-Law Guide.
LIFT projects are a type of PPP which bundle several smaller schemes, which would not be financially viable on their own, together to provide sufficient capital for the project. After four waves of LIFT, a modified structure was created rather than introducing a wave five. The new structure is known as "Express LIFT" and aims to make delivery of health schemes more consistent across England.
ProCure 21+ is a national framework with six approved supply chains for capital investment construction schemes across England up to 2016. An NHS client or joint venture may select one of the approved supply chains for a project they wish to undertake, without having to go through the full procurement process themselves.
Surplus land Collaborations
Despite the success of PFI in delivering a step-change in the quality of many NHS facilities, there remains an ongoing need to address poor estate condition. However, PFI is an unpopular method of procurement with Monitor, the independent regulator of NHS Foundation Trusts. This has had a major effect on the appetite of NHS Foundation Trusts to undertake a process that could lead to material risk and long term funding issues.
This has led to a significant reduction in the number of schemes that have come or are likely to come to market and downward pressure on adviser prices for those that do. The continuing requirement for facilities that can support changes in the methods of providing care, allied to the lack of popularity of PFI, means that there is a pressing need across the NHS for different procurement and funding structures that will provide access to funds that will facilitate the construction of new NHS facilities.
In addition, private sector contractors who have established a strong foothold in the NHS as a result of their participation in NHS PFI schemes are concerned that their position of strength in a complex market is threatened as a result of the absence of critical mass in terms of NHS PFI dealflow. As such, they are also very keen to promote and participate in processes that will allow them to continue their involvement in what remains a significant market for them.
With this in mind, there is increasing appetite within the NHS for collaborative structures in which NHS organisations participate through contributing surplus land.
A LABV is one way of dealing with surplus land. Local asset backed vehicles are being increasingly used to combine private sector finance and skills with public sector real estate as a means of driving development and investment. In the basic LABV model, a public sector body will create a corporate entity with a private sector partner. The public body transfers real estate to this entity, and the private sector partner matches the value of those assets with cash. These investments form the equivalent of the parties' 'equity' in the LABV.
NHS providers are also seeking to form joint ventures with other NHS bodies and also with a range of independent healthcare and other providers to take advantage of know-how and to tap into finance from outside the NHS.
NHS providers are also seeking to collaborate with each other using structures that fall short of a structured joint venture with a view to saving overheads, enhancing services and sharing accommodation and clinical staff.
The adoption by the NHS of a more expansive and commercial approach to business represents a major opportunity, principally for the public sector but also for the private sector.
The structure of the NHS
Following publication of the Health and Social Care Act 2012, the NHS is currently undergoing the biggest reorganisation in its history and is currently in a transition period.
The Department of Health still sits at the top of the NHS. By April 2013, all Strategic Health Authorities and Primary Care Trusts (previously sitting beneath) will be abolished and replaced with an NHS Commissioning Board, 23 Commissioning Support Services Units, 4 Regional Commissioning Sectors and 27 Local Commissioning Board Offices. Underneath these bodies will sit 212 Clinical Commissioning Groups.
The Department of Health and the National Health Service
The Department of Health (DoH) sets and communicates the strategic direction of the NHS. It ensures that public money is spent wisely and efficiently, develops new policies and legislation, and, through the Care Quality Commission (and HealthWatch England) (see below) monitors standards and safety.
According to the NHS Constitution, published in March 2012, the guiding principles of the NHS are:
Strategic Health Authorities
At present there are just 4 merged Strategic Health Authorities (SHAs) which will be abolished completely in April 2013. Historically SHAs have been a key link between the DoH and the NHS. They managed local NHS services and their responsibilities included:
Primary Care Trusts
As the NHS is in a transition period there are currently 50 clustered Primary Care Trusts all of which will be abolished by April 2013 and replaced with the National Commissioning Board, Commissioning Support Units and Clinical Commissioning Groups. PCTs were previously at the centre of the NHS. Their core aim was to improve the health of the local population, which was achieved through contracts with providers of healthcare services, such as:
NHS Trusts, operate and manage hospital facilities, known as "secondary" and "tertiary" care for patients, primary care being provided by GPs:
All NHS Trusts are to become NHS Foundation Trusts (described below) by 2014.
NHS Foundation Trusts
NHS Foundation Trusts (FTs) are less closely controlled by central government (DoH) but are accountable to their local communities – for example their members and governors. They decide how best to improve their healthcare services, retain any surplus generated from private patients'; income and can borrow to support investments, subject to a limit.
They are subject to regulation from the Independent Regulator of Foundation Trusts (Monitor)
Regulation of health bodies
Regulation of the health sector will completely change following enactment of the Health and Social Care Act 2012.
Monitor will be the economic regulator of the NHS and all NHS funded services. Monitor's main duty will be to ensure that NHS services are economic, efficient and effective - as well as maintaining or improving the quality of services.
Monitor’s role also includes reducing inequalities in both accessing and the outcomes of accessing NHS services.
All service providers within the NHS will be required to operate under licence provided by Monitor, unless specifically exempt. Exemption will not be given for the purpose of promoting competition. Monitor will work with the Office of Fair Trading (OFT) to address anti-competitive behaviour and will work with the NHS Commissioning Board to set out guidance on choice and competition.
Status of the Care Quality Commission
The already established Care Quality Commission (CQC) is distinct from Monitor in that it focuses on quality, and works to ensure the maintenance of standards in health and social care practices. Following changes made through the Act, the CQC will licence NHS and adult social care providers with a view to keeping check on safety and quality levels.
Inspections will be carried out by the CQC in response to information that it receives through clinical commissioning groups (CCGs), Healthwatch England, and local Healthwatch. Healthwatch England is being established as a statutory committee of the CQC to act as a national consumer champion in relation to health and social care services. Healthwatch England will provide leadership and support to local Healthwatch whose role is to gather local views on services.
Status of the Co-operation and Competition Panel
From April 2012 the CCP will become an integral part of Monitor.
The rules that currently govern co-operation and competition in the commissioning and provision of NHS services in England are set out in the Principles and Rules of Co-operation and Competition. While the substance of those rules will remain, from April 2013 the rules will be given a firmer statutory footing through the conditions of the provider licence and through secondary legislation imposing requirements on commissioners as to procurement, patient choice and competition. Monitor will have powers to enforce licence conditions and the secondary legislation imposing requirements on commissioners.
Pinsent Masons is highest ranking professional services firm in FT Diversity Leaders 2020 report