Healthcare Procurement Procurement and Market Development Peter Hawkins - Associate Director of Healthcare Procurement Scoping third sector engagement 23 rd November 2009

NHS reform over the last 18 months with the advent of WCC, PRCC, PCT Procurement Guide, the framework for managing choice and competition led PCTs to drive more effective procurement of healthcare services. Provider driven Commissioner led Increased patient choice Market place stimulus Competing Providers Improved service and quality Commercial drivers Patient and taxpayer value Input and target driven Outcome/quality driven It was and is recognised that implementing such changes would require a significant change in the way the PCT sourced, selected, contracted, and managed its provider base, with PCTs needing to develop new skills and expertise to deliver this level of change. What did this mean? Complimenting commissioning skills with commercial procurement Context

What is a market The term “market” refers to the interaction between the demand for and supply of services. When markets work, the processes of choice and competition drive efficiency in how goods and services are produced and in the mix of services provided Translating this to the health context implies that markets have the potential to encourage providers to improve the quality of care delivered for a given cost However, for markets to work effectively, a number of conditions must be satisfied: - well-informed purchasers/consumers - purchasers/consumers have the ability to observe price and quality of different suppliers, and respond accordingly - competing suppliers, or a credible threat of market entry - Low or mitigated barriers to entry for new suppliers

What factors influence future choice of market structure? Examples of demand side factors Volume of demand Geographic distribution of demand Urgent/non-urgent Priority for patient choice Willingness of patients to travel Examples of supply-side factors Economies of scale Economies of scope Barriers to entry and exit Dependency on other services Uniformity of costs

Creating the opportunity for stimulus - commissioners Commissioning-led service cannot look to acute care for all the answer:- ▪ New market reforms offer an opportunity for purchasers and providers to impose themselves by reducing the strength of local monopolies, ▪ The focus on community services is in part a reflection of the need to move services away from the acute sector ▪ Consider using the potential separation of provider services as an opportunity to stimulate the market by introducing new entrants ▪ Identify areas of supplier capability that will impact the achievement of key commissioning objectives in community services ▪ Set out the key steps and activities needed to introduce a new provider into the health economy ▪ Key performance monitoring metrics will be used or developed to incentivise the achievement of the health outcomes and reductions in inequalities required

Shaping the structure of supply – develop the future requirement  Developing the correct organisational capacity and potential solutions to allow market shaping  Commissioners intentions – the likely view of work plans and therefore care markets  Not just about volume related care contracts – more about wider diversity of providers to allow choice  Easing of market entry – financial risk share if entry costs are prohibitive eg. capital investment  Redesigning care pathways – dialogue with providers  Potential monopolies due to market immaturity and PCTs need proactive policies to guide the market  Policy objectives of economic growth (SME encouragement and development) and social welfare (social enterprises and third sector)

Competition in purchased healthcare – the players Local authorities- direct say via OSCs, but will this influence diminish? - Unitary Authorities will add complexity and ….. Potential Private Sector- Will they take on risk, TUPE issues, can they attract patient referrals - Local Authority social care example Foundation Trusts- Can support integrated care models but medium DGH style could be at risk - same as any other supplier/provider GPs- Smaller GP consortia have tremendous potential in short term to extend existing services - PBC and the more entrepreneurial GPs can have real influence - COI issues Third Sector- Bureaucracy still a entry barrier but they do have extensive networks - Where commercial skills exist could be a goldmine (Age Concern) Patient focus group professionals and social enterprises influenced by patient needs could flourish as they take control of services themselves

Seizing the opportunity - providers “All organisations have a fundamental need to sell their services, satisfy their customers and create the means to satisfy customers in the future” (Source Operations Management 4 th edition Slack N, Chambers S and Johnston R 2004) Know your business Capacity and Ability Values and Culture Vision, leadership, acumen, skillsResponsive, customer led, value driven Market and demand analysis

Develop your business - providers Do you really know and understand….  What you want to provide and what you don’t  Where does your income come from  The commissioning intentions…. and the small print  How are you going to manage the implications of potential business losses  How are you going to use your experience and your intelligence to win business And perhaps most importantly….  What is going on in your organisation – patient experience  Never underestimate it’s power and influence

The PCT procurement landscape – Providers and Commissioners Providers Provider capability/willingness to change ? Bid support Lead times on change Asset / equipment inflexibility Understanding the market Conflicts of Interest Too many / too few providers Sector “Silos” constrain providers’ solutions Co-ordinated / Managed Care Be more commercial and business minded! balanced with a service culture Commissioners Tender or not to tender? Contract extensions Mergers and vertical integration Engagement and workforce issues Planning capacity Developing the market Contract management Conflicts of Interest Be more commercial and business minded! balanced with a service culture NHS as preferred provider

Challenges or opportunities Financial challenges may mean a changed focus – especially on contracting Assist in the redesign of care pathways and services to eradicate inefficiencies and highlight efficiencies Creating a strategic improvement framework – health market analysis and service reviews will inform service prioritisation, business planning and therefore contestability/non contestability decisions. Co-operation versus competition Identifying (and harvesting) the harder to reach fruit. Getting more from what we already have – provider relationship management in the context of the wider Manchester health economy. Improving the dialogue with existing providers Redesign or develop new services – opportunity for providers to shape outcomes Additional capacity – service review to validate capability of provider

Emerging policy agenda - preferred provider Preferred provider may mean some changes in PCT procurement strategy….but not it’s underlying principles New PRCC rules and strategy will align more to co-operation (that can stand up to scrutiny) than competition A need to improve our understanding of health provider economics and the interaction with commissioned services Accuracy of data sets and information will become key to contract monitoring and relationship building A more integrated model approach to the wider health economy The drive will still be the same around improving healthcare quality, financial robustness and providing best value

Securing our shared future We are all committed to improving health in Manchester We face an unsustainable financial position across all parts of the Health Economy ‘Securing our Shared Future’ aims to re-design care pathways and bring about transformational change – delivering long-term financial viability We are working jointly to take decisive and coordinated action based on common goals Patients and the public have an important role to play Will involve all major service providers and commissioners Solution is city wide and system wide including social care so must be co-produced This challenge is a shared challenge across the Health Economy