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The right prescription?

Health iStock 000005083391XSmall 146x219James Larmour looks at the new NHS provider licence and the controversy over competition in the NHS.

The Health and Social Care Act 2012 is one of the most contentious pieces of legislation for a generation. One of the chief criticisms is that the Act amounts to privatisation of the NHS by the back door. A moot point perhaps, however, it is undisputable that the fundamental objectives of the Act are the promotion of patient choice and the stimulation of competition within the NHS.

The emphasis on competition has important ramifications for NHS providers. Against the background of increasingly squeezed public finances, central Government is less disposed to bail out financially challenged NHS institutions. And by putting the South London Healthcare NHS Trust into administration – the first time that the “unsustainable NHS Provider regime” has been implemented – central Government has made it clear that it is no longer prepared to underwrite financial failure. This policy change is writ large in the evolving regulatory framework which is being developed to support the implementation of the Act.

A good case in point is the new NHS provider licence, which Monitor has published following a period of consultation. The licence is one of the key mechanisms through which Monitor will regulate providers of NHS healthcare services in the new NHS landscape.

The Act requires anyone (whether public sector, private sector or charities) who provides a health care service to the NHS to hold a licence, unless they have the benefit of a statutory exemption. Monitor is under an obligation to issue licences to NHS foundation trusts, however, all other providers are required to apply for a licence. Monitor will license foundation trusts from April 2013; all other providers will be required to apply for a licence from April 2014.

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Monitor has confirmed that the process of obtaining a licence for non-public sector organisations should be straightforward, without the need for providers to submit large amounts of data. In order to obtain a licence, a provider must:

  • hold a Care Quality Commission registration; and
  • confirm that its governors and directors are ‘fit and proper’ persons (broadly, persons without recent criminal convictions and director disqualifications and who are not bankrupt).

The NHS provider licence is divided into six sections.

Section 1- General Conditions - overarching conditions which all providers must comply with, such as the ‘fit and proper’ persons test referred to above, information flow and compliance with guidance issued by Monitor.

Section 2- Pricing Conditions which apply to licence holders who provide services which are subject to the National Tariff document to be published by Monitor, chiefly requiring licence holders to provide information on costs expended in providing services and to comply with the National Tariff.

Section 3 – Choice and Competition Conditions which underpin two key themes of the Act - patient choice and preventing anti-competitive behaviour. Licensees are under an express duty to promote patient choice and are expressly prohibited from entering into any arrangements or engaging in any conduct which has the effect of preventing competition in the NHS.

Section 4 – Integrated Care Conditions intended to assist Monitor in discharging its duty to promote integrated care.

Section 5 - Continuity of Service Conditions which apply to providers of ‘Commissioner Requested Services’ – services which if withdrawn would have a significant negative impact on the local population. These conditions are designed to ensure that essential services are maintained in the event of financial failure of a provider.

Section 6 - NHS Foundation Trust Conditions which apply to Foundation Trusts only, replace the existing terms of authorisation and impose obligations around appropriate standards of governance.

Monitor has a range of enforcement powers available to it where a licence holder is in breach of a licence condition, including:

  • a requirement to pay a monetary penalty in an amount determined by Monitor (not to exceed 10% of the provider’s turnover);
  • a requirement to take steps prescribed by Monitor to remedy a breach of a licence condition and to ensure that it does not recur; and
  • revocation of a provider’s licence.

Monitor is under a statutory duty to publish guidance as to how it intends to exercise its enforcement powers. Monitor has recently concluded a consultation exercise in relation to its proposals and expects to issue its guidance shortly.

Given the extent of Monitor’s powers it is clearly important for provider organisations to understand the requirements of the licence conditions and to implement appropriate internal mechanisms to ensure compliance. However, the real story here is the increased emphasis on competition – whilst all healthcare providers are used to working in a regulated environment, the competitive forces unleashed by the Act are something of an unknown quantity.

The inclusion of the Choice and Competition Conditions and the Continuity of Service Conditions sends out two very clear messages. First, competition is here to stay in the NHS – hence the express obligations on NHS providers, which go hand in hand with Monitor’s statutory duties. Second, by its very nature, competition means that whilst some providers will succeed, others will fail. Clearly, it is important that mechanisms are being put in place to ensure that essential services are safeguarded, but there are wider issues to consider.

Taken together with the Act as a whole and the recent administration of South London Healthcare, it is clear that Government has run out of patience with failing NHS Trusts and FTs. Trust bail outs are no longer the order of the day and NHS providers will be exposed to increased competition, with the risk that they may face administration and ultimately go out of business. This is the harsh reality of a competitive environment, but an environment with which we all as consumers are familiar.

As recent headlines have shown, perhaps contrary to public perception, the quality of NHS trusts can vary enormously. If increased patient choice and competition means that the public vote with their feet, the only logical outcome is that some providers will lose out in the scramble for business. In theory, this should mean that poorly performing providers will either fall by the wayside or be restructured in some way, which should promote quality within the NHS. In simple terms, this is the medicine prescribed by the Act to cure the perceived malaise of the NHS, whether or not it is the right prescription remains to be seen, but it won’t be a pain free recovery.

James Larmour is a partner in Freeth Cartwright’s commercial team, specialising in healthcare. He can be contacted on 01782 211863 or by This email address is being protected from spambots. You need JavaScript enabled to view it..

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