Provider Selection Regime Update – DHSC issues consultation response and preview of proposals

On 13 July 2023 DHSC published its response to the February 2022 supplementary consultation on the NHS Provider Selection Regime together with a preview of its proposals. 

This is the first substantive update on the Provider Selection Regime (PSR) since February 2022. Our earlier overview of the PSR proposals can be found here: Awaiting the NHS Provider Selection Regime. 

In this update, we consider some of the key points:

• When will the PSR come into force? There is no commitment on when the PSR will come into force although there is an aim to introduce it by the end of 2023. We have yet to see the fully drafted Regulations and the accompanying guidance.
• Have the key proposals from the last consultation been retained? Yes. At the heart of the PSR are the three award "circumstances" that we saw in the original consultation. It is acknowledged again that the “aim for the PSR is to move away from the expectation of tendering for healthcare services in all circumstances and towards collaboration across the health and care system.”  Rather than defaulting to competitive procurement, there will be three contract award "circumstances":
• Circumstance #1: Continuation of existing arrangements – for circumstances where the incumbent provider is the only viable provider due to the nature of the service; where alternative providers are already available via patient choice routes, or where the incumbent is doing a good job (in relation to the key decision-making criteria), is likely to continue to do so, and the service is not changing.
• Circumstance #2: Identifying the most suitable provider when the decision-maker wants to use a new provider or for new or substantially changed arrangements – for circumstances where existing arrangements need to change considerably; where the incumbent is no longer able/wants to provide the service; or where the decision-making body wants to use a different provider and the decision-making body considers it can identify a suitable provider without running a competitive procurement process.
• Circumstance #3: Competitive procurement – for situations where the decision-making body cannot identify a single provider or group of providers that is most suitable without running a competitive process; or to test the market (note: the naming and numbering of these circumstances as presented above reflects the terms used in our previous consultations – these may change following the development of regulations).
• Which aspects require further development? There are a number of areas that we expect to be clarified further in the Regulations and statutory guidance. One relates to the definition of "considerable change" and how this is applied to allow for the use of Circumstance 1 (Continuation of existing arrangements). DHSC's proposed position is that a “considerable change” would be one has a value of £500,000+ change and  represents a 25%+ increase in contract value, whether due to a single change, or a number of cumulative changes. In line with some of the consultation responses, our view is that any measure of “considerable change” should ideally take into account the qualitative elements, as well as the quantitative. In some cases, certain contracts are likely to require an entirely new approach over time, as digital and other service delivery models evolve. There is a risk that the ability to roll contracts forward under Circumstance 1 could, in some circumstances, reduce the incentive to evolve and improve services. 
• What are the drivers behind the changes? There are a number of drivers, including a desire to reduce the administrative burden of conducting a regulated procurement process, to promoting collaboration between healthcare providers by providing greater flexibility to retain existing models. DHSC has also stated that "for many healthcare services, the nature of the service means that there is only one realistic provider for that healthcare service. The PSR explicitly recognises this - and makes it clear that such core services can be arranged without unnecessary competitive tendering.” This aspect is interesting though, as the existing procurement rules (under the Public Contracts Regulations 2015 (PCR) and the Procurement Bill) already cater for exactly this scenario i.e. removing the need to conduct a competitive procurement if there is only one capable provider, under Regulation 32 PCR. 
• Mixed procurements: It is proposed that mixed procurements (where the primary purposes is to procure healthcare services but also includes a need to procure associated goods and services that would otherwise be procured under the PCR) can be procured exclusively under the PSR. Further detail will be given in the Regulations and guidance, in particular to make sure that contracts are not artificially aggregated under a single PSR contract award, when a separate procurement would be likely to achieve better value for money in the long term.

• What information will be published prior to contract award? It is proposed that decision-making bodies will be required to publish an “intention to award” notice before a contract is signed. This will be particularly important, for example, when a contract is set to be awarded under Circumstance 1 (Extension of existing arrangements) or Circumstances 2 (Identifying a new provider without a competition). DHSC states that the notice must contain “a statement explaining the decision-making body’s rationale for choosing the selected provider with reference to the relevant key criteria.” This is another area where more further detail is likely needed in the Regulations and guidance. To ensure fairness and transparency, and to allow all providers and the public to have the opportunity to scrutinise decision-making, there appears to be no obvious reason why this information should be less detailed than the current PCR requirements. In particular, if Circumstance 1 or 2 is are used, given the public nature of the spend, there should be a clear justification, supported by appropriate evidence, of how the decision has been reached and that there is no provider in the market that is capable of delivering the service better or at all. It remains to be seen how that Guidance is likely needed on how a decision can be objectively made without meaningful and comprehensive engagement with the provider market.

• Is there an update on contract review procedures? Yes. There has previously been a level of concern as to whether contract award decisions will be effectively reviewed. Previous proposals had suggested that Integrated Care Boards would be responsible for reviewing their own decisions, which lacked the necessary independence. Judicial review would be available to providers that wish to challenge award decisions assuming JR criteria are met. Although we await further detail, there appears limited ability to bring claims similar to the current process under the PCR, but there will be an independent panel established to “look at and advise on…the PSR regulations”. This is a positive step, although exactly what powers this panel will have, and how fast it can act, are not yet known. Previous, similar panels have proved to be ineffective to drive compliance because of their lack of resource, or lack of power to act quickly to suspend procurement decisions as the Courts do. Instead, DHSC takes the view that: “the prospect of legal action acts as a barrier to collaborative working and can lead to commissioners making risk-averse behaviours, such as the unnecessary tendering of contracts, rather than making decisions in the best interests of the patients, taxpayers and population.” This does not appear to acknowledge (unlike the wider procurement bill) that the presence of an effective review mechanism also acts as an incentive for decision-making bodies to comply with the PSR and run compliant processes. Without effective review mechanisms, there is a risk that those awarding contracts are less incentivised to apply Circumstances 1 and 2 in a way that promotes transparent, well-informed procurement decisions that improve service quality.

• What were respondents views in general? There are a variety of views across the healthcare sector on the PSR. Whilst many respondents (over 65%) were confident that they could transition to the PSR and were positive about the changes, there were some valid points made regarding its potential effectiveness. 
  • NHS Providers commented that “we are unsure if savings from the regime can be realised. One community provider raised concerns over the potential need for a huge increase in data by commissioners to justify their decision-making. However, they also highlighted how the PSR would save their organisation time and resources by not being required to fill in tenders.” 
  • Another local authority comments that: “Decision-making circumstance 2 is likely to still require a level of market testing, benchmarking, and quality assurance against agreed criteria. In some circumstances, this process may require an equivalent commitment of resources to a competitive procurement process to ensure due diligence..”.  
  • Another local authority observes that "The PSR requires decision-making bodies to hold a huge amount of measurable and comparable contract data, which may not currently exist." 
  • These are important points. If a provider is to have a suitable knowledge of the market to appoint the best providers under Circumstances 1 and 2, it is possible that the level of market engagement will have a similar time and cost commitment as a full, regulated procurement process. Anything short of this will mean that decisions will be made based upon partial knowledge and data of the relevant market and the new solutions that are available. This is perhaps the key aspect we will be looking for further clarity in the Regulations and guidance. 

If you have any questions relating to this article please contact [email protected] or richard.binns@burges-salmon.com