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The public procurement and competition implications of the government’s health reforms: who should we believe?

Simon Taylor, Antitrust Partner, Wragge & Co LLP:

38 degrees is campaigning hard this week with e-mails to members of the public urging them to persuade their MPs to vote against the Health and Social Care Bill  (the Bill).

Not surprisingly, 38 degrees have gone to lawyers to bolster their campaign and a counsel’s opinion was published on 30 August 2011, highlighting one of the controversial aspects of the Bill – competition in the NHS.  Counsel was asked to comment on the potential impact of procurement and competition law for the NHS arising from the Bill.

Counsel confirmed that, in his view, the impact would be considerable. The Department of Health (DoH) responded formally on 6 September disputing many of the legal and factual points made. These are a few observations on the debate, which is an important one given its potential for derailing a major piece of legislation and its implications for the future of healthcare in the United Kingdom.


The opinion concludes that, given the obligation on commissioners to follow the procurement rules, the fragmentation of the commissioner side – as clinical commissioning groups (CCGs) replace PCTs – will lead to ever more tenders, higher costs and a shortage of relevant procurement skills. 

There is something in this. But it will depend on the way in which the CCGs organise their procurement activities – as there is an increasing trend for cooperation via procurement hubs and the NHS Commissioning Board (the Board) will no doubt play a key role in ensuring that efficiencies through aggregating purchasing are achieved.  The DoH points to this in their response.

The DoH also acknowledged that EU procurement law applies to NHS Trusts, including PCTs and CCGs. 

The opinion perhaps overstates what the application of procurement law to the NHS entails, at least in relation to clinical services.

In fact, only a very light touch regime applies under public procurement law to clinical services tenders (which are Part B), and the EU legal obligation to conduct an advertised tender will only apply where the contract is likely to attract bidders from other EU member states.  The Principles and Rules of Cooperation and Competition (PRCC) also need to be considered.  But there is some scope for taking a cost/benefit view on whether to go out to tender for many clinical contracts which have not been opened up to Any Qualified Provider.  Particularly, those which are low value or where there are strong arguments for the existing NHS provider being the only viable bidder.

The NHS Future Forum, in its report, rightly points to the bureaucratic inefficiency of an “over-zealous” adherence to EU procurement process and calls for Guidance from the Board.

But what is the legal impact of the Bill on the procurement rules?  The key impact is probably the Secretary of State’s power (not Monitor’s, as the opinion suggests) to adopt regulations under Section 70 applicable to commissioners that will be enforced by Monitor.  The DoH response states that the PRCC will be retained, presumably via Section 70 regulations.

This could give rise to confusion, as the opinion suggests.  The PRCC currently applies to provider activities as well as commissioning, but the Section 70 power to adopt regulations is limited to the commissioner side.  Also, there is a risk of a parallel set of procurement rules and Monitor’s decisional practice being inconsistent with the EU rules, as interpreted by the UK and EU Courts.  EU law takes precedence, but the draughtsmen of, for example, the UK Competition Act 1998 made specific provision (Section 60) to confirm that UK competition law would be interpreted in accordance with EU case law so as to avoid this problem. 

If the PRCC are simply adopted as regulations (backed with the threat of sanctions) without addressing these points then it could add to the bureaucratic burden referred to by the NHS Future Forum.


Competition law applies wherever there is competition between “undertakings”. The contentious issues are which NHS bodies are undertakings and does the Bill change anything?

The DoH does not dispute the proposition that competition law already applies in the NHS, nor that this is due in part to the policy of successive governments of introducing competition from the private sector for some clinical services, as well as a range of other NHS needs. 

The opinion controversially suggests that CCGs will be undertakings subject to competition law and that the Bill will, in various ways, make it more likely that competition and competition law will apply.

First, the opinion is not, in my view, quite right to state that the point of competition law is to promote competition.  In this context, that implies liberalisation.  Its purpose is to protect the process of competition. History shows us that, if left to their own devices, economic operators will frustrate competition by collaborating to exploit consumers (here, the taxpayer and patient) or exclude competitors.  Competition law is designed to tackle anti-competitive conduct and determine where collaboration is permissible (when it produces benefits which are passed to consumers) and where it is not.

The previous draft of the Bill did give Monitor a duty to promote competition but this has now been removed.  There is no specific provision in UK competition law which gives the Office of Fair Trading or any other body the right to liberalise activities which are currently provided by the state or under exclusive rights conferred by the state.  This is a political decision.  EU competition law (Article 106 Treaty on the Functioning of the European Union) has been invoked to achieve this in sectors such as telecommunications , but not in healthcare.

So conferring on Monitor the power to enforce competition law in the health sector does not entail the liberalisation of the NHS or increase the reach of competition law.  It may, however, mean that bad practices which currently go unchecked will be deterred in the future and the benefits of a specialist competition authority are undisputed.

The pace of liberalisation will continue to be a political matter, guided no doubt by the Board’s strategic direction and Monitor’s tariff setting proposals.  These bodies will also have the power, as the DoH points out, to take steps to ensure that the viability of essential public services is not undermined.

Second, as the DoH points out the question of when an entity is an undertaking is a grey area. But the debate is generally around when NHS providers, rather than commissioners, are considered undertakings (see Are State-owned health-care providers undertakings subject to competition law? Okeoghene Odudu, [2011] ECLR 5).  And the rule of thumb is that NHS Trusts are probably undertakings in relation to those activities that have been opened up to competition from other providers (whether NHS or private).

The case law does indicate that public health service commissioners are only likely to be considered undertakings in the buying markets where they use what they buy for the purpose of providing goods or services on a commercial basis.  The commissioner/provider split (largely brought about by DoH policy for example, on the divestment of PCT provider arms, rather than the Bill) therefore seems to strengthen the proposition that CCGs will not be undertakings in their commissioning activities.  The DoH’s points on this seem stronger.

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