Scoping the impact of Brexit for NHS procurement

By Dr Albert Sanchez-Graells, Senior Lecturer in Law (University of Bristol Law School).

NHS England spends over £20 billion every year on goods and services, which typically accounts for around 30% of the operating costs of each hospital. A significant part of the remainder of NHS non-salary budget involves the commissioning of health care services. This expenditure and commissioning is controlled by NHS procurement rules, which in part derive from EU law. Different procurement rules apply in different countries within the UK, and both Scotland and Northern Ireland both have separate regulatory schemes. Even though this post only focuses on the situation in England, some issues reflect broader concerns in the UK context. Generally, NHS procurement rules are regularly criticised for imposing excessive red tape and compliance costs on the NHS, and calls for NHS procurement reform to free it from such strictures are common.

In this context, Brexit could be seen as an opportunity to overhaul NHS procurement and to move away from the perceived excesses of EU law (see eg Cram: 2016). However, I think that it is far from clear that such reform could not fit within the blueprint of EU law, and that most of the constraints on NHS procurement rather derive from independent decisions adopted by the UK over the last 25 years. Moreover, from an economic perspective, Brexit will probably hurt the functioning of the NHS (including its procurement), with or without significant regulatory reforms.

This post is based on my presentation at the event Brexit, Regulation and Society, held by ManReg on 13 June 2017, and concentrates on two issues. First, does EU law prevent significant reforms of NHS procurement and, if so, can Brexit suppress such constraints? Second, is the way the Brexit process is unfolding conducive to an improvement of NHS procurement, both from an economic and a regulatory perspective?

Starting point, where were we before Brexit?

Since the 1990s, in England, the activities of the NHS have been characterised by a peculiar purchaser-provider split. Some branches of the NHS act as purchasers or commissioners of health care services (currently, clinical commissioning groups, or CCGs), while other branches of the NHS (trusts and foundation trusts) act as providers of health care services and compete with private providers in some markets. The activities of these entities are overseen by NHS Improvement as sector regulator.

The purchaser-provider split policy was introduced with the aim of creating an “NHS internal market” to generate competition-based incentives for the improvement of service delivery and cost management. However, the system has been permanently evolving (a ‘continuous revolution’, Maynard:2016), and this has both created increased scope for public-private competition (Odudu: 2012; Hunter: 2016), and notable difficulties in keeping pace with the successive waves of NHS procurement re-regulation.

Currently, NHS procurement is primarily covered by two sets of domestic rules (as well as a large volume of soft law). The core bodies of rules applicable to NHS procurement are:

Additionally, given the organisation of the system as a mixed market with public and private suppliers in different forms of competition for different services, NHS procurement is also subject to a host of EU and UK competition rules, such as:

  • The Competition Act 1998 and the Enterprise Act 2002 (as domestic statutes that replicate, to a large extent, substantive EU law prohibitions); and the
  • Treaty on the Functioning of the EU, including State aid rules – and in particular those for the financial support to the provision of Services of General Economic Interest.

On the whole, this results in a rather complex regulatory setting that is commonly criticised as imposing significant constraints on the way NHS procurement is carried out. However, it is important to stress that these constraints ultimately depend on the existence of the purchaser-provider split and the establishment of a mixed market for health care services—which are decisions independently made by successive UK governments rather than an EU imposition. There is nothing in EU law that obliges member states to open up public services to competition, and the UK could move back to a fully integrated public system without infringing EU law. In other words, EU law is not the cause of any shortcomings identified in the existing regulation of NHS procurement of health care services.

Could Brexit alter the situation?

Given the above, in regulatory terms, the short answer is that Brexit should mostly not have any meaningful effect on the regulation of NHS procurement. Significant reforms are possible under current EU law. They would however require political drive and changes in funding schemes. Indeed, already before the referendum, it was clearly stressed that “leaving the EU is an irrelevance when it comes to what many regard as the creeping marketisation of the NHS” (Hunter: 2016; and in similar terms, later reiterated by McKenna: 2016; Taylor: 2016).

Leaving the single market would not lift constraints on the reform of NHS procurement, or NHS governance more generally, but it could affect it in practical terms. Indeed, it was clear that Brexit could have negative operational impacts for NHS procurement. This would be the case both if: (1) the “NHS internal market” was kept, because exiting the EU’s single market could have negative impacts on private competition in health care provision, including in the market for health care insurance in the UK; or (2) if the “NHS internal market” was to be dismantled, since the acquisition of equipment and supplies from outside the UK would face barriers and additional costs (Hall: 2017), which can only be exacerbated by the negative impact of Brexit on the economy, both in terms of economic slowdown and inflation (which are now materialising; ONS: 2017).

NHS (procurement) in the Brexit and general election campaigns

NHS funding featured prominently in the political campaign leading to the Brexit vote. Most discussion concentrated on the level of funding for a cash-strapped NHS. However, the deeper impacts of Brexit on the NHS – in particular those of a hard Brexit that implied the UK’s exit from the EU’s single market and customs union – received much less attention (not least because leaving the single market was back then explicitly rejected as an option for the future).

Nonetheless, it was clear that any impact of Brexit on NHS procurement was compounded by the uncertainty surrounding the framework for UK-EU trade post-Brexit. This was not clarified during the Brexit campaign, and the following plans unveiled by the UK Government failed to provide any further specifics. Neither the Brexit White Paper nor the Great Repeal White Paper reduced such uncertainty. The Brexit White Paper simply stated that the Government’s intention is to “not be seeking membership of the Single Market, but … pursue instead a new strategic partnership with the EU, including an ambitious and comprehensive Free Trade Agreement and a new customs agreement.” The Great Repeal White Paper only included one mention of procurement as an example of a ‘negative procedure’ for the adjustment of EU-derived law post-Brexit.

This situation continued during the recent electoral campaign, where issues around NHS funding were more prominent than issues surrounding reform of the NHS system, including NHS procurement. However, there seemed to be some commonality to the long-term strategic goals of both main political parties around a correction (to different degrees) of the current market-based purchaser-provider split system. Both the Conservative and the Labour manifestos pledged more funding for the NHS. Both alluded to a change of system.

Labour promised to “reverse privatisation of our NHS and return our health service into expert public control [including the] repeal [of] the Health and Social Care Act  … and [making] the NHS the preferred provider”. The contours of this proposal are rather vague. However, in terms of NHS regulation, this would seem to suppress public-private competition for the provision of health services (possibly excluding the application of competition law) and the NHS procurement regime, by mandating provision of services by the NHS (at least as preferred provider).

The Tories indicated that they would “consult and make the necessary legislative changes. This includes the NHS’s own internal market, which can fail to act in the interests of patients and creates costly bureaucracy. So we will review [its] operation … and, in time for … the 2018 financial year, we will make non-legislative changes to remove barriers to the integration of care”. This seems even less clear, but could imply a simple reform of NHS procurement policy with the aim of maximising the effectiveness of the concept of ‘patient interest’ under the NHS Regulations (No 2) 2013.

Interestingly, both changes to the purchaser-provider split seem possible within the constraints of the existing EU regulatory framework, and they seem to require political choices unaffected by Brexit – with the obvious exception of funding, which is directly (and negatively) affected.

Brexit … one year on – What now?

Almost a year after the UK’s vote to leave the EU, and after the surprising result of the General Election, the only thing that can be said with a minimum of confidence about the impact of Brexit on NHS procurement is that uncertainty prevails (similarly, Simpkin & Mossialos: 2017), and the economic impacts are probably going to be both negative and severe. This seems to run in the opposite direction of the aims (and promises) of those supporting Brexit.

The situation may have been worsened as a result of the General Election, as the Tory government is seeking to reach an agreement with the DUP for support of a minority Conservative government. Either way, this seems likely to require concessions in terms of funding for public services in Northern Ireland, which could impact plans to boost investment in the NHS in England. However, there is no clear indication that other reforms of NHS procurement should necessarily be altered. The question thus remains: Will NHS procurement be reformed along the lines of the Conservative manifesto and, if so, what will that entail?

On-going reforms and uncertainties

Assuming continuity of recent policy developments, it is worth stressing that, since the adoption of the Five Years Forward View for the NHS in England in 2014, the system has been progressively reoriented. Current reforms are geared towards experimentation with the so-called sustainability and transformation plans (STPs), which aim to suppress the purchaser-provider split, including through the creation of accountable care organisations (ACOs). Recently, Stevens (CEO NHS England) clearly indicated this goal by stressing that STPs “will for the first time since 1990 effectively end the purchaser-provider split, bringing about integrated funding and delivery for a given geographical population”. The strategy is still not clearly spelled out and there are open questions concerning its feasibility and/or desirability (Hare:2017).

However, even if this strategy was completely carried out, it seems unlikely that the NHS would not have to comply with procurement rules at all. While a suppression of the purchaser-provider split would potentially allow for a derogation from the NHS Regulations (No 2) 2013, the NHS would still need to buy a number of goods and services from the market. Thus, the reforms to NHS procurement refer to the suppression of a layer of complication and constraints in NHS governance (that derived from the purchaser-provider split), but not a complete shielding of the NHS from procurement and competition rules.

These would remain particularly relevant in terms of new investments in physical and IT architecture for the NHS, which have been pledged by the Conservatives (and by Labour). Expenditure of NHS funds would remain subject to the strictures of the Public Contracts Regulations 2015, which could only be reformed or derogated post-Brexit in the absence of a UK-EU free trade agreement covering procurement.

Overall assessment

In view of all this, I would reach two conclusions. First, that the discussion surrounding the regulation of NHS procurement needs to concentrate on the fundamentals of the potential alternative models: ie a system of integrated NHS governance subject only to public law checks and balances, vs a mixed market system for the provision of health care services for the purposes of the NHS (including some form of purchaser-provider split) subject (also) to market regulation. Most of the pre-Brexit and current discussion conflates elements of both models without acknowledging that both fit within the EU regulatory framework and, consequently, decisions on the model that should be adopted (and the regulatory implications that follow) exclusively depend on UK political decisions.

Second, that the broader economic context in which NHS procurement takes place has a deep influence on the ability of the NHS procurement function to support the provision of high quality health care services. From that perspective, the deterioration of the economic climate created by Brexit and the uncertainty surrounding the future UK-EU trading framework are damaging NHS procurement as much as they are damaging the UK’s economy and public sector more generally. In this context, whichever reforms of the NHS model that may follow from the above will be negatively affected by Brexit. In these circumstances, I find limited space for hope for an improvement in the functioning of the NHS, including its procurement function, at least in the medium term.

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