Decision

Request for direction on independent sector contracting from NHS England Chief Executive Officer to Secretary of State for Health and Social Care

Published 12 January 2022

Applies to England

From: Amanda Pritchard, NHS Chief Executive

To: Rt Hon Sajid Javid MP, Secretary of State for Health and Social Care

7 January 2022

Dear Secretary of State,

The government has asked NHSEI to make the changes necessary to maximise the use of independent sector bed capacity across England in the event that local NHS G&A bed capacity (including surge capacity) is at significant risk of being overwhelmed. Given the emergence of Omicron this requirement has become more urgent. As a consequence, there is a need to put in place the necessary commercial arrangements immediately, particularly in order to secure surge capacity. The independent sector, with their acute hospital sites, good facilities, and access to a limited pool of staff could help meet the pressures facing the NHS.

The NHS would also look to maintain urgent elective activity in independent sector sites wherever possible. The aim would be to to help ensure the most urgent planned care continues.

The independent sector is not typically used for medical bed capacity and its staffing model does not easily support significant 7/7 staffed bed capacity. It is therefore not possible to be sure what additional effective medical bed capacity would be available and we assume that core NHS staff will be fully stretched at this point to staff core acute sites and any surge capacity on those sites. There is also likely to be material levels of staff absence due to COVID infection that will further limit capacity at NHS and IS sites.

Given the need to be able to act very quickly, we approached, via IHPN, those independent sector providers which were considered, based on our market knowledge and experience, to be well-placed to meet our requirements and be able to work effectively with the local NHS.

The ISPs that have indicated their ability and willingness to enter into the required arrangements to provide for surge capacity could provide around 5,600 physical beds in surge if required. It is estimated that approximately 2,000 to 3,000 of these beds could be staffed (subject to staff absence levels) but the ISPs cannot confirm this to us.

NHSEI teams have worked with the relevant independent sector providers (ISPs) to negotiate the terms of a potential contract to be entered into with each ISP which would allow the NHS full access to independent sector facilities in the event of surge being triggered on a national, regional or system basis. In light of significant uncertainty around the exact volume of additional capacity required the terms of the proposed arrangements comprise 2 stages:

• the first stage is a ‘pre-deployment of surge’ period which allows the independent sector to prepare to move into surge, if necessary, while NHS and private elective activity continues

• the second stage is the deployment of surge stage, where up to 100% (subject to clinical prioritisation of patients in situ and otherwise) of the relevant independent sector providers’ capacity will be made available taken up by the NHS if needed in a particular area

As Accounting Officer, before going ahead with these arrangements I am required to assess whether the contracts we would enter with the independent sector providers meets the required standards as set out in HM Treasury’s Managing Public Money. There are elements of this proposal which carry risks on the basis of value for money.

In return for the commitment to stop their private work and make their resources available to the NHS at short notice if required the IS providers have asked that:

• we guarantee each of them a minimum level of NHS income for the period of the contract

• if the NHS requires surge to be activated (where ISPs stop private sector work to create capacity for sole use of the NHS) we pay for the affected facilities and staff on a not-for-profit cost recovery basis

The NHS would normally only pay for activity actually delivered. In giving a minimum income guarantee (MIG) there is a material risk that the NHS pays for activity that is not performed. To mitigate this risk the NHS and ISPs have agreed to set the MIG at 90% of the value of NHS work delivered in the relevant facilities in the best 4 weeks between October and December 2021. If work of greater value in total is delivered than we will reimburse for excess actual work done. We have also agreed a 10% premium to the standard NHS tariff for all work above the value of the MIG, and further premium additions for all more complex work (such as cancer) to incentivise the relevant ISPs to delivery activity that would not normally be done by ISPs because they deem it not profitable at standard NHS tariffs.

• The MIG level is therefore set at a level below what we might reasonably assume the NHS would commission through the IS in a normal winter period where surge is not required. We estimate that value based on current information at between £75-90 million a month. This is equivalent to the value of elective activity that was delivered through broadly the same group of ISPs in Q4 2020 to 2021 (during the last major COVID surge).

• In addition, the premia on tariff should help to incentivise the ISPs to keep pulling NHS work through and facilitates the transfer of more complex work if it is not possible to continue this work in NHS sites.

Therefore, while there is financial risk in the proposed Q4 arrangements sensible steps have been put in place to mitigate that risk. In addition, the incentivisation that we have sought within the proposed contract provides us with the opportunity to get a better mix of treatments from independent sector providers, including cancer and other more complex specialities that they have not normally offered. This is particularly beneficial for our objective to continue the most urgent elective work during this time.

However, in the event that any system requires surge arrangements to be put in place, the cost recovery arrangements then applicable will be significantly more expensive at around £175 million a month based on data from 2020 arrangements. On a per bed basis this is significantly more expensive than the equivalent cost of an NHS site with much less certainty on the potential staffed capacity. There are also logistical challenges that need to be surmounted to facilitate the transfer and care of patients between NHS systems and around 150 IS sites across England. There is therefore an additional risk on the ability to maximise the use of effective capacity.

To mitigate these risks governance arrangements have been agreed that require 7 days’ notice to implement surge arrangements and that these (when requested by a system that is anticipating the requirement for additional bed capacity) would also need NHSE regional and national sign off to ensure that a plan is in place and that it is then implemented. If it is not implemented these arrangements would be stood down.

These surge arrangements are considered as contingency arrangements, to be implemented in extremis, given the potential cost and uncertainty involved. They will only be considered necessary to implement when all other reasonable options to provide patients with medical care and supervision have been exhausted.

Additionally, surge arrangements that provide contingency capacity under the financial terms agreed can be deemed to be triggered if independent providers have their arrangements with local trusts for NHS critical care support terminated. Whilst this is an understandable condition for the ISPs to require, it introduces the additional risk of surge being activated for a system without NHS national authorisation and in circumstances where the surge capacity cannot be effectively utilised or is not required. This is mitigated by a 72-hour window to allow the NHS to seek to resolve critical care arrangements before this triggers surge as part of the commercial arrangements.

The ISPs’ requirements give rise to the risks and costs that I set out above. While there are actions we have implemented to mitigate these, we would continue to be exposed financially, particularly if surge arrangements are triggered. Given the uncertainty concerning value for money of the proposed approach I am therefore seeking a ministerial direction.

You as a minister are entitled to consider wider factors than my obligations as an accounting officer allow me to do. Such factors can be your judgement that given the immediate impact of the Omicron variant there is not time available to perform further analysis, design alternative arrangements or agree improved arrangements. You may also take the view that if we do nothing or delay, the risk that pressure will grow on the NHS leading to Omicron overwhelming local systems is unacceptable. Such risks manifesting would result in significant cancellation of elective care, where we have started to address the impact of earlier waves of the pandemic. You may therefore take the view that agreeing the contract now is lower risk in terms of tackling Omicron and the higher value for money risk is acceptable. If that is the case, then it may be appropriate for you to direct me to proceed.

I am therefore seeking a ministerial direction that you are content for NHSEI to proceed with these arrangements notwithstanding the value for money considerations I have explained above.

In line with the usual process for ministerial directions, I am copying this letter to the Comptroller and Auditor General (who will inform the Public Accounts Committee) and the Treasury Officer of Accounts.

Kind regards,

Amanda Pritchard
NHS Chief Executive