The decision by the Co-operation and Competition Panel published 30 June 2009, on the face of it, is encouraging news for PCTs looking for merger options for their provider arms.  However, a more detailed reading of the decision suggests that there are a number of issues which the Panel is interested in and which will become more significant as time goes on. 

The actual decision was to approve, without a more detailed investigation, the proposal to transfer the provider services of NHS Barking and Dagenham to the North East London NHS Foundation Trust, a mental health trust covering the patch.  The decision was qualified by a recommendation that the PCT work in close co-operation with the London SHA on the development and implementation of a commissioning strategy to introduce patient choice and competition in community services.

On one level the decision is relatively obvious.  The mental health trust is not currently competing with the community service provider and the net effect is to, at least in the short term, merely substitute the host organisation for the provider.  However, the Panel explicitly took into account the possibility that the mental health trust might, in the future, have become a competitor and that there was therefore a potential reduction in the number of competitors.  It discounted this risk on the basis that there was significant competition for community services based on evidence of the number of bids when such services had been put out to tender in the area in the recent past.  It did not appear to distinguish between bids for single service lines and the proposed transaction, which was a transfer of the whole of the community services provided by the PCT. 

Oddly the Panel took the view that it was not considering the decision by the PCT to award the concomitant contract to the mental health trust to provide the services operated by the provider arm, on the basis that it would only consider that type of issue on appeal from the relevant SHA panel.

It is very apparent from the decision that, although they approved the transaction, the Panel is expecting significant moves towards the tendering out of services and, indeed, expressed concern that the transaction potentially postponed any such moves in Dagenham until after April 2011.  It is unclear whether this reflects a local amendment to the model form contract to give the provider assurance as to the stability of the services.

However, the decision does, in our view, mark a significant straw in the wind that the expectation from the Panel is that there will be a degree of break up of services through tendering over time and local monopoly contracts will not be tolerated in the medium term.

It is also notable that the Panel seems keen on the concept of the 'any willing provider' or 'any willing PCT accredited provider' models.  Whilst these may be a useful tool in developing choice and contestability, care needs to be taken to ensure that the contract model is appropriate for the services in the light of the volumes expected and the potential set-up costs.  (See West Midlands SHA decision re Echotec)

In our view the key to a successful provider arm merger is going to be the vibrancy of the local competitive market.  In areas where there is limited competition for community services a merger solution will be more difficult to justify. 

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