Care Agenda: Co-operation and Competition Panel Fails to Robustly Consider Reducing Fees

Two decisions of the Co-operation and Competition Panel (CCP) in September appear to scupper hopes that the CCP will provide a remedy to continuing care providers facing reductions in fees.  Last year, we successfully brought a complaint to the CCP concerning commissioning arrangements that involved using an exclusive framework agreement that would only be re-opened every four years.  The CCP agreed with us that this was likely to have an adverse impact on patient choice and value for money as it would unduly restrict the market.  Given that success, it is understandable that providers would hope that the CCP could become a useful tool in challenging poor commissioning in other areas, such a price-setting.

The CCP’s role is to consider complaints that NHS bodies (including commissioners) have acted inconsistently with the Principles and Rules of Co-operation and Competition.  Those Principles include, among other things, that payment regimes and financial intervention in the system must be transparent and fair and that the Procurement Guide must be followed.

In the two recent cases, provider associations argued that the prices set by the commissioners fell below the cost of provision, breaching the Principles and Rules and resulting in the PCTs being unable to commission sufficient places.  In both cases, the CCP used the same formulation to dismiss the complaints: “In our view, there is sufficient flexibility in the way prices are set and in the frequency with which the commissioner will reopen the framework agreement to ensure that this concern does not arise”.

In one sense, the CCP has an economic logic; if prices fall below cost, there will be an excess in demand as providers decline to offer services.  The only way for commissioners to meet the shortfall in places would be to raise prices until all demand is met.  That much is basic micro-economics.

The problem with that analysis, however, is that it assumes perfect information about quality.  In other words, it assumes that commissioners are able to distinguish between those offering low prices but adequate quality, as compared to those who offer low prices but skimp on quality.
In practice, as we have repeatedly seen with CQC, it is not easy to accurately assess the quality.  One thing that we can be sure of, however, is that when revenue fall, attempts will be made to reduce costs.  These two factors mean that when fees are reduced, quality is likely to fall and it may often be difficult for commissioners to detect the decline in quality.

In economic theory, where there are information asymmetries (as there are between commissioners and providers about quality), a moral hazard can be expected where one party is able to exploit the asymmetry by being insulated from the full effects of their behaviour.  Where there are sufficient providers in a market, the competition between providers will help to mitigate that effect.  However, where a price model is based on attracting the minimum number of providers necessary to meet demand, the moral hazard is, indeed, a real danger. It will attract to the market not those who provide the best quality, but rather those who are best able to hoodwink commissioners about their poor quality.

In the present economic climate, it is only to be expected that the CCP would be reluctant to interfere with price.  However, any analysis which fails to take into account the ability of poor providers to mask low quality is incomplete and the CCP should have made a more robust analysis about how prices were set.  The tragedy of the ever-reducing fees paid to the sector is the inevitable risk that low price, bad quality provision will drive out good provision resulting in real harm to those in society who most need our protection.

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