Five things you need to know about the Provider Selection Regime

Last week we provided an update to confirm that after nearly two years of anticipation and two consultation exercises, the draft Health Care Services (Provider Selection Regime) Regulations 2023 (the PSR) have been published.

For practitioners following the development of the consultations, there were no great surprises in the PSR once they were published but seeing the detailed drafting provides useful clarity and much needed certainty, especially since there are only a few months to get to grips with the new arrangements before they come into force on 1 January 2024.

In this article, and with the benefit of NHS England » The Provider Selection Regime: draft statutory guidance also published last week, we consider five key concepts commissioners and providers of health care services need to be aware of:

1) Scope of health care services covered by the PSR

We have long known that PSR would be confined to the commissioning of ‘health care services’ and that it would not cover the procurement of goods or ‘healthcare adjacent’ services, but the inclusion of a definitive list of CPV (common procurement vocabulary) codes in Schedule 1 of the PSR clarifies the services covered by the new regime. Of interest to local authority commissioners in particular, public health, sexual health and substance misuse services are in scope.

‘Relevant authorities’ bound by the PSR are NHS England, ICBs, NHS Trusts, NHS Foundation Trusts, local authorities and combined authorities.

Moreover, the full text of the PSR provides clarity for when mixed procurements fall within scope, particularly useful for those considering integration and/or where the commissioning of healthcare services legitimately requires the procurement of other goods and services, such as social care (including services under section 75 arrangements) or patient transport services as part of healthcare services. The PSR confirms that relevant authorities can use the PSR in the context of mixed procurements where the ‘main subject matter’ of the contract is the relevant healthcare services i.e. the healthcare services have a higher estimated lifetime value than the other goods or services and the relevant authority is of the view that the other goods / services could not reasonably be supplied under a separate contract.

Demonstrating why a thorough review of the statutory guidance is also required alongside a careful study of the PSR text, the guidance confirms that a relevant authority may only determine that other goods or services could not reasonably be supplied under a separate contract  where it ‘is of the view that procuring the health care services and the other goods or services separately would, or would be likely to, have a material adverse impact on the relevant authority’s ability to act in accordance with the procurement principles.’ Commissioners considering mixed procurements should therefore carefully document their rationale for reaching this view in all cases in order to be in the best possible position to defend and threatened challenge. The procurement principles are set out at Regulation 4 and include:

• securing the needs of the people who use the services
• improving the quality of the services
• improving efficiency in the provision of the services.

In applying the principles relevant authorities may consider the value of providing services in an integrated way, which is particularly useful in the context of mixed procurement.

2) A reduced emphasis on competitive procurement

The current regime for procurement of health care services established by the Public Contracts Regulations 2015 (PCR) and the National Health Service (Procurement, Patient Choice and Competition (No 2)) Regulations 2013 (PPCCR) established competitive tendering as the basis for the award of health care contracts (albeit with greater flexibilities than for non-health care or ‘light touch’ services. Recognising that, amongst other things, this could be a barrier to other aims of the health system, including greater integration and collaboration, the PSR has been designed to give the relevant authorities greater flexibility in selecting providers for health care services. The processes commissioners can choose from are as follows:

1. direct award processes (direct award process A, direct award process B and direct award process C);
2. the most suitable provider process; and
3. the competitive process.

In what is arguably the greatest departure from the current position, direct award process C allows commissioners the flexibility to award a new contract to an existing provider when its contract is coming to an end in circumstances where the existing provider is satisfying the existing contract and likely to satisfy the new contract, and the proposed contracting arrangements are not changing considerably from the existing contract (PSR sets out a test for determining what changes are ‘considerable’ at Regulation 6). This effectively removes the need for a commissioner who is content with service provision it is receiving to continue with the existing contracting arrangements without the disruption of a new procurement process.

Similarly, the Most Suitable Provider process allows a relevant authority to award a contract where it can identify the most suitable provider, without a competitive process, by taking into account likely providers and all relevant information available to the relevant authority at the time. Designed to provide relevant authorities with ‘a mechanism for reasonable and proportionate decision-making without running a competitive exercise’ this tool is likely to be especially useful where a commissioner has robust and up to date knowledge of its local ‘provider landscape’ and where there is a relatively small or specialised market for the services being procured, such that a full competitive process is disproportionate in achieving the procurement principles.

It will be interesting to see how often these processes are used in practice, especially as familiarity with the PSR develops and confidence amongst commissioners grows.

3) The importance of the ‘Provider Landscape’

Whilst it has long been established that commissioners should know and understand the needs of their health population and the providers in it, the concept and importance of a thorough knowledge of the ‘provider landscape’ finds new expression in the PSR.

This is because the new processes rely heavily on this market knowledge for robust and defensible decision making in the absence of competitive procurement. The statutory guidance confirms the importance of market engagement activities and developing a breadth and depth of knowledge about providers, not only when contracting but more generally. Hinting at the danger of challenge where decisions to use the new (non-competitive) process are used without a robust rationale and evidence base, the guidance states:

‘We expect this knowledge to go beyond knowledge of existing providers and to be a general feature of planning and engagement work, developed as part of the commissioning or subcontracting process rather than only at the point of contracting. Without this understanding, relevant authorities may not have enough evidence to confirm the existing provider is performing to the best quality and value, miss opportunities to improve services and identify valuable innovations, and ultimately lead providers to make representations.’

Although not expressly mentioned in the above passage, we consider that this knowledge and evidence base will also be crucial in the Most Suitable Provider process to justify decision making.

4) A new regime for challenges

Unlike the remedies regime under the PCR, the PSR does not offer a direct route for aggrieved providers to challenge the decision of relevant authorities through the courts.

Rather, it establishes the right of providers to make ‘representations’ within a given timescale, the purpose of which is to seek a review of the decision made, to determine whether PSR has been applied correctly and whether the relevant authority has made an appropriate provider selection decision. If such timely representations are made, the relevant authority must then consider whether to continue to (i) award, (ii) rewind or (iii) abandon the procurement.

If a provider is still unhappy, the provider can then make further representations to a specially appointed independent expert panel (the PSR Review Panel which is to be established by NHS England) which will consider the relevant authority’s compliance with PSR and make recommendations back to the relevant authority who must then make its decision.

If a court remedy is desired, the route for this will still be through judicial review;  it will be interesting to see how the interaction between these review processes plays out.

5) Transitional arrangements and learning tools available

Given the short period prior to implementation, it will be extremely important for providers and relevant authorities alike to develop their knowledge and skills. The toolkits provided on the NHS England website should be considered essential reading together with the regulations themselves and the draft statutory guidance.

PSR confirms that for all procurements started before 1 January 2024, relevant authorities should continue to comply with the PCR and PPCCR. Procurements will have started where a contract notice has been published, expressions of interest have been sought or where unsolicited expressions of interest have been responded to.

Note however that contracts awarded under the PCR are likely to be subject to the new modification rules in the PSR – look out for a further update on these in the future!

A final note on the Procurement Act…

Just a final note for procurement practitioners – the Procurement Act 2023 finally received Royal Assent on 26 October 2023 to complete the view of the new procurement landscape.

We will be providing further insight on the PSR and Procurement Act over the coming months and will be offering bespoke practical training sessions to both commissioners and providers on the impact of the new legislation. Please get in touch with us for further details.