NHS London Market Analysis

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NHS London Market Analysis

• Knowledge Transfer workshop slides

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Introducing our Market Management slides

• As part of our work for NHS London, we have
  developed a series of four workshops designed to
  begin to introduce the concepts associated with
  market management
• The following slides contain the main elements of
  the workshops held in September and October 2008
  at which both NHS London and PCTs from across
  London were in attendance
• The slides are meant to be a useful reference,
  with more detailed guidance for PCTs to follow
• Should you have any questions, please do not
  hesitate to contact us at jhely_at_uk.ey.com

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Contents

• Slides
• Workshop 1 Market definition in healthcare
• Workshop 2 Using market definition and analysis
  to
• develop commissioning tools
• Workshop 3 The London healthcare market
• Workshop 4 Moving from potential to realisable
  benefits

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Knowledge Transfer (1)

• Market definition in healthcare

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We are working with NHSL to analyse markets,
recommend interventions and define functions and
competencies

• Where the NHS is today
• From system design to management
• Fixed price systems with active PCT commissioning
  and direct patient choice
• PCTs to decide the scope and extent of
  competition locally
• within acceptable principles and rules (PRCC)
• HQCfA increased choice of GP and community

• What challenges you face
• How to define common taxonomy?
• What are the current and optimal market
  structures?
• What are the most appropriate levers to get
  there?
• What are the current priority impact areas
  interventions?
• What competencies and governance are required?
• How can we stay within the NHS law?

• What we will deliver
• Practical methods for defining markets
• Current and future competition landscape,
  roadmap, barriers and requirements
• Input into strategic plans informed by priority
  interventions
• Systematic approach to markets levers,
  progress towards WCC 7
• Informed System Assurance role
• Inform national work on choice and competition
  policies.

Alternative and responsive providers greater
patient access, choice, experience, reduced
inequalities, improved market dialogue and vfm,
skills embedded in the SHA and PCTs
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The Principles and Rules Competition and WCC
require PCTs to become market managers

• Commissioners should commission services from the
  providers who are best placed to deliver the
  needs of their patients and population
• Providers and commissioners must cooperate to
  ensure that the patient experience is of a
  seamless health service, regardless of
  organisational boundaries, and to ensure service
  continuity and sustainability
• Commissioning and procurement should be
  transparent and non-discriminatory
• Commissioners and providers should foster patient
  choice and ensure that patients have accurate and
  reliable information to exercise more choice and
  control over their healthcare
• Appropriate promotional activity is encouraged as
  long as it remains consistent with patients best
  interests and the brand and reputation of the NHS
• Providers must not discriminate against patients
  and must promote equality
• Payment regimes must be transparent and fair
• Financial intervention in the system must be
  transparent and fair
• Mergers, acquisitions, de-mergers and joint
  ventures are acceptable and permissible when
  demonstrated to be in patient and taxpayers best
  interests and there remains sufficient choice and
  competition to ensure high quality standards of
  care and value for money
• Vertical integration is permissible when
  demonstrated to be in patient and taxpayers best
  interests and protects the primacy of the GP
  gatekeeper function and there remains sufficient
  choice and competition to ensure high quality
  standards of care and value for money

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The objectives of the knowledge transfer workshops

• To create an understanding of the economic
  fundamentals of markets and competition
• To understand how to analyse markets, develop
  strategies and levers and move to execution
• To present preliminary analysis of NHS markets in
  London
• To consider the steps you need to take to market
  manage

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Objectives of this session

• Provide insight into how to think rigorously
  about competition
• Provide a foundation for the development of
  commissioning tools and strategies
• Help you to understand documents and analysis
  coming out of Department, SHA and others

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Overview of the session

• Following this introduction, this session has 4
  parts
• Overview of markets and competition
• Geographic market definition
• Product market definition
• Market definition bringing it together

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Market and competition why bother?

• Potential benefits of competition are well known
• patients and public improved quality, health
  outcomes, reduced inequalities
• tax payer better value for money
• NHS effective use of resources, environment that
  rewards excellence and innovation, strong NHS
  brand and reputation
• Understanding competition is about knowing
• When to use competitive mechanisms
• How to realise the above benefits when using
  competition

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Competition is one tool among many

• DH and NHS have a wide range of tools available
  to meet health service objectives
• Clinical rules and regulations
• Training standards and requirements
• Regulatory instruments
• Contractual conditions and requirements
• Competition in and for the market
• Competition, like all the others, is a means to
  an end. The right tool will depend on the
  circumstances.

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Overview
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We think of markets in terms of supply and
demand, and competition in and for the market

• Markets in health are characterised by
• supply Trusts, Foundation Trusts, Independent
  Sector, Social Sector, PCT provider arms, GP
  practices etc
• demand PCTs, GPs, patients
• Competition can be
• in the market Trusts compete to attract
  patients directly
• for the market Trusts compete to attract
  commissioners
• Competition brings benefits to elective and also
  non-elective health care.
• For non-elective care the competitive dynamic
  operates through the commissioning process.

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What do we mean by the market?
The Market
Geographic market
Product market

• Example
• Enter a grocery store, where does the market
  begin and end? Soft drinks, juice, wine, meat

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Two concepts are used competitive tension

• Competitive tension is the incentive to perform
  created by the ability of
• your customers to switch
• your competitors to change their offer
• new competitors to enter
• Switching is at the heart of competitive tension
  (following our example Coke, Pepsi and Chicken)

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and critical loss

• Q But how much competitive tension is enough?
• A When it prevents a significant erosion of
  quality because of the risk of losing too much
  revenue

Patients/ PCTs switch away
Decreased revenue
Reduction in quality
Cost savings
Overall impact
Critical loss the reduction in quality is
ultimately unprofitable
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Together that provides the overall framework

• The market is defined in
• Geographic space competitive tension that
  exists because of proximity of providers
• Product space competitive tension that exists
  because there are alternative procedures or
  clinical resources
• The determination of the relevant geographic and
  product space rests on
• Competitive tension
• Critical loss

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Geographic market definition
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There are different types of geographic market
Administrative area
Distance
60 minutes drive-time
30 minutes drive-time
Travel time
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Historically, this is mainly a demand-side
question

• Where there is competition in the market
• patients do not know the administrative
  boundaries
• patients unlikely to care about pure distance
• travel times matter the most to patients

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but there are clear supply-side elements

• Where there is competition for the market
• PCTs may be more focused on administrative
  boundaries
• but wider issues of provider location
  increasingly important
• need to consider travel times for many services
• Particularly the case where providers can enter
  easily

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Appropriate definition will depend on how choice
is exercised, and by whom

• There is no simple rule to apply for the choice
  of geographic area (e.g. length of travel time)
• Need to consider different
• geographies (rural versus urban areas)
• modes (public transport versus by car)
• opportunity costs (children, working age,
  pensioners)
• services (GP versus acute)
• Existing precedent may not be very helpful

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Product market definition
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Product market definition in health is mainly a
supply-side question

• Central question for product definition to what
  extent can providers switch clinical resources
  between treatments?
• Puts focus on supply-side
• flexibility of capital equipment
• flexibility of staff
• And on the location of treatment (in-patient
  versus outpatient)
• On demand side cannot really switch between
  treatments once diagnosed (although some
  exception in primary and community care)

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but there are demand-side issues

• Particularly in the distinction between
• Prevention and treatment
• Location of treatment and in-patient versus
  out-patient status
• Areas of well being (e.g. obesity)

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It involves answering a few key questions

• Defining the relevant product market returns to
  switching
• How quickly can a provider switch from one
  service to another?
• for example can a knee surgeon do hips? Can an
  ultrasound technician do X-rays?
• At what level do patients or GPs make choices?
• based on the level at which GPs can diagnose and
  refer

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This results in a segmentation of the market

• May consider a product market segmentation based
  on specialties and sub-specialties

ILLUSTRATIVE
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Market definition bringing it together
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Example knee replacements in Camden
Three dimensions to market definition
60 minutes drive-time

• The Treatment
• The Geographic Area
• The Provider of the Service

30 minutes drive-time

• There are no close substitutes to a knee
  replacement
• The geographical market definition based on PCTs
  is probably too narrow
• Patients are willing to travel outside PCT
  boundaries to get better treatment or shorter
  waiting times 60 minutes maybe too far, 30
  minutes more likely
• The Market 39 GPs, 4 NHS Trusts and 8 NHS
  Hospitals

Analysis Market shares Royal National Orthopaedic
30 market share Barnet and Chase Farm 20
market share Guys and Thomas 18 market share
etc Other characteristics potential entry,
switching etc
ILLUSTRATIVE
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Market definition define geographic and product
markets
Relevant product market
Relevant geographic market
Services/treatments which are substitutable by
the patient
Willingness to travel to receive treatment
Demand-side question
Ability of providers to switch to providing the
relevant product
Prospect of a new provider opening in the area
Supply-side question
Relevant economic market
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Definition allows us to diagnose the state of
markets
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But market definition is only the start
this workshop
ongoing analysis
Market definition
Market diagnosis
Product market
Concentration
Switching
Geographic market
Barriers entry/exit
PCT actions
PCT commissioning levers
Next workshops
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Knowledge Transfer (2)

• Using market definition and analysis to develop
  commissioning tools

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Overall process
HEALTHCARE MARKET ANALYSIS
LEVERS INTERVENTIONS
Primary skillset.. Strategy, Economics,
Intelligence Strategic sourcing,
Regulation, Consumer
engagement Purpose.. Understanding the
parameters / Analysis needs to be
the playing field translated
into action / the game Important
because.. Patient needs are unique and
We need to broaden the go beyond NHS
structures toolkit of interventions PCT
s need to carefully prioritise It goes
beyond contracting and
procurement Strategic sourcing cannot be
As applicable to a new market applied
cold to healthcare as your major acute
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Recap fundamentals of markets and competition

• Markets in health are characterised by
• Supply Trusts, Foundation Trusts, Independent
  Sector, Social Sector, PCT provider arms, GP
  practices etc
• Demand PCTs, GPs, patients
• Competition can be
• In the market Providers compete to attract
  patients directly (contract in place)
• For the market Providers compete to attract
  commissioners (little choice)
• Competition brings benefits to elective and also
  non-elective health care.
• For non-elective care the competitive dynamic
  operates through the commissioning process.

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What do we mean by the market?

• The market is defined in
• Geographic space competitive tension that
  exists because of proximity of providers
• Product space competitive tension that exists
  because there are alternative procedures or
  clinical resources

The Market
Geographic market
Product market
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Market definition define geographic and product
markets
Relevant product market
Relevant geographic market
Services/treatments which are substitutable by
the patient
Willingness to travel to receive treatment
Demand-side question
Ability of providers to switch to providing the
relevant product
Prospect of a new provider opening in the area
Supply-side question
Relevant economic market
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Summary of levers available to Commissioners
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What is Strategic Sourcing A definition
Strategic sourcing offers the commissioner a
broader range of interventions beyond the
traditional procurement process. It that
continuously improves and re-evaluates the
purchasing activities of a company. It is one
component of supply chain management.
Continuous Improvement Monitoring supplier and
CPO performance, develop appropriate supplier
relationships.
Market Analysis
Continuous Improvement
Purchasing
Portfolio Analysis
Baseline
Mobilisation
Sourcing
Implementation
Mobilisation Activate governance required for
Sourcing Groups, Readying organisation for
implementation. Confirming multiple
specification authorities.
Implementation Developing robust implementation
plans and communications, supporting the
implementation process and managing uptake
compliance.

• Building the business case what are the
  drivers for this type of approach?
• Evaluating our exposure or positioning in the
  marketplace.
• What are the strategic priorities for the
  business

Baseline Analysis of current spend available
and unavailable. What is the current and future
unit? Comparing like for like
Purchasing Use of purchasing strategies to
obtain the optimum offers as well as negotiating
contracting with suppliers. Should cost
techniques, price tracking benchmarking. How
sellers set prices
Sourcing Development of would like purchasing
techniques for each part of the purchase mix
(where to buy what, while minimising risk and
costs)
Portfolio Analysis Using market analysis for
detailed identification of suitable suppliers
(who offers what)?
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Strategic Sourcing isnt
Continuous Improvement
Portfolio Analysis
Purchasing
Baseline
Sourcing
Mobilisation
Implementation
This is what I want go and buy it
The contract is signed, what next?
We spend 2m each year
All done, weve placed the order
We paid 900/wk last year, so well pay 910 this
We only know of one supplier and OJEU means we
cant speak to others
Their profits are up, lets beat them up on price
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Parallels with Commissioning
Needs Assessment
Strategic Review
Demand Management
Contract Review
Continuous Improvement
Baselining
Benchmarking
Strategic Analysis
Performance Management
Budget Decision
Specification Development
Negotiation Planning
Service Level Agreement
Tendering
Contract
Key steps in the commissioning lifecycle mirror
those in strategic sourcing
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Traditional Sourcing levers (goods services)
pricing (cont.)
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Commissioning Portfolio analysis Positioning
as-is

• The market analysis informs whether the care type
  requires competition in the market, for the
  market, or (occasionally) a hybrid of each.

• The lower axis of the matrix suggests the most
  appropriate market intervention for each care
  type.
• The critical threshold on this axis is the
  strength and diversity of existing supply.

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Aligning to Sourcing levers and interventions
To Be

• Where competition exists IN the market,
  understanding drivers of patient choice is
  crucial.
• Markets are likely to be more aggressive and
  commissioners should drive competitive
  strategies.
• Consolidate supply, Unbundle services driving
  new entrants in to create markets

• Where competition exists FOR markets, there is
  less choice. Sourcing strategies should be
  collaborative and focused on building longer term
  alliances with the provider base. Co-operative
  strategies include
• Joint commissioning of services to create new
  markets
• Vertical partnerships enabling alliances
  between providers of different services
  upstream or downstream (patient pathway)
• Horizontal partnerships providers of similar
  services to create economies of scale and scope

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Benefits beyond procurement

• Manages Pricing
• Allows an understanding of costs
• Manages pricing to the benefit of both parties

Introduces appropriate competition

• Not competition for competitions sake

Strategic Sourcing Goals
Identify, shape and control the market

• Involves clinicians
• Changes will be linked to patient outcomes,
  benefits and preferences
• Supported by a case for change
• Link to the Next Stage Review

• Determines the size of the real market and the
  corresponding competition
• Influences market development

Creates Competitive Advantage

• PCTs understanding their provider base will mean
  that better health and better services for their
  local population.

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Knowledge transfer (3)

• The London healthcare market

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The objectives of this session are to

• Discuss the process through which a view on
  market dynamism can be obtained
• Discuss the key indicators relevant to
  understanding market dynamism
• Use two to explore what the information tells us
  and consider potential responses

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Four key elements help us to understand level of
dynamism
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Market dynamism is designed to drive up quality

• Competition is one tool among many
• It is a means of improving quality and should
  only be used when suitable
• Assessment of costs and benefits
• Understanding of market failures
• It cannot be understood with a single indicator
  it is a process

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Some things to keep in mind when interpreting the
examples we will present

• This reflects very preliminary analysis - treat
  it as illustrative for now
• Health markets are historically concentrated
• Competition is only one mechanism to drive up
  quality
• Much of the reforms, particularly choice, are in
  their very initial stages
• There is no single indicator, or hurdle, for when
  there is sufficient competition

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To illustrate how this approach works we have
applied it to two hospital based services
Chemotherapy
and
Non-elective trauma care
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UCLH treats 20 of chemotherapy patients
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Barking, Havering and Redbridge appears to treat
the most number of trauma patients
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Choice for chemotherapy patients appears to vary
across London
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where access for trauma patients falls outside
the centre
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Concentration is relatively low and uniform for
hospital-based chemotherapy services
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but trauma services see more areas of higher
concentration
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Indications are that chemotherapy patients are
switching between providers
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as they have in relation to trauma services but
are the drivers the same?
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Using both quantitative and qualitative analysis,
an assessment of market rivalry can be made

• What has been the levels of market entry and
  exit?
• Who has left and why
• Who has entered and why
• What is the level of information asymmetry
  between patients (or their commissioning agents)
  and providers?
• How concentrated is the market and to what degree
  has it been manipulated?

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Dynamism provides a useful economic assessment of
the marketbut overlaying quality adds to context

• Quality metrics are likely to be different
  between markets
• The range of metrics used to indicate the level
  of quality need to be both input and output
  dimensions
• For hospital-based chemotherapy services, quality
  indicators may include performance metrics but
  are, in reality, likely to be more focused on
  patient experience surveys
• Whereas for trauma indicators may include EBDs,
  readmission rates, SMI, wait for surgery,
  procedure utilisation, volume of procedures
• There is no single indicator, or hurdle, that
  indicates quality

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A dynamism dashboard offers an interesting but
preliminary insight into markets
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Weve analysed the marketso what?
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Knowing the as-is allows us to consider the
future optimal state and the potential levers for
change
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Knowledge transfer (4)

• Moving From Potential To Realizable Benefits
  Knowledge transfer workshop

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Understanding the current landscape

• What are the challenges that you face in some of
  the markets across your PCT?
• To what extent does your PCT understand the its
  current markets?
• For the 3 markets below, what steps can you take
  to better understand current market dynamics
• - GP
• - Maternity
• - Community Services

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Defining the future state and how to get there

• Within the 3 markets, discuss how will you
  establish a future market state? How much choice
  and competition do you need?
• What is the role of customer engagement in
  shaping the future state? Is choice a means, and
  end or both?
• Discuss the levers that you believe will deliver
  the improvements you require. Balance between
  commercial and consumer levers?
• How will you identify and engage potential new
  market entrants?
• What changes are required to incentives/contracts?
  How do you approach sourcing?
• How do you segment customer wants and needs and
  engage differentially?
• How will you know if youre making progress?

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Priorities and actions

• What are the barriers to achieving utopia and
  what may mitigate these?
• What do PCTs need to do differently to
• become market developers/managers?
• become more commercial and better at sourcing?
• engage the customer more effectively?
• What prevents them getting on with this?
• How will MM link into your WCC competency
  development plans?

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Workshop feedback What are the challenges that
you face in some of the markets across your PCT?

• PCTs are on one hand encouraged to drive patient
  choice, while being provided contradicting
  messages to support failing organisations. This
  does not feel like a true market
• PCTs are questioning why they should support
  poor performing providers if this is resulting in
  poor outcomes
• PCTs are standing by failing organisations, who
  are strategic partners, and feel strongly that
  they will work with them to improve clinical
  outcomes
• PCTs are finding it difficult to understand the
  market for specialist services where there is
  little understanding of service provision, i.e.
  prison services
• It is felt there is a lack of understanding
  about how GP and other services such as pharmacy
  interact and how much competition exists between
  them
• PCTs are beginning to understand the information
  needs, but are still developing a baseline from
  which to be able to assess the data
• It is difficult managing expectations of
  stakeholders who assume WCC is already in place,
  which is not the case
• Differing ranges of providers are required to
  cater for the diverse communities that exist
  within PCTs

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Workshop feedback Challenges in the GP market

• Extremely difficult to close or merge GP
  practices to raise quality of service
• The criteria by which GP practices are approved
  do not take into account the range of other
  community services that are or may not be in
  place, such as practice nurses etc
• APMS contract offers PCTs a wider range of
  levers to manage the GP market, than the
  restrictive GMS contract
• Financial incentives are proving less effective
  in driving the appropriate behaviour, as GPs are
  now being well remunerated and the incremental
  reward, in some cases, is insufficient to make
  them change behaviour
• GPs are becoming increasingly business based and
  will not take on new partners, but rather employ
  salaried GPs
• There is difficulty bringing in new providers
  into the GP market as barriers such as capacity
  and infrastructure are relatively high
• Perceived GP quality is different from the
  service quality actually being delivered

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Workshop feedback Challenges in the Maternity
Market

• Patient choice is not always logical, demanding
  maternity services be provided close to home but
  regularly going to hospitals further away for
  their maternity services, due to perceived
  quality factors
• GPs are increasingly getting involved in pre and
  post natal services
• There is a case for strong maternity brand
  hospitals (i.e Queen Charlotte) to provide
  outreach centres and/or franchise their services

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Workshop feedback Current understanding of the
GP market

• Ageing GP population
• Fragmented market
• Patchy supply of GP services
• Increasing regulation
• Existing GMS contract in not fit for market
  management
• Segmented consumers changing with lifestyles
• Political sensitivity to bring in new providers
• Nationally there is around 10 of patient
  switching in the GP market, 5 of which is not
  with changing address

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Workshop feedback Defining the future of the GP
market

• Some GPs are acting as commissioners and
  providers
• Limited number of clinicians
• Perverse incentives must be avoided
• The people who will not exert choice are the
  most vulnerable with LTCs
• Removing GPs from the register needs to become
  easier
• PCTs need to publicise more data to inform and
  educate patients

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Workshop feedback Levers available to PCTs

• National tariffs need to be reviewed
• More collaborative PCT work is needed
• Contractual levers need to be deployed more
  widely
• Poor performing organisations need to be removed
  quicker
• Higher bar needs to be set for QOF points
• Commissioners should set standards of care
• Commissioners need to understand what other
  providers are out there
• Greater intelligence is required in the number
  of providers
• Culture / language factors of choice need to be
  accounted for more
• GMS contracts need to be reviewed
• QOF standards need to be raised

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Workshop feedback Value of workshops

• PCTs need regular forums to meet and discuss WCC
• Further pan-London dialogue is required about
  the new commissioning system
• A standardised and agreed language of WCC
  terminology needs to be developed, to ensure
  everyone has the same understanding individually
  and across PCTs

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