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Avoiding the legal pitfalls of PBC

Procurement and local incentive schemes are the two key areas GPs need to be aware of, writes Andrew Lockhart-Mirams

Procurement and local incentive schemes are the two key areas GPs need to be aware of, writes Andrew Lockhart-Mirams.

Understanding PBC pitfalls and minimising the risk they create cannot be entirely avoided, but it is an achievable aim. The problem is that since PBC's inception, guidance from the Department of Health has often been delayed and issued at erratic intervals. Some sections of guidance are not clear and contain contradictory statements.

Two areas are particularly difficult: procurement of new provider services developed under PBC, and the replacement of the Towards PBC directed enhanced service (DES) with a local incentive scheme (LIS), from 1 April this year.


According to the latest department guidance, Practice-based commissioning: practical implementation (November 2006), tendering for services will normally only be required when the intention is to create a monopoly by awarding a contract to a single provider rather than to grant approval to providers who reach the required standard, that is, where an unavoidable service monopoly would be created (paragraph 3.43 of the guidance).

The guidance gives an example of a proposal to move a whole service out of the local hospital without an alternative equivalent service being available within the PCT boundary.

While the guidance correctly notes (paragraph 3.42) that EU procurement directives are incorporated into UK law and set out the procedures to be followed in the public sector, including the NHS, it is far from clear whether the ‘light touch' position suggested by paragraph 3.43 is correct.

EU procurement procedures

The EU procurement procedures are extremely complicated but essentially, where the service contract value over the whole life of the contract exceeds €154,114 (about £100,000) the relevant directives are likely to apply, covering detailed procedures, adherence to a strict timetable, requirements for advertising, invitations to tender and the award of contracts.

The directives apply on a contract by contract basis and do not distinguish between a monopoly position or otherwise.

So, moving a whole service out of the local hospital has to be measured against the contract value and not whether it is a ‘whole service' or with reference to whether an equivalent service is available within the PCT boundary.

The guidance notes the established principle that, where a service to be provided is the same as an existing hospital service and is within the scope of Payment by Results, payment should be at the tariff rate (paragraph 3.44).

Tests may be applied to establish whether or not the proposed provision is the same as ‘an existing hospital service' and therefore attracts payment at tariff rate (paragraphs 3.45 and 3.46).

Whether or not the tests apply is irrelevant to the consideration of whether or not EU procurement directives apply.

Willing providers are not guaranteed income

The guidance draws the distinction between procurement under an EU Directive and a supply by a ‘willing provider' (paragraph 3.42). A willing provider has to be recognised by the PCT as appropriate and capable of supplying the service required, but there are no guarantees of volume or payment in any contract that is given (paragraph 3.36).

The paragraph includes the following statement: ‘PCTs through contracts give permission for the provider to supply services to their population without any promises regarding income.'

With respect to the author of the guidance, this sentence completely misses the point and mixes up the provision of a contract, to which EU procurement procedures may apply, and permission for someone to provide a service, that is that they are on a list maintained by the PCT which can demonstrate they meet national minimum quality criteria (as set out by the Healthcare Commission).

The simple point is that if an approved supplier enters into a contract, the procurement procedures may or may not apply, depending primarily on the lifetime contract value.

It also goes without saying that a further practical point of considerable significance arises with the concept of willing providers. They may be ‘willing' but, save for the simplest of procedures, how many will be prepared to invest in time, money and equipment to provide services that may or may not be required?


The Towards PBC DES came to an end on 31 March, with PCTs expected to replace this with a LIS. At a minimum these should match the DES arrangements (paragraph 4.11).

Originally PBC schemes were, in most cases, envisaged to operate over a three-year cycle and, where such schemes were prematurely ended by the Primary Medical Services (Directed Enhanced Services) (England) Directions 2006, it is clearly right that a local incentive scheme picks up the pieces and allows continuation into second and third years.

Apart from the two DES components payable in the first year of the scheme – the first for participation and the second for achievement – it is very probable that in most cases freed-up resources would not have been available into the second or third year of any three-year cycle. However, the statement that the existing DES arrangements represent a minimum requirement for a local incentive scheme could be viewed as far too weak to ensure a satisfactory arrangement for contractors.

Conflicting messages on use of freed-up resources

The position is further complicated by the statement that the LIS must be clinically appropriate, affordable and cash-releasing (paragraph 4.12). PCTs are encouraged to consider focusing local incentive schemes on encouraging activity that supports the delivery of the national 18-week target and proposals set out in the 10 High Impact Changes document.

But the guidance simply fails to address the possibility of a conflict between a DES arrangement, representing a minimum requirement, and the change of focus proposed. More worrying is the complete lack of explanation as to what is meant by ‘affordability' and what is to happen if freed-up resources are achieved but the payment of any sums is said to be unaffordable.

The guidance talks of the imperative for practices to be allowed to use a minimum of 70% of any freed-up resources for re-investment in patient care (paragraph 3.23) and the unacceptability of withholding freed-up resources where PCTs are working to restore financial balance (paragraph 3.25), but then requires practices in areas subject to ‘special circumstances' to use the 70% of any resources release to address specific national or local targets (paragraph 3.26).

‘Special circumstances' are nowhere defined in the guidance. There is a clear distinction between the special circumstance case and the much wider general provision which virtually requires local incentive schemes from 1 April to be directed towards the national targets (paragraph 4.12).

Uncertainty may deter commissioners

It is difficult to understand what practices are to make of the guidance which, sadly, is not the first example of department advice that is incomplete and does not appear to have been thought through.

As a result, PBC as a driver for change now looks a rather uncertain vehicle. This uncertainty may well drive people away from commissioning and providing – except, for the latter, where they are either very small and are prepared to stand on the sideline as a ‘willing provider' or are of such a size that they are able to make substantial investments in the provision of services and are prepared to compete in the marketplace subject to procurement rules.

It is probably true that the greatest legal pitfall in practice today is uncertainty and the recent department guidance does nothing to help the reader who is seeking clarity and certainty.

Andrew Lockhart-Mirams is based at Lockharts Solicitors in London. GPs can contact the practice at Tavistock Square, London WC1H 9LS, or email



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