Market Management
Peter Scanlon
22nd March 2010
Market Management
Purpose
• To highlight the market management opportunities and threats to
3rd sector organizations.
Objectives
• To demystify market management language
• To clarify the importance of market management in improving
quality and productivity
• To provide a policy context
• To highlight specific areas relevant to 3rd sector providers
2
Theory
I hope you had coffee
How do you run a publicly funded health care system ?
Targets & competition
30%
25%
% patients waiting > 12 months
20%
Four models: England
Northern Ireland
• Trust - liked by clinicians - simple 15%
Scotland
• Mistrust. Command, control, targets and 10%
Wales
performance management – A&E, 18
week 5%
• Voice – risks increasing health
inequalities England target 0%
2000 2001 2002 2003 2004 2005
• Choice and Competition. Quasi-markets
Choice Markets
Competition Customers
Plurality Agents
Contracts Rules
2007>
1990s > 2003 >
Individualised services
Cost and volume Quality and outcomes
Individual budgets
Market Management - A Practical
Definition
Market management is being used in two distinct contexts:
• In a procurement context market management can be defined
as:
– The proactive engagement of potential providers in order to
optimise specifications, confirm budget, encourage participation &
select appropriate purchasing process.
• In a strategic context market management can be defined as:
– The set of interventions necessary to define, develop & maintain
competitive markets that encourage productivity & innovation for
the benefit of consumers.
Source: Scanlon 2008 “What is Market Management? – For discussion”
Economic Benefits of Competition
• Competitive markets are valued because the process of choice and
competition generates positive outcomes.
– Productive efficiency: strong incentives to minimise costs, at given quality
– Allocative efficiency: strong incentives to prioritise deployment of resources
– Dynamic efficiency: strong incentives to innovate
• When combined in a well-functioning market the result of these three
outcomes is a system that is responsive to customer needs.
• Markets are a means to an end rather than an end in-and-of themselves.
A means to ensure available funding adds
quality & length of life to local people
Source: Frontier Economics 2007 “System management: the role of market management in the healthcare system”
Market management is more than contracts and
tendering
Health markets are
not always
competitive
Markets also
require
cooperation
Vertical, horizontal
Integration and
cooperation
“People of the same trade seldom meet together, even for
merriment and diversion, but the conversation ends in a
conspiracy against the public, or in some contrivance to raise
prices…”
“To widen the market and to narrow the competition is always
the interest of the dealers...”
Adam Smith (1723-1790):
Policy
The Need for Rules
- Competitive Markets deliver productivity through innovation
- Building & Operating in markets requires commercial skills
Czech Republic: GDP £100bn NHS England: GDP £100bn
Free market economy for 20 years Muddle for years
Competitive Markets in health care does NOT mean privatisation
System Management
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- Leadership of the health economy
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-Strategy and market structure
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- Sanctioning variability
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-Performance management/accountability of PCTs
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-Whole system performance
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- Developing PCT capability
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DH st PCTs
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sets the rules of the system, p build the system,
of
sy
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via its responsibilities for: em via their responsibilities for:
Patient
Citizen
-Setting standards ru -Designing local incentives and drivers
le
-Allocating resources and setting prices s -Driving quality in provision
-The political interface -Contracting & procurement
-Whole system oversight -Market development
-Cross-government and external co-ordination Patient -Delivering the choice offer
-Patient, public and market information
- Alignment with local partnerships
Providers
deliver front-line care,
compete in the market and
develop relationships with
Monitor system managers CQC
Principles & Rules of Cooperation and
Competition
01 Commission from best placed providers
02 Transparent procurement
03 Foster patient choice and information
04 Promotional activity encouraged
05 Patient experience should be seamless
06 Patients not discriminated against
07 Payment is transparent and fair
08 Transparent Financial intervention
09 M&A and JVs must promote choice and responsiveness
10 Vertical integration is allowed
11 Continuity and sustainability of services
In process of being updated
Challenges
What makes this feel difficult
There is a lot for the commissioner to consider
Towards the Best,
Key reviews & Together
guidance e.g. “High
Quality Care for All”, Improving Lives,
Health & Wellbeing East of England
Saving Lives Commissioning
World Class framework, Cancer
Commissioning IOGs Framework
(WCC) OD Projects Everyone who is cared for by
the NHS in England has
East of England Leadership, formal rights to make choices
Guidance and Policy
PCT
Procurement
Principles and rules Guide
for Cooperation and
Competition (PRCC)
NHS Operating
Framework
Strategic Plan Health Market
Operational
Central Leadership, Analysis
Plan
Guidance and Policy
PCT Leadership,
Guidance and Policy
To Develop NHS commercial capability so that available funding adds
quality & length of life to local people
Market Management is an Oxymoron
Markets are by nature messy and dynamic
Undersupply Oversupply
And we’re not alone in recognising
requirement for major changes
60%
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40%
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17%
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Commissioning Services: Commissioning Services:
We have a track record of successfully We create financial incentives that attract
negotiating with providers new providers & motivate existing providers
15
Health Market Analysis Workshop – October 2008
Greater understanding needed of markets
and management of providers
40% 40% 44% 44%
20%
11%
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0%
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Understanding the Market: Managing Providers:
Our commissioning team has a St We have sufficient resource to
good understanding of the provider regularly monitor contracts and
landscape : performance managed problems:
16
Health Market Analysis Workshop – October 2008
Commissioners/Market makers need a box of rules, tools
and skills - underpinned by first rate analytical support
Barriers to entry Incentives to enter, Vertical, horizontal Power of
and exit stay in or leave Integration and suppliers
– clear regime the market cooperation buyers
Doing Business
Commissioning Process highlighting
Complexity
Segmentation and Prioritisation Strategy and Planning Implementation
1 2 3 4 5 6 7 8 9 10
Initial Market Intervention Supplier Implementation Market Implement Measure
Segmentation Prioritisation
Assessment Profiling Strategy Preparation Planning Intervention Change and Manage
e.g. Procurement?
0
Communication and Change Management
Agree what needs to Agree how should we Deliver the
improve approach the change improvement
• Change in demand? • Do providers exist?
• Customer Experience? • Are more/ fewer needed?
• Need to reduce Mngt effort? • What should be packaged to avoid cherry
• Able to increase quality? picking?
• Able to reduce cost? • What are the change risks?
• Poor supplier performance? • What are the barriers for new entrants?
• Lack of choice? • What do we specifically need?
• Poor information? • What do the providers think?
• Sustainability risk? • What intervention would work best?
• Service innovation? • What are the Sys Mngt Risks?
• New entrant?
19
Intervention Strategies
Competitive Strategies Co-operative Strategies
• Consolidate number of providers • Enable alliancing between providers of
• Pool volume across PCTs different services
• Instigate performance measurement — “Upstream” or
Supplier Relationship Management
• Aggregate services — “downstream” on the patient pathway
• Bundle care pathways
Consolidate Vertical
provision Alliance
VI
• Enable alliancing between providers
• Introduce suppliers of similar services
• Unbundle services Diversify Strategic Horizontal — For economies of scale
• Negotiate quality Sourcing Alliance — Economies of scope
provision
improvement Mergers — Expanded geographical coverage
Choice and Joint
Information Commissioning
• Enable choice (patients, GPs, • Enable alliances between commissioners to
tertiary referral) — Create new or change existing markets
• Provide comparative data and — Agree improvement or outcome targets
benchmarks
20
Provider Gaps
1. Strategy,
Organisation
& Governance
2. Business 3. Clinical
Development Leadership
Service Provision
4. Service Design & 5. Partner 6. Service
Transformation Management Provision
8. Sales, Marketing &
7. Bid Management
Account Management
9. Performance Knowledge / Information 11. Talent Management
10. Knowledge &
Management Technology Management & People Development
Management
12. Support Functions
(Finance, HR, Legal, IT, Estates)
21
Mental Health
Market
Improving Mental Health is a priority that cuts
across ILSL, Our NHS, Towards the Best together
2007
Mental Health commissioning
needs to change
• Mental Health
– Affects 1 in 4
– 2nd Largest Spend Item in NHS (EoE c£700m p.a.)
• Historic Market
– Commissioning follows history Mental Health
– Spend with 7 MH Trusts -Anxiety
- Depression
-Dementia
• New Investment -Low/ medium
– Psychological Therapies Secure units
– PCT Priorities
Regional Balanced Scorecard approach
East of England market analysis dashboard
070
8
Rat
LIT ing % £ Range
Mental Health N Essex
15.40
% £16,741,000
£1,000-
£1,416,000
3rd Sector Market S Essex
7.40 £1,259-
• 3rd Sector Spend variable Herts % £7,196,912 £1,623,532
£3,500-
• Independent Sector Spend Luton 1% £211,000 £100,000
Tends to be in High Cost Low, 1.25 £5,000k -
Beds % £545,000 £110,000k
Volume Services, e.g. Secure
16.10 £2,000 to
Cambs % £8,500,000 £3,400,000
• Need to Promote Better
Outcomes though innovation P'borough
4.70 £1,000 -
Norfolk % £4,309,000 £354,000
1.42 £27,000-
Gt Y & W % £433,000 £243,000
14.70 £76,000 -
Suffolk % £5,222,000 £980,000
Next Steps
Market evolution will take ~5 years
5 years 1-2 years 2-3 years 4-5 years
Market VISION CHALLENGE FORM NORM
• Buyers have more market control • Most power is with providers (NHS and • More power shifts to buyers as • PCTs have more control over
• Buyers transfer more service risk to private) PCTs collaborate seamlessly market development
suppliers • PCTs have volume risk • More risk transferred to providers
• Suppliers invest, innovate and • SHA, PCTs and FTs establishing roles • Consolidate service provider • Service providers have control over
compete to win market share • Health care provision dominated by supply chains to improve inbound physical flow of products through
• Uncompetitive suppliers fall out of the public sector institutions efficiency and VFM national NHS Supply Chain contract
Power market or are absorbed • Products including pharmaceutical • Service providers leverage spend
• Providers optimise their supply supply chains poorly controlled through collaborative purchasing
chains • Fragmented procurement and
contracting • PCTs have more influence over
• Too many suppliers with small physical pharmaceutical supply chain
contracts, eg Purchased Healthcare in primary and secondary care
• Commissioners indifferent to provider • Defined service requirements, quality • All providers under robust • Long term win-win commissioner/
history standards; improved demand forecasts contracts with clear performance provider relationships
• Commissioners specify service • Collaboration amongst commissioners – criteria • Supplier rationalisation – fewer but
requirement to providers – share develop buying power • Service providers partner or better suppliers and contracts
provider savings • Category management approach to outsource services with other NHS
Relationships • Commissioners and providers market by commissioners providers or third part providers
develop long term win-win • PCT sourcing strategies for all services where it makes sense for service
relationships • Provider sourcing strategies for delivery and VFM
• Providers enter into strategic products and services through Hub and
partnerships with fewer third party NHS Supply Chain
suppliers on better terms
• A highly competitive dynamic • Competitive process for services • Open competition • Optimal number of providers and
healthcare market • Introduce new entrants • Level playing field for all suppliers to ensure choice,
• More work is competed - VFM • Challenge incumbents competitors competition and efficiency
• Commissioners collaborate to • Challenge inefficient service providers • Service providers benefit from • Re-tender to maintain VFM
leverage spend and manage market • Service providers implement – Collaborative purchasing Independent sector market share
• Supply market transformed; new – Collaborative purchasing – Utilisation of IT through partnerships with providers
Competition entrants and suppliers compete – Utilisation of IT – Automation and commissioners increases to
• Challenge local monopolies to – Automation – Outsourcing improve patient and commissioner
improve choice for patients and – Outsourcing – Sweating assets choice
commissioners – Sweating assets – More flexible cost base
• Provider efficiency gains – Reduce fixed costs
• Highest quality services – best in • Quality improvement • Quality improvement • Highest quality service – best in class
class • Falling unit cost • Lowest unit cost • Lowest unit cost – best in class
Results • Lowest unit cost – best in class • Measure benefits • Measure benefits • Value for Money
• More healthcare for our money
Source: Adapted from South Central SHA Commercial Strategy 2007
Developing Supply Side – includes 3rd
Sector
Priority Commercial Support Areas - All provider types
Provide
access to Lean process implementation support
advisory
support to Regional centre for benchmarking
Top 3 Priorities
implement
lean Bid management support
The Do Nows
Demand management
Review of business processes
Access to professional services / advisory support
Theme
Averag
Working better with commissioners (Account mngt)
Commercial Training packages
Implementation of shared services
Network facilitation
Procurement advice
Support around non-clinical income growth
0% 10% 20% 30% 40% 50% 60% 70% 80%
Percentage requested
PWC Report 4th March 2010 “East of England NHS- Commercial Support Unit” 29
System Management
DoH
Compliance
SHA Accountable Dr Stephen Dunn
Executive
System Management
Commercial
Direct Reporting Q
Patsy Northern Andrew MacPherson Perform on behalf of
Coherence, assurance
and single point of
contact Market Management Strategic Projects
SHA & PCTs complex
Commercial projects
I
£
Translating policy into practice Assurance P
Commissioning
Cluster CSUs
Collaborative
Procurement Hub
• Provider Collaborative Procurement
• Commercial Development programme
• Supply Chain compliance
P
Support
Build commercial skills within
the NHS whilst delivering Providers
QIPP benefits
Questions