A healthy balance

There has been a big push by the Department of Health over the last few years to transform the way community services are provided by transferring them from the hands of PCTs and into other provider organisations. 'The idea is that you can then have PCTs that focus on being world class commissioners, and services that are more individualised and personalised '“ which is one of the key aims of Lord Darzi's review,' explains Jamie Foster, a commercial healthcare partner at Hempsons. 'It is also a way of potentially saving money '“ and money is the big story for the NHS at the moment; the NHS has to save £15-£20bn over the next few years.'

The favoured option, somewhat controversially, seems to be for the acute sector to absorb these provider arms. This means a great deal of reconfiguration and reorganisation activity in the sector, which in turn gives rise to an increasing need for legal input. There is a lot of work to do on employment and property work, partnering agreements, procurement and regulatory and governance issues, as well as an increasing focus on corporate-style transactions. Last year, for example, Hempsons advised on the transfer of Barking and Dagenham PCT's community service to North East London Foundation Trust. 'This was effectively a corporate transaction,' says Foster. 'The key legal aspect was sale of business '“ a relatively new thing for the NHS.'

The deal was also the first opportunity for the new Cooperation and Competition Panel to flex its wings. The panel, which opened for referrals on 30 January 2009, gave the deal the thumbs-up after deciding it would not inhibit choice and competition in the market.

The panel is an advisory body only, but Bridget Archibald, head of healthcare at Mills and Reeve, says its recommendations are nonetheless 'likely to impact on how we advise our clients. There is still uncertainty as to the complete impact of the secretary of state for health's comment that the NHS would be the preferred provider of community services, and how that works alongside procurement rules.' With community services increasingly being put out to tender, Archibald predicts a rise in the number of procurement challenges over the next couple of years 'by disgruntled bidders who have concerns about the process'.

For the healthcare legal market, foundation trusts bidding for community services also creates a challenge in terms of managing, advising on and addressing conflicts of interest between these organisations. 'Law firms have got to be careful,' says Bridget Archibald. 'NHS organisations have now got to be more stringent about their own position as an independent entity. If you had a PCT whose provider services were available to be taken over by another NHS body, you might have three potential bidders who are interested. That sort of scenario only very rarely occurred in the past.' This may result, she says, in the work being spread out among more firms.

Becoming a social enterprise

Another alternative is for PCT staff to get together and apply to become a social enterprise, and to then take on that community service under that umbrella. But, while social enterprises have been hailed as one of the major means of transforming community services, Ross Griffiths, a partner in the public sector team at Cobbetts, is concerned that too little of that planned activity has taken place.

'I have been rather disappointed with what's gone on in the health sector in the last 12 months,' he says. 'The message I'm getting is that the transforming community services theme is more about vertical integration and possible mergers or horizontal integration between PCTs to get economies of scale, rather than looking at more novel approaches.'

His firm, he says, was positioning itself to be quite active in social enterprise and was targeting a number of transactions in this area, 'but it's proved not to be as easy'. There have been various barriers to social enterprises really getting off the ground, including the difficulty to reach a solution regarding NHS pensions.

'The financial constraints being placed upon the sector seem to be to be presenting minimal change solutions,' says Griffiths. 'For example, transferring staff from a PCT to a local foundation trust. This requires less shift because you are transferring between existing organisations rather than creating new ones. It has ended up being more of a 'top down' public sector reorganisation approach, rather than doing anything more radical. This is not what I interpreted they set out to do two years ago.'

Griffiths says that while this does produce a good work flow for his firm '“ business transfer type agreements, staff transfer agreements, property work, procurement and contract work '“ 'it's not as exciting as the type of work involved in creating a new organisation.

That aspect that I wanted to get my teeth into hasn't transpired.'

On the upside, Griffiths says that the seeming revived enthusiasm for local authorities and the health sector to work together is 'really good stuff from a policy point of view and from the point of view of the lawyer seeking to put such relationships in place. It is technically difficult, and should have a socially beneficial outcome.'

All the reshuffling and reshaping of the NHS market is creating an increase in demand for legal services '“ good news for healthcare law firms. However, the flip side is that clients' ability to pay for that legal advice is on the wane. 'There will be significant downward pressure on pricing,' says Peter Edwards, a partner at Capsticks. 'Legal services will be seen as part of the overall management costs, and the expectation is that these will reduce 30 per cent year on year.'

The need for this reduction in legal spend has seen panels of legal advisers being set up in most regions of the country, and a process of bidding by the major players in the market to get onto these panels. 'Once, the market looked attractive to firms that traditionally didn't do healthcare work, but the panels have gone quite a long way to crystallising the market,' says Edwards. 'NHS bodies are strongly encouraged to use the panels to purchase legal advice. It would be pretty unusual now to find NHS organisations using other firms to any significant extent.' This marks quite a big change, he says. 'Historically, there were literally hundreds of suppliers to the NHS market.'

Balancing price and quality

There may be fewer firms to compete with, but the increasing demand for consistency on price means those few are being forced to tender for work at very competitive rates.

This has pushed some firms out of healthcare. 'The bigger firms that might not traditionally have done work in the sector but that were attracted during the first part of the recession may now find that the rates are too competitive for them,' says Bridget Archibald.

For the firms that hold their place in the market, these are challenging times. 'There is a relentless focus on quality and price, and on finding ways to keep those two things in balance,' says Jamie Foster. Making sure you are on the panels in the first place is one thing, he says, but even when you are, 'quite often the client will run a mini-tender among the panel firms. You have to price correctly to win work, but without compromising on the quality. So there is a tension between the need to give expert legal advice, and competition driven by clients who need to get their expertise at affordable rates.'

Jeremy Roper, a partner in the healthcare group at Beachcroft, thinks that while the framework process generally works very well in terms of providing NHS clients with a ready-made panel covering the whole range of legal expertise, 'it doesn't necessarily foster good relations if you are chopping and changing between solicitors and playing one off against the other to get a good deal. You don't develop that 'trusted adviser' role; at least it is more difficult.'

However, Roper does not feel that the dynamics between firms in the market have changed a great deal, 'because if a trust has been using a firm for many years, is used to that firm and is happy with the service it is getting, it isn't readily going to change'.

For a substantially big piece of work, he says, there might be a tender, 'but this is going to be more relevant where a trust is not entirely satisfied with the service it's getting in a particular area, so this makes it easier for them to look at other firms on the framework'. But, in reality, he says, trusts switching firms 'doesn't tend to happen that much'.

Another issue Roper identifies is around the most effective way of providing NHS clients with extra value for money. 'The best hourly rate doesn't necessarily mean best value for money.' He recognises, however, that clients always like certainty, 'so if you can package up a particular piece of work for a fixed price, that's often attractive. We are always trying to think of new ways to price our services.'

It is a matter, Roper continues, 'of trying to put yourself in the clients' position and work out what's attractive to them. These will be things that are going to ensure you are either creating more income, or making more savings.'

Bridget Archibald echoes this sentiment. 'From an internal perspective, we see how important it is for us to help our clients manage their legal spend,' she says. 'This really overspans everything. So there is a lot of work on knowledge transfer, supporting their in-house teams.'

Peter Edwards says his firm is now providing services at hourly rates lower than five years ago. 'The challenge for us is in finding alternative ways of pricing that meet the financial constraints of the client; that allows us to meet clients' needs but remain viable as a business.

'Nowadays there is an expectation that employment contracts, compromise agreements and the like will be off-the-shelf, standardised templates; as part of that there will be price certainly from the outset,' says Edwards. 'On some of the frameworks they make it a requirement that firms will offer menu-based pricing '“ effectively a fixed tariff for certain kinds of work '“ so we've thought about what work we can offer in that way generally. We now have a reasonably extensive range of services and products you can come and buy off the shelf.'

A second area the firm has been working on is the processing of high-volume litigation and similar work, the main areas here being clinical negligence litigation and healthcare regulatory work. 'This issue is to manage large portfolios of cases in a timely and cost-effective way '“ particularly with the regulators, as their funding of that work is increasingly on a price-per-case basis, and subject to key performance indicators that they monitor closely,' says Edwards.

'The task you are set is to process a given volume of cases to an acceptable standard, within a given time.' This, he says, has necessitated a shift towards a different style of case management than the sort of highly specialist, case-by-case approach that historically prevailed.

Over at Hempsons, Jamie Foster says that one way in which his firm is meeting the challenge is by focusing on the 'value add' for clients. 'Things like training seminars are a crucial way of building client relationships and showing you are thinking about them and the fact they have cost pressure.' He says his team is seeing more uptake of the seminars the firm offers '“ many of which are offered to clients for free.

While money is the big issue in the NHS, overarching all of this is a lack of visibility, with a general election just around the corner and each party having different policies and a different emphasis on the promotion of the NHS. 'Labour has said the NHS has got to cut costs. The Tories have said they are going to promote the NHS at the expense of other departments. The big question is what is going to happen after the election in terms of funding?' asks Foster. 'There is a sense of uncertainty at the moment. It's challenging, but we think we are well positioned.'

The firms that hold their place in the healthcare market will be those that are willing to share the pain their NHS trust clients are facing. They will need to align themselves with the downward pressure on costs by looking hard at their own internal spend, and at the way in which they structure their products, in order to be able to offer both the reduced prices and 'value add' that will keep the clients coming back. It will be tough, but it should be a worthwhile price for client loyalty.