Why NHS Direct is sitting on one nail

Militant Manager is always puzzled by some things in the National Health Service.  Why do GPs vote for less private sector involvement when they are private contractors themselves?  Why do NHS Trusts work so hard to abide by the EU Working Time Directive, yet allow their consultants to moonlight in the private sector without any restriction on working hours?  Why are there so many bodies who bring out (at times conflicting, and contradictory) guidelines, and rules?  Why would a Secretary of State believe that the optimal method of arriving at the best size of commissioning bodies is by imposing arbitrary management cost allowances?  How can those organisations that rely on concentrated, block contracts ever be judged suitably independent to satisfy the requirements of Foundation Trust status?

It is this last question that I wish to address today.  And it brought into stark relief by NHS Direct which has announced its intention to seek FT status.

Militant Manager knows buy-out and venture capital types (some of them have washed up in Monitor).  Buy-out and venture capital types are good for three things: one is running a good LBO model on Excel (which is not very useful in any other walk of life); two is sitting on boards looking empathetic, but continuously wondering how they are going to explain this to their limited partners and colleagues; and the third is to glean a vague sense of what factors could bring a company down suddenly.

And it is this last thing that is useful in this instance.  One of the things that gets them more excited than a good LBO model, and a board meeting going off plan, is a business with a concentrated customer base.  They know that this will make independence and sustainability difficult.  And given these private equity types have only three useful things to say to the world, we should pay attention to at least one of them.

A business that depends on a very concentrated customer base - and in NHS Direct's case, almost entirely on one customer - is not a business (let alone a self-sustaining one).  It is a hobby like a vintage motorbicycle - entertaining for the owner/ client, but first to be jettisoned in harder times.  Or it is a project - like measuring lichen on Derbyshire hills to understand whether they grow in the sun or shade; whether they grow near roads or near forests.  At the very best, it is an outsourced contract from that key client.  It is most certainly not a client.

The sharper amongst you will be wondering why this does not apply to other project companies like Serco or Capita.  But there is a difference.  Serco and Capita have a large number of contracts; which are not co-terminous and are spread across sectors, clients and geographies.  It is a bit like nails.  If you sit on one nail, it is quite painful and lethal.  But if you sit on a thousand nails, then it is uncomfortable, but not lethal.  Nick Chapman is sitting on one nail.  Tom Riall is sitting on a 1,000.  Whose arse would you rather be?

The even more sharper amongst you will now be wondering why this argument does not apply to Mental Health Trusts, and/ or Community Trusts.  And MM would argue that it does.  But it is a question of degree and judgement.  The four axes to judge on are:

1. The concentration of payors, and their correlation with each other.  NHS Direct has one customer now, but even when 111 is implemented and it gets 10 customers, the customers will be looking to it for the same niche. A niche borne of national initiative.  So if one cancels a contract, it is likely to be because of a change in policy which is replicated elsewhere - so the customers decisions in this regard are very correlated.
2. The avoidability of the fundamental need.  Schizophrenia is not going to go away.  But the need for 111 may well do so.  So Mental Health Trusts are more sustainable than NHS Direct.
3. The distribution of decision making.  Mental Health Trusts get referrals from 100-200 GPs from each PCT - which evidences distributed decision making.  And the PCT commissioning decision is borne of a long history with a number of related parties involved, including social services, police and PCTs.  NHS Direct gets commissioned by some pointy-headed person in the East of England.
4. The independence of price.  In acute care, PbR and tariff are not set by customer and provider.  They are set independently of both, and are a "datum".  This enhances independence.

So when judging the sustainability of organisations, one has to look at these four axes.  So what do I conclude from this:

• NHS Direct is at the extreme of suitability for FT status, and is basically not suitable. Hopefully somebody will listen to me this time.  Not like last time, when nobody listened to me when I said that Europe was not a sustainable single currency area.
• Many Mental Health Trusts and Community Trusts also fail this fundamental test.   Forget about Ambulance Trusts.
• Monitor should start to realise this.  At the moment, Monitor just judges whether the organisation is well controlled and managed at the time of authorisation - but it is possible to manage a hobby or a project well.  The question is whether it is sustainable, and Monitor's assessment (like investment bank risk models in 2007) does not really take into account the full range of eventualities.
• With the concentration of commissioning, acute Trusts are also becoming less sustainable.

The truth, however, is that it is hard for all parties to consider this reality.  They would rather whistle while they sit on a nail.