Guidance

Guidance: transactions involving new care models

Updated 26 August 2015

Applies to England

1. 3 stage review: early engagement to identify risks and tailor our work programme

1.1 Stage 1

Similar to our approach at Stage 1 of a proposed merger, as soon as you believe it is likely that you will enter into a transaction involving a new care model you should discuss this with your relationship team to help you determine whether it is a relevant transaction for review.

At this stage, we will offer informal support and advice on the underlying strategy and analysis of relevant patient benefits. We will also advise whether the transaction might give rise to any competition issues and, if so, what you should do to determine more precisely their nature and extent.

1.2 Stage 2

If the transaction meets the ‘material’ or ‘significant’ threshold as set out in the risk assessment framework or requires more detailed review from a competition perspective, we would at Stage 2 meet with you, the parties to the transaction and the relevant commissioners, including your relationship team and their relevant colleagues from our Provider Appraisal and Co-operation and Competition Directorates. This meeting would take place at the outline business case stage or once the preferred bidder for a new contract has been selected.

To prepare for this meeting, we will review available information regarding the proposed transaction, particularly from a competition perspective if relevant. The scale and scope of this review will be determined on a case by case basis but should take no longer than one month. At the meeting, all pertinent aspects of the model can then be discussed, including:

• further consideration and challenge of the strategic rationale for the transaction (recognising that a key test will often be that the proposed transaction represents a material improvement over the next best alternative or “do nothing” counterfactual)
• the foundation trust’s approach to assessing relevant patient benefits, including plans to realise those benefits and the fit with commissioning intentions in the local area
• the proposed legal structure, contracting and risk sharing arrangements (financial, clinical and demand management risks)
• where relevant, comparison of the foundation trust’s own assessment of any competition issues resulting from the proposed transaction with Monitor’s assessment of them.

Following this meeting, we will write to you (copying your commissioners) giving our views on the quality and robustness of the underlying business case and the assessment of patient benefits. We will highlight any areas we think could impede the successful implementation of the model as well as likely risks you will need to mitigate before our detailed review, should the transaction meet the ‘significant’ threshold.

We will also set out a clear timetable and scope for this review to reflect the risks of the transaction. We will aim to ensure that we do our work and provide the final risk rating in line with your planned timescales. Through this early engagement you should also be well placed to decide whether to notify the Competition and Markets Authority of the proposed transaction.

To determine whether the transaction meets the significant threshold (and therefore requires a Stage 3 review) we will take into account the risk factors associated with the new care model and the relative size of the transaction.

Further details of our approach are provided below.

1.3 Stage 3 (final detailed review)

Should the new care model be deemed a ‘significant’ transaction, a detailed transaction review will be undertaken. This review will look at the extent to which you can demonstrate the proposed model represents a better balance of risk and benefit in clinical (patient benefit) and financial terms than the next best alternative, with a particular focus on the foundation trust’s level of exposure to risk in early years and the associated cash profile in a reasonable downside case.

Such a review typically takes a minimum of 3 months from the point at which a trust submits to Monitor a board-approved final full business case and the associated financial model (in Monitor’s Long Term Financial Model format). However, we will seek to be as flexible as possible, streamlining our approach and minimising the timetable for review in line with the amount of information gathered and the level of risk identified during our early engagement. In planning your transactions we would ask that you ensure your timetable reflects our process and that you do not sign any legally binding agreements before we complete our review and issue a transaction risk rating.

‘Supporting NHS providers: guidance on transactions for NHS foundation trusts’ provides further guidance on our review of transactions. This autumn, we will update this guidance with more examples of the ‘major risk factors’ associated with a new model of care and add detail to the timeline for early engagement.

Please keep us informed

If you are contemplating a new care model in the next 12 months, whether involving an acquisition, a new legal entity or a new type of contract, it would help to let us know what the stage of development is. Please do this by informing your relationship manager.

2. What makes new care models ‘significant’ transactions?

There are 3 particular aspects of new models of care that make them inherently risky:

New and innovative delivery models

For example creative solutions to deliver care may involve a number of NHS organisations and Local Authorities with varying cultures coming together to deliver integrated patient care.

Unusual or unfamiliar legal structures

NHS parties may wish to utilise novel legal structures including setting up a new legal entity or jointly entering into an arrangement to deliver a new service.

Outside core competencies/normal areas of business

As new models may make greater use of clinical networks across nearby sites, involve joint ventures between NHS organisations (eg to take on social services), or the delivery of specialist single services across a number of different providers, some organisations may begin to deliver services that are outside their historic competencies or normal course of business.

Aspects of transactions we are likely to want to understand in some detail include, but are not limited to:

• risk sharing arrangements (financial, clinical and demand management risks)
• potential exit provisions and associated costs
• payment arrangements, including the use of capitated contracts/capitation-based funding
• commissioning to sub-contractors
• system pressure to accelerate delivery
• changes to workforce structures or terms and conditions
• value added tax implications
• timing, amount and certainty of transformation funding

Having understood these aspects in more detail we will determine whether there are any major risk factors associated with the transaction. Then, taking account of the relative size of the transaction we will consider whether it meets the requirements to be classified as a significant transaction under the definitions set out in the risk assessment framework. If this is the case it will require a detailed (Stage 3) review.