The Impact of the Provider Selection Regime and Procurement Act 2023 on the healthcare sector

12 June 2024

Walter Akers, expert in contract risk and procurement, analyses the key changes in the Provider Selection Regime and the Procurement Act 2023 and their implications for the healthcare sector. 

Provider Selection Regime

From 1 January 2024, the Health Care Services (Provider Selection Regime) Regulations 2023 (PSR) came into force. The PSR is an additional layer of regulations that relevant contracting authorities must comply with when procuring particular healthcare services in England. The PSR applies to any health care or public health service procured by NHS Trusts, NHS England, integrated care boards and local authorities.

The intent of the PSR is to reduce barriers to integrating care and provide increased flexibility in commissioning decisions in line with the Health and Care Act 2022. Under this regime, contracting authorities can award contracts through direct awards or a competitive process. Alongside this increased flexibility, there are specific transparency and record-keeping requirements, standstill periods and an independent PSR review panel to which providers can make appeals.

As a result, the PSR specifically requires significantly more governance and internal control to ensure contracting authorities can demonstrate value for money and address market representations, particularly in the case of direct awards. These require policy, guidance and process development and implementation to ensure contracting authorities comply with the law and are also able to take advantage of the intended benefits of the new regime.

Procurement Act 2023

In addition to the PSR, from 28 October 2024, contracting authorities within the healthcare sector must also prepare for the implementation of the forthcoming Procurement Act 2023 (PA2023), which will have a significant impact on all other procurement activity. 

The scale and breadth of change should not be underestimated. It will require new governance, processes, and information systems, as well as a transformation to ways of working across the whole organisation, not just within the procurement function/legal department. 

With far greater flexibility and the scope to develop bespoke procurement procedures, this new legislation is also a huge opportunity for better buying. Procurement is not just about cost control. Sound governance and a strategic approach to procurement can deliver vast benefits.

Key changes in the PA2023

  • New procurement principles and objectives, with a particular focus on innovation, transparency, and small and medium-sized enterprises (SMEs).
  • New procurement routes and requirements.
  • New definitions, terminology, and thresholds.
  • Increased flexibility over procurement processes and decision-making by contracting authorities.
  • Substantially increased transparency requirements.
  • Significant increases in the number and contents of published notices.
  • Broadened scope to cover the whole contract life, including contract management, post-award performance, payments, and contract termination.
  • Performance reporting requirements and the new supplier debarment list.
  • Change in award criteria from the ‘Most Economically Advantageous Tender’ to the ‘Most Advantageous Tender’. 

Implementing these changes is a huge challenge. It is vital that healthcare organisations are aware of the nature and volume of the new requirements and have robust plans in place to ensure they are prepared.

Concerns about implementation

The Public Accounts Committee report published in December 2023 found that they were unable to demonstrate that public procurement is achieving value for money, and raised concerns that contracting authorities may not be prepared to successfully implement the new law. Non-compliance with the current law, PCR2015, particularly in regard to changes to contracts and the use of direct awards, is still widespread despite these regulations being in place for nearly a decade. The introduction and complete implementation of PSR and PA2023 is therefore likely to be a marathon, not a sprint, as many areas of the market will need to make behavioural, cultural and process changes to be fully compliant. 

What should you be doing now to ensure you are ready for the PSR and PA2023?

1. Senior sponsorship

The successful implementation of PSR and PA2023 is going to require significant resources and investment. It is therefore critical that there is awareness, buy-in and support from senior leadership to deliver the necessary changes throughout the organisation. Healthcare organisations will benefit most by taking a strategic approach to determine the goals and objectives, risk appetite, current compliance culture, and the potential benefits that may be realised through the required procurement transformation.

Proper communication and alignment throughout the change programme with these overarching strategic objectives, as well as investment and sponsorship from senior leaders, will form a key basis for success. 

2. Embrace the disruption 

The previous PCR2015 regime had decades of experience, explanatory notes, and well-worn conventions. The new PSR and PA2023 are developing all of these from scratch. As a result, expect ongoing change and refinement as further guidance is developed and published from the Cabinet Office, Crown Commercial Services, and eventually, through the courts. These updates will need to be reflected in every healthcare organisation’s constitution and procurement processes as they arise. Thinking ahead on how to future-proof your procurement processes and ensure there is an agile response to these changes will be essential to ensure compliance with the relevant laws and legislation going forwards. Make sure PSR and PA2023 is on the agenda and is a key part of future plans as we continue through this once-in-a-generation change to public procurement. 

3. Assess your current level of compliance

Alongside the challenges and upheaval of implementing the new PSR, this required change and revision of procurement processes presents a unique opportunity for improvement. As policies, processes and systems are reviewed from the ground up to match against the new requirements, this can also form the basis for process, cultural and behavioural change across the organisation when it comes to procurement. 

Firstly, consider your current level of compliance with all the requirements of PCR2015 and the PSR. In addition to PA2023, PCR2015 regulations will still apply for several years during a transition period until old contracts and frameworks under PCR2015 expire and new contracts under PA2023 are procured. 

And what changes could we make now, to ensure procurement is done right in the future? The first step in introducing PA2023 should include conducting a gap analysis and an honest scrutiny of the effectiveness of current procurement processes. These outcomes can be used to inform the development of new processes and procedures, that will also be aligned with the requirements of the new PSR, such as conflict of interest, flexible procurement procedures, and transparency and publishing requirements. This fresh start approach allows healthcare organisations the opportunity to implement significant changes to how they conduct procurement. It also ensures the PSR and its governance requirements are embedded alongside the new PA2023 procurement requirements.

4. Planning

Healthcare organisations should ensure they have a planned transformation programme in place to address and implement the required changes in time for October 2024. Key questions for management: Have you seen this plan? Is it adequate to address the volume of change required? Are management and the wider organisation aware of the changes to public procurement, and has this been communicated with key stakeholders? Are we aware of the possible risks associated with these required changes? 

We would expect, as a minimum, that such planning would cover the following.

  • Revising Contract Standing Orders and other relevant policy and guidance to comply with the new PA2023 and PSR.
  • Reviewing the procurement pipeline and identifying where the new PA2023 and PSR are applicable and where the existing PCR2015 regulation still applies. 
  • Revising procurement processes and systems to comply with PA2023 and PSR.
  • Revising governance and roles and responsibilities to comply with PA2023 and PSR.
  • Identifying and communicating with relevant stakeholders over the new requirements of PSR and PA2023.
  • Identifying and delivering appropriate training on PA2023 and PSR and delivering the required cultural and behavioural changes. 

Conclusion and future outlook

The delivery and implementation of this transformation programme will have its own challenges, including timetabling, governance requirements, stakeholder management and upskilling the relevant individuals. Healthcare organisations should adopt a project management methodology to address these challenges, particularly by establishing clear strategic goals and aligning the implementation against them. 

The PSR and new PA2023 offers huge opportunities for improvements and better buying across the public sector. However, we need to act now to unlock these benefits and be ready for the change.

If you would like to discuss these changes, please contact Walter Akers or your usual RSM contact.