Amongst the talk in recent days of capping the ‘egregious’ prices charged to NHS organisations by staffing agencies, it isn’t clear to me whether the discussion is about capping the amount paid to temporary staff, the fees charged by agencies, or perhaps both.

The critcism of agency behaviour seems to imply that the capping should be of agency fees, but it is the overall cost of agency staff (ie agency fees and staff payments) and the financial pain this is causing the NHS that seems to have started this debate (when it was observed that the cost of agency staff equalled the entire financial deficit for NHS providers last year).

So, what are the merits of capping the amount paid to temporary staff and/or the fees charged by agencies?

Capping rates for agency staff

It is possible that a cap on the rates paid to agency staff (and ignoring agency fees for the moment) might in the short term lower the total cost of temporary staff for the NHS.

But, unless something else happens to address the overall shortage of clinical staff it seems unlikely to be successful as a long term strategy. Moreover, there are reasons to suspect that it may not be successful in the short term either.

As Friday’s HSJ made clear, some Trusts have to compete for staff. Capping the rates paid to temporary staff will mean that those Trusts that are, for whatever reason, less attractive to staff and currently pay a premium to attract them may no longer be able to do so.

These Trusts will have to find other ways of attracting staff. This could be through finding ways around the cap (eg making unregulated side payments to temporary staff). However, as soon as one or two Trusts find ways of getting around the cap, others will quickly follow and we will soon end up back where we started in terms of the overall level of payments to agency staff. (It is just some of these payments will be regulated payments within the cap and others will be unregulated payments outside the cap.)

Alternatively, Trusts may seek to reduce their reliance on temporary staff by finding ways to pay more to their permanent workforce (eg through rebanding positions, offering retention bonuses, or any of the other myriad ways in which payments can be made outside nationally set pay rates). This could, perversely, have the effect of raising the NHS’s overall pay bill given the greater number of permanent staff.

A further risk in capping rates for agency staff is that the cap turns into the regulated rate that all staff expect to be paid. (Of course, in practice there would need to be different rates for different types of staff.) If the rate is set too high, then it could increase temporary staffing costs as the rates of all temp staff gravitate to the regulated rate.

If the rate is set at, say, the average rate that is currently paid (and is in theory cost neutral for the NHS) or at a lower rate (as means of reducing agency staff costs), then it could result in these agency staff choosing to no longer work in their profession and/or going somewhere else.

While it seems fair to assume that some clinicians are gravitating to agency work because of the higher rates on offer, and might return to permanent roles if these rates became less attractive, there are undoubtedly many agency staff that choose to work in this way because they like the extra money and prefer the flexibility that agency work offers. Reducing the financial attractiveness of agency work might mean that they return to a permanent role, or it might mean they end up doing something else. If so, the cap might end up exacerbating the shortage of clinical staff and further increasing the underlying pressures on staffing costs.

All in all, capping the rates paid to agency staff – like most price controls – is likely to end up being ineffective or, even worse, having unintended and/or perverse effects. It might work in the short term, while everyone takes time to adjust their behaviour, but the only long term solution is to address the underlying cause of the problem, that is, the supply of clinicians.

This, in turn, means: training more clinicians; most likely, importing more clinicians given the time needed to train staff; and maximising the productivity of the existing workforce through, for example, continuing to adjust the workforce structure – like a number of Trusts are already doing – so that staff are operating ‘at the top of their license’.

Capping agency commissions

Capping agency commissions is a superficially attractive policy. It addresses the concern that some agencies are exploiting their position to earn excess profits, and that these profits in themselves represent a loss of resources that the NHS could be using on patient care.

As HSJ reported on Friday, some agencies are thought to be charging commissions as high as 40% of the placement cost. This certainly seems high, but some care needs to be taken though before concluding that these agencies are engaged in behaviour that needs to be regulated. This is for two reasons.

First, are high commissions on some placements offset by very low commissions on other placements? If so, then overall agencies may be making a ‘normal’ level of profits. Regulating the higher commission rates out of existence may simply result in commission rates on other placements increasing with the net result that the NHS still pays the same amount overall in agency commissions.

Second, it seems like an odd strategy for any business to take advantage of their customers in this way. Surely, these agencies would realise that their customers will remember their behaviour, and do everything they can to shift their custom elsewhere at the first opportunity. So, if agencies are behaving badly is this a permanent problem or a temporary problem that will be addressed by Trusts shifting business to other agencies or using their own in-house solutions?

If, indeed, it is a permanent problem (which might well show up in high rates of agency profits), then it seems that the market for agency staff is not working properly, and agencies are abusing a position of market power. As I wrote last week, this points to possible breaches of competition law that could be usefully investigated by Monitor. The answer to high rates may lie in prosecutions for anti-competitive behaviour not in regulated commissions.

So, what is the downside of choosing to regulate agency commissions? There are two main costs. The first will be the direct costs associated with regulating agency commissions. This will inevitably turn out to be more expensive than first assumed, particularly as it creates a target for ongoing lobbying behaviour by staffing agencies and their customers.

Perhaps more important is the risk of setting commission rates too low. Staffing agencies, I suspect, play an important role in making critical clinician inputs available where they are most needed.

If rates are too low, some agencies will exit the NHS labour market for greener pastures. This will not help the NHS if it results in a reduced ability to find staff where and when they are needed. Moreover, if it also means fewer agencies and less competition between them to place staff in the NHS, then problems associated with the exploitation of market power by these agencies may only get worse.