Agency staff 2/3: Ten reasons the agency price caps are likely to do more harm than good to the NHS

November 23, 2015 • Reading time 7 minutes

Despite 88% of the doctors and nurses that responded to the consultation opposing the introduction of price caps on agency staff, Monitor and the TDA are introducing their new rules and price caps for agency staff starting today (23rd November 2015). While 79% of Trusts are planning to cut agency fees, the approach being taken by the regulators creates significant risks of unintended consequences.

In addition to not working, the price caps are likely to do more harm than good.

1) The price caps are likely to negatively impact staffing this winter

It was recently reported that a rising number of patients are likely to die on waiting lists, while elderly people are left in misery without basic help. Regardless of the need for a sensible long-term solution, the NHS will require agency staff in the winter months.

Failure to address the root causes of challenges (e.g. productivity growth) means that action is needed, but this should not be rushed and heavy-handed regulation. Absent some form of coercion, the assertion made in the impact assessment that current level of staffing will be maintained following the introduction of the price caps is highly unlikely – particularly at some grades where the cap will bite harder.

Sadly, the additional admin and bureaucracy required to use the “break glass” clauses mean this risk is unlikely to be fully mitigated.

2) Hospitals are likely to end up with less qualified and more inexperienced staff

The broad-brush design of the caps (ultimately no more than 55% above relevant national pay rates) means some types and grades of staff will be more severely affected than others – generally the senior grades. So all else equal, these higher skilled and more experienced individuals will be less available. This may result in some organisations substituting away from the optimal mix of staff towards less ideal alternatives. Younger or less experience staff may be put in high-pressure situations (for which they might lack experience) – possibly leading to increased risk of clinical failure at a time when junior doctors are already coping with increased stress and uncertainty.

3) The NHS will lose some of its best clinicians

The agency doctors and nurses that may stop working for the NHS (in any capacity) because of the price caps will not be random. These will be the doctors and nurses with the highest skills and most experience and therefore those with the best alternative options – such as working in the private sector, moving to other professions or moving to other countries. Losing these valuable individuals could lead to a workforce that has significant gaps in the supply of staff for some specialties.

4) Struggling hospitals may suffer more because of the caps

Price is an important mechanism to help allocate scarce resources, such as qualified clinicians. Interfering with this mechanism is likely to have unintended consequences – particularly in the allocation of scare resources.

At capped rates, an individual doctor or nurse with a choice between two hospitals is more likely to pick the ‘better’ organisation. Struggling hospitals with poorer clinical governance are unlikely to be this choice – poorer clinical governance creates an environment that is both clinically more risky and personally more stressful for staff.

It is unlikely to be a coincidence that struggling organisations have been among the ones with the highest agency costs. The challenging environment increases sickness and absenteeism, increasing the demand for agency staff, while also increasing required rates. Not being able to fill positions makes the environment even less appealing, as a lack of cover makes the positions potentially more demanding.

5) Capping agency fees will punish doctors who require flexible working arrangements

The choice to leave full time NHS employment and work for an agency is a difficult choice – it requires giving up pension, sick pay, security of guaranteed work and career progression. People that make this choice are sometimes those that need greater flexibility than the NHS can offer. This might be because they are bringing up children, caring for other family members, or engaging in education. These individuals are a critical part of the flexible workforce in the NHS.

6) The caps may put agencies out of business

Capping the maximum rates that can be charged for agency staff, effectively caps the profit that can be made by agencies. The difference between the maximum hourly rate (set out in the rules) and the amount staff could earn from full time NHS work (after accounting for benefits such as holiday pay, pension contributions, etc.) leaves a small margin for an individual working through an agency.

After taking into account the agencies operating costs (e.g. provision of compliance and revalidation services), the margin an agency can earn for a successful placement further shrinks. Some agencies may go out of business. Others may have to cut the services they provide (e.g. revalidation) and hope they do not lose their clients.

It may sound appealing to put pressure on agency margins. But this ignores the value agencies add to the NHS – i.e. matching people that are capable and willing to work to vacancies that would otherwise remain unfilled.

If there is a concern that there is a lack of effective competition in the agency market, which would allow organisations to push up profit margins and earn excessive profits, then Monitor should use its powers to conduct a market study and consider making a reference to the Competition and Markets Authority for further investigation.

7) Not capping bank rates will turn the “agency crisis” into a “bank crisis”

Unlike the proposals set out in the initial consultation, the rules for agency expenditure now exclude bank staff. These are staff employed by NHS organisations to fill-in for full time NHS staff as and when needed. If there is a vacancy, someone registered on the bank can chose to accept or reject the role offered. If no one is available, the hospital can ask an agency to find someone.

Excluding NHS banks from the rules means regulating one part of the temporary staffing market, but not the other. So it won’t be a surprise when some people move from an agency to a bank – especially when they can command a rate above the price cap. This will likely turn the “agency” problem into a “bank” problem.

This is bad news for both bank and agency staff. The current plurality of agencies across the country offers choice. Reducing this choice, potentially creating regional monopsonies (single buyers), may give banks the power to dictate their terms of employment with a reduced risk of people moving to alternatives. Being unable to hold the banks to account by “voting with their feet”; staff are likely to end up with worse terms and conditions.

8) Amending the current framework agreements will drive up costs in the future

It is unclear how the proposals will work in the context of the main framework agreements that many of the agencies use to supply staff. These agreements were competitively procured and have agreed terms and conditions.

In the event that these frameworks are adjusted, the effect and precedent it sets needs to be carefully considered. In 2012/13, a mandatory requirement for rate parity between agency and full time staff was introduced in NHS Scotland. After two years, the majority of agency staff were supplied off-framework where rates are considerably higher than those charged prior to the introduction of the framework. Once the framework cap is broken and the “break glass” clauses have been invoked, the rates that will be charged are likely to increase significantly. It is unlikely that this impact will take long to manifest based on the experience in Scotland.

9) A dangerous precedent that will damage the future of the NHS

Government intervention of this sort sets a worrying precedent. Rushed and heavy-handed intervention creates uncertainty and undermines trust – it is hard to predict what interventions will be made and when. Companies that can deliver value (e.g. technology providers) may, after doing their proper due diligence, consider investing their time and resources elsewhere.

Those organisations that do enter the NHS could require higher returns – if there is a risk that agreed terms and conditions may change mid-agreement you will require higher returns to compensate. So perversely, government intervention increases the amount of profit that organisations earn in the short term and have the opposite effect on the NHS finances as intended.

10) Further reinforcing a dependency culture in the NHS

The intervention being made is akin to “micro-management” of how organisations operate in a key area of their business. Staffing is an area that organisations need to own and control on their own if they are to strive to improve in the long term. The intervention removes a large amount of their responsibility and ownership of this and reinforces the dependency culture that is manifesting across the NHS in recent years.

On the plus side, the agency rules may provide the gentle nudge organisations need to get on top of their staff rosters and plans.

Alternatives that minimise harm should be considered

As outlined in my previous blog post, there are alternatives to the agency fee price cap. These alternatives require the regulators and the government to take a longer-term perspective on the challenges they face. Improving “the deal” to full time NHS staff should be a core part of this direction. Money is tight and may get tighter, but a sensible policy should seek to minimise the harm of this on the most valuable assets of the NHS – its staff. These proposals go against this philosophy and hurt staff.


Edge Health are a specialist UK healthcare analytics consultancy that use data and insights to improve the delivery of health and care services, so that better outcomes can be delivered more efficiently.