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Mixed reviews, by Noel Plumridge

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17 June 2005

Slowly but surely, the private sector is making inroads into the NHS, with the active help of the government. While there is no prospect of full-scale privatisation, mixed provision of health care is certainly here to stay – and grow. Noel Plumridge reports

With the general election barely over, the building blocks of the National Health Service in England are once again, it seems, to be rearranged. The spotlight is on the 28 strategic health authorities, created under the Shifting the Balance of Power reforms of 2001. Why so many, the Department of Health is asking. Why not just one for London instead of the present five? The current configuration of some 300 primary care trusts is also being called into question.

These debates will preoccupy the NHS for many months. Restructuring is familiar territory for all who work in the health service. And besides, the previous round of NHS changes is still being digested. Although the establishment of foundation trusts proved intensely divisive among Labour MPs in the last parliamentary term, public knowledge of other core health policies introduced in the past two to three years remains slight.

How many outside the health service are familiar with the new 'payment by results' tariff funding system, or the Patient Choice initiative, or the terms of the new general medical services contract (under which GP practices are remunerated), or the proliferation of independent sector treatment centres? Or, indeed, the combined impact of all these innovations?

For the most part these changes continue to be viewed as technical matters. Patient Choice is perhaps an exception, but the emphasis has been more on consumer rights – and practical logistics –than the strategic implications. Indeed, the original 2002 dissemination of the tariff funding initiative as 'new financial flows' encouraged, perhaps deliberately, the view that it could all safely be left to the accountants.

But the public still cares intensely about the NHS as an institution. And a very public debate has recently begun about the true nature of the NHS reforms, which some suggest amount to creeping, and perhaps irreversible, privatisation.

Private Eye 'Doing the rounds' columnist Dr Phil Hammond considers that 'the playing field is so un-level, the NHS is in danger of sliding off it altogether'. And, in a recent Guardian article, Professor Allyson Pollock, Private Finance Initiative expert and head of University College London's School of Public Policy, compared the situation in the NHS to the recent US takeover of Manchester United. She urged patients to 'insist on being treated in NHS hospitals' and staff to 'refuse to work in the newly privatised sector'.

No major political party would currently dream of challenging the continued existence of the NHS. It is the great survivor of Britain's post-1945 enthusiasm for state-run enterprise. Its Achilles heel, a perceived lack of ready access, has been largely remedied in England in the past two years – so much so that during the recent general election campaign the debate centred not on hospital waiting lists but on cleanliness and the inflexibility of some GP appointment systems. Very few patients now wait more than nine months to see a consultant, and word on the street is that you will be seen promptly and efficiently in a hospital accident and emergency department.

But the means by which this has been achieved is now coming under close scrutiny. And, interestingly, the creation of a market system in the NHS in England has not been imitated elsewhere in the UK. With the election now past, and an announcement by new Health Secretary Patricia Hewitt that a further £3bn of NHS funding will go to the independent sector treatment centres over the next five years, paying for 1.7 million operations, it is perhaps time to take stock of just how far the NHS in England has already quietly become a mixed public-private economy.

England has had private hospital provision for many years, but the independent sector treatment centres – initially known as diagnostic and treatment centres – are a relatively new concept. The original vision of the treatment centre was to bypass the general hospital and offer a fast-access, production-line approach to routine or uncomplicated surgery, thereby improving access for many patients caught on long waiting lists. Priority from the outset was given to orthopaedics (notorious for its long waiting lists) and eye surgery (mainly cataracts).

The treatment centre model does not imply private sector ownership. However, with very large amounts of new government money flowing into the NHS after the 2002 Budget onwards (7.4% more in real terms each year from 2003/04 to 2007/08), and a pervasive view that the NHS finds it easier to consume resources than to improve, former health secretary John Reid – like his predecessor Alan Milburn – found hedging his bets attractive.

As political commentator Michael White noted at the time, the Rubicon was crossed late in 2003 when Reid announced the seven preferred bidders for the £2bn treatment centre programme – five of them South African or North American – and effectively transferred some 5% of NHS surgery to the private sector.

Since then it has been a bumpy ride. John Reid's January 2004 'over our lifetime' projection of a maximum 15% of surgery going to the private sector came to be viewed, before the year was out, as a target. The scope of the treatment centre programme grew in October 2004 by a further 250,000 operations per year, and again last month with Patricia Hewitt's announcement.

There have been criticisms of heavy-handed Department of Health implementation, notoriously in Oxfordshire, where primary care trust non-executive directors were threatened with 'surcharges' if they failed to switch contracts from the Oxford Eye Hospital to a mobile ophthalmic centre. There has also been criticism of the extra costs associated with tempting a wary private sector into the health market – private sector providers tending to be more expensive than the NHS average – although others have noted the increasing sophistication of DoH bulk-contracting in driving down costs.

Nevertheless, there is now a viable mixed economy in elective surgery. If the jury is still out on whether the newly introduced competition has secured the marked improvements in waiting times, or whether the combination of a substantial boost in funding and strict performance management would have had the same effect anyway, NHS acute hospitals feel increasingly exposed.

And the medical establishment is anxious. The introduction of private sector competition has come to be seen as a practical option whenever reliance on traditional NHS models seem to be delaying care: hence the recent controversial letting of a £90m contract with Alliance Medical to provide MRI scans.

If a maximum of 15% of NHS-funded surgery is to take place in independent treatment centres, it is likely that the remaining 85% will be undertaken in future exclusively by foundation trusts, which are already following the same pattern as NHS trusts in the early 1990s. What starts as a small group of pioneers (ten first-wave foundation trusts at the start of 2004/05) working within an innovative governance and funding framework grows into an expectation for all NHS hospitals. New waves of foundation trusts continue to be announced: a further 15 during 2004/05, six more from April 2005.

So are foundation trusts still part of the NHS? The answer is yes … and no. They are funded primarily by the NHS. However, they work within a very different financial regime to NHS trusts, with borrowing powers defined under a prudential code, and have quite different internal governance structures. They are accountable not via the Department of Health hierarchies but to an independent regulator, now known as Monitor. And, in the emerging health care market, they are required to operate as self-sufficient 'businesses', and stand or fall according to their results.

This has already caused some turmoil. Late in 2004 Monitor was instrumental in removing the finance director, then the chair, of the three-star Bradford Hospitals Foundation Trust, on the grounds that the trust had not been sufficiently open about its financial situation. Thanks to the Freedom of Information Act and an inquisitive Financial Times journalist, Bradford's dirty linen was washed in public early this year. The shock waves are still reverberating around the NHS.

Meanwhile, the foundation trusts have been far from supine. Warming to the business ethic, some have already attempted to exploit the emerging market by testing the limits of the barely defined tariff funding system; others have tried to emasculate local competition through strategic alliances, including links with the independent treatment centres.

Some see the foundation trusts as ideal vehicles for further privatisation in the future. However, the NHS has still to address the conundrum of operating a market system within a tax-funded, and therefore cash-limited, overall budget. Additional funding has, thus far, safely cushioned any volatility; but the recent rate of annual growth is not expected to last beyond 2007/08. And, with total health expenditure now approaching 8% of GDP, the risks for the Treasury are high. We might well see attempts to constrain market freedoms once strategic political objectives – such as access targets – have been met.

Attention is now turning to the possibility of a mixed economy in the primary care sector. GPs have always been independent contractors to the NHS, rather than employees of it, but the new GMS contract – one of a batch of changes in employment terms and conditions that together sweep away much of the legacy of 1948 – has made private sector entry into primary care much more practicable. Firms are beginning to see the possibilities.

Under the new contract, GPs are permitted to opt out of providing out-of-hours care. Many have done so. PCTs, however, must still commission 24-hour health care. Enter a whole range of commercial and co-operative entities to fill the gap. Allyson Pollock suggests that 55% of GP out-of-hours services are now to be 'delivered by companies like GP Plus and Asda'.

Meanwhile, the Chilvers McCrea company (run by managing director and nurse Sarah Chilvers and chair and GP Rory McCrea) had by March already won some 14 contracts to provide GP services, in effect establishing a branded chain. It is a model that is arousing some interest, especially among pharmacy chains but also among supermarkets. With many current GPs approaching retirement, the structure of primary care provision could be set for radical change.

There are some obstacles to commercial expansion in primary care, including lack of access to the still-attractive NHS superannuation scheme. But there might also be rich rewards, with the emphasis of health policy shifting away from hospitals and operations and towards public health and the management of chronic illness. Many are watching the relationship between the DoH and firms such as United Health with particular interest.

In the US, United Health ('Evercare') and Kaiser Permanente have been widely praised for their use of case management techniques for chronically ill patients. Last autumn, Simon Stevens, the government's policy adviser through the current reform programme, resigned… to set up United Health's European operation.

Will the move towards a mixed economy in health provision continue? And will the rest of the UK, in time, follow England's path?

Certainly there is no suggestion of any change of direction in England. Hewitt's speech in May – hot on the heels of a commitment to 'listen to everyone' – leaves no doubt that a course has been set. And, if other administrations are not wedded to the market model, they are beginning to envy England's achievements.

Diversity of provision lies at the heart of the Blairite vision for public services. However, it also sits athwart the fault line within New Labour that the general election exposed, and arguably the fault line within the European Union that emerged in recent referendum results.

And, already, the scale of reliance on the private sector is such that any policy reversal would be painful indeed, and immensely damaging to the government's relationship with the City. It promises to be an interesting year.

Noel Plumridge is an independent health care consultant and author of CIPFA's Payment by results: new financial flows in the NHS in England and Financing Long-Term Illness in the NHS, due out in July

PFjun2005

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