12 May 2006
Introducing a market into local health provision can in theory increase user 'choice'. But in practice the most likely result is that a few giant firms will end up running all the services in ever-larger areas
More choice in the NHS will mean more equality of access. At least, that's the argument being put forward by several commentators, including various health secretaries and academics such as Professor Julian Le Grand. But will it work in practice?
There is a risk that the mechanisms introduced to increase choice will harm the very communities that Le Grand argues would benefit most from it. The
point is not only to provide choice, but also to understand the nature of it, including who the operators are, whom they employ and whether the competition between them will be real.
The 'grand plan' is to stimulate improvement by creating a market of community service providers. Local commissioners, either primary care trusts or GP surgeries, will be able to commission on behalf of patients the services most appropriate to their needs.
A multiplicity of providers will, it is argued, encourage greater flexibility and innovation and closer tailoring of services to local needs and priorities.
But there will obviously be knock-on effects for the local economy. The white paper Our health, our care, our say acknowledges the role of NHS spending in the local economy and commits the government to support social enterprises entering the health providers' market. There will be some development funds and a support unit in the Department of Health.
So far, so good — the idea is that health spending underpins local jobs and skill development, so maintaining the spending within communities is an essential part of sustainable development. If the idea of keeping health spending local could be enforced, it would mitigate some of the fears triggered by marketisation.
However, can this well-intended model square up to the twin pressures of contracting — pursuit of the lowest possible cost and the tendency of suppliers to agglomerate? I fear that without protective regulation, a vibrant market of local providers will remain an aspiration. The reality will be the emergence of a small number of suppliers, awarded ever-larger contracts. A similar consolidation has taken place in the bus market following deregulation. A key accelerator of consolidation that pushes smaller operators out will be the cost of participating in the local health market.
Costs — which drive bidders' prices — reflect a number of elements, such as the day-to-day outgoings of the provider, the investment required to acquire know-how, capital equipment, support of training and innovation, profit margins, risk premiums, commissioners' specific requirements and bidding costs, including provision for unsuccessful bids.
Successful bidders will have to combine innovation with low cost. For smaller companies, training, innovation and participating in bidding processes costs proportionately more than for larger ones. If they need to invest to fulfil a contract, they are likely to be considered a risky prospect by lenders because their income streams are not as diverse as those of larger providers. If they are charities, their ability to assume risk is even more limited.
Local commissioners will need to think hard about how to overcome these hurdles. It could well cost money — which is where the pressure to let contracts at lowest cost will kick in. For example, if commissioners try to include knowledge-sharing clauses in contracts, they are likely to find that contractors put a price on sharing their intellectual property with competitors, if they are willing to do so at all. This will make market-based provision more expensive and will slow down innovation when the goal is to speed it up.
Since the government is committed to developing local markets, the likely outcome is that larger companies will have the edge. Furthermore, commissioners will be tempted to get together and offer larger contracts, as this can cut costs. Smaller companies will lose out and agglomeration is almost inevitable. The impact on costs and quality of outcomes is unclear to say the least.
If the government wants to harness the market yet avoid its pitfalls, it will have to regulate closely the terms of reference for commissioners and demand that high levels of transparency are written into all contracts.
Without regulation, the market might not deliver the better quality care and local accountability that diversifying local health provision aims to achieve. But, with little regulation on offer and given the financial pressures, a more likely outcome is that the wider goals are ditched and we witness the unwelcome rebirth of Compulsory Competitive Tendering.
Monolithic state provision might not be the answer to quality and accountability, but neither is marketisation if it leads to an oligopoly of private sector providers.
In health care, as in most public services, the price of markets is eternal vigilance.
David Janner-Klausner is co-ordinator of the Local Government Information Unit's Democratic Health Network
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