Lansley's GP lottery, by Zack Cooper and John Van Reenen

16 Jul 10
There are things to like in the health white paper and it’s encouraging that the coalition government is actively promoting choice and competition in the NHS. However, the wholesale transfer of purchasing power to GPs is too much and too fast.

For those who favour introducing more competition into the NHS, there’s quite a bit to like in Monday’s health care white paper. It encourages public and private health care providers to compete for care; expands patient choice; and places a tremendous premium on publishing transparent information on a number of dimensions of clinical performance.

These elements of the reforms are crucial for the health service.  Ultimately, increasing competition in the NHS is vital to improving quality and efficiency – just as it is in other sectors of the economy.  In fact, work we have published at the Centre for Economic Performance illustrates that reforms to the NHS in the mid-2000s helped increase competition, which saved lives, improved efficiency and boosted management quality.

It’s also encouraging that the white paper calls for flexible pay across the country.   Giving hospitals the ability to set wages will allow them to hire the kind of staff they want and need to run their organisations efficiently.  Adding pay flexibility should also go a long way towards reducing the sweeping variation in mortality rates across the country.  Indeed, widely reported work we’ve recently published illustrates that the current pay regulation policy has contributed to higher death rates by depressing real wage rates in high cost areas like London and the South East.

Those aspects of the reforms aren’t radical.  In fact, they continue the trajectory of Labour's NHS reforms to promote choice and competition in the health service.  The problem is there are other elements in the reforms that are in tension with this evolution and which break health secretary Andrew Lansley’s pledge to avoid sweeping top-down shakeups of the NHS.

The reforms place an extraordinary amount of power into the hands of England’s general practitioners.  GPs will be given the ability to commission nearly every aspect of care for NHS patients and they will be collectively responsible for almost the whole of the health budget.  While there is some reason to believe giving this sort of power will increase care in the community, which is vital to reining in NHS spending, the proposals are worrying because it’s just not clear that GPs are up to that task being proposed.

However, there is some precedent for giving GPs more purchasing power.  In fact, the previous Conservative government did just that in the 1990s with some positive results.  Published evidence examining the GP fundholding policy suggests that it reduced pharmaceutical use, lowered elective referral rates and allowed GPs to make some savings by lowering the demand for clinical services.  This kind of check on demand and built-in incentive to provide care locally is badly needed in the NHS right now.

Unfortunately, the GP fundholding programme from the 1990s clearly had very tangible downsides. In the long term, GP funding led to higher managerial and transaction costs. That’s precisely because GPs had to spend vastly more of their time negotiating with hospitals, while hospitals had to spend more time and money negotiating with them.  In what also should be a very worrying factoid for David Cameron, GP fundholding led to a substantial drop in patient satisfaction.  One explanation for this unhappiness is that GPs were spending more time working as managers and less time dealing with patients.

So what are the implications of giving GPs expansive commissioning power more than a decade after GP fundholding was abolished?

On the positive side, there is some reason to believe that the transaction costs for GP commissioning this time around will be less dramatic than they were 15 years ago.  Right now, hospitals cannot alter their reimbursement rates, so the negotiations between GPs and hospitals will be vastly simpler than they were in the 1990s.  This time around, GPs will spend the bulk of their time purchasing care, rather than negotiating rates with hospitals.

Indeed, there is also plenty of evidence of very entrepreneurial GPs who are more than up to the task of commissioning.  Our fear, of course, centres on what will happen to the commissioning process for patients registered with GPs who either have no inclination or capacity to purchase services. That could prove calamitous.

Another argument in favour of giving GPs commissioning power is that it will make it easier for poorly performing hospitals to fade away and close.  There’s an old adage: if you owe the bank £10,000, you’re in trouble, but when you owe the bank £10m, the bank is in trouble.  That credence is very applicable in the NHS today.  In the current NHS, failing hospitals are a debacle for primary care trusts (PCTs).  The PCTs reliance on local hospitals and their mutual, symbiotic relationship means that if a hospital fails, it also fundamentally threatens the local PCT.

That won’t be the case when GPs are the commissioners.  If a hospital is performing poorly, it will be able to close its doors and the smaller, more dynamic GP consortiums will be easily able to shift their patients to another provider.

The problem with giving GPs fundholding power is that it’s not clear that GPs are on board with the government’s ambition to increase choice and competition in the NHS.  These reforms will place GPs in a position to throw the government’s overall policy agenda wholly off course. What should also worry David Cameron is that Hamish Meldrum, the chair of the British Medical Association Council, has explicitly said that GPs should take over commissioning so that they can blunt the government’s push for competition.

Along those lines, recent work by a team at the King’s Fund found that while over 75% of patients were extremely keen to have a choice, GPs did not regard choice as imperative for patients. What’s more, GPs were reluctant to offer patients their private sector options for care and in some cases, were reluctant to offer patients any choice whatsoever when specialist treatment was required.

In sum, there are things to like in the white paper and it’s encouraging that the coalition government is actively promoting choice and competition in the NHS.  However, the wholesale transfer of purchasing power to GPs is too much and too fast. The new health secretary campaigned on a pledge to eliminate top-down shakeups of the health service.  This white paper contradicts his campaign promise.  In the long term, giving GPs purchasing power might very well work, but it needs to be trialled, tested and piloted.

This is a general rule for policies across all areas of government. At the moment, when funds are tight, this big a shift of purchasing power to an untested system is an extraordinary gamble given that we know that large-scale shake-ups typically cost substantial time and money – something in short supply over the next few years.

Zack Cooper is a health economist at LSE Health and the Centre for Economic Performance at the London School of Economics; John Van Reenen is director of the Centre for Economic Performance and professor of economics at the London School of Economics

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