Prior to this reorganisation costing billions, the NHS had been one of the most cost-effective health systems in the developed world, according to a study published in the Journal of the Royal Society of Medicine. Public satisfaction with the NHS reached record levels in March 2011; writing on the BMJ website, Prof. John Appleby said 64% of people were either “very” or “quite” satisfied with the NHS. Now, very shortly, the Regulations which will govern the actual operation of the new NHS market will be passed under Section 75 of Health and Social Care Act [2012], in particular s. 75 (3a):

 

 

 

 

 

 

 

It is easy to miss the centrality to the NHS reform of this little clause, but perhaps that is intentional: sweeping changes are underway accompanied by repeated assurances that nothing important’s changing at all, and certainly not the wholesale offering up of the NHS for a commercial “free-for-all”. In fact, it is the regulations issued under this clause that will create rights for the private sector to compete for any NHS funding that is spent on purchasing services for patients.  Health policy experts have been warning of its crucial importance for some time, and it is noticeable that its wording is taken straight from the competition law armoury.

The Department of Health has just devoted a two-month consultation process on this section because the regulations are due to enter the statute book later this month, and will “lay them” before Parliament this month (January 2013). The section 75 Regulations govern procurement, and are to exactly mirror the existing procurement legislation (Public Contracts Regulations [2006] which they will supersede); those, in turn, mirror the 2006 EU procurement laws which integrate with the competition law régime. The effect is to capture the NHS budget into the competition law regime, which in 2005 Andrew Lansley promised a gathering of private providers was his overriding goal for the NHS [1].

It is fundamental to this reorganisation that as much as possible of the whole NHS budget passes through the a competitive market which offers “rights” to private sector participants, as Mr Lansley promised his healthcare industry audience in 2005 [2]. The new Clinical Commissioning Groups (“CCGs”) will therefore not be allowed to evade using the market because of the section 75 regulations.  It is intended that the ‘health sector economic regulator’, Monitor, will enforce the competition law regime in the NHS.

Under the new regulations, NHS money can only be legally spent through one of the two permitted competitive markets, AQP or competitive tendering, and any other way to arrange services will become illegal (except for the contract renewals permitted for previously tendered contracts, which seem to be the sole basis of government assurances to CCGs that not all commissioning will have to be through competitive markets). Furthermore, all company directors are required to enforce competition law in the companies they run, and as many CCGs have incorporated as companies, this will bind their directors.

Why is it so undesirable for patients and taxpayers to manage healthcare through competitive markets? Other than the fact that there is no plausible evidence at all that it is beneficial, there are several reasons to avoid it; these are the major ones:

1. Supplier-induced demand: this explains why it happens in a “for-profit” system

http://www.kevinmd.com/blog/2012/10/healthcare-boon-private-equity.html

And this explains why it’s such a bad idea for patients to incentivise providers to increase their incomes in this way: http://www.tampabay.com/news/health/medicine/little-is-clear-cut-on-hcas-high-rates-of-lucrative-heart-procedures/1246618

And this clarifies the link between supplier-induced demand and financial pressures: http://runningahospital.blogspot.fr/2012/08/lets-do-numbers.html

2. Allowing service providers to provide what they want where they want results in maldistribution of resources, as has happened in Sweden since they privatised their NHS [3]This profit-led effect exacerbates an existing non-financially driven tendency in the same direction, as described by Julian Tudor Hart’s “inverse care law”: (http://www.thelancet.com/journals/lancet/article/PIIS0140-6736%2871%2992410-X/abstract).

In the Netherlands a year ago, competition law authorities fined the national GP association £6.4 million for trying to prevent the same situation as has been allowed to develop in Sweden, rural areas unserved by primary care services  http://www.bmj.com/content/344/bmj.e439

3. The new arrangements for competitive markets themselves add many new costs: they include the need to track every cost item for each individual patient, to run a tendering process and an AQP registration facility, and to regulation the market for contravention of competition law. The competition regulator Monitor recently told Parliament of their intention to take on another 50 staff just in order to do pricing for the NHS [4], plus supporting IT and administrative systems.  Assuming they will be paid at least £100,000 a year each, that is, more than £5 million each year to be spent on a task irrelevant to the delivery of healthcare. Surely this sum could be better spent on employing more nurses, on cost-restricted treatments, on new equipment, or on maintaining our threatened A & Es? Note that competition law makes “preferred provider” status illegal, or any bias towards any particular provider or provider type.

The Act’s requirement for all procurement to be done through competitive markets imposes financial and administrative burden on all providers because bidding is extremely costly: one NHS Social Enterprise last year spent £2 million on preparing a single bid: it came second in a field of five, meaning that the money was spent for nothing.  Private providers keen to break into new markets can find money from their existing profit-making activities to prepare bids that stand out for every opportunity that they think they could make profits at, while the standard of bids from the public sector and charity sectors tends to be low: many have neither the budgets nor the free staff to produce slick bids against tight time limits at all, let alone repeatedly.

So why make this compulsory engagement of competition law a key part of the Act?  There is no evidence whatsoever of any benefit of competition in healthcare.  The handful  of computer modelling studies (Bloom et al., Cooper et al., Propper et al, Gaynor et al.) which the government rely on as their sole source of evidence that competition benefits health outcomes have been entirely rebutted by experts in economics [5] and health statisticians [6] on multiple grounds.

Nevertheless, Jeremy Hunt, the Secretary of State for Health, is busy accelerating the tendering out of health and social care services. The higher the share of the NHS budget that is tendered out to the private sector, the more complicated and expensive will be restoring services that fail. According to Catalyst (a corporate finance advisers who specialise in healthcare):

“Private health firms can expect to win business worth around £20bn from the NHS in the next few years by taking over GP surgeries and setting up new community health clinics”

This is only one small part of the services being tendered out already, while in the medium term everything is up for grabs, as former NHS director-general for commissioning and currently the partner in charge of KMPG’s work with the healthcare industry Mark Britnell told an audience of private equity investors:

In future, the NHS will be a state insurance provider not a state deliverer. In future ‘any willing provider’ from the private sector will be able to sell goods & services to the system. The NHS will be shown no mercy and the best time to take advantage of this will be in the next couple of years.”

A quick “back-of-an envelope” calculation shows that many billions of pounds each year will be wasted on the extra administration now being set up for the benefit not of patients but of commercial providers:

Total NHS budget in England now = £106 billion

At present, 14% of the NHS budget is spent on administration, according to the 2010 Government Response to the Health Select Committee on Commissioning.

From the beginning of the Conservative reforms to the NHS in the 1980s, the increase in costs associated with rearranging them on market lines has been evident: see http://www.radstats.org.uk/no041/healthgroup.pdf

Estimate of NHS budget net of admin costs = ((100-14)/110) x 106 bn = £91 bn

The amount of the NHS budget spent on admin each year at present is thus £15 billion

If the market were rolled back as in Scotland and Wales, and we returned to the pre-Thatcher NHS, we would only have to spend about 5% of the budget on administration, as we used to (it was just above 4% when Margaret Thatcher was elected: http://www.ifs.org.uk/comms/nhsspending.pdf).

 5/95 x £91 bn = £4.8 bn

So the amount of money the government squanders each year on unneeded market administration for the NHS is currently £10 billion. Through the current reform they are switching to a still more expensive model, the US-developed HMO model, which has been documented to spend 31% of all its income on administration [8].

 Estimated amount spent on admin, management and waste (following “reforms” complete progress to US model of healthcare industry)

31/69 x £91 billion = about £41 bn/year

This means that they are about to add another £26 billion a year to the £10 billion we are already spending on having a market in the NHS, in order to extend that market to external providers and convert NHS internal structure to the insurance structure endorsed by the Orange Book and the Adam Smith Institute (see previous blogpost).

This is part of the “opportunity cost” of our government choosing to run the NHS using competitive markets.

They are choosing to throw away £36 billion of our money for public services each year by not removing the market from the NHS (like Scotland and Wales) and claiming the trade and competition law exemption for public services as Canada has done. The s.75 Regulations will lock all NHS services into competition law for the benefit of private providers. And gradually Oliver Letwin’s 2004 prophecy will finally come true:

“Mr Letwin met a gathering of construction industry representatives in his constituency of Dorset West on 14 May [2004]. During the meeting he urged the group of around six local businessmen to work together to win contracts for a new PFI hospital to be built in Dorchester.

Mr Letwin then astonished his audience, however, by saying that within five years of a Conservative election victory “the NHS will not exist anymore”, according to one of those who were present.”

The Shadow Chancellor said that the health service would instead be a “funding stream handing out money to pay people where they want to go for their healthcare”, according to a member of the audience.

Oliver Letwin, Conservative MP, current Minister of State for Policy; and the UK Shadow Chancellor at the time of this remark.[9]

And, in these regulations, we see the market locking in to make his plan come true.


[3] Göran Dahlgren. Profit driven health sector reforms – experiences from Sweden. Background paper for the 15th Turkish National Public Health Congress, 2-6 October 2012 https://www.evernote.com/shard/s31/sh/9d83eb65-10fd-4c76-ad35-5e92db5bb32f/322216671120d3bb5946c113b2105c27

[5] Gravelle H, Santos R, Siciliani L, Goudie R. Hospital Quality Competition Under Fixed Prices. CHE Research Paper 80. Centre for Health Economics, University of York. https://www.york.ac.uk/media/che/documents/papers/researchpapers/CHERP80_hospital_quality_competition_fixedprices.pdf

[6] Pollock A, Macfarlane A, Kirkwood G, et al. No evidence that patient choice in the NHS saves lives. The Lancet, Volume 378, Issue 9809, Pages 2057 – 2060, 17 December 2011 http://www.lancet.com/journals/lancet/article/PIIS0140-6736%2811%2961553-5/fulltext

[8] Woolhandler S, Campbell T, Himmelstein DU. Costs of health care administration in the United States and Canada. N Engl J Med 2003; 349: 768-75. August 21, 2003 DOI: 10.1056/NEJMsa022033 http://www.nejm.org/doi/full/10.1056/NEJMsa022033

[9] ‘Letwin: NHS will not exist under Tories’, The Independent, Andy McSmith, 6 June 2004. http://www.independent.co.uk/life-style/health-and-families/health-news/letwin-nhs-will-not-exist-under-tories-6168295.html

Categories: Competition and markets, Health and Social Care Act 2012, NHS Commissioning

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