The future of the NHS? Lessons from the market in social care in England

Executive summary

This was first published by the The Centre for Health and the Public Interest where the full paper is available and is reproduced by permission. The authors are Marianna Fotaki, Sally Ruane and Colin Leys

Market for health

The market in social care services in England provides the best available example for policy makers of what happens to the quality of care and the terms and conditions of the care workforce when competitive pressures are used to bring about a reduction in the cost of care to the taxpayer.

The Health and Social Care Act 2012 puts in place a framework to create a competitive market in NHS-funded care services in England, and places requirements on local commissioners to put many NHS-funded services out to competitive tender. And this is all happening at a time of financial restrictions and rising need.

Whilst there are many differences between the current structure of the NHS and that of social care, there are nonetheless a number of lessons which policymakers can learn from the  xperience of social care markets in England for the future of the NHS.

This discussion paper highlights the following four main lessons based on the evidence from the operation of social care markets over the past two decades, and asks whether what has happened in social care could be repeated in the NHS in England.

Lesson one: The growth in private sector provision of state-funded social care services was rapid

Social care provision was not nationalised under the 1948 settlement, however local authorities and central Government still provided a significant share of residential and nursing-home and domiciliary care services (‘home care’) until it became explicit policy under the Thatcher and Major governments to create a market in this area.

Thus in 1979 the proportion of residential and nursing care services provided by the state was 64%. By 2012 this had fallen to just 6%. In state-funded home-care  services the private sector provided 5% in 1993. By 2012 this had risen to 89%. Most of this shift occurred in the 1990s and 2000s following the Community Care Act reforms, which required local authorities to purchase care services in the independent sector, required them to demonstrate ‘best value’ in the care that they purchased, and encouraged the transfer of local authority care homes to the private sector.

Could this happen in the NHS in England?

During the passage of the Health and Social Care Bill the government assured parliament that the vast bulk of NHS care would continue to be provided directly by the NHS once a market was created. However, if the experience of social care is anything to go by this is unlikely to be the case.

As a result of the policies which began under the last Labour government, almost 10% of NHS care purchased by clinical commissioning groups is now purchased from the independent sector. In the last 5 years there has been a 55% increase in privately-provided NHS care, with huge growth for the private sector in the community health services sector in particular. And this has occurred before the Section 75 regulations of the Health and Social Care Act, which require the competitive tendering of some NHS services to the private sector, have started to have an effect.

The government has now put in place levers similar to those used to create the existing social care market to potentially bring about a substantial switch from state-provided to privately-provided health care, including provisions to transfer not only services but whole NHS hospitals to the private sector.

Lesson two: Introducing competition as a means of reducing costs impacts significantly on the quality of services

A market in social care was introduced, in part, as a way of keeping the costs of state-funded social care under control. By restricting the funding available to local authorities to provide care services at a time of increased need, successive governments have forced local authorities to generate ‘efficiencies’ through contracting with the lowest-cost operators in the independent sector.

This competition between providers to win contracts from local authorities on a lowest-cost basis has driven down the quality of care in many instances to the ‘minimum quality level allowed’. Indeed the current Care Minister, Norman Lamb, has acknowledged that the current system ‘incentivises poor care, low wages and neglect, often acting with little regard for the people it is supposed to be looking after’.

Could this happen in the NHS in England?

The government has ostensibly ruled out competition on price in the NHS through setting a national tariff, with the intention that competition between providers should only take place on the basis of quality. But price competition remains a possibility as there are opportunities for commissioners to set prices at local level below the national tariff.

In addition, the market in NHS care is being created at a time of rising need when there is also significant pressure on commissioners to generate efficiency savings, including proposed reductions in the amount paid to providers of 3-4.5% next year.

Moreover, with the prediction that by 2065 health care funding could consume 23.5% of GDP unless something is done to bring about further efficiencies, it  is unlikely that future governments will not seek to use competitive market pressure to keep prices down and costs under control once the market in NHS funded care services has been established.

The implications for the quality of NHS care remain uncertain but the experience of social care suggests that using competition to keep costs under control at a time of rising need has a negative impact on the quality of care provided.

Lesson three: The drive to keep costs down through competitive market pressures has led to the de-regulation and casualisation of the social care workforce

The impact of marketisation in social care services over the past two decades can also be seen in the current state of the social care workforce. Social care workers often receive pay below the minimum wage and a significant proportion are operating on ‘zero hours contracts’. The 1.4 million care workers in England are unregulated by any professional body and less than 50% have completed a basic NVQ2 level qualification, with 30% apparently not even completing basic induction training.

Yet despite this, the tasks which care workers are undertaking are becoming increasingly complex, whilst the needs of those that they are looking after are becoming more serious as a result of the growth in the number of people with Alzheimer’s Disease, diabetes and dementia.

Because the main cost of care provision is the workforce, any private care provider seeking to compete in a market designed to drive down costs will inevitably respond by reducing rates of pay, limiting the training available to workers whilst expecting them to take on more complex tasks, at the same time as the vulnerability of their clients has increased.

Could this happen in the NHS in England ?

As was revealed in Robert Francis’ report into Mid Staffordshire NHS Trust, NHS hospitals facing intense pressures to keep costs down are now relying on unregulated and poorly paid healthcare assistants and other ‘auxiliary workers’ to provide the care formerly delivered by nurses.

The recent government-commissioned report into health care assistants found that there was an increase in the number of healthcare assistants employed in the NHS 2011-12 but an overall decrease in the number of nurses with health care assistants undertaking increasingly complex health care procedures.

In addition, one of the benefits identified by the government of using the private sector to deliver care was the fact that they were not constrained by NHS terms and conditions. Greater private sector involvement at a time of financial restrictions will inevitably put additional pressure on the terms and conditions of the workforce.

The extent of these changes will, however, depend on the professional associations and trade unions representing medical and other health care professionals, which are significantly stronger than in social care.

Lesson four: Provider failure is an inevitable consequence of any care market, with significant implications for patients, care users and their families

The experience of social care markets in England is that care homes and home care providers go out of business. In many ways this is an expected and desired consequence of any competitive market. The high rate of care home closures in England – with nearly 1400 closing between 2003 and 2010, often with less than 4 weeks’ notice – and the harmful effects that this has had on the residents of care homes and their families is a central lesson from the operation of social care markets. Again, one of the chief factors forcing care homes out of business is the squeeze placed on the fees paid to them by local authorities seeking to generate savings.

The social care market has also witnessed a significant consolidation, particularly in residential care services, with 20 companies now owning 30% of all the care home beds. This amount of consolidation has started to worry the government, particularly following the collapse in 2011 of one of the largest care home providers, Southern Cross, which owned 31,000 beds. The financing arrangements for these large providers suggest, according to the government, that 6 major providers will collapse at some point in the next 10 years.

Could this happen in the NHS in England?

The government acknowledges that providers of NHS funded care will go out of business in the new market, which includes both NHS providers and independent providers, and a number of NHS trusts have already entered into administration.

In addition, the private health care sector which will provide services to the NHS in the future is, like the social care sector, largely dominated by a small number of large operators. Thus just four companies owned 61% of the current independent acute medical and surgical hospital sector. On this basis, the possibility of a major provider of NHS services collapsing in the future cannot be ruled out.

Conclusion

The lessons from the development and operation of markets in social care are clearly important and have direct implications for anyone who reflects on the creation of a market in the new NHS in England. This is particularly the case given the already rapid growth in private for-profit provision of NHS-funded health care, even before the Sector 75 regulations have started to impact on the amount of care commissioned from the private sector.

The justification given for introducing market competition into the NHS is that it will improve quality for patients and increase their ability to choose the health care services that meet their needs, which will in turn act as a spur to innovation and improved performance by public providers of health-care services. However, as this discussion paper shows, the experience of the introduction of social care markets in England over the last two decades is that competition has driven costs down with a significant impact on quality, has led to the casualisation and de-professionalisation of the workforce, and has left care users and their families vulnerable to a major provider collapse. It suggests that the NHS is susceptible to similar outcomes and unintended consequences as the market in NHS-funded care grows.

In many ways, the Government appears willing to accept these negative aspects of its policy as it believes that only market competition and the incentive structure that this imposes on care providers will allow the NHS to become efficient and therefore affordable. In doing so it places significant trust in an increasingly complex regulatory framework to counteract the worst aspects of market failure.

However, a further lesson from the operation of social care markets is that both financial and quality regulation have been ineffective in ensuring either the security or the quality of provision, and thereby in maintaining public confidence.

The experience of markets in social care are not all directly transferable to the NHS, but the issues and lessons that are highlighted here raise significant questions which at the very least call for public debate and the development of informed mitigation strategies.