by Esther Giles, Former Director of Finance (Specialised Services) South Region of England, SHA member”

This article tracks the extent and nature of marketisation and privatisation in the NHS up to the current proposed move to Integrated care systems (ICSs) and argues that the current ICS proposals are the logical conclusion of the marketisation reforms implemented progressively from Thatcher onwards.

 

Some of David Cameron’s many famous last words were his pre-election pledge in 2010 that there would be no more “top-down reorganisations” of the NHS[1]. He then presided, in 2012, over the most chaotic and unlegislated top-down upheaval of the NHS that can be imagined or remembered. The resulting fragmentation and damage were never resolved, and so the NHS goes limping in the logical conclusion of the relentless drive away from a universal national service, and towards the current proposals for Integrated Care Systems (ICSs) modelled on the US Kaiser Permanente system of Accountable Care Systems.

The 2012 Health and Social Care Act and Marketisation

The internal market was given a fundamental boost by the Health and Social Care Act 2012. Under this Act, all NHS services above a stated value had to be put out to competitive tender, turning the provision of healthcare into an economic activity and, as such, subject to EU competition Law.

Thus, private providers such as Capita and Virgin have been seen bidding to provide NHS services, mainly in community services. Sometimes they win and sometimes they don’t. And if they don’t, they look for opportunity to sue. In the South West, we saw Virgin win contracts for Community Services in Devon[2] and Bath and North-East Somerset (BANES). Richard Branson’s Virgin HealthCare won £1bn worth of contracts in 2016/17. It won these services from the NHS and from non-profit making services such as community interest companies.

NHS acute hospitals have all stayed within the NHS so far, except for a short flirtation between Hinchingbrooke Hospital and the Circle Group, which ended in disaster, with the provider being put into “special measures” in 2015. The picture is very different for mental health care, where the private sector has had continued domination of parts of the market, in 2012/13, 22% (£1.7bn) of NHS mental health spend was with the independent sector, compared with 4% (£1.8bn) of acute spend. Providers include St. Andrew’s Healthcare, Partnerships in Care, and the Priory Group. For secure MH services, they are all building ‘private’ because the NHS cannot afford the capital funding to do so, Typically, these independent sectors beds cost the NHS 20% more than NHS beds[3].

There is no evidence that the Internal Market has been any sort of success. No evidence that competition has improved outcomes in any but a few limited examples where causality is neither clear nor proven. The costs of the internal market are huge. Administrative costs in the NHS were estimated at 14% in 2005 compared with 5% before the 1980s; costs of the internal market alone are estimated in the range of £5bn per annum.  To quote Professor Paton in his 2015 study:

“The ‘market’ in the NHS is a major source of waste. Creating and maintaining markets has incurred huge direct costs and significant ‘opportunity costs’ – money which could have spent upon patient care and clinical redesign.”

The Private Finance Initiative

The Private Finance Initiative (PFI) was introduced by John Major’s Government from 1992 and was embraced by the subsequent Blair government as a means of removing spending from Government balance sheets and thus reducing public spending in the short term. Most authorities would accept that the PFI has failed, and at material cost to the taxpayer.

The promulgation of the Neoliberal Ethos in the NHS

Progressive neoliberal reforms have reinforced the ideology of the market. All have fragmented the provision of healthcare and siphoned public money off into private sector balance sheets, shareholder dividends and profit margins. At the same time, pressures on NHS budgets require NHS management to reduce costs. It seems that the NHS has been presented with an imperative to cut costs and handed privatisation as an alleged means to this end.

The NHS is one of the most efficient and trusted healthcare systems in the World. One of the reasons for its efficacy and efficiency is that people are given care according to their needs and irrespective of their means. This ethos belongs to its workers as well as to the organisation; for many people who work for the NHS, it is a vocation, and they care deeply about what they do. They have the intrinsic motivation that drew me to a career in the NHS. But, over the past thirty-five years, this ethos has been progressively undermined by the neoliberal ideology that delivery and innovation must be driven by competition and the profit motive, and that input costs must be minimised. This ideology appears to have been accepted, without challenge, by every government since and by the top management of the NHS, despite many public campaigns against privatisation. The consequence of this, combined with a political austerity consensus – that the deficit must and will be reduced by cutting public spending and selling off public assets, means that cost-cutting is accepted as part of the “solution” for the NHS. In a ‘business’ where more than 70% of costs are staff related, the next leap of logic is that staff costs must be cut.[4] This is interpreted and delivered in a number of ways, all of which serve to undermine the quality and energy of the NHS workforce and which include pay freezes, dilution of skill mix, reducing “management costs “, and the outsourcing and privatisation of individual components of the NHS.

Many people- and not just socialists- have been dismayed over the years at the continuing and relentless reorganisation, marketisation, privatisation and fragmentation of the NHS. The market, with its endless and costly hand-offs between one commercial entity and another, cripples the best efforts of professional staff and those that support them.  Not only are these hand-offs costly to procure, but they also require constant and detailed policing. Furthermore, continuous reorganisation and market testing destroy morale and organisational memory. All these results of the market take focus away from patient care. I believe that the NHS works best with a collaborative rather than a competitive ethos. Where decisions about care are driven by the needs of the patient, not by the scope for profit. Where quality is a prerogative always, not just when it helps to win a contract. Where the entire NHS budget is used to provide and support patient care.

NHS workers bear the brunt of the rhetoric and dogma at the heart of current policy, being presented as a cost rather than a benefit, a “burden” on the state, the costs of whom must be minimised. They must” tighten their belts” like everyone else – apart from the wealthiest. Now, the biggest crisis in the NHS is the lack of qualified staff, exacerbated by the removal by the current government of bursaries for nurses and by its disastrous instrumentalisation of migrants’ rights in Brexit negotiations. ​ It is a crisis brought on by what appears to be deliberate incompetence by the Government, mitigated only by the continued introduction of qualified staff from third world countries.

The Extent of Privatisation

A simple measure is the proportion of NHS spend on private sector providers as reported in the Department of Health Accounts. In 2004, this was 2.8%. and in 2018/19, it was reported as 7.3%. with privatisation accelerating after the Health and Social Care Act 2012. However, these figures mask the extent of private provision within NHS providers, where many ancillary services- such as cleaning, catering, portering and pharmacy- have been outsourced since Thatcher’s 1983 initiative. There is also spending on private providers of primary care (including GPs) to take into account. After adding these into the figures, the total spend of NHS England in the private sector in 2018/19  is estimated by David Rowland, Director of the Centre for Public Health and Interest as £29bn, or 26% of NHS England spending. So, there’s little doubt that privatisation is increasing in the NHS, and that “market reforms”, compulsory tendering under EU Law (until now), and a lack of ready cash are important drivers of this. It is of huge credit to NHS workers that, despite these onslaughts and years of pay freezes and cuts to services, they soldier on.

Consultation on Integrated Care Systems

The fragmentation forced by the disastrous 2012 Health and Social Care Act exposed the gross dysfunction of the internal market. It set commissioners against providers in an endless spiral of tactics to gain at the expense of the other, at huge administrative and organisational cost. The concept of the ICS could, in theory, see a return to the local system approach adopted in District Health Authorities (DHAs) prior to NHS marketisation, with funding being based on populations adjusted for cross boundary flows, with no internal market, and with local systems agreeing plans and setting budgets and quality standards for local services. This would provide the opportunity to remove layers of bureaucracy and unnecessary accounting and contracting and enable savings to move out to fund the front line. But it is clear from the consultation document that this is not the intended approach. And neither was this ever intended.

 

The very core purpose of ICSs is to drive down care based on demanding cost savings targets imposed by the Government, in a service that is already one of the most efficient in the world. The ethos, even the language[5]  is that of the American accountable care system, where being seen to be cutting costs (and creating an industry out of that) is a key organisational driver and measure of success. And it is crystal clear that the policy march started by Thatcher and continued through Major, Blair, Brown, Cameron and May was to implement the Kaiser Permanente model first introduced by Alain Enthoven, and whose thinking was adopted by the Central Policy Think Tank when the internal market was first introduced into the NHS

Specific Areas to address in the consultation document (and for Labour to develop) are suggested as follows:

  • the document retains the language and structure of the internal market in that it refers to provider organisations and provider collaboratives, and commissioners. The inference is that fragmentation can be addressed by provider collaboration (and, presumably, ultimately merger). Thus, it intends to retain the most pernicious and inefficient components of the internal market. A socialist radical approach (and which is Labour Policy) would be to remove the internal market altogether, and focus on quality assured service provision, supported by rigorous benchmarking of quality and cost and an overarching strategic and operational planning function. Undoubtedly there are extraordinarily strong vested interests in retaining the status quo, with “providers” having developed as big businesses in their own right.
  • The consultation document refers to “digital and data” to drive system working, and yet there appears to be no single NHS solution for this. Instead, there is a “Framework” calling on a wide range of “providers”, and the suggestion that there should be “shared contracts and platforms to increase resiliency”. An alternative to this would be an NHS-wide and provided digital data and information service.
  • Each System/Geographic area will have its own pot of money covering the whole of local spending on healthcare. Transactional costs are intended to be reduced through the “blended payment” model. An alternative approach would be to remove tariffs and set budgets based on the costs of the services required by the system. These costs could be budgeted on a variable basis using agreed parameters (such as variable capacity requirements).
  • Specialised Services need to be planned on a larger geographical footprint than other general services. This will require collaboration and planning between ICSs so that the needs of each ICS population are met in an equitable and efficient way. The funding for the relevant services should sit with the local ICS (managed on the same principles as RAWP with DHAs) so that they have the funding required to budget for all their locally provided services. Whatever mechanism is put in place should minimise transaction costs.

[1] In a speech at the Royal College of Pathologists on 2 November 2009, Cameron said: “With the Conservatives there will be no more of the tiresome, meddlesome, top-down re-structures that have dominated the last decade of the NHS.”

[2] https://www.somersetlive.co.uk/news/health/virgin-care-set-lose-multi-2038196

[3] Based on tariff data collected internally by NHS England in 2018/19

[4] “‘Since it takes time to train skilled staff, (for example, up to 13 years to consult), the risk is that the NHS will lock itself into outdated models of delivery unless we radically alter the way in which we plan and train our workforce. HEE will therefore work with its statutory partners to commission and expand new health and care roles, ensuring we have a more flexible workforce […]” [5 Year Forward View, page 30.]

[5] Along with the structures, the purpose, and the key role of US healthcare corporations in importing it to the UK, even phrases like “Right care, right time, right place” to advertise the NHS Long Term Plan’s service closures programmes, are lifted straight from the language of accountable care in the US. It is not a coincidence that the Healthcare Financial Management Association (the professional organisation representing finance professionals in the NHS) has, for many years, operated an exchange programme with the US, and with many conferences featuring US healthcare models. The HFMA offers courses based on the US model.

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6 Comments

  1. Colin Slasberg says:

    Virtually all social care is now outsourced, mostly to the for profit sector. The experience has been a huge variability from the poor, even abusive, to excellent. People and organisations with firm commitment to the value of good service, but want to be in control of their own services to be able to do so, to the best of their ability, can also meet their financial needs through a profit deemed by all to be fair, on the premise that a fair profit is not profiteering. A fair profit is little different from the public purse paying mortgages with senior managers in local authorities taking home six figure salaries.

    Does this experience suggest a midway point between markerisation and nationalisation? Certainly the market and the competition it brings has no place. But the local planning model suggested in the article could deliver through a network – not a market – of providers, some of whom might be independent organisations. The most important strength is the depth and breadth of knowledge within the local planning body to get the network of provision in place best equipped to meet the needs of the communities served.

  2. ejmgiles says:

    There are ideas here worth exploring. Certainly we need a new understanding of how publicly run services are managed and are accountable. in recent years, public sector “leaders” have benefited from ever-increasing salaries on the basis that they should be remunerated consistently with the private sector and that, presumably, they need similar skills- because, after all, they too operate in a market. This topic is worth a whole new article at the very least.

  3. Colin Slasberg says:

    Esther – I would be happy to draft something to run by you if you wish. My email is colin.slasberg@gmail.com

    1. ejmgiles says:

      thank you Colin. I would say that small businesses are not parasitic in the way that global capital is. There’s a big difference between a committed and caring local qualified practitioner and the Capitas and Virgins of this world. Yes let’s discuss.

  4. Kathrin Thomas says:

    Great piece, informative and clear. I would love to see more analysis comparing the marketisation of NHS England with the non-marketisation of NHS Scotland and NHS Wales. Wales abolished the internal market in 2009, but we struggling with making planning work as an alternative to commissioning, as the skills to do this well were eroded over many years of Tory rule and needed to be built up again after devolution

    1. ejmgiles says:

      I agree that we need to look at the Wales and Scotland arrangements an their strengths and weaknesses, and how the latter can be addressed. Planning frameworks based on something like the National Service Frameworks and requisite skills would be a start.

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