Two major changes to the NHS in England were brought about without any real political discussion and had no electoral mandate. This is as true of the move to a quasi market by the last administration as it is of the move to a full market by the current one. Partly for this reason, the debate around markets, marketisation, privatisation and the aims of the NHS is incoherent and fragmented. Some kind of rational framework for the debate, if we are to be permitted one, might be helpful.

There may still be a few who believe that we can fund everything through the NHS and there is no need to make any decisions about priorities or about allocating resources or provider efficiency. The vast majority accept that in any health system demand will exceed supply and so there have to be mechanisms to resolve the issues which arise. Healthcare costs tend to rise far faster than GDP, under any system, and there has to be a constant drive for efficiency, and effectiveness. In our NHS we are at a crossroads faced with the need (?) to cut £20bn of expenditure in 4 years, perhaps the greatest challenge ever faced by any service.

So the issues are important and we need to frame the debate and ensure we all use the same terms.
The debate about use of markets and competition is rooted in the need for efficiency; getting the most health care from the available budgets. Efficiency comes in two types, allocative and technical.
Allocative efficiency is concerned with how resources are allocated; how much is spent on a, b, c as opposed to d, e, f. In our NHS this is achieved through political and bureaucratic means and markets play no part at all.

Technical efficiency is about how providers are made as efficient as possible so the charge they make (or the tariff that is set) is as low as possible – or alternatively the least resources are consumed in achieving the outcome required from the provider. In real markets both allocative and technical efficiency are achieved. The economic reality that poor decisions about allocating resources can totally undermine any benefits through technical efficiency is comprehensively ignored in most discussions of “markets”.
Markets are the mechanism by which supply and demand are brought into balance by some kind of non planned means, the blind operation of the market. For a market to exist there has to be more than one provider (or at least the potential for more than one), competition and choice.

You can have choice without competition – you choose which hospital you go to but your decision does not impact in any way on the economics of the hospital you choose. You can have competition without choice – professionals motivated by the publication of comparable outcome data even though this did not affect which patients they treated.

Economic theory asserts that markets work when both choice and competition are present and that that providers are affected by the operation of both to the extent that they have to respond. And for a market there have to be mechanisms for new providers to enter and for old ones to exit. The argument about whether markets deliver anything at all in the way economists suggest, since the models are a vast oversimplification, is beyond this humble work.

In a real market the price of the commodity (or service) is relevant and the mechanisms reflect some financial evaluation, conscious or unconscious. In a quasi market, the competition is not based on economics –competition between providers when the price is fixed is the best example.

There are also three kinds of market at work in our NHS. The first is the market which operates when the consumer (patient) makes the choice about which provider to use; and this currently applies to some planned care. The second type is when the “commissioner” makes a choice through a procurement process about what provider to award a contract for provision of a whole service, usually on a time limited basis. Type one is competition within a market, type two is competition for a market – once you have it there is no choice for patients. The two market types are inextricably and confusingly intertwined in the NHS. The third type is when a provider (either appointed or commissioned) of a service subcontracts all or part of it through a tendering process.

The role of the commissioners is to gain the best health outcomes for the population it serves, within the resources available. They are strongly influenced by a needs assessment. They are a combination of planner, regulator and performance manager. They make the allocation decisions bureaucratically and to use contracting to get efficiency of provision. This is type 2 market territory. However if there are also type 1 markets in operation with, for example, many patients choosing to get their treatment from providers outside the area, then the commissioning model will not work. If there were a full market then there is no role for a commissioner, although most markets have some form of regulator. Like the “allocation” issue this is something else that discussions avoid.

Marketisation is what we have seen and are seeing; which is a drive to introduce market mechanisms into the NHS, in stages, so far as this is logical to do. The markets will mostly be financial ones but might also be quasi, based on quality. This kind of market could operate within a wholly public sector system where all the various planners, commissioners and providers were all public sector bodies.

Privatisation is a process where public assets and services that were delivered by public sector organisations are transferred to the private sector. For most purposes the private sector means anything not public sector, so it includes any kind of voluntary organisation or social enterprise. We could have privatisation without a market, and we could have a market without privatisation.

In order to manage the NHS there has to be some system, or systems at work. The usual segmentation formulated by Julian LeGrande, is between four mechanisms – voice, trust, targets and market forces.
The importance of “voice” is growing because recent generations are less passive, more ready to gather information and express their views even to the trusted professionals. More importantly there is evidence that involvement of patients in their treatment, and involvement of communities in local health projects are both beneficial. Voice also coves the need for elements of democratic control and accountability over a public service.

Trusting the professional to do what is best was the original organisational principle for the NHS and there is still a strong tendency within the NHS and outside to regard this as the best approach: an NHS made up of “knights” striving only to do good. The reality is that the introduction of “management” into the NHS is irreversible, and the idea of just “leaving it to the doctors” would probably be laughed at. There are those nostalgic for some golden age when the NHS ran smoothly and patients prospered without nasty managers interfering; this is an illusion.

Both voice and trust have a part to play but neither, nor both, on their own can be enough to deliver an effective and efficient system – neither is powerful enough to change the behaviour of providers. The centre ground of discussion is the extent to which a top down, planned, hierarchical system with targets and performance management, can be replaced by a market system where competition operates to drive innovation, efficiency and improved quality. It is partly a debate informed by assertion and limited evidence but also by ideology and politics.

Looking then at the spectrum of views about the issue then we can see the main camps:-
Those who believe that the NHS is a public service and that it is morally wrong for any such service to have any elements of markets within it. Performance management and targets distort the essential character of the service. A variation would be that there is some tolerance of “management” and “planning” of some sort; but still with the “trust” model predominant.

Those who argue that there is good evidence to show markets do not work in a health system. They have a rational case to argue both in economic theory terms (around market failure) and evidence from the acknowledged failure of market reforms to work so far within the NHS. They would accept planning within the system and so implicitly targets and performance management of some kind.

Those who accept there can be a role for market and see competition as a genuinely beneficial thing, but only under tight regulation. They accept a role for private providers but strictly regulated. They see the NHS as more than a logo and so have reservations about the extent of private provision and may set clear boundaries and operate preferred provider models for type 2 competition (for contracts). Allowing choice for some service with a wide range of competing providers from all sectors is accepted (the eyes and teeth model) so long as providers meet stringent quality base entry requirements. Accepting the limitations of markets there is still an overall managed system with powers for intervention to protect vital services.

Those who take the third way – that what works is best. And markets work elsewhere so long as the conditions are right, so just ensure this is the case. Regulation is necessary but needs to be there to encourage markets. The major problem is that the evidence about what works is contested, and generally just tells us we don’t know enough. Still they accept in principle greater competition and would encourage new entrants from the private sector which they see as more flexible, more innovative and efficient. They favour type one competition (for a service with patients choosing). But they still see an NHS as a managed system at some level with some type 2 competition and even non contested public provision for some services.

Those who accept a rationale for markets as the only mechanism powerful enough to resolve the long standing issues within the NHS and are motivated to use markets wherever possible, using incentives for new private entrants. They only like type one competition and would go further so that patients actually had the resources through direct payments so they could choose and buy the care they required. They favour privatisation to break the state monopolies and so give a more genuine market. They do accept however we still have a system free at the point of need and funded out of general taxation.
Those who see no future for the NHS as any kind of publicly delivered service and would have a full market system with all that implies. Various models for this do exist in other heath systems.

These are not strict boundaries and you can mix and match amongst various views but the central argument appears to be the issue of what limitations are placed on the operation of markets?


  1. socadmin says:

    Noemi Fabry (guest) 29 Nov 2010, 17:46 GMT+0000
    I strongly agree with Ian, there is a confusing of ideas of efficiency, accountability and the idea of the market.

    so back to basics let’s be a bit controversial:

    where within this discussion of the market is the idea of profit / of profitability buried? surely it is a crucial concept in a market economy and very different from the frequently cited efficiency savings mentioned in connection with the market. making a service efficient does not generate profit! i.e. ‘gain’ it just saves money for the tax payer.

    undoubtedly in a market driven NHS profit and profitability will have great impact on the way health care is delivered by clinicians and in turn experienced by patients.

    but I just do not understand how financial ‘gain’ can be generated by diagnosing / treating / nursing people who are suffering from disease.

    or to be polemical:

    e.g. when a child with congenital liver condition receives a liver transplant and over his lifetime his medical care costs a small fortune does saving him carry the implied duty on him and his parents to be higher rate tax payers. should we consider his life time taxes (once they have covered his medical bill) as profits generated by successful medical intervention / investment!

    and if he instead becomes an unemployed drug addict and a delinquent does that deem the investment and therefore the medical intervention a failure and is the transplant surgeon culpable?

    and if there is no profit to be made from health care why would any private, profit generating company want to get involved in delivering it?

  2. socadmin says:

    Gilles de Wildt (guest) 8 Dec 2010, 16:18 GMT+0000
    Willing providers and choice

    Martin, what makes you believe that there are not many “willing providers”? Here, at the coalface, I appear to live in another world. What I do recognise is that successive governments try to give us the impression that not much is changing, and that not much will change, presumably as coming out in favour of the large scale for-profit privatisation of the NHS is not a popular thing to do. If large scale privatisation happens after all, don’t be surprised to hear something like this from the government: “Sorry, we didn’t mean to, but European Competition law forced our hand”.

    For the “Darzi” clinics, and for recent smaller competitive tenders (such as anti-coagulation services for patients with a tendency to form dangerous blood clots ) there were many “willing providers”. (Incidentally, according to GP Magazine, one commercial Darzi centre was recently helped by a PCT, that allocated the under 65s from a practice that stopped operating, the OAPs went to conventional GP Practices – no choice or equity offered here).
    A secondary market also exists: Virgin has bought services from an existing for-profit provider. Amongst us are Aetna, Human and United Health, whose multibillion parent companies in the US through their trade organisations fought hard to derail Obama’s Health care reform, with one defining success. The choice in the US for individuals and organisations for a government-led option was scrapped. Offshoots of state organisations such as the US Veterans Health Administration, amongst the best on quality, transparency, equity and low cost – might well have ended the for-profit bonanza. Instead, insurance premiums went up massively. For England expect higher costs, or less care with more overheads for administration, marketing, lobbying and profit. (Government, interestingly, avoids saying that privatisation will be cheaper, rather talking about improved “efficiency”, whatever that may be).

    Aetna, Human and United Health were brought into the NHS in a rather secretive manner. According to BBC’s Panorama (“NHS for Sale”, 7 July 2008, still on view), the NHS and DoH claimed not to know where these organisations were. The BBC needed the FOI to find out, as many PCTs did not wish to tell.
    Aetna, Humana and United Health were “advising” PCTs on commissioning at the time that Panorama observed that there was nothing to stop them from recommending themselves. Indeed, service contracts materialised.
    There are also a number of home-grown for-profits. One is Care UK, which, according to the Telegraph (14/1/2010), helped Andrew Lansley to resource his office whilst in opposition. Meanwhile, the principles of skimming, dumping and skimping are being tested and established. In the Midlands we had Mercury, A Dutch for-profit, that did not provide transport and did not ask the NHS to provide transport to its diagnostic facilities. This arrangement happens to look like a classic trick in the book to help avoid more time consuming and costly patients. NHS Choose and Book referrals to a private hospital will be returned if patients have a BMI over 35 or a history of mental illness.

    Martin, I think you may be wrong in thinking that GPs will decide and choose. A more likely scenario is that GP consortia will write up service specifications, which will then be turned into draft contracts. From there on, a tendering process under English (and European ) competition law will be run, by or under the auspices of the NHS Commissioning Board. In this scenario it is the NHS Commissioning Board and the officers who award the contracts who will decide which service be where and for how long, not GPs.
    The Socialist Health Association has a choice: be relevant and explore the legal situation, face conditions on the ground and prepare for things to come, including higher direct and indirect costs, or try to wish the past and future away and lull itself to sleep.
    If SHA doesn’t want to reject the market, or if the market is to stay in England, one better prepares for it. (It is best no longer described as an internal market but as an open, external market, where organisations and franchises with its patients can be sold or used as collateral). Large organisations will have the upper hand as they can threaten less rich ones with legal action, lobby government and commissioners, loss lead and offer the well documented “Archway” to lucrative posts. If we want to have genuine, non-profit social enterprises to stand a chance, SHA better start lobbying for measures that at least can do something in the margins. Such as protecting smaller organisations from crippling legal assaults and its costs and introducing new laws on conflicts of interests that should include a cooling off period of a number of years before accepting posts with organisations whose path one helped pave. This is one of the key proposals of Robert Reich, ex Labor minister under Bill Clinton, to help stop business buying politics (R Reich: Supercapitalism, a good Xmas read, with suggestions for a way forward). In the UK, we have a huge problem with this, not just the Conservatives, but also Labour: two secretaries of state for health (Alan M and Patricia H – as well as junior ministers and government advisers) went on to take up lucrative posts with companies whose paths were paved by their policies. A social-democratic organisation that takes itself seriously ought to campaign about this.

    SHA could also demand that organisations that want to be shortlisted for NHS tenders show proof that their aims and track record is compatible with the aims of the NHS (e.g. universal coverage; equity; transparency, accountability, efforts to optimise cost/benefit, efforts to minimise skimming, dumping and skimping). This may a symbolic effort for now, as competition law may well prohibit such moral tests, but it could be powerful signal.

    This may not be enough. Cooperatively minded professionals, managers, and patient/community organisations may have to band together with large financial institutions such as building societies and the Coop Bank to develop organisations that have the clout to stand a chance against large for-profit corporations -or to take over the remains when for-profits (or others) give up.

    Gilles de Wildt

What do you think?

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 830 other subscribers.

Follow us on Twitter