Last week the Lancet Public Health published a comment piece by me about the challenges it faces in the near future. This comment was linked to a research article that found a huge increase in elderly people with care needs in the UK population over the next 10 years. This article predicted that 10 years from now there will be a 25% increase in the number of people aged over 65 who have care needs, which corresponds to a numerical increase of 560,000 people. The largest growth will be in dementia-related disability, which may perhaps have been a slightly stinging finding for the government given that Prime Minister May had released a deeply unpopular policy for paying for dementia care in the same week. The article and my comment received some media coverage (see e.g. here), focusing on the impending massive increase in care needs and the risks to the NHS. My article made the point that this growth in elderly people needing care comes at a time when a unique combination of policy challenges confronts the incoming government: an underfunded social care service, an NHS in crisis, a looming workforce shortage, and the risk that Brexit will lead to an immediate loss of staff and a long term reduction in the number of staff entering the NHS. I made the simple point that the British health and social care system needs more money and a commitment to expand the local workforce to make up for the looming drop off in European staff. This is particularly pressing for the social care sector, which unlike the NHS employs large numbers of very low paid staff who have a very high turnover rate and are very often European. Once Brexit hits that turnover is going to bite, because new staff simply won’t be there to replace the high churn rate. There is no solution to this problem except to increase pay and improve working conditions to ensure this sector of the economy can attract British workers and retain them.

The problem is not limited to social care, however: something between 5-10% of staff in the NHS are recruited from Europe, which means that even if the final Brexit deal allows existing staff to stay, over the medium term natural attrition will mean that the NHS needs to increase local recruitment to cover that 5-10% of new staff who are not being recruited from Europe. Worse still, Brexit will hit just as the health workforce hits a wave of retirements of staff recruited from the baby boomer generation, and as junior doctors show increasing signs of burnout and the nurses association is talking about striking to preserve pay and conditions (the strikes themselves will not necessarily be a crisis – though I’m sure Jeremy Hunt can turn them into one! – but the underlying problems they signify will be). It takes 10 years to make a new doctor and about 7 years to make a new nurse, so the entire workforce planning system in the UK needs to be restructured and enhanced rapidly in the next 1-2 years if the UK health and social care system is to be ready to handle this. To be clear the issues are huge: A rapid increase in disability and health risks in elderly British people occurring after a decade of leakage of staff back to the EU, as a generation of older staff retire, and just as the cut to the nurse’s bursary and NHS funding leads to a shortfall in new staff, with no way to make it up through EU recruitment. This will affect every aspect of coverage, quality of care, equality of access, and timeliness of access in a system that is already struggling to handle basic pressures.

Today the Nuffield Trust released a report that adds to the pressures revealed by the article I was commenting on, by discussing additional health system pressures that will arise from leaving the EU. This report finds that:

  • If the Brexit agreement does not properly support UK citizens abroad and the welfare sharing arrangements they benefit from, 190,000 elderly Britons will return home and cost the government an extra 500 million pounds a year
  • If these elderly Britons return home they will require hospital beds equivalent to two new hospitals to care for them
  • If the NHS cannot continue to recruit nurses from the EU there will be a shortfall of 20,000 by 2025
  • The 350 million pounds a week that can be saved by leaving the EU was a myth, but in the first two years after leaving there may be more money to pay for health and social care – if the government is willing to spend it

The publication I commented on predicted an extra 560,000 people with care needs by 2027; this Nuffield Trust finds 190,000 more elderly people the study didn’t cover, and suggests they will have significant care needs currently being (basically) paid for by Europe, and it quantifies the shortfall in staff I identified. It’s worth noting that the NHS employs 320,000 nurses, so the 20,000 shortfall is about 6% of the workforce, but this 6% shortfall comes also when a large number of nurses will be retiring, and about the same time as the current reduced nursing student cohort hits the workforce. A lot of these numerical details are very hard to predict, but it appears likely that there is going to be a major reduction in a nursing workforce that is already not well stocked by OECD standards. Nurses are the bedrock of a functioning health system, and although there is no international evidence on the best nursing levels, a rapid decrease in numbers is only a bad thing, especially if combined with a rapid increase in health care demand.

This problem will face whoever wins the election in two weeks, since a lot of these pressures are the result of a Brexit decision we are supposed to believe is set in stone, and population ageing. But any party that does not have a plan to increase the health workforce, to restore funding to social care, and to improve payment, retention, credentialling and work conditions for the workers at the bottom of the social care heirarchy, is not serious about the depth and seriousness of the crisis the NHS faces. Although the Tories like to talk about working better rather than increasing funding, the reality is that the NHS desperately needs more money; and so long as Labour continue to dance around the issue of exactly how they will handle free movement, they present no serious plans to handle the looming workforce crisis. The British people voted for Brexit without having any clear information about what it would mean for the social care sector, while Boris Johnson flounced around the country in a bus that was advertising a clear lie. Now the election looms, and both parties have to come up with policies to handle this unavoidable crisis on a 10 year deadline. I think from a brutally practical standpoint, the real winner of this election will be the party that loses it, because whoever wins is going to be held responsible not just for Brexit’s short term economic damage, but for the long-term health and social care crisis that neither party is properly prepared to deal with.

The NHS needs more money and more staff. Without it, unless the winning party can deliver a truly miraculous Brexit deal, the UK health and social care system is heading for two decades of increasing and unavoidable crisis. I’m not confident that anyone in British politics is ready to deal with this problem, or even listening to the warnings. Let’s hope, for the sake of Britain’s elderly population, that I’m wrong.

Next week sees the release of the Ken Loach movie The Spirit of ’45, which describes the UK’s attempts to implement socialism through the ballot box between 1945 and 1951. Ultimately a failed project, this revolution has left one enduring and much-loved symbol, the UK National Health Service (NHS). In the same month as the release of Loach’s movie, the NHS is going to undergo what are generally touted as the largest reforms in a generation, the Health and Social Care Bill, which see significant market reforms introduced to the NHS, and a major reorganization of its hierarchy. This is all happening against a backdrop of unprecedented government austerity, recent reports finding significant failings in the way the NHS cares for patients, and a Conservative-run government with a very strong ideological bent towards radical experimentation with the UK’s institutions. It is also happening against the backdrop of a worldwide movement towards universal health coverage (UHC) which is even taking hold in the USA – given this global movement, and the UK’s central role as a model for that movement, it’s unlikely that even the most ideological of governments is going to attack the basic principle of the NHS: to provide healthcare on the basis of need, not ability to pay.

It’s easy to make predictions about how these reforms will turn out, without even analyzing the policy, because a cynical outside observer of the UK can always fall back on three simple principles: nothing in the UK works very well, the British government is terribly incompetent regardless of its ideological stripe, and you can’t improve healthcare by reducing the amount you spend on it[1]. However, I’ve written before about what I think will happen as a result of the new Bill, and the specific good and bad points I see in it; I won’t repeat these in detail here. For those interested in the Bill itself, the Guardian gives an outline of its main points, and since I wrote my post the Bill has been beefed up a little. The revised Bill includes a sneaky little clause that supposedly forces clinical commissioning groups (CCGs) to make all health services they purchase subject to tender, rather than allowing existing NHS services to be preferred providers. CCGs are organizations supposedly formed by doctors which are charged with disbursing government money to providers of healthcare – they are the main purchasers of health services after the reforms have been passed. By forcing them to open all non-emergency services to tender, the Bill will (it is claimed) force existing NHS hospitals and GPs to compete with private services for government money, ideally driving down costs. It’s not clear to me how the contracts between these services and the CCGs will be negotiated, and this aspect of the reforms gets my spider-senses tingling, because it just stinks of “a potentially good idea done badly.” Some of the background on the way the Health and Social Care Bill forces CCGs to use competitive tendering is presented in this opinion piece (but beware, huge amounts of this piece are just factually wrong or very misleading, so take everything it says with a grain of salt). Below are a few reasons why I think this particular competition reform is going to fail.

  • It puts family doctors in charge of paying family doctors: a Clinical Commissioning Group is meant to be a group of general practitioners (GPs, or family physicians in the American parlance) who will be given money by the government with the task of purchasing all health services for patients in their area. This is supposed to put the health service back into the hands of GPs. The problems here are two-fold and, I should think, blindingly obvious. Much of the money that these CCGs need to distribute will be spent on purchasing GP services, so it puts GPs in charge of purchasing services from GPs. This is a notoriously tightly-knit community with strong common interests, and I find it hard to believe the money will be dispensed wisely. The second problem with this plan is that GPs may be good doctors, but that doesn’t make them good at resource-allocation decisions, and often doctors are the worst people to decide how to spend money wisely. A good health financing system should find ways to efficiently and equitably enable doctors to make good clinical decisions. It’s not obvious to me how putting doctors in charge of the financing decisions is congruent with this. A lot of commentators in the Guardian are decrying the role of major accounting services, who are being contracted by some of these CCGs to handle the decision-making process[2], but to me this seems like a good thing: the further you can move the pot of money from a GP the better, in my opinion.
  • It seems to rely on bulk contracts: The NHS to date seems to have structured a lot of its purchasing decisions on contracts that offer bulk funding – that is, a hospital or GP contracts to provide a service for a specified fee, but the service is very generalized and not broken down into its particulars. In the case of GPs, this usually means they are paid a fixed amount per year to provide services to patients on their list, but no detail is specified as to how they should provide services or what they should provide – not even a minimum basket of services. This is why many GPs in the UK operate single-handed surgeries with inconvenient opening times, have very little time for patients, and don’t provide services (like chest x-rays or chlamydia testing) that are taken for granted as routine in other countries. These contracts don’t encourage efficiency, and when these types of contracts are negotiated with large providers (like private healthcare organizations or big hospitals) it’s likely they will be highly beneficial to the provider unless the CCG negotiating the contract has a very adept team of lawyers. Unless the new Bill includes very strong support for this contract writing framework (and see my further point below) then I expect we will see profligate misuse of funds as the providers take these naive and poorly-supported CCGs to town.
  • The financing system is not obvious: It’s not clear to me how the CCGs are expected to decide what is the most economically effective (or, for that matter, clinically effective) service, what benchmarks will be established for comparing services that they are accepting tenders from, and how they are expected to make contracting decisions. This isn’t all the fault of the people writing the Bill: within the field of health services management, there is still much dispute about how best to assess the quality of care provided by a large service. For example, in-hospital mortality might be considered an important measure of quality, but how does one account for the mix of patients and the severity of their illness in comparing two hospitals? Should one trust the figures the hospital presents, and if not who is the central provider of assessment services to which a CCG should turn when attempting to compare hospitals on this measure? And if two hospitals have slightly differing mortality rates, how much extra should a provider be expected to value the difference at? Can a provider make a judgment to buy services from a cheaper hospital with higher age/sex-adjusted mortality rates, or is that decision unethical on its face? Have CCGs got any expertise on these issues, or received any guidance? It could be that the Health and Social Care Bill provides extensive information on this, and supposedly the reforms will include the establishment of a new organization to help CCGs with this task. But the reality is that no one really knows the answers to many of these questions, and it’s not clear that the structure for health financing proposed by the Health and Social Care Bill is going to be invulnerable to problems because of them.
  • It lacks centralized guidance and pricing structures: At the moment there is a single contract that all GPs sign with the NHS when they provide services. Will this contract be used by the CCGs? This contract basically gives a fixed pricing system for obtaining GP services – if it is used, how can the CCGs claim to be operating a competitive tendering system? If it is not used, and GPs are to negotiate their services on the basis of the price negotiations, how are the CCGs going to decide the correct price? We’re not talking about a fully free market here, since most CCGs operate to purchase services within a given area and, in general, patients won’t be going outside that area for services, so there won’t be multiple CCGs competing in the area, and patients won’t be voting with their feet if prices are too high (in fact the patients won’t even see the prices). If the system is going to operate without market signals, then it’s going to need some very carefully arranged pricing mechanisms to ensure it doesn’t waste money. These are not likely to be most optimally set at the level of individual CCGs, but would be better off set by the government. It’s not clear to me that this is going to happen, or that the CCGs are going to get much guidance at all on how to fix prices. By way of comparison, Japan operates a system in which private hospitals and clinics charge patients for services on a fee-for-service basis, then charge the government’s insurance system for 70% of the total cost. However, the government maintains a strict schedule of service fees, so it’s extremely difficult for doctors to over- or under-charge. Essentially in this market the government provides a very strong centralized pricing guideline to keep the market at a stable price. The Australian government uses a similar mechanism through setting a minimum fee for GP services provided and allowing patients to vote with their hip pocket when choosing GPs. It’s not clear that the NHS will be using any such system, but in the absence of a strictly market-based mechanism for setting prices[4], how are the CCGs going to be able to choose what to charge, or even to know that they are getting value for money?

Given these concerns, I can see all sorts of disasters befalling the revised network of CCGs, including (for example) the possibility that they set up contracts that take up all their budget, only to find their area massively underserved with health services but no funds left to purchase more. What are they going to do then? How is the government determining how much money each CCG needs, and how can they be sure they have gotten it right? Does the government have any fallback position or plan B if over the first few years of the system the CCGs massively cock-up their purchasing decisions?

On the face of it the reforms appear to consist of a poorly-structured semi-marketization, to be managed by inexperienced and new organizations that have been given arbitrary budgets in an environment with very limited centralized guidance, to purchase services in a marketplace where even the experts are uncertain about how to define value for money or quality of service provision, but with an extremely limited set of real market mechanisms as an alternative way of providing pricing signals. It’s like a healthcare Frankenmarket. How can this story possibly end well? I predict we’ll know before the next election, and I suspect that the results of this grand experiment are going to form the obituary for this government.

fn1: well, theoretically you can – lots of governments have built health policy on “efficiency savings.” Practically, however, health systems improve by spending more to gain more, rather than spending less to gain the same.

fn2: I provide no citation for this because I can’t be bothered looking, but really this shouldn’t require a citation, it’s the factual equivalent of saying “the sun rises in the morning.”[3]

fn3: I know I know.

fn4: I don’t maintain here that these systems are necessarily the best, simply that they are a strict guideline and they do roughly seem to work.

In my previous post on Obamacare commenter Paul has suggested I’m putting too much faith in government intervention to reduce inequality or contain costs. I’m about to go away for the weekend so don’t have much time to attend to my blog (nor may I next week, when classes start) but here’s a pair of questions that I think are related to that question, and to the (apparently still unsettled!) government vs. private debate. These two questions possibly also show how much we don’t know about health systems.

Did the NHS reduce health inequality?

One of the big claims of the NHS is that it reduced entrenched health inequality by giving poor people access to healthcare they were previously denied. I’ve implied before that I’m not confident the NHS has achieved that much in this regard, and pointed to the existing health inequalities in the UK as evidence of this. I’m loathe to say that it achieved nothing, but this fascinating and excellent paper from the British Medical Journal, published in the year 2000, suggests that despite the estabishment of the NHS, health inequality in Britain has persisted for 100 years. So is it the case that the huge intervention in the market that is the NHS achieved nothing in reducing inequality?

Does the US health system need political, not system reform?

It’s true that there’s very little evidence that private health markets reduce inequality or contain costs, but there are only two developed nations that have actually conducted this experiment (the US and Switzerland), and although the experiment is ongoing in many developing nations they don’t provide a good health policy laboratory (due to all the development issues and tropical diseases they are dealing with simultaneously). Switzerland, obviously, is a bit special, so there is really only one major economy that is actually trialling an even close-to-privatized system, and there’s a big problem with the experiment going on there: the USA is a plutocracy, not a democracy, and its capitalist system is pretty busted (see, e.g. “Too Big to Fail”), in the sense that it is heavily captured by special interests and the political system in which it is embedded is corrupt, unrepresentative and basically not democratic. Furthermore, the USA has a significant race problem that doesn’t exist in other places, is historically very specific to the USA, and creates a whole set of social problems that a place like Switzerland or Australia doesn’t have to cope with. So is it possible that a root-and-branch political reform, based on breaking the sectional interests in the US economy and the power of the super-rich to influence politics, would enable a purely private health system to function? If so, it’s unlikely that any attempts to salvage the market-based system that are based on regulation or minimal government intervention are going to work, because of the power of those sectional interests. Should proponents of market systems for health care be looking to developing nations for their examples?

I’m off to take an extended bath in the country! So comments won’t get much attention until next week …

Continuing my series of ideas to reform the NHS, for this post I will consider a minimalist reform that aims to increase private investment and spending in the health sector without significantly disrupting the current form of the NHS. Mindful of the problems of central planning for resource allocation in health, this reform idea will introduce some mechanisms to allow increased flexibility in the public sector. It’s worth noting though that the last two governments (Labour and Conservative) have attempted to introduce flexibility into the public system through fictional markets, competitive budgets and the like, but these methods haven’t worked. Part of the reason for this is simple institutional inertia – the NHS is huge and has a 60 year history and its own culture, that won’t change quickly – but part of it is also due to the political sensitivity of the health sector, and the inability of the NHS to separate simple, practical decisions on how best to run the system from the political sensitivities of its political masters.

The reform plan I’m describing here doesn’t necessarily depend on a shift to fee-for-service payments, but it is considerably easier to manage if this does happen, so I’m going to wave my magic bloggers wand and assume that this happened. I’m also going to leave out all discussion of minimal privatization within the public system (of things like pathology services) because they’re irrelevant to the central model, but they could certainly be included. We also won’t look at the primary care sector, which is a desperate pit of trouble that deserves its own post, though in this one we’ll set up some institutions that might serve as competition to the current moribund GP model.


This minimal reform model aims to achieve three key goals:

  • Increase private funding of the hospital sector without damaging the ability of the public sector to provide free, accessible care for all
  • Widen the range of service providers in the hospital sector (both public and private) to enable the sector as a whole to respond to health problems more flexibly than it does now
  • Make the public sector less vulnerable to political interference and more flexible

We will do this through allowing the establishment of private hospitals that provide care on a fee-for-service basis, having the government and private providers set up new, flexible specialist surgical centres and turning all hospitals into “Foundation Trusts” partially independent of the government, funded on a fixed and legislated basis (so free of political interference) and capable of responding flexibly to changes in the overall health market. The easiest way to do this is to introduce a fee-for-service funding system, but a system of contractual funding agreements wouldn’t necessarily hinder these reforms.

Increasing public hospital flexibility

One of Labour’s better ideas in this regard, transforming better performing hospitals into “Foundation Trusts” that were partially independent of the NHS with more financial flexibility, was a good one, though probably of limited effectiveness. I think now the Tories are extending this to all hospitals, so that on paper at least the hospitals are semi-independent of government and have more flexibility over their decisions. This model is supposed to enable the hospitals to make financial and governance decisions independently of political interference, potentially including contracting out some services to the private sector and reorganizing clinical services to be more efficient. I think they can be re-nationalized by the government if they fail to meet certain financial and healthcare standards, primarily to prevent market failure. The unfortunate side-effect of this re-nationalizability  is that the government can intervene where hospital decisions are politically inconvenient, but obviously this intervention is a significant political decision and carries its own political risks, so should reduce the inclination of governments to interfere in all but the very largest of decisions. The Tories have already introduced a system to Foundation Trusts to set up private wings, aimed initially at health tourism, as a way of making more money – a policy I said previously won’t work in isolation to solve the NHS’s problems. But if these hospitals are given this flexibility in conjunction with some additional government investment in new types of facilities, and the entrance of fully competitive private hospitals in a fee-for-service competition with public hospitals for extra money, then significant additional investment and structural reform can begin to take place.

Allowing hospitals to be flexible means allowing them to be able to close some services and expand others. Consider two hospitals, A and B, located relatively close to each other in a city like Manchester. Hospital A has a large hand surgery specialty clinic, incorporating a large number of surgeons, grand rounds, a research facility, extensive links with academia and a teaching role; Hospital B has a small orthopaedic clinic that occasionally attends to hand surgery in amongst its other functions. Almost certainly, Hospital A will have better surgical outcomes (less cock-ups) and much lower rates of readmission and corrective surgery; it’s also likely to have much better rehabilitation services and post-surgical management. It likely also provides each surgical service at a lower cost than Hospital B, due to economies of scale and efficiencies from its more experienced staff. So the logical decision is for Hospital B to close its hand surgery operations altogether, and simply send them all to Hospital A. If both hospitals are being paid the same fee for every surgical service, it’s likely that B is making a loss on these services while A is making a profit – potentially a large enough profit to pay the transport fees to the patients and/or a finder’s fee to Hospital B. In this case it’s rational to close them, unless there is some strong reason why patients can’t make it to A if they live near B (unlikely in the modern world, and especially unlikely if the local hospitals have the flexibility to arrange patient transport networks). Currently these kinds of closures and rationalizations are hard to achieve, because as soon as the local newspaper gets wind of the closure of a clinic (let alone a whole struggling hospital or wing!) they run a vocal campaign against the local member, and often get their way. But by converting all hospitals into robustly independent Foundation Trusts these decisions are removed from government interference to at least some extent.

Government investment in new types of facility

One type of simple reform that was introduced to me by a hospital performance director in the UK was of shared specialty rooms. The performance director told me that his hospital and a few neighbouring hospitals were all facing a problem getting in a certain type of specialist (cardiology, I think). For these specialists to be employed by a hospital, they typically need to have a mixture of surgical and consulting work – so they want to have a full-time work load structured around a mixture of non-surgical and surgical work. But my interlocutor’s hospital didn’t have sufficient demand to justify such a clinic full time, so their specialist was under-worked and overpaid – or they had to make a decision not to employ one. The neighbouring hospitals had the same problem, and they had a vision of setting up a shared specialist facility, funded by all the hospitals but set up either in one of them or central to all of them, in a new building. Unfortunately they didn’t have any ability to do this – as public hospitals they couldn’t invest in such a facility, and with no private entrants in the market they couldn’t do it. Thus they had to either go without a specialist, or waste money on a specialist, in this one discipline. Foundation Trusts with suitable powers would be able to get around this problem by consolidation, closure and mergers; there’s no reason why they couldn’t cooperate with each other for maximum benefit, since they aren’t actually competing per se. But another option for these trusts is to invest in a new facility, or to petition the government to fund the establishment of such a facility.

So, another part of the solution to the NHS’s current problems is the establishment of new types of facility, specialist centres serving multiple hospitals on specific disciplines. Another type of facility the NHS has been trialling is a type of private provider that takes up excess demand in high volume, low-risk surgery like cataract surgery. The government could fund the establishment of such centres to serve the needs of busy and overburdened Foundation Trusts, who could then close their own wards and theatres devoted to these specialties and focus on their core service areas. These smaller, clinical facilities would be somewhere between an outpatient centre, an inpatient facility, and a GP clinic, and would be quite easy to target at areas of need. For example in areas with a high burden of diabetes-related illness the government could set up a diabetes specialist clinic that provided GP services trained in diabetes specialties; minor surgical procedures related to diabetes; community nursing aimed at improving testing and dietary changes; and surgical facilities for handling common complaints related to diabetes (such as eye problems and possibly even some kinds of serious internal surgery). Then nearby hospitals would be free to give up some of these procedures, or handle only the most serious ones as part of their specialist services, referring all the minor stuff directly to the local facility.

In essence this means the government spending more money on the NHS, but doing so through investment in new facilities specifically aimed at enabling existing facilities to rationalize and become more efficient – this is a combination of capacity expansion and efficiency gains in a fairly easily identifiable package. Governments often talk about “efficiency gains” in the NHS as a magical cure for all the problems facing it, but these efficiency gains almost never materialize because they’re built around making existing staff work harder. In a system as resource-constrained as the NHS, putting your finger on a bulge in one part will just produce a lump somewhere else. A better idea is to invest in new facilities that will enable existing hospitals to cast off the things they don’t do well and focus on what they do do well.

These facilities could, however, be even more flexible – as could the Foundation Trusts themselves – if they were able to incorporate a private element of their funding. This is the third arm of the reform – to allow additional flexibility by allowing some private services on top of the existing structure of the NHS, either competing with it or topping it up.

Allowing private investment

There are two types of private investment that could be allowed into the NHS without significantly changing its remit. The first is to allow private hospitals to enter the market to compete with public hospitals on certain services, especially high-volume, low-risk services with long waiting times. The second is to allow full-fee-paying hospitals to take patients from the NHS and charge them directly. Both types of facility introduce private investment into the NHS, but for very different purposes.

The first of these exist now, and are used by the NHS to handle their waiting list problems. For some simple surgery (like cataract surgery) when someone’s waiting time for the surgery goes beyond 3 months, the NHS pays for them to be treated at a specially established private facility. These clinics typically handle things like cataract surgery that are in very high demand and easily handled. These clinics exist now, and could easily be allowed to expand and compete directly with NHS hospitals for all patients on a fee-for-service basis. If they can provide a better service than neighbouring hospitals, then those hospitals might be able to close their cataract surgery wards and focus on something else that they do better – or contract them out to the private facility, thus gaining income they can spend on other things. Foundation Trusts might even want to invest in setting up such facilities themselves, pooling the cost with neighbouring hospitals so that they can cast off their own high-demand services to a single specialist clinic. In such a case they might need to petition the government for support, but they could probably also just get investment from a private provider of some kind – not in a flawed private finance initiative, but in a straight out for-profit business plan. Because the Foundation Trusts are not for-profit services, any profit they make from this new service will be ploughed back into their own investment programs.

The second type of facility is more controversial, because it means splitting the NHS into a private-for-profit and a public section. The NHS could allow private health providers to establish new hospitals or facilities, that provide a range of services at a cost above the NHS tariff. Patients can choose to enter these hospitals instead of the NHS hospitals, but the NHS will only pay for the standard tariff portion of their service. The rest comes from their own pocket or from a health insurance program. Essentially, this allows private investment in the NHS, but prevents the private costs from blowing out so much that no one can afford the care. The advantage of this is that it relieves the physical pressure on the existing hospitals that leads to waiting times, enabling wealthier people to essentially jump the queue through private health insurance, but by allowing the NHS to pay some basic part of the service it extends this queue-jumping option beyond the realms of the super-rich, the only class of people who can currently afford private insurance covering full hospital care in the UK. Because people are already paying through their taxes for public care they won’t also pay for private insurance unless it is very cheap – and the best way to make it cheap is to make the costs it covers a top-up on the basic tariff, rather than the whole cost of hospital attendance. Of course the NHS could refuse to pay the whole tariff to private providers – so a private hospital patient receives, say, 80% of the NHS tariff and pays the rest plus the hospital’s additional private fee out of their own pocket.

It’s possible that Foundation Trusts would be the first organizations to establish such private facilities, so that they could take advantage of excess demand for certain common procedures and turn the money back into their own services. But it would also be possible for private companies to build these facilities. I imagine that this would take a long time and build up from very humble beginnings – a cataract surgery here, a hand clinic there – but over the long-term it would bring much needed funding into the system, as well as a small amount of private spending. Essentially it would enable the NHS to increase the volume of services it provides without a concomitant cost to the government. This partially tariff-subsidized model of private care is essentially what the Australian primary care system works on, and it seems to work well to both keep down costs and expand capacity – exactly what the NHS needs.

Effects on Inequality

The system described here wouldn’t fundamentally change the patient experience in any way, except to increase hospital choice, but it would lead to some mild increases in government costs – short term investment in small facilities and long term increases in services paid for. But it would lead to increased private funding and expenditure, and potentially the competition over services would enable the government to reduce the unit-cost of those services, leading to overall efficiency gains and long-term cost reductions. I think it would also have potential benefits in reducing inequality. For example, the diabetes clinic example would likely be implemented in areas of highest demand for diabetes services. In the UK, this demand is in primarily poor areas with large South Asian or black Caribbean minority populations, which suffer an unnecessarily high burden of diabetes illness. By establishing both government run and private facilities in these areas, and allowing neighbouring hospitals to consolidate and refocus services, it is likely that a significant health inequality problem in the UK could begin to be tackled, without necessarily incurring large cost burdens. By the same token, hospitals in poor areas suffering large waiting lists and underinvestment could close facilities that aren’t in demand but are being kept open for political reasons, or simply move services between hospitals so that they are run more efficiently, reducing waiting times and improving outcomes in these areas. The system remains largely publicy funded but more flexible, potentially enabling inequality to be reduced without introducing new inequalities through avoidable market failure.

The benefits of simplicity

The other major benefit of this reform idea is that it is achievable through gradual change, builds on existing structures, and can be done with minimal political risk. Whatever party introduces these reforms (and I think it is more likely Labour than the Tories that would do this) will be able to argue that it is building new hospitals and increasing investment, but that this comes with the cost of reorganizing existing clinical arrangements. This may be a risky sales task, but it’s a lot easier than “you’ll be better off once we’ve flogged the lot!” And the gradualism enables the government to experiment with the changes and adjust them as it sees problems arising. Nonetheless, many of the changes – especially ward closures and moving specialties – will be controversial, and until a government gets a strong majority and acts decisively, even change as minimal as this is unlikely to happen. Especially after the Tories stuff up their current plans and make anything with even the vaguest aroma of privatization off-limits for a generation. But I think this approach is the most likely to be successful in the UK, and is both achievable and capable of significantly improving the NHS.

The first suggested reform idea in my series of ideas to reform the NHS will start with this, the most radical. This reform plan presents a way to raise a large amount of money to pay down government debt, expand private and public investment in the health system, make the health system more flexible and accessible, and directly tie hospital funding to health outcomes, without changing the annual cost structure of the NHS at all. It sounds too good to be true, and so it probably is.

As I observed in my post on the current Conservative privatization drive, lack of private providers in the UK health market and central planning of all services are significant problems with the system: they affect the quantity of investment available, the efficiency of investment, independence of investment from political goals, and flexibility of response to changes in health care demand. The simplest approach to this is to allow new private entrants into the market and to fund them just as if they were public hospitals. This is very hard to do under the current system, because current block funding methods don’t work well for contracts with the private sector, and it will take a long time for new hospitals to be approved and built. A faster, simpler approach is to shift all the hospitals in the UK to a fee-for-service payment system (like Medicare in the USA) and then privatize them.

Shifting to a fee-for-service system

Fee for service systems have disadvantages that are well understood, but one significant advantage they offer is flexibility in response to demand. They also make the insurer paying for service able to purchase services from any provider, rather than having to be locked into contracts with specific providers – this potentially allows prices to be at least partially set by market forces. The main disadvantage in a stable health system is that they encourage over-provision of services, which leads to rapid cost growth for the payment provider (in this case, the government) and excessive healthcare attendances for patients – something that is potentially fatal in the case of e.g. prostate cancer. However, despite their disadvantages some systems – such as Japan – that use them have still managed to get good healthcare outcomes with low cost, so they aren’t the end of the world. Shifting a system like the NHS to such a payment process shouldn’t be impossible – in fact they’re already starting to do this in some ways using Healthcare Resource Groups. So let’s assume that this can be done, and all public hospitals can be switched to receiving payment on the basis of a fee-for-service system. Prices are set by the government, and hospitals paid for providing services. In theory there is no service the government won’t fund at a specified rate (we’ll return to this below), so everyone will get treatment. Some hospitals will provide some services at a cost below the price set by the government, so will profit from these; other services they provide at costs above the rate will either be subsidized by the more efficient ones (if the hospital is a not-for-profit) or closed (if the hospital is a private company). We’ll see the latter risk is one of the big problems with a fee-for-service system, but we’ll cross that bridge when we’ve burnt it.

So the essence of this scheme is to shift to a fee-for-service system and then sell off all 200 hospitals in the UK.

Privatizing all the hospitals in the NHS

We want a rapid influx of investment in the NHS, and we want to free up the NHS itself from investing in hospitals, and shift it to being purely a purchaser of services. The fastest and simplest way to do this is to simply flog off all the hospitals. This would potentially raise an enormous amount of money for the NHS very rapidly. The total cost of hospital care every year is about 20billion pounds, I think, spread over about 200 hospitals; that’s 100 million pounds per hospital on average. I think a private company that could be guaranteed an approximate 100 million pound income stream with, say, 10 million pounds a year profit would be willing to invest probably 100 million pounds in a hospital, so flogging off all 200 hospitals would raise about 20 billion pounds. This would be enough money to pay down about 10% of government debt and have 10 billion left over, which I propose be put into a health future fund. This future fund contributes to healthcare research and funding of new investments through its profits, and uses the principal to provide investment loans to the private and public organizations involved in the healthcare market (so that, e.g., if a union decided to buy a hospital for 100 million pounds it would be able to get a loan from the healthcare future fund to do this). This fund would thus support continuing investment in healthcare, and provide grants for research into new treatments as well as emergency funding to save struggling hospitals in the immediate aftermath of the privatization[1].

These privatized hospitals are then paid for their services from the existing NHS budget, which is about 20 billion pounds a year. But where previously this 20 billion pounds a year was split between hospital services and capital investment, now it is devoted only to services. I think this is the equivalent of increasing the hospital services budget by probably 5 or 10% (the amount of the existing budget that was being diverted by the hospitals to investment). Additionally, we have a huge short-term private investment of as much as 10 billion (the maximum value of the loans from the future fund) and then any other investment that the private owners want to put in. Having purchased a 100 million pound a year operation for, say, 100 million pounds, they might be willing to invest a bit more in improvements, I’m guessing.

Even if my numbers of hospitals and total hospital sector budget are incorrect, it should be clear that the privatization would raise a lot of money that, if disbursed between debt repayment and setting up a healthcare future fund, would be of significant benefit to the UK economy and health economy.

Allowing new entrants into the system

Of course subsequent to this privatization the government could also allow new entrants to the system, that would probably set up specialist services in areas where specific services were lacking. These entrants would be able to get start up funding from the future fund, of course, and would be entirely private investment. Thus over time the size of total investment in the health system would grow, and important consideration in improving levels of care in the UK.

A further, more radical entrant into the system could also be allowed: hospitals that charge an upfront payment. These hospitals would be additional to the current complement of hospitals, but would be able to charge fees to their admitted patients in addition to the standard service. They would, essentially, be luxury care centres. Unlike the current system, though, which does not allow the NHS to fund these kinds of providers, the hospitals would be allowed to charge the basic service to the NHS, and then charge only the top-up payment to the patient. Patients could pay out of pocket or cover the co-payment from a private insurance fund. This would allow private insurers to begin covering healthcare in the UK market, expanding the amount of per-service funding (and thus the proportion of GDP devoted to healthcare financing), but without requiring the private fund to cover the whole cost of hospitalization. Funds that have to cover the whole cost of privatization – as happens in America – have to be prohibitively expensive, and will not be able to compete in the British market.

These private entrants would have to be additional to the current complement of hospitals, and clearly labeled as private hospitals. They would need permission from the government to be established, and would only be allowable in areas that have already got a decent supply of healthcare. This is necessary in order to ensure that people don’t have to travel too far to get free care (a fundamental constraint on the NHS). As a result they would be unlikely to ever form a major component of the UK hospital system.

Consolidation and closure of existing services

After privatization, I expect many hospital owners would look at the cost structure and efficiency of their new purchases and decide to shut down some services because they can’t provide them competitively. For example, if a hospital in East London is providing cardiac services it is unlikely to be able to compete with Bethnal Green, and would probably close or restructure those services in order to remain profitable. Over time this would lead to a reallocation and consolidation of specialist services into better, more efficient hospitals, leading to efficiency gains and cost minimization, as well as improved health outcomes. This is very hard to do in the NHS as it is constructed now due to political influence. There is a risk that in the short term at least – until new hospitals are built or capacity is otherwise expanded – that this would lead to a loss of overall service levels, so it would be necessary to require hospital owners to seek permission for closures in the first, say, 5 years of their ownership. It might be necessary for the government to fast-track establishment of new hospitals in order to overcome this problem, which leads us to the possibility that some hospitals would remain in public ownership.

Partial privatization and gradual change

It’s probably best if the biggest and most important teaching hospitals remain in public ownership, so that the government retains some direct power to intervene in the provision of health services and also in the teaching and research capacity of the hospital system. This could include using the proceeds of privatization to build new hospitals, probably specialist, providing specific services in some areas of the country. These hospitals would be funded under the same arrangements as the privatized hospitals, though obviously they would also need some form of block grants in order to support investment and to maintain loss-making specialties that the government believes they need to run for research or market-failure reasons. They wouldn’t be precluded from opening private wings (in fact, their reputation for excellence might make them the best option for starting this process), but they would probably also be held to stricter rules on service provision (for reasons of access and equality) than the private providers.

As a general rule, rapid privatization is a dangerous prospect so the model proposed here might require a long time to complete, perhaps starting with smaller hospitals and building on their experience. Reform of the general practice system to allow private companies to enter their too would probably also be necessary, in order to prevent the primary care system putting a brake on the development of the tertiary system. Gradual privatization would mean that when the really big services were privatized there was less risk of mistake; it would probably also increase the amount of money gained, since flogging off all the hospitals at once would probably require selling them at bargain basement prices. This would also allow the system to be expanded as the privatization happened, convincing the public of the benefits of the process as they see new services open and waiting times drop.

Risks and disadvantages

The worst risk in this system is that immediately after privatization the new owners will close unprofitable specialties without opening new ones, leading to a general reduction in services provided across the NHS. This would indicate either that the NHS was over-stretched and incapable of providing many of the services it was providing, because the prices set on privatization would have been based partially on pre-privatization activity, and may have been set too low if the NHS had been operating massively under-budget for years. There’s also the associated risk that with prices set too low, the new owners struggle to make a profit, go into administration and then have to be re-nationalized. That would be a political disaster of monumental proportions, as well as costing the government a huge amount.

Another possibility is that the closure and reallocation of services will see a massive loss of service provision in poor areas, where profits will be lower. This will increase the inequalities already inherent in the British system and is one of the main concerns of the advocates of retaining central planning in the NHS. Careful choice of which hospitals to privatize will help with this, as will the simple expedient of providing additional funding in some form (block grants, contractual rewards, or special loans) to companies that retain services in these areas. If this risk does eventuate, the government may find itself having to increase the total healthcare budget to support its goals of reducing inequality – but this is likely to be the case in any healthcare system in the UK that is serious about reducing inequality, and although politically unpalatable in the UK it’s essential if the UK ever wants to reduce inequality. Sadly, this is never going to happen (and if it does the money will be misspent anyway).

The final disadvantage of this plan is that it requires the government of the UK – which couldn’t organize a root in a brothel – to manage the biggest privatization of services since the collapse of the USSR, to set a realistic and practical pricing structure for healthcare that is affordable but sufficient to enable private sector organizations to make a profit, to not to squander the result of privatization, to be willing to commit to a 5, 10 or even 15-year long period of massive health system reform (this would require bipartisan support, which is almost impossible in the toxic political environment of the UK) and to be able to sell the whole thing across multiple elections. So to actually implement this program in the UK would be inviting disaster.

The Final Picture

If successful, the final health system that emerged from this reform would very much resemble that of Japan, with an entirely public purchaser of services (the NHS) purchasing services from a largely private market place of hospitals and clinics. Prices would be set by the government at first but could potentially be set purely by market forces in the long term as capacity increased. Because the UK system is more centralized in larger hospitals than Japan, and because our remit requires all patients to be able to get any service free at the point of care, the system would probably have more publicly run providers (primarily large teaching hospitals) than in Japan, and would probably still be slightly more shambolic (due to the lack of private payments). The healthcare future fund would be unique to the UK, and there would probably be a large number of direct grants and subsidies (at least in the short term) to maintain the system and prevent growth of inequality. The final outcome of this process is not unrecognizable in the current range of healthcare systems, though, so it’s not impossible to imagine that a well-run privatization and reform program could get the NHS to this point. And if it worked broadly similarly to the Japanese system, it would be a vast improvement on what the UK has now.

fn1: I think this would be necessary because even a mind as great as mine would be likely to make mistakes in pricing services or estimating long term service levels

Having criticized the approach the UK government is taking to reforming the NHS, it seems only fair that I should make a few suggestions of my own. Unburdened as I am by the responsibility to be serious or to come up with a proposal that actually works, I’m going to write up a few perhaps crazy suggestions this week and next. For my reform ideas, I’ve decided to set the following arbitrary constraints:

  • The basic remit of the NHS must not change: that is, any reform plan must preserve the ability of the NHS to provide quality care accessible to all and free at the point of delivery
  • The patient experience must not be changed, so that if a reform plan were enacted wholesale today, a patient attempting to use the health system tomorrow would not notice any practical effect on their lives or patient experience[1]
  • As much as possible, red tape and administrative barriers to healthcare access should be reduced at the level of the patient, so e.g. we should try to abolish lists and restrictions on hospital attendance
  • The system should allow cost containment
  • Where possible, the system should reduce inequality, or at least not make the current system worse

I will of course add extra rules wherever possible.

The four ideas I have so far are:

  • Radical privatization, which looks too good to be true and probably is (this is essentially a radical shift to a Japanese-style marketplace but with no private up-front payments)
  • Minimal privatization, in which minor changes are made to the hospital system to allow new entrants and private investment (essentially the Australian model hospital system tacked onto the British GP system)
  • A license system, with trade in licenses slowly opened up to allow increased privatization and resource reallocation (this is completely new but probably just a mechanism to achieve a mixture of the other three ideas)
  • Reform of the GP market only, to significantly improve the function of the primary care system while leaving the tertiary care system unchanged (essentially, the Australian model)

I hope these ideas will show that it’s possible to radically change the structure of the NHS without changing its essential relationship between patient and system, its fundamental funding arrangements or its main outcomes. I don’t claim that any of my ideas will work, of course, nor do they have to since I’m writing on a blog. But I suspect that even the most minimalist of them would be politically unpalatable in the UK now (and even more so when the Tories stuff up their current round of reforms).

Any other ideas in comments would be appreciated, and I’ll try and write them up too!


fn1: This rules out care budgets and vouchers and some of the crazier ideas floating around in the UK and USA, that require patients to become active participants in health service planning

Yesterday the UK government passed the Health and Social Care Bill, which institutes sweeping changes across the National Health Service (NHS) that some observers claim will see it completely transformed from its present form into a privatized health provider. Depending on who you ask, we are about to witness the dawning of a golden age in health gains for ordinary Britons, or the unravelling of Britain’s healthcare system with terrible consequences. Those of us who don’t currently depend on the NHS for our healthcare get to watch the fascinating spectacle of the world’s largest centralized healthcare system (and I think according to some reports the world’s largest single employer) being dismantled piecewise from the comfortable vantage point of our functioning universal healthcare systems (unless we’re American, of course – you guys just get to be jealous that the UK has a universal health system to dismantle).

The Health and Social Care Bill contains, in  my view, one of the most appalling pieces of healthcare reform that a human being can conceive of inflicting on an otherwise functioning system, but it also contains at least the seeds of some important reforms that are long overdue for the British system. The former is, of course, the ludicrous idea of “clinical commissioning,” in which about 60 billion pounds of NHS funding is to be taken away from area health services (called “Primary Care Trusts”) and given to family doctors, who are expected to form up into consortiums that will then determine what care gets funded with the money they’ve been given. The latter is the decision to split the health system into providers of care (hospitals and health care services), who offer services that then purchased by the NHS (or the afore-mentioned godforsaken GP commissioners). If it were possible to achive this latter reform successfully, the NHS would have been transformed so that it worked along lines similar to almost every other universal health care system in the world, and would also open the way for significant private investment in healthcare infrastructure in the UK. I’ll give some examples of how simple and profound that could be in this post.

What’s Wrong with the NHS

The biggest problem with healthcare in the UK – and the problem that governments on both sides don’t want to talk about – is that it is underfunded. The UK spends just under 10% of its GDP on healthcare, compared to between 11% and 17% for France and the USA[1]; before Labour’s reforms in the early 2000s, it spent closer to 8.5% on healthcare. You can’t expect modern health outcomes with this level of funding, though the NHS has shown that you can still do pretty well. The reason that this funding is so low is that the UK system is a centrally managed, entirely publicly-funded service, from which private providers have been excluded since its inception. With no ability to participate in the NHS, tax rates high, and the NHS goal to provide all services free at the point of care, private providers cannot make money and are left providing boutique services to the very rich. Hence, private investment in health is low. But it’s extremely difficult for the government to make up this shortfall – it’s likely doing so would require the government to increase spending on the NHS by potentially as much as 20% (to take it from the 9.5% of GDP it is now to the 11 or 12% other countries enjoy). Obviously such a funding boost is politically impossible, and so the NHS has languished.

Funding isn’t the only problem though. A centrally-managed organization of this size is inflexible, conservative and inefficient, and forcing efficiency gains from such a behemoth is extremely difficult. Centralized decision making forces diverse organizations in diverse regions that have individual priorities to commit to goals and priorities set nationally, and leads to the classic inefficiencies and inflexibility of a centrally-managed utopian institution. Other health systems leave much regional flexibility and priority-setting to be determined both at a local level and privately, and force at least some health organizations to respond to patient needs by going out of business if they can’t. Classic examples of this kind of inflexibility abound in the NHS: until recently patients didn’t have a choice of hospital, but had to go to one that was linked to the area in which they lived. You can’t shop around GPs (in theory) but need to “register” with a GP and visit only one – you can’t, e.g. have a different GP for sexual health needs vs. chronic disease management, which is pretty common in other countries. Furthermore, GPs can refuse to accept new patients if their list is full, and many GPs require you to register before you can attend for health care, which is inflexible. There is no incentive for GPs to invest in their own services, since they can refer patients to a hospital for almost every condition, and have a largely captive audience, so the UK has an abundance of one-doctor surgeries with archaic opening times. At least a portion of their renumeration is based on their list size, so there’s no incentive for new GPs to enter the market or to try and increase the amount of services they provide: their ideal business model (financially) is to have a large list of patients and very short working hours, and there’s no incentive for them to merge to form larger GP clinics that might, e.g., provide out of hours services. This all changed slowly under labour since the mid-90s, but GPs – the gatekeepers into the health system in the UK – are very highly paid for a very poor service model.

The hospital sector in the UK is also under-funded and subject to the kind of rigid service models one expects of a centrally-managed system. The outpatient system is over-burdened from the broken gatekeeper model, and many of the hospital systems are lacking investment and modern infrastructure. This is a throwback to years of underfunding but it’s also a consequence of current funding constraints: both recurrent costs and capital investment need to be funded from the government’s budget, but they can’t contract out e.g. pathology services that would be routinely privatized in other systems, so where much of this investment is done by private companies in Australia, in the UK it’s all part of that 9.5% of GDP. The system is plagued with waiting times and archaic technology and systems, and everyone is overworked.

Hospitals can’t consolidate or specialize, which is a key method of improving efficiency, quality and safety of care. We know that larger facilities tend to have lower death rates and better success rates, but to achieve such benefits hospitals need to shut down under-performing clinics or specialties and focus on a more limited range of services – and some hospitals need to shut altogether. But in the UK there is a direct relationship between the government and the hospital sector, so every time a hospital plans to close even a single ward you see protests aimed at the local member, followed by political blowback, taken up with gusto by the press (who love an NHS scandal). The government inevitably buckles, and under-performing or inefficient (and sometimes dangerous) smaller facilities can’t relocate or close. In fact, the whole system is vulnerable to political campaigns – on nurses’ or doctors’ pay, on hospital closures, or even on particular treatment methods – in a way that a more mixed model is not.  So it creaks along, unable to consolidate for modern efficiency gains, unable to reform its failing gatekeeper model, and unable to inject the capital required to modernize. Plus, even if it did inject the capital, much of it would be subjet to political debate and delays that would mean it was inefficiently used.

A Model Example: Privatization of General Practice

For these reasons, the system needs to be diversified and decoupled from the political pressures that currently constrain its operations, and doing so is inevitably going to mean privatization. There is no reason, for example, that the entire primary health system (that is, GPs) couldn’t be thrown entirely to the whims of the market, with GPs offered payment only on a fee-for-service basis and the market opened up to corporate investors. If the government did this, international health care companies would be in faster than greased lightning, setting up large, efficient and modern clinics with heavy capital investment, bringing in overseas doctors or buying in the local younger doctors, incorporating allied health care services and providing a huge injection of capital to the GP market overnight. Older, settled GPs would hate it because they would be drummed out of the market, but this is exactly what is needed – get rid of these little shoddy one man clinics operating 9-5 and no weekends, and replace them with large, bustling services that provide evening and weekend medical care, physiotherapy, dental care, public health nursing and rehabilitation under one roof. It would immediately take pressure off of hospitals and make healthcare far more easily available for the majority of the working population. These services are the norm in other developed nations but still held back in the UK by the lack of private investment or public vision.

The Political Mistakes in this Bill

With these ideas in mind, the government has started outsourcing NHS services, and the Guardian reports on a controversial example from Devon, possibly the first in the UK: privatization of children’s health services. These services will be purchased by the NHS, but provided by either Serco (a private prisons company) or Virgin Healthcare (a branch of Richard Branson’s Virgin empire). This is a classic insurer/provider split: the NHS collects insurance from everyone in the UK and then purchases health services from a private provider. Unfortunately, from what one can tell of the process in the article, it’s going to go down the classic British privatization pathway: give the contract to a single provider without a fee-for-service element and then hope they don’t cock it up. The NHS, with no expertise in contracting from private services, is going to be writing a 100 million pound contract with a famously predatory company like Serco or Virgin. And not just for any services, but for the most controversial possible service they can find: child protection. This isn’t just a political risk but a healthcare risk, because these services are far more complex than say, radiology or pathology services, and there are very few private contractors with any experience in them.

The linked article on children’s health services makes the people bidding for this contract seem like very reasonable people driven by a genuine desire to provide decent health care and an awareness of what is holding the NHS back. For example, the Serco spokesperson says:

It has to cut £20bn a year. It can’t invest, but we can invest to improve quality and generate efficiency. We have to bid to deliver at prices that are a lot lower than the NHS to win contracts and that gives the NHS more money to put into the NHS itself.

This is a good example of why efficiency gains are important. They don’t just benefit the profits of the insurance company doing the purchasing, but also the health of all members of the plan, since they enable the insurance company to fund a greater number of services, and/or to extend its funds to new services. Unfortunately the Conservatives aren’t selling these points, but are instead talking up the need to save money.

Ideally, the privatization program the Tories are running would start with something simple – pathology or radiology services, or a small rural hospital – and be trialled over several years before being introduced nationally, and the most complex and controversial services (large teaching hospitals, prison healthcare, children’s services) would be privatized last or not at all. Lessons learnt in the initial small trials would be incorporated into the bigger privatization program, and where things failed they would be kept in public hands until better privatization methods could be trialled. Also, the system wouldn’t be privatized in a one-contract-per-service method as is shown here, especially not in rural areas where locals can’t easily choose another service not being provided by the sole contractor. Rather, services would be offered competitively to the lowest bidder, thus allowing the NHS itself to compete. The risk with solo contracts such as planned here are that they don’t actually exert a competitive pressure on the provider – they’re only as competitive as the tendering process. Patients as well as commissioners should have the ability to shop around.

Unfortunately, the Tories seem to have decided to push forward recklessly, implementing clinical commissioning and hospital privatization at the same time. There’s a risk of chaos, poor contract management, and cost overruns or service failures without any significant benefits to patients, at least in the short term.

The Most Likely Outcomes

The privatization of children’s services in Devon is a good example of the radicalism underlying the Conservative Party’s agenda on this topic: they don’t want to see a gradual unravelling of the NHS, starting with the easiest services and building up, and instead want to sell off the most complex bits while simultaneously managing the mish-mash of clinical commissioning, and cutting funding to the NHS by something like 20billion pounds over 5 years. The obvious result is going to be a 5 year torrent of bad news stories, and the public perception that health system privatization is both a kooky agenda (tainted by the confusion and chaos that clinical commissioning will bring) and driven only by the need to cut costs, rather than the very real need to improve the NHS. Thus, when the Conservatives finally lose power, the privatization agenda will be inevitably linked with their other policy radicalism and the agenda of “the cuts” (oh how I hate that term), and the chance to reform the NHS so that it actually works will be lost.

Furthermore, the Tories aren’t actually testing a health system reform that has any pedigree. A single payer insurer offering fixed payments on a fee for service basis to primarily private providers has been tried and tested in the USA (Medicare) and Japan (kokumin hoken). A weird system of ordinary family doctors holding millions of dollars in health system funding and using it to contract services from private providers on a block funding basis – that is unheard of in modern health systems. Why test it?

Mistaken Ideas About Health Inequality

Much of the debate about healthcare in the UK still revolves around this issue of central planning versus US-style free market models. In February the shadow (Labour) spokesperson on health, Andy Burnham, penned a piece for the Guardian in which he criticized privatization. There he claimed:

In the US system, for instance, it is possible to find some of the world’s most advanced and innovative examples of care. But, alongside it, we find very poor or non-existent care. The question we must ask is not which system produces the best individual examples of treatment, but rather which is best for everyone. On this test, the centrally planned NHS wins hands down.

This is a completely unreasonable comparison. The US has “poor or non-existent care” because it doesn’t have universal health care. The US could do away with this problem tomorrow by nationalizing all the insurance companies, forming one national insurance company funded by taxation, and then funding all medical care on a strictly fee for service basis. The system would be completely unplanned, with no government hospitals involved, but it would be pretty likely to eliminate “non-existent care” overnight, since all Americans would be eligible for care. Burnham also claims the NHS

provides the precious ability to set standards and entitlements to services at a national level. Market-based health systems do not afford a similar ability to control costs at national level, and allocate resources in a fair and consistent way.

But this is also not true. The government, providing all funds for purchasing health care services, can decide exactly how much it will pay, and provide it is not stupid or unrealistic, it is likely that the private sector will fall into line (we’re talking about 100 billion pounds a year of essential services here – people will be shoving into line to get a piece of that). Similarly, the USA has the ability to “set standards and entitlements” even now – for example, it’s very hard for a US health insurance company to refuse someone a policy because they’re black. The problem in the US is that the government won’t set those standards well enough, and by refusing to provide a universal health coverage model, has lost the ability to compete financially in this market place or to control it through its own considerable financial muscle. There have been many models proposed that would reform much of the US healthcare market without making it centrally planned, and would improve both its equality and its ability to contain costs – and in fact some private US organizations (especially HMOs) are famous for good cost containment. The tragedy of the US political system is that many of the education proposals coming from moderate republicans – voucher systems and the like – would significantly reduce health inequality if adapted to the health market, yet even relatively rational and minimal reform plans that would otherwise be favourable to their right wing are rejected out of hand because they involve “government intervention in medical care.”

The problem in the UK is that this debate about access to care has been framed as a debate between the NHS and the US system for so long that even experts and well-intentioned politicians with a strong understanding of the system (like Burnham) have fallen into it. But the reality is that centrally planned systems don’t necessarily reduce inequality. This is because inequality is not purely a function of inability to afford healthcare: it arises from the interaction between individuals and systems, the design of systems, and the inevitability of resource constraints. Wherever resources are restricted one finds that the wealthy, the educated and the powerful are better able to seize more of these resources, or seize them sooner (an important consideration in health systems). For example, in 2010 I showed that poor and older people tend to receive less referrals or take longer to be referred for a wide range of conditions within the NHS – this despite the fact that the NHS is free to all. This is because the referral system is a type of resource management system, and for reasons we don’t entirely understand, the wealthy and the educated are better able to negotiate any such system. So central planning doesn’t solve these problems, though the way the NHS is constructed makes these problems less life threatening than they would be in, say, the USA (where many of the people whose health outcomes I studied would simply not have access to health care at all).

Another reason that centrally planned systems don’t necessarily reduce inequality better than other systems is that health inequality is caused by factors outside the health system. It is, simply, a function of inequality, and there’s only so much that even the best health systems can do to reduce the effect of problems created in broader society. The UK is a very unequal society, and the NHS has to deal with the human consequences of that. The goal of health planners concerned about inequality is to find the best system to provide good healthcare to everyone that will also reduce inequality. Balancing these two goals in a resource-constrained setting is difficult, and I see no a priori justification for the idea that central planning is always the best way to do this.

Some Theories About Modern Healthcare Systems

Once the NHS and the US’s overly private system are done away with the world will essentially be left with a range of mixed-market models, largely based on the idea of a central universal insurance provider and a partially- or completely- privatized marketplace of service providers. Some, like Canada and Australia, will tend to be more heavily publicly run than others, like Japan or Germany. There will be a few unique hold outs, like China, Cuba and Switzerland, but largely the ideal form of health provider will have been settled. This decade the WHO is focusing on universal healthcare as a central policy theme, and the goal will then be to expand models like Japan’s to encompass the developing world – a pressing problem given the resource constraints there. There is no place in health policy for a purely market-based model and, as far as I can see, there is equally no place for a fully centrally managed model. The debate now is about how to extend the most functional mixed-market models to the rest of the world (including China and India) as a development goal, and how to resolve pressing issues of cost containment in the developed world.

Given this settled state of policy, it seems now to me that there are some central lessons that have been learnt since the expansion of universal care systems across the developed world over the past 100 years:

  • Governments and markets can’t go it alone: models based entirely on one sector running the whole show don’t work, because health systems are enormously complex, requiring market-based flexibility and government intervention to prevent market failure and enforce standards and access
  • Cost containment, universal access, and timely access are hard to balance: Most health systems can’t manage all three of these at once. The USA has managed timely access but not cost containment or universality; the UK has managed two of the three; Japan, Germany and France have probably got all three down but Germany is heading into financial trouble and Japan has inherited a unique set of social factors (a very healthy population and a very equitable society). This trio of goals for modern health systems are going to become harder and harder to balance as populations age and more expensive health care is developed
  • You can’t fix inequality just by throwing money at it: obviously achieving universal care is an important part of reducing inequality, but that’s not the end of it. How your system functions and how people interact with it is important in determining where inequality arises and how well it is reduced. A complex system with non-financial resource constraints (like the NHS) can create or perpetuate inequality even though on paper everyone has access to care
  • Centrally planned systems don’t solve inequality: Central planning can be an attractive way to reduce inequality, but it doesn’t necessarily work that way. In health systems, inefficiencies or inequities in one area inevitably produce problems and workarounds elsewhere, and centrally planned systems may be able to stamp out some inefficiencies or inequities, but they don’t necessarily have the capability to react to (or even notice) the problems their solutions create
  • Muddled political visions produce muddled outcomes: They may claim to be friends of the NHS but the Tory political program in health is not just about improving the NHS. They also want to cut costs (to the government), and they want to reduce government interference. I think they also have an ideological goal of increasing the role of the private sector in healthcare, and I don’t think this view arises purely from a belief that this will make the system better – they have an ideological commitment to reducing the size and role of government. This muddled goal will produce a partially privatized system that doesn’t work because it wasn’t privatized with the goal of improving the system. Similarly, the Labour party may be friends of the NHS but they also had a goal of privatization with the intention of improving services, but they couldn’t separate that practical plan from their commitment to a centrally planned and government run NHS. The result was a series of aborted privatization plans that satisfied no one.

Health systems planning is where ideologies go to die, and the NHS is the classic example of this. It has long since proven that the centrally planned, socialized system envisaged in 1948 is insufficient to the long term management of a health system, but subsequent interventions to improve it have been hampered by ideology and have inevitably failed when they meet reality. The latest attempt by the Tories, though it has some good qualities and has the potential to take the NHS in a good direction, is highly likely to meet the same fate. If they do fail the rapidity of the changes, their timing and their entanglement with the Tory cost-cutting agenda could permanently damage the idea of introducing a mixed market system to the NHS, setting back much-needed reforms for a whole generation. This will leave the British people very poorly served by their health system, and continuing to fall behind the rest of the OECD in health outcomes. It will be sad indeed if the country that introduced the modern, free health service is overtaken by even the post-Obamacare USA as a model for health service provision.

fn1: These figures taken roughly from the Commonwealth Fund’s annual report on health care comparisons between the UK, Germany, Netherlands, NZ, Australia and USA.