Wednesday 2 May 2012

The madness of NHS privatisation

Increasing privatisation of the NHS will wreck our healthcare system

The Health and Social Care Act will clearly lead to increasing privatisation of the NHS. I have explained this in more detail in a recent article in the BMJ.

There are some commentators and think tanks that still deny this is what the Act is about, but this completely ignores the political ideology underpinning the supply side economic policies of the coalition Government, which aim to reduce public expenditure and replace large swathes of public services with private providers. By definition, that is privatisation!

Other commentators and think tanks believe that the NHS needs more private sector involvement in order to improve its performance. They often base this argument on the following points:

  1. The NHS is unaffordable in the long term
  2. Much of the NHS has already been privatised
  3. Privatisation and competition increases efficiency, innovation and responsiveness to patients
  4. Privatisation is a crucial economic policy to deal with the deficit and TINA

I believe these arguments are flawed and moreover, there are lots more reasons why NHS privatisation is a really bad idea:

“Much of the NHS is already privatised or relies on private sector”

Those who argue for greater involvement of the private sector in the provision of NHS services frequently highlight the fact that many parts of the NHS already involve the private sector, and in some cases this has been the case since the inception of the NHS.
The most frequently cited example is the role of GPs in the NHS as independent private contractors. However, the reality is that GPs are a million miles away from private sector healthcare corporations. Here are just of few of the reasons why:
·         GPs have a limit to their earnings agreed by government
·         So called profits are actually a salary equivalent
·         There are no surpluses to distribute to shareholders
·         GPs can’t buy and sell their businesses
·         Advertising is restricted
·         GPs generally don’t provide any other services outside the NHS
·         There is no legal duty to maximise profits
·         GPs build long term relationships with their patients and communities, which is not reducible to commodity values. Patients know this. They don’t consider their GP practices to be “private companies” and have expressed unease at the idea of their health care being provided by people whose primary aim is to make a profit

Another example cited is the role of the pharmaceutical and medical devices industries, where private corporations and market forces contribute to driving innovation and improvement in medical therapies. However, these are global industries functioning in global markets, so the idea that individual Governments should take over this role doesn’t make sense. The arguments against NHS privatisation and marketisation are not about this. The key debate is about how the NHS is organised and structured, and how care is delivered to the population. On this basis there is evidence clear that public funding of private care yields poor results. Professors’ Woolhandler and Himmelstein from Harvard Univeristy stated in the BMJ:

“Evidence from the US is remarkably consistent: Public funding of private care yield poor results”

“The NHS is unaffordable”

All 3 political parties are publicly signed up to a single payer publicly (taxpayer) funded system because there is clear evidence that this is the most cost effective way to fund our healthcare system. Reports confirming this include the Guillebaud report 1951, The Commons Expenditure Committee report 1973, and the Wanless review 2001.
Wanless showed that there had been a £267 billion NHS underspend from 1972-1998 compared to European average spending on health. In his conclusions he stated:
The surprise may be that the gap in many measured outcomes is not bigger, given the size of the cumulative spending gap

Although UK spending on health is much nearer the European average, the idea that the NHS is unaffordable does not hold water. A recent article in the BMJ by Professor John Appleby, chief economist of the King’s Fund, concluded that spending on the NHS is “a matter of choice, not affordability”. His data briefing graphs are particularly interesting.  
There is also the small matter of the myth about the UK’s current “massive” national debt. Once again, the evidence shows the real situation.

“The Private Sector is more efficient, innovative and responsive to patients than the public sector”

The argument for the private sector being more efficient, innovative and responsive to patients is, by definition, framed in the context of a competitive market system. Market theory maintains that the proper functioning of the market is only possible through competition between private sector organisations with minimal or no government intervention. Hence the need to create a market environment for the private sector to function in the NHS. The key levers of this market system are:
1.      The purchaser-provider split between primary care (Clinical commissioning consortia) and secondary care (Foundation Trusts)
2.      Patient choice
3.      Plurality of providers (Any Qualified Provider - AQP)
4.      Payment by results (PbR)

This system is clearly designed to drive competition between a plurality of providers through the mechanisms of patient choice and money following the patient (or more aptly, the consumer) (PbR).
Unfortunately the market in healthcare throws up all sorts of problems that makes it inefficient, dysfunctional and expensive. Please see 2 of my previous blogs for a more detailed description of the theoretical and practical aspects of market failure in health.
In summary, rather than driving efficiency in the NHS, the problems of market failure inflate healthcare costs by creating excess capacity in the system, driving supplier induced demand, turning patients into consumers of healthcare, and inflating administrative costs of the system due to increased transaction costs and regulatory costs. Private companies also need to cream off profits. This will all inevitably lead to the bankruptcy of the fixed budget of a single payer system. Hence services will become rationed and waiting lists will rise, fuelling the drive towards a mixed funding system through increasing demand for medical insurance, as well out of pocket payments. This fundamentally undermines the founding principles of the NHS, as it cannot be a comprehensive service covering the needs of the whole population. The use of external capital through private insurance to fund care, and the increasing use of private companies delivering and commissioning care, effectively denationalises the system. That is why the Health and Social Care Act abolished the legal basis for the NHS – it was a denationalisation and privatisation Act.

It gets worse. A marketised healthcare system undermines medical professionalism and the doctor patient relationship. As David Coats from the Work Foundation stated in 2006:
Relationships between medical professionals and patients depend on trust rather than contractual obligations, and attempting to reduce the provision of healthcare to economic transactions erodes the intrinsic motivations on which the doctor-patient relationships depend

This is exactly what happened in the United States during the rapid commercialisation of the US Health system in the 1980s. As Blendon stated in the Journal of the American Medical Association
 “The American medical profession lost public support faster than any other professional group”.

In fact medical professionals are actually an obstacle to market forces, because doctors control access to the healthcare market. Professional bureaucracies are an anathema to the market. Hence there has been an attack on medical professionalism for the last 20 years or so. I was actually politicised by New Labour’s Modernising Medical Careers (MMC) fiasco, which was aimed at producing a “fit for purpose” medical workforce to suit the needs of employers in the new healthcare market. The DH website stated:
“...most importantly, (MMC) will deliver a modern training scheme and career structure that will allow clinical professionals to support real patient choice” (DH Website)

In addition the British Journal of GP editorial on Postgraduate Medical and Education Training Board stated that the Government’s plans for medical education:
“…are clearly intended to enable the Secretary of State to direct that standards can be lowered to meet the manpower demands of the NHS.”

The focus on “tick box competency based training” rather than professional experiential and tacit knowledge comes straight out of the business school books. The idea is centred on economic principles to make “service lines” as cost effective as possible by using the cheapest possible workers to deliver care to save costs. As long as they have ticked the “competency boxes”, they can do the work. This is all about business principles not who is actually the best person to deliver care to patients.
Thus, privatisation fundamentally undermines professional standards, the doctor-patient relationship and the social contract. This cannot be good for quality of care

Professor Arnold Relman, former editor of the New England Journal of Medicine, summed up the problems of privatisation and medical professionalism beautifully in a recent article for JAMA:

Medical professionalism cannot survive in the current commercialized health care market. The continued privatization of health care and the continued prevalence and intrusion of market forces in the practice of medicine will not only bankrupt the health care system, but also will inevitably undermine the ethical foundations of medical practice and dissolve the moral precepts that have historically defined the medical profession.”

“Privatisation is crucial to a successful economy”

Proponents of supply side economic policies believe that tax cuts, reduced public spending and labour market deregulation are crucial to private sector investment and growth, and hence economic growth. Privatisation through selling off public assets and replacing public sector functions with the private sector, is crucial part of this policy. Labour market deregulation also reduces public expenditure on wages and pensions and also keeps down inflation. In theory, the end result of these policies should be a low tax, low inflation, low interest rate economy, which should lead to increased investment and economic growth. The reality has been very different as evidenced by the global financial crisis.
Privatisation or partial privatisation of the NHS is also a false economy. As explained above, the market system required for the private sector is inefficient, expensive and will bankrupt the single payer system. This will lead to rationing of care, cuts to services and increased waiting lists, resulting in a greater proportion of the population taking out healthcare insurance or making out of pocket payments. This clearly negatively impacts upon the demand side of the economy as people have less money to spend because they have spent it on health cover. In addition, the need for private companies to make profits for their shareholders will result in lower wages for workers and poorer pension deals for new employees who are not protected by TUPE legislation. Once again this negatively impacts on the demand side of the economy and reduces the Keynesian multiplier effect for local economies. This will be a particular problem in the North East, which has a very high percentage of public sector employment. Another problem is that private sector profits often go to offshore tax havens, so yet money is lost from the UK economy.
In contrast, a publicly funded and provided NHS ensures that public money is redistributed around the UK economy because it is a massive employer, which
helps to stimulate our private small and medium sized enterprises, as well larger corporations. So wrecking the NHS through privatisation will not only damage and fragment care, it is also a false economy.

More reasons to reject NHS privatisation

Apart from the above arguments, there are plenty of other reasons to reject privatisation of the NHS

  1. The Private Finance Initiative. This is a classic example of the failure of a privatisation mechanism. The PFI is essentially an accounting trick designed to allow the building of lots of new hospitals (as well as other public buildings like schools), whilst keeping expenditure off the public sector borrowing sheets. Under New labour, the PFI allowed public debt to be kept below 40%GDP - one of Gordon Brown’s key Golden rules. It also gave fantastic investment returns to the banking sector. The Royal Bank of Scotland did particularly well! Unfortunately the taxpayer will be paying £60billion for £11 billion of hospital buildings

  1. Privatisation leads to fragmentation of care and services. The market forces of “creative destruction” will undermine and destabilise key services, which have been built up over decades. The health needs of populations need proper planning, and should not be left to the destructive forces of the market.

  1. The Government has said that it is committed to reducing practice variation in order to reduce healthcare expenditure. The DH QIPP team have produced  The NHS Atlas of Variation in Healthcare and stated:

“In the recent White Paper, there is a commitment to increasing value from the resources allocated. This requires us to address variations and reduce unwarranted variations in activity and expenditure”

Yet privatisation will increase unwarranted practice variation because the citizen-consumerism of a market system caters for “wants” over “needs”. This creates the classic problem of overtreatment as seen in the US healthcare system. The problem of practice variation is further exacerbated by the pro-market policy of abolishing practice boundaries, which undermines population based datasets causing “denominator ambiguity”. This makes it much harder to measure clinical outcomes and practice variation. Commercial confidentiality of private companies further adds to this problem

  1. Privatisation also causes dilution of expertise because plurality of provision results in a highly skilled workforce being fragmented as key personnel are transferred from the public sector to the private sector. This will only compound the problems of national shortages of key professional groups like pharmacists and radiographers etc

  1. “Privatisation creep”. Once the private sector starts getting contracts with the DH, it becomes increasingly influential in policy making. When New Labour started introducing Independent Sector Treatment Centres, the Commercial Directorate of the Dept of Health had 190 staff, 182 of which were from private sector, with only 8 civil servants. This also links in with the problem of the “revolving doors” culture (see below)

  1. Privatisation leads to a “revolving doors” culture between the political class and the private sector. At best this damages the trust in our democratic political system and at worst it results in corruption

  1. Privatisation leads to increasing complexity and bureaucracy of the system. This increases costs and also increases opportunities for the private management consultancy industry to offer their expensive advice to the NHS. The classic McKinsey slogan “If you can measure it, you can manage it” is apt. That phrase should also end with the words “and then you can bill for it”.

  1. Privatisation will lead to increasing legal challenges under competition laws. We have already seen this happen with Virgin, which lost a recent appeal. Once again this will increase costs to the taxpayer and undermine trust in the system

In summary, it is clear that the arguments in favour of NHS privatisation are flawed and the dangers to our healthcare system from this approach are grave. We must fight this madness or risk losing the nation’s greatest institution.



  1. As usual, Clive, your refutation of prevailing health policy is succinct and compelling. However, there is one arena in which these reforms are likely to succeed; they will make the rich (including doctors) richer. "After the implementation of neoliberal policies in the 1970s, the share of national income of the top 1% of income earners in the US soared, to reach 15% (very close to its pre-Second World War share) by the end of the century." David Harvey (2005) A Brief History of Neoliberalism.

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