Firstly – an apology, I had this drafted for the 70th anniversary of the NHS a few weeks back, but didn’t get a chance to finish it. Part of the delay was because I distracted by things like holidays, but also because it turned out to be a bigger task than I thought.
There are lots of on line campaigns and memes going around the internet expressing concern about the risk to the NHS of privatisation. It’s hard to check social media without being asked to like and share some meme about the imminent risk to the NHS posed by Tories/Trump/Privatisation. The quality of debate in the press isn’t much better
Over the last year these campaigns have reached a fever pitch around the NHS 70th Anniversary. Increasingly these on-line campaigns don’t just want people to click and share, they want money to fund legal action against the current governments plans
One of the most eye-catching campaigns was the crowd funded legal action backed by Steven Hawking before he died to oppose the creation of Accountable Care Organisations. The Stephen Hawking group was one of 2 campaigns to try and use Judicial Reviews to stop the ACO programme.
Between them the 2 campaigns raised over £350,000 to fund legal challenges to NHS organisational configuration, on the grounds that they represented “privatisation by stealth”, or an extension of privatisation into areas like the commissioning of services which they hadn’t previously been allowed. The costs to the NHS of defending these actions was very much higher.
Both campaigns lost their cases on all counts.
As you might have guessed I was always doubtful of their chances of success. The NHS has always had a mix of public and private provision since it was established, and each Secretary of State for Health gets to decide what the right mix is. This isn’t a secret agenda, it is exactly how the NHS operates.
I should probably declare my own position up front on “privatisation” I don’t really have a problem with private sector organisations working for the NHS where they provide good quality care, at a sensible price using their own resources. When I was a PCT CEO I sent lots of NHS patients who had been waiting a long time for elective surgery to our local private hospital. I wasn’t embarrassed by this, and the patients who benefited certainly didn’t think that the NHS was being undermined.
I do however have a massive problem with the huge bureaucracy which exists to support the transfer of work to the private sector, even though I got paid loads for years to be part of this bureaucracy. I like some aspects of the ACO programme particularly as it allows local health economics to start and dismantle aspects of the NHS internal market.
But above all I believe that the Landsley Act is an expensive mess.
I thought it would therefore be fun to write a short history of NHS privatisation to try and put the current debate in historical context, and to answer the crucial question – is the NHS privatising more or less than it used to?
History of Privatisation
I have lost count of the number of memes I have seen shared on social media telling the story of how the plucky Attlee Government took on the Tory Party and the Medical Establishment, both of whom were dead set against the creation of the NHS, armed only with a massive majority in Parliament.
In fact both Labour and Tories supported the creation of some kind of National Health Service. Arthur “Speak for England, Arthur!” Henderson, a former Labour Leader, and William Beveridge (a Tory) did the work during WW2 to lay the ground for the creation of the NHS, although it the latter’s name which went on the report.
Despite this consensus there were fierce battles in the house over the 3 readings. The main points of contention were:
- Whether the NHS would be funded out of general taxation or from a separate fund (the Tories wanted a separate fund)
- The Status and independence of existing healthcare providers, particularly GPs and healthcare charities.
- How much of healthcare provision would be nationalised.
When you read that wicked Tory MPs voted against the creation of the NHS, one of the most common issues that the Tories fought for in the 3 readings of the NHS Bill was protecting the status of pre-existing healthcare charities and guaranteeing their independence
The final 1947 Act put most of Secondary Care (sometimes called HCHS – Hospital and Community Health Services) in the public sector, and Primary Care (sometimes called FHS – Family Health Services) in the private sector. I say most because some parts of the healthcare system were allowed to continue as charities independent of the NHS, for example Great Ormond Street, or the Richardson Hospital in Barnard Castle. The NHS was funded out of central taxation, free at the point of use, and provided by a mix of public and private providers.
It is worth noting that of the NHS principles Free at the Point of Use was the first to be broken. The Attlee Government introduced co-payments for prescriptions, and later for glasses and dental work. It turned out that the British had much worse eyesight and dodgier teeth than anyone had suspected. Gordon Brown also technically broke one of the principles when he hypothecated the revenues from an increase in tobacco taxation in 2002, although this is such an obscure point that I am only mentioning it as I like the word hypothecated.
There were however ideological grievances against the 1947 Act in both parties. The right of the Tory Party have always wanted a larger role for the private sector in delivering secondary care services, and the left of the Labour Party has always been resentful of the independence of GPs (this bitterness got much worse after GPs enthusiastically embraced fundholding in the 1990s). Each has their own agenda – to carve out opportunities for profit making on the right, and to clip the wings of bossy Doctors on the left.
Both in their own way were unhappy with the 1947 Act.
From the 1940s through to the late 70s all the main parties followed similar patterns of policy and spending towards the NHS.
And then came Thatcher.
Maggie Thatcher had an intense ideological obsession with privatising nationalised industries, and progressively sold off or smashed up all but one. The exception was the NHS which was widely popular and had lots of support inside the Conservative Party. Thatcher promised voters in 1982, the NHS is “safe in our hands.
Thatcher still marked a step change in how the NHS was run. The 1983 Griffiths report introducing Unit General Managers to run NHS Services which previously has been led by Clinicians. The 1990 NHS and Community Care Act created an ‘internal market’ whereby Health Authorities ceased to run hospitals but “purchased” care from their own or other authorities’ hospitals. Some GPs became “fund holders” and were able to purchase care for their patients. The “providers” became were re-branded as NHS Trusts, who had notionally more independence.
This all amounted to a massive increase in management costs, and as the Berlin Wall came down large numbers of unwanted Cold Warriors were re-deployed as NHS Senior Managers, which helped turn the split between purchasers and providers into a hostile and adversarial environment.
All of these changes were designed to make it easier for the private sector to take on more and more NHS work. The purchasers in the internal market weren’t constrained to buy only from the NHS, and particularly the GP fundholders were keen to spread their wings and buy a wider range of services for patients.
The reality however was that the private healthcare sector in the NHS didn’t really exist for them to buy from, which meant that the whole exercise was an expense failure.
In every year from 1990 to 1997 the cost of running the internal market were higher than the value of the contracts that were let to the private sector. Where there was innovation it was largely GPs setting up their own services to deal with illnesses which were more expensive to treat in NHS Hospitals.
Private healthcare providers in the UK are tiny in comparison to the NHS, they only provide a limited range of elective operations, and don’t provide complex stuff like A&E. The services they do provide they are almost entirely reliant on NHS for staff, plus a small number of ex-NHS people (many of whom left the NHS under a cloud). This created a conflict of interest for NHS consultants who did private work – keeping NHS waiting lists long helped keep their private sector revenue high.
John Major spent more and more on the vast bureaucracy of fundholding, and invested a bit more in running the NHS. While the use of private sector providers didn’t increase significantly under Major he did introduce the use of outsourcing for support services like cleaners.
Despite some more money under Major when Labour returned to power in 1997 the NHS was in a dreadful state. Huge waiting lists, ageing hospitals, shortages of Doctors and Nurses. I know of at least one NHS CEO who was sacked when it was discovered they had draws in their office full of referrals hidden so that they didn’t show up on the official waiting lists.
I don’t think that the incoming Labour Government were actually honest with voters about the terrible state of the NHS in those days. They were worried if they told the truth about how bad things were voters might start to think that it was better to get rid of it and start again with something else. The concern that the Blair Government had about the pubic losing faith in the NHS was overstated, but was a significant factor in their decisions about the service.
As the Government put more and more money into the NHS they became very impatient for results, particularly after Alan Miburn become Secretary of State. The Government was scared that middle class voters would balk at paying more money to save an NHS with long waits and start going private in large numbers, undermining support for the service.
One of the easiest solutions to reducing waiting lists was to start and buy surplus capacity in the private sector. Most private hospitals didn’t run their operating theatres more than a couple of days a week, and it was easy to start buying additional theatre space off them.
I will admit at this point that I was one of the people responsible for this. I ran a PCT who had inherited a large waiting list for routine orthopaedic work. I bought up so much operating theatre capacity at our local BUPA hospital that our Chairmans wife, who still had private heath insurance, was appalled to discover it was faster to get an operation at her local private hospital by going through her NHS GP. By the mid-2000s there were more NHS patients in BUPA hospitals than BUPA patients, and they sold all of their hospitals to Spire healthcare.
There is no doubt that this was very popular. The patients who had been waiting a long time and who suddenly got their treatments in private hospitals were made up about it. I liked it because it let me take control of the flow of patients into the private sector and allowed me to better manage the conflict of interest with NHS consultants who did private work.
This piece meal approach to transferring waiting list work to the private sector by managers like me was such a success that DH decided to replicate this at a national level with the Independent Sector Treatment Centre Programme.
The ISTCs were supposed to encourage private healthcare companies, often from abroad, to come to the UK to areas with long waiting lists to provide additional capacity. This was the first big attempt by the NHS to bring in big healthcare companies from the US and around the world to deliver patient services.
Wave 1 was 25 fixed sites, and 2 mobile units, and wave 2 was another 24. It was soon apparent that there wasn’t anything like enough interest from the private sector globally to make this work, and the programme was opened up to NHS organisations to run and operate them. By 2006 nearly all ISTCs were run by the NHS due to lack of private sector interest.
A similar fate befell the NHS Commuter Centre programme. Ministers (who by the nature of their jobs work in London) were concerned that people who commuted to work found it hard to access GP services. 6 Centres were commissioned, all from private sector providers. All were closed due to lack of patients.
More successfully the NHS opened 230 walk-in centres. These were designed to improve GP Access. In the decade from 2000-2010, the NHS opened more than 230 walk-in centres. These have been reduced by 50 since 2010. The original plan was that these would be provided by private sector providers, and Virgin Health did win some of the contracts. However the majority of these contracts too went to NHS Trusts or to companies formed by consortia of GPs, based on the old GP Out of Hours Consortia model. This was based on a different model of providing primary care – APMS rather than standard GMS contracts.
The use of the private sector by the Blair Government is one of the most contentious areas, as it was seen by some as running contrary to the values of some Labour members. Where the NHS bought up private sector capacity locally to reduce waiting lists it was mostly a success. Where DH tried to encourage an expansion of private sector capacity nationally it was mostly a failure due to the lack of interest and capacity. It is worth mentioning that while I was moving patients to BUPA I was also bringing a GP practice and a Dentists Surgery under state control, something Nye Bevan never managed.
When the Conservatives can back into power in 2010 the NHS, despite over 2 decades of the internal market, still had very little private sector provision of direct patient care services. The costs of running the internal market were still higher than the value of the private sector contracts that they were facilitating.
The Landsley Act introduced a new dimension into privatisation – the outsourcing of existing NHS patient care services. From this point on the NHS would have to offer the private sector the opportunity to take over the running of services, with the staff transferring by TUPE to the new organisation.
I realise that this is a subtle distinction, but it is crucial – up to 2010 NHS privatisation had focussed on persuading the private sector to offer additional capacity to the NHS to expand patient services. From 2010 privatisation was about letting the private sector run NHS capacity, with no pretence that they were bringing anything of their own to the deal.
In Community Services, where patient activity is less volatile there has been considerable interest in taking over services, in particular by Virgin Healthcare and Care UK. I don’t really understand the rationale for this, as the private sector in these circumstances are bringing no additional capacity or expertise. They are just taking over the Unit General Management role at a slightly lower cost.
I am also concerned about the mix of providers who are winning contracts. There are actually some really good private healthcare companies out there, including some really good US companies like Humana and United who have a very distinctive approach to managing community services that I like. Under the Tories these companies have actually left the UK healthcare market as they don’t like the way services are being contracted for. Instead a relatively small number of private companies are taking over services with no obvious patient benefit.
It’s worth at this point to talk about the experiences of Circle Healthcare. They were a Venture Capital backed chain of private hospitals, which won a contract to run Hichingbrooke Hospital, a small, struggling, NHS District General Hospital.
DH had been working for a long time on a way to franchise the management of struggling NHS hospitals to more competent management teams. As well as high performing NHS teams, DH were keen to give a Private Sector teams an opportunity to take part too. Under Labour this policy didn’t really take off, and mostly it was used to pressurise good managers to take on badly damaged organisations
Under Landsley the policy was resurrected and Circle got the job of running Hitchingbroke DH. in 2011. By 2012 Circle needed £4m advance on it’s contract. By 2015 Circle announced that it would withdraw from the contact, although it will still continue to run the Nottinghamshire ISTC, one of the biggest contracts of it’s kind left in the private sector
The Circle experience illustrates the problems with the private sector running healthcare services. Investors want predictable returns and reliable profits. Services like Community Services or routine surgery can offer those returns. Hospitals with A&E departments don’t do this. In a nutshell that is why private healthcare is so limited in the UK, and so expensive in the US.
Right now Circle, Virgin and Care UK are the main market makers for private healthcare, but even with the active support of policy makers they provide less than 6% of the Acute and Community Services budget.
The NHS Budget
Now we have an outline chronology of privatisation we can break the NHS budget down into some component parts so we can look at it more closely.
The 3 biggest bits of the NHS budget are:
Secondary Care. Sometimes described as Hospital and Community Healthcare Services, includes hospitals, mental health, community services
Primary Care. Sometime described as Family Health Services, including, GPs, pharmacists, opticians etc. Over the last decade or so DH has tried to encourage new models of delivering GP services in addition to the standard independent contractor General Medical Services contract, through arrangements like PMS Pilots (Primary Medical Services), Alternative PMS, and PCTMS contracts.
Central Budgets. This is an odd mix of the 999 Ambulance Service budget, central management costs, and services which are very high cost and low volumes. Central budgets, as you might have guessed, are nationalised too.
As a definitional point I am looking at direct service delivery costs, not indirect. For example, if an NHS hospital is paid to treat a patient I am counting this as non-privatised spend, even if some of the money goes subsequently to a private sector cleaning contractor.
While the share of NHS spend going into primary care has been falling the share of primary care budgets that the NHS provides itself has increased. This is mainly due to the introduction of directly provided primary care services.
Since the 1940s lots of things have happened that have changed the balance of nationalisation and privatisation:
- The share of the Secondary Care/HCHS budget which goes to the private sector has increased as services are outsourced to the private sector, for example services given to Virgin Health after the Lansley Act. When we talk about privatisation this is typically what we talk about
- The share of the Primary Care/FHS budget which goes to traditional (privatised) GP practices has shrunk as non-GP providers have taken over a bigger role in providing primary care – for example NHS walk-in centres replacing general practice
- The share of the NHS budget which goes to Primary Care/FHS has shrunk, and the share which goes to Secondary Care/HCHS has increased. Central budgets have increased the most. While this kind of financial shift over time is mostly invisible to the public (and journalists) it has a huge impact on the shape of healthcare spending.
Lets start with the HCHS budget which goes to the private sector. Up to 1990 the numbers for this are pretty small, but not zero. Some bits of the secondary care sector were never nationalised in 1947, however these were never more than a few percent of NHS spend. Despite all of the efforts form 1990 to 1997 fundholding never really shifted that number up significantly, mostly small scale opportunistic spend on elective operations.
Putting a figure on private sector spend in the New Labour years is complicated because while money went out of the NHS to non-NHS providers lots of it ended up with Local Authorities – for example I transferred £100,000s from the NHS into my Local Authority to deal with the costs of continuing care. Charities also became providers of NHS services too.
Over the first few years of New Labour private sector spend fell sharply as fundholding was wound up and the contracts that they had with the private sector were stopped. The costs of the opportunistic use of private hospitals that I negotiated were very small – I was particularly aggressive in using the private sector, but this never amount to more than 0.5% of our total budget, and only lasted for a few years.
Working out how much Walk in Centres cost in total is difficult. Apparently the last NHS Organisation which actually measured this was Monitor, and when it become NHS Improvement the data vanished off its website. It may be that NHSI actually knows the answer but finding someone in NHSI who is both knowledgable and helpful is beyond my talents.
My guess is that at it’s peak the Walk-In Centre cost roughly £300m pa, funded by APMS Primary Care funding, with roughly 1/3 of this spend going back to NHS organisations such as Acute Trusts – in the North East for example the largest provider of walk-in centres is South Tyneside Acute Hospitals Trust.
The costs of ISTCs were rather helpfully looked at by the Commons Select Committee. The total cost of payments to ISTCs from the programme’s inception up to 31 March 2009 was £1.2 billion (Hansard 2009b). Averaging this out over five years, and taking the total budget for the NHS in England of £98.4 billion in 2009/10 (HM Treasury 2008), this represents less than 0.5 per cent of overall annual expenditure.
All of which adds up to lots of big numbers, but not a lot in terms of total NHS funding.
The amount of privatisation since 2010 has accelerated. Measuring how much is difficult task because of the poor quality of reporting in the general media. Journalists often conflate the annual value of a contract with the total value of the contract over several years, which makes the sums involved larger.
I think that roughly 6% of HCHS budget is now with the private sector, up from under 2% when Labour left power, most of which is outsourcing services, rather than buying additional capacity.
If that helps us measure how much of the HCHS spend has moved to the private sector, and the relatively small amount of FHS spend which has shifted to the public sector we need to work out whether patterns of investment over time have changed this mix.
Working out these shifts turned out to be a big task, which is one of the reasons why this blog took so long. I tried Department of Health who put in my touch with Legacy Records, who put me in touch with the Public Records Office who couldn’t help. The Nuffield Trust and the Institute of Fiscal Studies were equally stumped. Eventually I found a data set from the Office of Health Economics which I could use.
Using the 3 headings above I was able to split out spend over time to create this table:
I have used public and private pretty crudely to mean the bits of the NHS spent in the public sector and private sector according to the definitions used in the late 1940s. There has been a huge shift in the way the NHS spends it’s money from an NHS which was 1/3rd Primary Care under Attlee
If we start and quantify this the first thing we can see is that there has been a big switch over time from FHS spending, which goes to the private sector to HCHS and other spending, which stays in the NHS. This is due to a big increase in the amount of funding that the NHS controls centrally for specialist services and for management costs, but also because of a massive decline in spending on dentistry and opticians. In fact the shift in funding has been driven by a big fall in spend on opticians and dentists, and a big increase in the amount of money the centre hangs onto for itself.
The shifts in how the NHS spends it’s money over the last 70 years have had a much bigger impact than decisions about privatising and nationalising services. There was a general swing towards public spending from Attlee through to Wilson, and a slow drift back to private from Thatcher onwards, but not enough to get anywhere close to the levels of private sector spend under Attlee.
There are 2 huge shifts driving this. As NHS provider organisations have become more independent the centre has held back more and more funding that it controls centrally. But there has also been a big shift in Primary Care funding away from Opticians and Dentists.
Lets look at this on a graph shall we?
So should we be worried about NHS privatisation?
We shouldn’t worry about the private sector providing services to the NHS where they do so using their own resources, funded by their own capital investors, and where they own the consequences of their own decisions. We also shouldn’t worry about loads of foreign, mainly US healthcare companies who are lining up to take over and privatise the NHS. This isn’t going to happen in the near future.
We should worry about the NHS awarding lots of contracts to healthcare providers like Virgin who provide services to the NHS using the NHS’s own staff and resources who are transferred to them for the life time of the contract. The private sector in this kind of contract are bringing nothing to the NHS, and are picking off the lowest risk bits to make money off leaving the NHS with the highest risk, most difficult to manage services, which in turn increases the financial pressure in the NHS.
It is however worth remembering that there has never been a time when the NHS was entirely nationalised, and that this was the result of a decision by the Attlee Government right at the start. Nationalisation peaked under Harold Wilson, which is no surprise, but Thatcher spent less in the private sector than Attlee did.