I don’t think that many people will be sad to see the back of Working Links as they lose their probation services contract.
It looks like they might not be the only ones to lose their contract in the weeks to come – of the 21 Community Rehabilitation Companies only 2 are achieving their contracted outcomes.
I’m not opposed to outsourcing of Government work like some people – using Government spending to boost the private sector and the overall economy is a sensible Keynesian idea, and there are plenty of bits of routine Government admin which could be done more cheaply using surplus capacity in the private sector.
But I do think that there are some parts of the Government which should never be outsourced. When considering whether something should be outsourced there are 4 key questions to ask:
Can you transfer delivery risk to the private company – if something goes wrong can you hold them to account for their performance and make them fix it? The failure of Group 4 to deliver their contracts for the 2012 Olympics are a good example of this – the risk stayed with the Government no matter what the contract said, and Army ended up doing the job instead
Can you commercialise the activity and turn it onto a contract with clear outcomes without creating perverse incentives?
Is there an existing market for this service? Are their commercial companies out there with expertise in this business area?
What are the commercial partners bringing to the deal? Capital? Investment? Expertise?
it is impossible to transfer delivery risk to the private company
It is impossible to commercialise the activity and create a contract for it without creating perverse incentives
There isn’t an existing market for these services, and potential contractors don’t have experience in this business area
Criminal justice is a terrible business area for Government outsourcing because it has all of these problems – the risk stays with HMG no matter what the contract says, the contracts create perverse incentives, the private sector has no experience in criminal justice, and they don’t bring anything meaningful to the deal.
But it is also a terrible area for outsourcing companies to get into because their investors want predictable stable returns which are impossible to deliver with a volatile and unpredictable client group.
I worked alongside charities who were bidding for these contracts a long time ago and the commercial terms they were being offered were heavily weighted towards achieving specified outcomes for the ex-offenders.
Failure to achieve these outcomes was existential – it would drive the charity out of business. But getting predictable outcomes from an unpredictable client group was nigh on impossible.
This meant that only businesses of a certain size and structure could win these contracts, and even then, as the collapse of Working Links shows, a small variance from expected outcomes made the contract commercially unviable. This was the heart of the problem with Working Links who look to have been manipulating their contract performance to keep afloat.
At the time I was concerned enough about MOJs contracting systems that I considered speaking to their auditors, butI was concerned that if I did so the charities who I was connected with risked being disadvantaged in future bidding rounds.
HMG have produced a new “playbook” for people making outsourcing decisions, which tries to encourage more rigorous modelling of how much a service should cost and then run pilots, suggests ways to allocate risk between government and suppliers, and assess the merits of delivering a service in-house compared to outsourcing.
The problem is that the playbook doesn’t really address the central problems – some areas of Government business aren’t really suitable for outsourcing, and there is a massive lack of commercial expertise across the Senior Civil Service.
For MOJ there is no way of fixing this situation. No way of mending the problems, or sorting out the market failure.
Outsourcing criminal justice services doesn’t work, and the whole system should be brought back in house immediately.
The sad thing is that there are still some really good UK outscourcing companies who do better work for the clients and service users than their public sector equivalents. There is nothing special about being a civil servant that makes people good at dealing with people or managing complex business processed.
But too many parts of the state of been outsourced in a way that makes no sense for HMG and no sense for the outsourcer. As HMG has got stricter with outsourcers driving down profit it has forced outsourcing companies into riskier business areas to keep their margins healthy. This imbalance of risk and reward is infecting the whole industry and putting companies out of business.
Left wing critics have failed to come up with a workable critique of outsourcing beyond some rather tired stuff about evil capitalists. Internal civil service critiques of outsourcing are driven by the desire to build large personal “commands” and a suspicion of commercial management as not really being a gentlemanly pursuit.
But that doesn’t really matter when the advocates of outsourcing are headed by Chis Grayling who is doing a great job of trashing the UK outsourcing industry.
Before I start giving the pharmaceutical industry a kicking lets start with a few words of praise for them. The last decade has seen huge improvements in life expectancy around the world. In some countries this is due to reductions of poverty, and better public health, but in developed countries like the UK a big bit of this improvement is due to drugs like Statins.
OK. So having got the nice bit out of the way lets have the kicking.
The pharmaceutical industry is marked by high levels of market failure. If you want an image to understand the scale of market failure watch the London Marathon or the Great North Run. Each set of coloured vest running for a healthcare charity represents the failure of the market to invest in the treatments that customers want.
Sometimes this is because the treatments that customers want aren’t available for technological reason, but often it is because market incentives drive drugs companies to invest in research into obesity and erectile dysfunction drugs aimed at affluent western consumers rather than cures for malaria in the developing world.
At this point I’m going to explain how the NHS deals with the cost of prescribed drugs. Trust me, it’s not as dull as it sounds.
The NHS is the biggest purchaser or drugs in the UK, and the costs are going up. The NHS currently spends £18bn+ on drugs, a figure that has doubled since I left the service a few years ago. Prescriptions are one of the few parts of the NHS which has co-payments, which raised just under £0.5bn last year.
Because most people pay for their prescriptions there is a perception that perscription changes are a much bigger part of the drugs budget than they really are. Largely this is because people who need lots of medicines don’t pay for them, and because lots of expensive prescribing takes place in hospitals.
The NHS has historically tried to balance a number of competing policy objectives:
Encouraging R&D expenditure on new treatments
Ensuring patients get access to new treatments promptly
The tactics which the NHS use to control cost growth haven’t changed much since I ran a Primary Care Trust:
Increasing generic prescribing – encouraging Doctors, particularly GPs to switch from the branded version of a drug to it’s generic equivalent as it comes off patent.
To give an idea of the scale of the savings the NHS achieves through generic prescribing Atorvastatin, a widely-used statin, was developed in the 1980s (under the brand name Lipitor) and its UK patent expired in 2012, allowing generic competitors to enter the market. Consequently, NHS spend on Lipitor prescriptions in primary care fell from around £310.5 million in 2011 to £105.8 million in 2012 and to £3.3 million by 2014 as patients were switched to generic atorvastatin
Restricting access to very high cost drugs if they don’t pass a value for money test.
This is often the most controversial part of reducing cost growth and is the reason for the current row about Orkambi.
When a new drug is proposed it first goes through a safety test, over seen by the EU Medicines Regulatory Agency, which was based in London until the Brexit vote led to it moving abroad. Once it has been approved it is assessed by the National Institute for Clinical Excellence, to test whether it is better than existing treatments, and whether it is cost effective.
When NICE makes a value for money assessment is looks at the difference in cost (the extra spend), and divides it by the difference in effect (the extra benefit). This is known as an incremental cost effectiveness ratio or ICER. This is then converted to a cost per Quality Adjusted Life Year (QALY). If the QALY score is less than £20k it gets funded. If it is over £30k it has no chance. Between £20k and £30k it is debatable. QALY are meant to level the playing field between drugs which extend life and drugs which improve the quality of life.
This is the over all process:
To add to the complexity if a drug meets the affordability criteria but would cost more than £20m per year in total this triggers a separate set of negotiations with the supplier, and there are separate rules which apply to drugs for very rare conditions which can go over £100k per year.
Once a drug has been approved it should be available across the NHS thus avoiding variations in drugs access which infuriate patients.
All of this is covered by an overarching deal between the NHS and the industry called the Pharmaceutical Price Regulation Scheme, which is meant to help the NHS manage the cost of new drugs, while protecting access and incentives to innovate
Too often the NHS has lacked leverage in his dealings with the Pharmaceutical industry.
Part of the reason why they have so much leverage is that Pharmaceuticals are a big exporting industry, with overseas sales of over £28bn – we have a deficit on trade with the EU (which is why no deal Brexit is such a problem), but a big surplus with the rest of the world
But more than the economics of export the Industry can reach over the heads of the NHS and present it’s case directly to patients through the media and through lots of PR and spin.
Probably the most notorious example of this is the campaign for access to Herceptin. Herceptin had previously been made available by the NHS for treatment in late stage breast cancer. In 2005 Roche put forward new evidence which claimed to show that it had potentially huge benefits in early stage cancer.
A group of campaigners came forward who argued that these benefits were so dramatic that Herceptin should be approved for this use without the normal process and regardless of cost considerations. The campaigners featured heavily on TV and in the Press, and the then Secretary of State Patricia Hewitt approved the prescribing of Herceptin out with the normal process due to political pressure.
It subsequently turned out that the campaign had been funded and organised by Roche, and that they had hired Porter Novelli, an expensive PR agency who had recruited the campaigners and written their script.
The whole campaign was faked, but it worked. The campaign won the Chartered Institute of Public Relations Excellence Award in 2006.
Herceptin is an extreme case, however Drugs companies use the media to sell the case for treatments all the time. All media outlets love a miracle cure story, and drugs companies PR departments find it easy to get the media to repeat their press releases without question.
It would be wrong to single out any one media outlet for criticism but the Daily Mail’s Health supplement is fucking dreadful. As a PCT Chief Executive I had to deal with patients with terminal illnesses who were convinced that a particular treatment would save their life or grant them more time with their family.
Two of the main ways in which drugs companies distort the debate in the popular media are to overstate the benefits of a drug or to underplay it’s cost
When over stating the benefits the easiest way to do so is to compare the average result of one treatment, with the high rate response for the preferred treatment, for example: “using current treatments most patients die within 6 months, but with the new treatments some patients live for up to 2 years”.
This is shifty stuff, but sill the most common way to misrepresent a drug is to distort the way the cost per life year is represented.
To explain how this is done lets imagine a drug which costs £10k per year, and which would extend the life of a patient by 1 year. This would be £10k per year and would meet the NICE threshold
But if the patient had to take the drug for 3 years in order to gain one year of life then the cost would be £30k per year, which would be at the upper limit for approval
And if the response rate for the drug was only 50% (i.e for 2 patients who took the drug only one benefits) then then 2 patients would have to take the drug in order to get one extra year of life. Which makes the cost £60k per year, way out of affordability for the NHS.
Because journalists don’t like these kinds of lengthy boring explanations it is easy for drugs companies to present misleading information about the cost of their treatments.
Before we stop being angry with drugs companies it is worth thinking about how Pharmaceutical companies spend their cash.
Only about 20% of Pharmaceutical company spend is R&D. The biggest cost is production, then marketing and sales. It seems crazy that there is a need for so much spend on marketing and sales in the UK where there is effectively a monopoly purchaser
Drugs companies aren’t the only places were research takes place. Much of the primary scientific research takes place in universities and in NHS Hospitals. How much state funding goes in to subsidise the pharmaceutical industry is incredibly hard to calculate.
Direct NHS R&D spend is over £10bn, but there is lots of other work which goes on which isn’t funded from that budget, often small scale and local, but important none the less. By contrast the UK pharmaceutical industry spends about £4bn+ on R&D
So given the levels of market failure I described above should the government intervene and cancel the patent on Orkambi? Legally it can over-ride the patent and make Orkambit available generically, just like the statins I described above. Liverpool University estimate that a genetic version of Orkami could be produced for £5000 per patient per year.
There are very few examples of Governments acting like this in the public interest.
The most wide scale example I can find from the UK was the Wilson government acquiring generic Tetracycline from Italy. This cut the costs to the NHS, and made the drug widely available. It also caused a whole generation to grow up with strange brown stains on their teeth (including me!)
The North of England Clinical Commissioning Groups did something similar last year when they went to the High Court to Novartis and Bayer over the availability of generic Avastin rather than the branded drug Lucentis for macular degeneration.
People might be annoyed by such a lengthy description of NHS drugs processes but in any healthcare system resources are finite, and efficiency in allocating these resources isn’t just an abstract managerial process, it has clinical and ethical dimensions. When you give resources to one group of patients you take them away from another.
I’m normally a staunch defender of the NHS as established by the Attlee Government, which kept the Pharmaceutical industry in the private sector. But this is an area due for a re-think. Given the scale of NHS spend on R and D and on purchasing drugs I would establish a state owned challenger company to develop and manufacture drugs for the NHS.
This would be a much more radical proposal for left wing politicians rather than complaining about using Spire to cut waiting lists or attacking GP contractor status.