NHS privatisation - the evidence

Report by Alex Nunns, KONP
Published: 31/10/06

a briefing from the Keep Our NHS Public campaign

SUMMARY: The government has a vision for the NHS. It is transforming it from a comprehensive, equitable provider of healthcare into a tax-funded insurer, paying for care provided and even commissioned by others. What emerges will still be called the NHS, but it will not be the NHS as we have known it. It will be a mere logo or kite-mark attached to approved services.

In its pursuit of this vision, the government is carrying out the “patchwork privatisation” of the health service. Unlike the Thatcher privatisations of the 1980s, the entire NHS is not being put up for auction, with the State then washing its hands of the result. Instead, the health service is being parcelled up into bite-sized pieces, and handed over to private control bit-by-bit. The result of this process will be privatised health care, with the state as a general health insurer. This precludes the possibility of rational planning of care to meet health needs, the organisational principle of the NHS since 1948. It also removes healthcare from democratic control, destroys accountability, fragments the service, and will lead to a reduced level of care with higher costs.

This document attempts to draw together the various mechanisms and forms of privatisation that so far make up this patchwork.

Payment by results (PbR) - PbR is the financial system underpinning the new market model of healthcare. In April 2006 it was rolled out to cover over 80% of hospital activity - a move that went faster and further than in any comparable country. Under PbR hospitals are paid for procedures undertaken, rather than being allocated a budget with which to meet identified need. This puts hospitals in competition with each other for patients, as well as with private sector providers. More patients equals more funding, creating inflationary pressure. Prices are set according to a tariff, which has produced perverse incentives and encouraged gaming - in July the Department of Health was forced to admit that PbR had led to a deterioration in care for older people, had “not worked” for specialist children’s hospitals and involved unfunded administration costs.1 One of the purposes of PbR is to allow the private sector to compete with NHS facilities by opening market entry points in nearly every form of care.

Choose and Book - The facility for patients to choose the site of their secondary care from a limited “menu” of providers, including at least one non-NHS facility, acts as a golden stairway for the private sector to raise its business within the NHS. Tony Blair has said that by 2008, 40% of the work carried out by private hospitals will be paid for by the NHS.2 This has precipitated the arrival of huge foreign healthcare corporations like United Health, the merger of South African giant Netcare with BMI (Britain’s biggest private hospital group) and a surge in the share prices of companies like Care UK.3

Independent Sector Treatment Centres - ISTCs are stand-alone private sector clinics specialising in a limited range of simple treatments, such as cataract operations or hip replacements. The NHS contracts ISTCs to carry out procedures at a fixed global price, which is paid whether or not the operations are actually performed. The government originally claimed ISTCs would provide extra capacity, stimulate innovation and enhance patient choice. But a July 2006 Health Select Committee report found no evidence to that effect. Indeed, it is now accepted that ISTCs do not provide supplementary capacity, but are in fact in competition with NHS facilities in many areas, and are causing the destabilisation of some hospitals. They also have a negative impact on clinical training. Neither do ISTCs provide value for money: the Department of Health admits that on average these centres have been paid 11% more than the NHS for each procedure, despite only taking on simple and cheap cases and not having to train junior staff. With these factors added in, ISTCs are being paid around 30% more.4 By January 2006, 25 ISTCs were either up and running or shortly to be operational with a further four under negotiation, at a cost of Ł1. 7 billion. These are known as the first wave of ISTCs. A second phase, worth Ł3. 75 billion, was announced in March 2005 and is currently being rolled out.5

Outsourcing the commissioning function of Primary Care Trusts (PCTs) - In late June the Department of Health placed an advert in the Official Journal of the European Union inviting large companies to tender for all the management functions of PCTs. The advertisement was withdrawn after Keep Our NHS Public alerted the press. Two-weeks later it reappeared, this time using vague language but to the same end. The tendering process is currently being handled by the Department of Health, which is drawing up a framework agreement and a list of approved companies that PCTs can contract to take on commissioning. Private companies would thereby gain control over which treatments patients receive and who provides them.6

Privatising GP services - The Alternative Provider of Medical Services contract is the vehicle being used to bring the private sector in to run GP services.7 This is a new form of contract, which according to the government is intended to be “light touch and low bureaucracy”.8 It requires a dramatic shift towards a commercial business model, as contracts must be tendered in a competitive process. The Department of Health has taken control of the procurement of GP services in 30 areas. The deals will be worth Ł150-200 million.9 Meanwhile it has already awarded the contract for a 7, 000-patient practice in Barking and Dagenham to private company Care UK, and several more contracts are waiting to be signed. Under political pressure, other NHS primary care trusts have begun to put practices out to tender - a survey showed that one in three plan to strike a deal with the private sector by the end of the year.10

Practice-based commissioning - Practice-based commissioning allows the commissioning power for purchasing treatments - including hospital operations - to be transferred from PCTs to groups or consortia of GPs. It is part of a move away from the needs-based planning of health services towards a fragmented market with entry opportunities for the private sector. Instead of money being controlled by a public body with responsibility for a geographically defined population, it is handed to groups of practices accountable only for their registered patients. Increasingly these will be corporations, which could eventually achieve dominance in the market, and with it huge power over commissioning patterns.

Outsourcing PCT provision - Commissioning a patient-led NHS, published in summer 2005, set out plainly the Government’s vision: PCTs were to stop providing services, which would be delivered by a patchwork of the private sector and social enterprises. Hundreds of thousands of NHS workers would be transferred to new employers - it was not clear who these employers were, and what conditions they would offer. The policy was so rushed that Patricia Hewitt had to apologise, but the vision remained the same. January’s Our Health, Our Care, Our Say white paper spelled out how primary care is being opened up to the market.11 Community nurses are being encouraged to leave the NHS, set up social enterprises and sell their services back to their former employer. The trailblazer is Central Surrey Health, a social enterprise of 700 nurses contracted by the former East Elmbridge and Mid-Surrey PCTs. The shift of employer was forced through despite the fact that 84% of the staff voted against the move in a union ballot.12 Staff were fearful of declining working conditions and the further fragmentation of the NHS. There are also concerns that social enterprise ventures could prove easy prey for private sector takeovers.

Unbundling of primary care services - Primary care services are being broken up into saleable commodities in a process known as unbundling. The services required of all GPs have been whittled down to a core, which can then be topped up with locally negotiated additional elements provided by traditional GPs or, increasingly, by companies and corporations. These new entry points and market opportunities for commercial providers are already being exploited for out-of-hours services and immunisation, and mean that in many situations patients have no choice but to use the private sector.13 There are already serious concerns about out of hours care, as lack of access has put extra pressure on A&E departments, and there have been a high number of complaints about the quality of services in some areas (for example in Cornwall).14

Integrated Clinical Assessment and Treatment Services - ICATS sit between primary and secondary care, carrying out diagnostic tests and performing some procedures, but also have the power to refer patients on to hospitals and ISTCs. Where ICATS are run by the private sector, this has brought the possibility of conflicts of interest. For example, in August 2006 South African company Netcare was awarded the contract for an ICATS in Manchester. Netcare also runs an ISTC in the area, the Greater Manchester Surgical Centre. Netcare’s ICATS will now have the option to refer patients to Netcare’s ISTC, or, conversely, direct patients with complicated and costly conditions away from the Surgical Centre.15

PFI - Under the private finance initiative an NHS trusts signs a contract with a consortium of companies, which builds and maintains a hospital. The NHS trust then rents the hospital from the consortium, typically over a 30-year period. There is overwhelming evidence that this is a hugely expensive way of building hospitals. According to the Conservative Party Ł8bn-worth of PFI hospital building projects will cost Ł53bn over the course of the contracts.16 The purported purpose of PFI is to transfer risk to the private sector. But once the hospital is built that risk is so small that astronomical profits can be made from refinancing deals - as in the case of the Norfolk and Norwich Hospital, where the Octagon consortium made gains of Ł95m, and tripled its original expected internal rate of return from 19% to 60%, but left the hospital with extra potential liabilities of up to Ł257m should it need to terminate the contract early.17 PFI also has a direct bearing on patient services, as the fixed costs are born the local NHS trust, squeezing other parts of its budget. The Queen Elizabeth hospital in Woolwich was forced to announce it was technically insolvent after paying Ł9m a year more for its PFI than it would have done under a traditionally funded contract.18

LIFT - LIFT is often referred to as the primary care version of PFI, but there are differences. The rates of profit flowing out of the NHS to private shareholders is just as high, despite the much lower risk of building a GP surgery compared to building a hospital. LIFT projects are costing up to eight times more than traditional ways of building. In Newham in east London, two LIFT premises that cater to just 9% of the local population are taking up 28% of the PCT’s expenditure on accommodation.19 As with PFI, the cost can only be met by starving other areas of funding, ultimately leading to deficits and cuts in services. Furthermore the LIFT model institutionalises conflicts of interest, as it requires an NHS trust to have a stake in a profit-making company, while at the same time buying services from it and evaluating its value for money.20

Subsidising private sector infrastructure - Recent Department of Health guidance on commissioning seeks to “reduce the risk for providers and consequently make the provision of new services more attractive to... new entrants”. It advises that this be done by paying a “supplement... to cover the set-up or development costs faced by a new provider”; by guaranteeing the “minimum income to be provided”; and by “lowering the barriers for new providers” through “reducing the capital investment required from the provider” - i. e., supplying the buildings.21

Privatisation of NHS Logistics - NHS Logistics bought and distributed health equipment to hospitals. It was an award-winning non-profit organisation, reinvesting its surpluses in the NHS. The government decided to outsource it and a large part of the NHS Purchasing and Supply Agency to the German delivery firm, DHL, and its sub-contractor, Novation, in the biggest single privatisation in the NHS yet. Novation will carry out the crucial role of procurement with control over Ł4 billion of NHS money. There are serious outstanding allegations against Novation in the US. The Department of Justice is currently investigating the company over bribery and defrauding American public health schemes.22 There is also a wealth of evidence to suggest that Novation’s activities inflate the price of medical supplies in the US.23

Privatisation of oxygen supplies - The service supplying oxygen to patients with breathing difficulties was privatised in February 2006. Previously it had been run by local pharmacies working with GPs, and oxygen was delivered within a strict target time of hours. But after the service was handed over to four multinational companies - Air Products, Allied Oxycare/Medigas, Linde and BOC - there was chaos, with patients arriving at pharmacies blue in the face after being unable to obtain oxygen for three days. One woman, Alice Broderick, died while waiting for an emergency delivery of oxygen that took nine hours to arrive. As late as August 2006, GPs were still reporting problems with the service and were having to issue prescriptions in the traditional manner.24

Privatisation of pathology services - In August the Government announced an expansion of private sector involvement in pathology and diagnostic tests. Five independent providers were chosen as preferred bidders to supply more than 1. 5 million diagnostic procedures, including X-rays, ultrasound scans, and blood and other tissue tests, under contracts worth Ł1bn over five years. This came after a review by Lord Carter warned of the dangers of fragmenting pathology through the privatisation of the sector - a position reinforced by the Royal College of Pathologists.25

Private ambulance services - In many areas non-emergency ambulance services are being put out to tender. Where the contracts are won by the private sector, there have been problems. For example, the South East Coast Ambulance Service NHS Trust is having to transport patients who private company GSL have been paid and contracted to carry. Some patients have been left waiting for up to nine hours, and there are reports that hospital staff have been classifying patients as more ill than was first thought, to secure an emergency ambulance.26

Off-shoring medical secretaries - An increasing number of NHS trusts are cutting trained medical secretaries in favour of cheaper services abroad - typically in India or South Africa. This has raised fears for safety, with examples such as hypertension being mistaken for hypotension, with potentially fatal consequences.27 Such policies result from the extreme pressure being put on NHS trusts to reduce deficits in a short space of time.

Connecting for Health - The NHS’ ill-fated IT programme has given corporations a huge slice of public money and unprecedented involvement in shaping the way the NHS will deliver care in future. Latest estimates suggest the cost to the taxpayer could reach Ł20bn, compared to an original figure of Ł6. 2bn.28 The installation of the system is woefully behind schedule, and some contractors are in financial trouble. There are also worries over clinical safety after a “serious untoward incident” at one of the few hospitals with an operational system.29

1 http://www.cipfa.org.uk/publicfinance/news_details.cfm?news_id=28294 80% of primary care trust and practice-based commissioners surveyed by the NHS Alliance said the current PbR system encouraged “gaming” by providers to “unfairly maximise income”. There are examples of conflict between commissioners and providers - at the end of the 2005-6 financial year Coventry PCT claimed that Walsgrave Hospital took advantage of the new system to overcharge for treatment, while the hospital accused the PCT is trying to claw back Ł1m of its debt by disputing payments.

2 http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2006/02/17/nhs17.xml

3 http://news.ft.com/cms/s/9a963b5e-d4c0-11da-a357-0000779e2340.html

4 http://www.cipfa.org.uk/publicfinance/news_details.cfm?news_id=27446

5 See S Ruane, Independent Sector Treatment Centres, Health Matters, Autumn 2006. Available at http://www.keepournhspublic.com/pdf/RuaneISTCs.pdf

6 http://www.timesonline.co.uk/article/0,,2-2250363_2,00.html
http://www.guardian.co.uk/frontpage/story/0,,1809525,00.html#article_continue
http://news.bbc.co.uk/1/hi/uk/5183320.stm

7 A Pollock and D Price, Privatising primary care, British Journal of General Practice, August 2006

8 NHS Primary Care Contracting, ‘Will the contract lead to lots of additional bureaucracy in primary care? ‘ http://www.primarycarecontracting.nhs.uk/qanda.php?article_request=150 (accessed 6 July 2006)

9 http://www.hsj.co.uk/nav?page=hsj.news.story&resource=4962806

10 http://www.pulse-i.co.uk/articles/fulldetails.asp?aid=9778

11 http://www.dh.gov.uk/assetRoot/04/12/74/59/04127459.pdf

12 http://www.ft.com/cms/s/d1bb96b2-0641-11db-9dde-0000779e2340.html

13 A Pollock and D Price, Privatising primary care, British Journal of General Practice, August 2006