For a clear description of what privatisation is, and how the NHS came to go down a process of privatisation, I strongly recommend the article “Opening the oyster: the NHS reforms in England” by Dr Lucy Reynolds and Prof Martin McKee (Clinical Medicine, Journal of the Royal College of Physicians) April 2012.
“”GPs will have to aggregate purchasing power and there will be a big opportunity for those companies that can facilitate this process … In future, the NHS will be a state insurance provider, not a state deliverer.” He added: “The NHS will be shown no mercy and the best time to take advantage of this will be in the next couple of years.””
“Oliver Letwin has reportedly told a private meeting that the “NHS will not exist” within five years of a Conservative election victory.
Oliver Letwin has reportedly told a private meeting that the “NHS will not exist” within five years of a Conservative election victory.
The Shadow Chancellor said that the health service would instead be a “funding stream handing out money to pay people where they want to go for their healthcare”, according to a member of the audience.
The remarks, which have been furiously denied by Mr Letwin, were last night seized on by Labour as evidence of the Tories’ true intentions towards the NHS.
It is not disputed that Mr Letwin met a gathering of construction industry representatives in his constituency of Dorset West on 14 May. During the meeting he urged the group of around six local businessmen to work together to win contracts for a new PFI hospital to be built in Dorchester.
Mr Letwin then astonished his audience, however, by saying that within five years of a Conservative election victory “the NHS will not exist anymore”, according to one of those who were present.”
A document, “The Health of Nations: Solutions to the problem of finance in the health care sector” by Dr Madsen Pirie and Dr Eamonn Butler, published in 1988 by the Adam Smith Institute, may have had a more profound impact on the privatisation of the NHS than previously thought.
Duncan Madsen Pirie, PhD (born 24 August 1940) is a British researcher, author, and educator (biography here). He is the founder and current President of the Adam Smith Institute (“ASI”), a UK thinktank which has been in operation since 1978. Dr Eamonn Butler has even discussed “evolution not revolution” on the publication of the Health and Social Care Bill on the BBC Radio 4 “Today” programme. The course of this evolution could indeed be described as evolution, but the architects of it have never been clear.
The description of the ASI is given as follows:
“The Adam Smith Institute is one of the world’s leading think tanks. Independent, non-profit, and non-partisan, it works to promote libertarian and free market ideas through research, publishing, media commentary, and educational programmes. Famous for its trail-blazing work on tax, privatization, and public service reform, the Institute is today at the forefront of making the case for free markets and a free society in the United Kingdom.” (accessed 16:56, 2/1/12)
The reforms have been progressive and there seems to be no-end to them. David Cameron himself slammed “top-down” reorganisations.
The changes seem to fragment the system and introduce a number of new elements, such as the purchaser-provider split, Foundation Hospitals, Clinical Commissioning Groups (CCGs) and Personal Health Budgets (PHBs) but for many the changes do not cohere into a rearranged system whose functioning they can easily grasp. The current Health and Social Act (2012) is a complex piece of legislation, and estimates about the cost of the re-organisation have been reported as being around the £3bn mark.
It has been mooted that Sections 4-6 of the Adam Smith Institute’s 1988 report “The Health of Nations” contain a clear description of what was to become the privatisation of the NHS: these embrace various elements of the New Labour and Coalition reforms to the NHS, in which they relate these as components of a different health financing system, one based on a reorganisation to an insurance-based healthcare system which is a hybrid of the current mainly privatised US system and the partially privatised German system.
The blueprint, if executed properly, sees the conversion of the current system to full ‘integration’ with a private insurance healthcare system. The privatisation of the NHS can be achieved in five steps, and unknowingly, from the perspective of the general public, we have reached phase IV already.
The grid below [in "Results"] contains a contextual analysis of this document. The recommendations have been copied from the relevant three chapters this report, the marketing content removed, and the quotes and topics collated in a logical order. The extracted recommendations have been tabulated with notes on their later implementation where the policy recommendations can be traced to implementation efforts. The analysis is arranged chronologically by implementation element.
Please refer to the grid shown in this attachment for a full breakdown of how the privatisation steps appear to match up to the Pirie and Butler document.
Phase I 1988 – 1997 Thatcher/Major
“Perhaps a better candidate for abolition or reform, however, would be the tier ofDistrict Health Authorities”
“There must be more of an internal market within the NHS — that those units and districts with excess capacity or with some particular expertise should be more able to market their services to others who need them.”
Phase II – Blair and Brown (1997-2010)
“With a direct charging mechanism, with hospitals as cost centres, and with the use of management budgeting techniques by which each service provided by a hospital can be properly costed, such an I internal market could be vibrant.”
“Private hospitals, undertaking 400,000 operations per year, have a number of special strengths: they are particularly experienced at hip replacements, for example, because many older people who have saved to make their retirement comfortable happily spend the money on going private rather than waiting for two years or more in the public sector. Buying in such operations from the private sector — with NHS patients going to private hospitals for their treatment, but continuing to receive it free of charge — could be a cost effective way of clearing the waiting lists.”
It is of course remarkable that in an article called “Private equity pioneer”, the impact of Michael Queen is laid bare. The timing of this is particularly noteworthy, predating the Blair government commencing 1997.
“CEO of 3i Michael Queen on his accountancy roots and how private equity can help develop world infrastructure.
As chief executive of 3i, a FTSE 100 company and one of the world’s leading international private equity groups, Michael Queen is one of the most influential business people in Britain. In his 23 years with the firm, Queen has notched up many successes. Working his way through a variety of roles including finance director, he led the firm’s growth capital business and founded its infrastructure investment arm.
In the mid-1990s, he found time to pioneer the NHS private finance initiative (PFI) which kick-started hospital building in the UK for the first time in decades. Recently, as CEO, he’s turned a £2bn debt in 2009 into £350m currently, built some £2bn in cash reserves and led a restructure of the group’s private equity business. And he’s just won the ICAEW’s Outstanding Achievement in Corporate Finance Award for his major contribution to UK business, entrepreneurship and the economy. But none of these are the moments that have defined his career. That was getting a position as an accountancy trainee with Coopers & Lybrand.”
As Andrew Sparrow outlined in an article last year in the Guardian,
“George Osborne, the chancellor, is pressing ahead with private finance initiative (PFI) projects on a multibillion-pound scale despite having dismissed the infrastructure funding mechanism as “discredited” when he was in opposition, research has revealed.
A report on Channel 4 News shows 61 PFI projects, worth a total of £6.9bn, have been taken forward since the general election. This is despite claims that private sector borrowing costs currently make PFI particularly poor value for money.”
The Health of Nations had provided:
“The private sector may also be able to help in terms of raising capital for new facilities. In areas where medical treatments have been contracted out, one of the first actions of the private sector providers is commonly to scrap existing buildings and equipment and start afresh with facilities that are less costly to maintain and more pleasant to work in. Sale and leaseback arrangements might well be a good way of raising capital for the public hospital and simultaneously contracting out certain forms of care, such as long-stay care, which the private and charitable sectors might be better able to provide anyway. Contracts with private consortia to design, build, and operate complete hospital units on behalf of the Service would seem to be a logical extension of present practices. In addition, they could provide aninteresting source of new approaches to medical care.”
Phase III – Cameron/Clegg (2010 – present day)
“Making the Service less political may help to solve some of these problems. At national level, it might be better to run the NHS through a board which, like other nationalized industries, does not include the direct involvement of government ministers and does not allow their day-to-day involvement in the running of the industry, but is ultimately responsible to them.”
“With the management of the NHS switched over to HMUs instead of Regional and District Health Authorities, national supervision of the HMUs will be necessary. A ministerial body will license each HMU and specify the standards which they are required to attain. It will also have the responsibility of ensuring that the levels of service reach those required. It will publish the criteria and compare the performance of HMUs across the country. If the HMUs make use of sub-contractors for certain aspects of health care, these, too, will be required to attain what are deemed to be the appropriate standards.”
“Perhaps one of the most exciting new ideas, however, is the concept of management by contract, which works well abroad and is just now being tried out within the NHS.”
“contracts can be of any duration, though five years is a workable minimum”
“In this new version, however, it is the managers who are under contract, rather than the front-end service workers. The skills needed to run each function come not from in-house managers but from outside experts, hired under a contract of finite duration. They must achieve whatever targets are negotiated and agreed at the beginning of the contract, or risk losing their work to a competitor.”
“Contracting out the management of an entire hospital, including the medical services, could lead to greater opposition, but on, the other hand it might be seen as a lifeline to units that are threatened with closure because of demographic changes, smallness or obsolescence.”
Choose and Book (“AQP”) with CCGs funded by PHBs (“vouchers”)
“In more radical versions of the idea, however, patients are given a wider choice about the NHS doctor and hospital they want to treat them, and the average per caput health expenditure represented in the voucher actually follows them when they choose.”
Introduction to CCGs (Clinical Commissioning Groups) funded by PHBs
Abroad, in the Netherlands, “unintended consequences” of PHBs have now been described. The “Health of Nations “provides:
“Fundamentally, HMOs offer a complete health care delivery service to groups of individuals in return for a fixed and prepaid annual premium. A group, such as a group of employees contracted into the HMO by a company, pays a premium on joining the scheme, and for that the HMO guarantees to provide each member with all the GP and hospital care that may be needed in each case. The scheme managers will in turn contract with the doctors and hospitals they need in order to provide this whole-care service.”
The CCGs use the PHBs to contract with GPs of CCG member practices & purchase hospital and other secondary care through competitive tendering or through Choose and Book (“AQP”)
“For example, we might break down the NHS delivery system in a particular city or area, transforming it into a series of competing whole-care delivery plans on the HMO model, whose budgets were allocated on a per-patient basis rather than from a DHA grant, and who contracted with their own doctors and bought in the necessary hospital treatment from the private or public sectors.”
The insurance risks for CCGs are highlighted
“However, difficulties remain. There are still no obvious structures presently in existence within the NHS which would provide the nucleus around which new HMO-style systems could be grown. Some group — managers or doctors — have to accept the risk that they can deliver a complete health care service within the per caput budget, and neither group currently working inside the NHS is likely to accept that new challenge with much pleasure. In fact, staff at all levels would be worriedby the prospect of their service being divided into competing units.”
Patient choice will not extend to consultation over exchanging universal tax-funded NHS coverage for an insurance-based healthcare
“Even if a new structural arrangement could be devised, there would be the problem of how to allocate residents to each of the new plans. A free individual decision to stay with the present structure or opt for the new plan might be dangerous in the initial stages at least, because those in most need of treatment might self-select. Thus, it would be a case of compulsorily transferring patients from the existing structure into the new plans, which again might not be a popular proposal. Any move to explore the possibilities of how best to do this, however, would undoubtedly meet loud objections against using NHS patients as guinea-pigs for some new organizational theory.“
Phase IV Cameron/Clegg (2012-5)
“The key to reform of the NHS, as in education, lies in reorganization of its management structure. In place of the Regional Health Authorities and the District Health Authorities there should be management bodies which have every incentive to spend resources in ways which are cost effective and attractive to patients. These bodies should be funded from taxation and should have the responsibility of proving a full health care service for patients. They should distribute resources to general practitioners at the primary level, and to hospitals and consultants at the top. They will be, in effect, Health Management units (HMUs).”
The idea of CCGs as “insurance schemes” has been previously mooted. The ‘pooling of risk’ is explicitly referred to in the Department of Health’s Health and Social Care Bill (2011) impact assessment thus:
“CCG Size: There is no consensus on a minimum size to handle the financial risk.2 5 Inter-GP relations and peer review are strong forces and can counter the effects of higher statistical risk in smaller CCGs for many services. However, while some high risk services are best covered at a more regional level, risks could be shared by CCGs grouping together to form their own risk pools.”
Meanwhile, the “Health of Nations” provided,
“The public sector HMUs, taking responsibility for total health care of NHS patients, are not too far removed in structure from private insurance and management bodies. The funds for premiums are publicly provided, but the same competition and incentives operate, and the same choices are made available.”
PHBs as the basis of calculation of the funding allocated to CCGs
“The HMUs themselves will have to provide total health care on the basis of an average annual allocation per patient. They will have the incentive to make sure they get value for money from the GPs who subscribe to them, and for the hospital and consultancy work they obtain for their patients.”
Performance management of GPs and hospitals by CCGs
“They will have the incentive to make sure they get value for money from the GPs who subscribe to them, and for the hospital and consultancy work they obtain for their patients.”
Situation of GPs once CCGs are authorised
“The HMUs will be licensed non-profit bodies responsible for the total health care ofthe patients registered with their doctors. They will be management bodies, drawingupon the existing skills of health managers.” (p.32)
“The HMUs will be required to buy hospital and specialist services for their patients as required”
“The payment and monitoring of their GPs will be part of the task of HMUs, and will be performed in ways which ensure value for money. Cost details of GP work will be compared, and action taken where necessary to improve efficiency. HMUs will be vigilant in the selection of specialist and hospital services for their patients. They will be concerned to provide these on the most cost-effective basis they can, because the less they pay for each service, the more services they ‘will be able to offer to patients’ and the more attractive will be the rewards they can offer to personnel.
The HMUs will not operate on a simple least-cost basis, but on a most cost-effective basis. Patients and their GPs will have the choice to move to an HMU whose services are more attractive, and will take with them the state’s allocation per patient. It will be very much in the interest of the Health Management Units to lower the cost per patient by timely preventive work and early diagnosis by regular check-ups.
The move to HMUs will have a dramatic effect on the costs and the efficiency of hospital treatment. As hospitals go to independent management they will have to cost each service and will need to be aware of precise cost information. They will be very much more flexible in their management and method of operation. Pay scales will be more flexible and will be negotiated on a local basis instead of the rigid system of national scales and procedures. It is doubtful if restrictive practices in operation at present in the NHS will survive the changeover. There will be an incentive towards efficiency and flexibility, as well as to specialization.
In some areas it is quite possible that HMUs will send their patients to the private sector for some categories of service and treatment. Where private clinics offer better value than state hospitals, there will be every incentive for them to do so. What certain hospitals do in particularly effective ways they will be able to sell widely, leading to the expansion of what each does well. The result will be for a new partnership of private and public medicine, with the services of each available to NHS patients on the basis of their comparative efficiency.
An early result of the switch to HMUs will be the development of specialist low-cost treatments. Existing NHS hospitals and new intermediate facilities will have every incentive to develop methods of treatment which can bring economical results.
Again, the example of other advanced countries and the private sector in Britain suggests that new methods will be pioneered which involve shorter hospital stays, more localized services, more preventive medicine, and a generally less costly style of care. The incentive will be there with HMOs seeking to provide health care efficiently.
HMUs and hospitals will be able to undertake new capital projects with a combination of central grants and monies raised or saved locally. Funds from the private sector might well be attracted to areas which promise a saving on current expenditures. GPs acting singly or in groups will have the incentive to add facilities, perhaps leased from their HMUs, in order to compete with the cost of more expensive hospital services. Some of the work which now has to be done in hospitals will move out to smaller and lower cost treatment centres, some in the surgeries of doctors.”
“The proportion of remuneration which derives simply from having patients on their books will disappear, leaving payment only by results.”
Patients and their GPs will have the choice to move to an HMU whose services are more attractive, and will take with them the state’s allocation per patient.
“It will be important to prevent HMUs from selecting patients by picking the one’s which cost least to treat. HMUs will be required to accept patients who register with their doctors, without any selection permitted other than on the basis of optimum size of the HMU. Even here, where patients are refused because an HMU is at its optimum, waiting lists will have to be established with new patients admitted in order of application as places become available.”
CCGs as a vehicle for increasing uptake of private sector hospital care and other commercial services
“In some areas it is quite possible that HMUs will send their patients to the private sector for some categories of service and treatment. Where private clinics offer better value than state hospitals, there will be every incentive for them to do so. What certain hospitals do in particularly effective ways they will be able to sell widely, leading to the expansion of what each does well. The result will be for a new partnership of private and public medicine, with the services of each available to NHS patients on the basis of their comparative efficiency.”
GP incentive scheme?
“GPs acting singly or in groups will have the incentive to add facilities, perhaps leased from their HMUs, in order to compete with the cost of more expensive hospital services. Some of the work which now has to be done in hospitals will move out to smaller and lower cost treatment centres, some in the surgeries of doctors.”
“The basis of funding will be the annual health allocation for each patient registered Health Maintenance Organizations is largely avoided by keeping patients with their present GP. The resources go to the HMU selected by the doctor, although the ultimate choice lies with the patient, who can change HMO by going to a doctor registered with another one. The resources are thus directed to the HMOs which are most favoured by doctors and patients.”
PHBs calculated with demographic weighting
“The size of the average health allocation will be set each year, and there will be pressures to keep up with an advancing standard of living. A major difference is thatthere will be internal competition, with some HMOs managing to offer a greater range of services than others do on the same per caput budget. There will be the option available to vary the health allocation for each patient according to the local health costs. Geography will play a part, but so will the age pattern of the population. It may be desirable to vary the allocation by category of patient, on the grounds that older patients are more expensive to care for. This is not different in degree from varying the central funding for each age group of child in the education system.”
Personal health budget (partial roll-out now commencing) as allocations calculated for individuals which the individuals can transfer from public to private sector providers (from CCGs to insurance companies selling NHS top-up insurance)
“Under this idea, each individual would receive from the state a health voucher, equivalent in value to the average per caput sum that is presently spent on providing health care. The voucher can be used towards the purchase of private health insurance or exchanged for treatment within the public sector health system.
Through this mechanism, the state honours its assumed obligation to ensure that everyone has access to health services. Those who opt into private insurance can use the voucher to pay their premiums, and the insurance companies then collect the cash value of the voucher from the government. This guarantees that everyone can afford at least a basic level of insurance cover, and (perhaps more importantly) it allows each individual a choice between different insurers and insurance packages, no matter how rich or poor they might be. However, people who decide that health care is particularly important to them are free to add to the amount covered by the voucher and thus purchase more expensive forms of insurance, perhaps covering more unlikely risks or providing superior standards of comfort or convenience. The voucher does not force people into private insurance, although it certainly makes the option of going private instantly available to everyone. Those who want to use the state service will continue to receive it, their voucher being their ticket to free treatment just as their national insurance number is at the moment. Under the more modest voucher proposals, that is the end of the story, the NHS continuing much as before — though perhaps losing some customers to the private sector that has suddenly become so much more affordable to all. In more radical versions of the idea, however, patients are given a wider choice about the NHS doctor and hospital they want to treat them, and the average per caput health expenditure represented in the voucher actually follows them when they choose.
Thus, the pressure of competition is introduced in the public sector as well, because those doctors and hospitals which are popular with patients will be taking in more vouchers and thus getting a larger share of the government’s health budget. There are strong incentives to improve standards of care and to regard the patient more as a paying customer who must be satisfied.”
CCGs as transitional structures leading to unification of the NHS with the private healthcare industry
“Perhaps the greatest advantage lies in the flexibility of the new system. In place of the rigid demarcation between a public health service which does what it can on a take-it-or-leave-it basis, and a private system for the rich which offers choice and competition, the distinction between the two is blurred. They begin to overlap, each on the territory of the other. “
CCGs as insurance mechanisms
“The public sector HMUs, taking responsibility for total health care of NHS patients, are not too far removed in structure from private insurance and management bodies. The funds for premiums are publicly provided, but the same competition and incentives operate, and the same choices are made available.”
“This convergence is one of the most attractive features of the change which HMUs will bring. The HMU principle lays the groundwork and the basis for further changes at a later stage, but it brings its benefits immediately. Most of the groups involved in health care stand to gain from its introduction, the patients most of all. It is from realities such as this that change is made possible.”
Here are the new resources to be brought into the healthcare system that the 2010 White Paper mentioned: payments to private health insurance companies from private individuals to pay for their healthcare, as in the USA. PHBs have been created in the form of transferable vouchers which can be spent on a pooled basis through CCGs or transferred to supplement a purchased top-up insurance policy. Such top-up policies are already being marketed intensively in England as the insurance industry prepares for the Transition planned by the DH.
“At present in the UK, car drivers are required to have a motor insurance policy that compensates other people in the event that they cause damage or injury in an accident. Similarly, it is argued, we could meet the health needs of everyone without the need for the government itself to provide health services through the NHS, simply by requiring that all individuals have medical insurance cover for a range of services that are deemed to be the acceptable minimum standard of health care. Of course, those who wished to have a superior standard of service could take out a more extensive policy: there would be no Objection to individuals insuring themselves for additional or more costly services, as long as the basic requirements are met.”
“A key advantage of the universal private insurance approach is that individuals have much more choice and that the insurers and health care providers face far more competition than the NHS faces at present. Although people are obliged to have a minimum level of medical insurance cover, they can shop around between insurers and decide which provides the best value for their premium money. Because there is competition, they can decide which insurer’s particular package of services is most suited to their individual needs, instead of having to accept the standard service provided by the NHS. In addition, they can spend more on their health care, if they judge it worthwhile, than is presently spent on their behalf by the government, so new resources will be brought into the health care system.”
“Under this idea, each individual would receive from the state a health voucher, equivalent in value to the average per caput sum that is presently spent on providing health care. The voucher can be used towards the purchase of private health insurance or exchanged for treatment within the public sector health system.”
“The actual provision of health care services in such a system of universal private medical insurance would be undertaken by private sector doctors and hospitals, and the nationalized health sector in the shape of the National Health Service would lose its reason for existence.”
Many think-tanks submit proposals all-the-time, and it can hardly be claimed that one plan executed substantially over a period of 25 years is a great hit-rate. However, it is impressive that so many aspects of this plan to convert the NHS into an integrated private insurance system have been implemented, certainly fulfilling the aspiration of greater private provision in the NHS. While many journalists have tended to focus on McKinsey’s, Deloitte and KPMG in their profitable work in doing this change management, it is striking how little the Medical Royal Colleges, the RCN, and the BMA have been involved in this latter tranche of privatisation, leading to the enactment of the Health and Social Care Act last year. In fact they have opposed it; while it is easy for the right to dismiss this as the behaviour of “ideologues”, and criticise members of this democratic organisation as acting in “guerilla warfare”, contemporaneous management models do predict a spectacular failure for this complex strategic change. A starting point for understanding this are two seminal articles both published in the Harvard Business Review: “Leading Change: Why transformation efforts fail” by John P. Kotter (January 2007), and “The Hard Side of Change Management” by Harold L Sirkin, Perry Keenan and Alan Jackson (October 2005) [and the 'DICE' model].
In my opinion, to improve the service, the opinions of hard-working doctors and nurses should have been aggressively canvassed, as well as the views of right-wing think tanks and corporate management consultants, arguably with their own vested interests, and it is both a tragedy and folly that they could not have utilised the expertise of the NHS’ own Helen Bevan, from the NHS unit on innovation and change, to implement necessary changes for the NHS, without embarking in an uncritical way on the narrative above which has little evidence-base (no references are provided in the original Pirie and Butler thesis.) One of Helen Bevan’s many writings is here. This is a very complex area, and needs specialists who are ‘up-to-the-job’ for the sake of the millions of NHS patients who rely on the service. We have seen a plethora of news articles recently undermining the reputation of, trust in and confidence in the staff and activities of the NHS, which have been very demoralising for employees of the NHS. It also clearly has been politically managed without a clear discourse with the electorate, undermining the psychosocial contract between the State and its NHS staff.
[I am grateful for the unnamed sources for having conducted this impressive piece of research, and for having shared with me in confidence.]