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“The twittering machine” – Michael White, the NHS and Paul Klee



Just before I got in a black cab to go to my slot for a viewing of Paul Klee’s amazing paintings at the Tate Modern, I was finishing a Twitter conversation which included Michael White (@MichaelWhite) from the Guardian.

I posted an article on ‘mega dairies‘ on my Facebook. Various approaches to reconfigurations of the NHS had been on my mind. The rôle of the district general hospital had come under scrutiny. Some people think that it might be better to produce “super hospitals”, but my experience from my friends is that they would rather go to a local hospital if they had an acute medical emergency such as acute severe asthma.

This analogy with milk production has no limits for me. I am particularly sick of the ‘we cannot afford the NHS’ argument, although I am very familiar with the ‘funding gap’ arguments from the usual suspects. I think of the ‘more from less’ argument in my analogy as making existing cows produce milk harder. As for the supply of milk? I can buy a carton of milk either from my local corner shop, or I can drive to a huge out-of-town supermarket a few miles away. It’s the same carton of milk.

The moronic economic arguments keep on coming, totally blasting out-of-the-water what the patient or person actually wants. The mantra of ‘no decision about me without me’ has become totally ludicrous when you think that the Lewisham campaign had to take the Secretary of State for Health to court, not only in the High Court but also in the Court of Appeal. If Jeremy Hunt feels the need to appeal the decision at the Court of Appeal in the Supreme Court, I’ll be tempted to emigrate.

I won’t reproduce the entire conversation – but here’s some of it.

You can trace it back to Twitter here.

Main picture

 (Click here to see the thread better.)

And I had an added ‘bonus’ when I turned up at the Tate Modern finally. It dawned on me that, despite the change towards National Socialism that Germany was undergoing for much of Klee’s life, Klee to me looked and sounded like a socialist. I feel socialism is like pornography: you recognise it when you see it. Klee had a close friend called Franz Lotmar, and it turned out that Lotmar introduced Klee to socialism. I was first introduced to socialism by Martin Rathfelder, in contrast. And apparently Oscar Wilde’s “The soul of man under socialism” impressed Klee so much that he gave a detailed summary (and added his thoughts) to another friend called Lily.

The first painting I came to was “The Twittering Machine” (Die Zwitscher-Maschine) – a 1922 watercolour and pen and ink oil transfer on paper. Like other artworks by Klee, it blends biology and machinery, depicting a loosely sketched group of birds on a wire or branch connected to a hand-crank.

The Twittering Machine

The Twittering Machine

Ironically both ‘biology’  (the ageing population) and ‘machinery’ (technology) are being blamed for the demands on the NHS budget in the future, which lead some people to conclude erroneously that the NHS is not sustainable (assuming that you refuse to contemplate methods of funding the NHS properly.) Ed Balls this morning again revisited the narrative of ‘public good, private bad’, advancing as ever Labour’s commitment to “PPPs”, viz public-private partnerships. This of course has been a totemic strand in the NHS policy from both the Conservatives and Labour, examples being the independent sector treatment centres, private finance initiative, and, of course most recently, the Health and Social Care Act (2012). It’s so easy to go with the flow of the associations of the words ‘private’ and ‘public’ that one can loose sight altogether of the actual meanings of the word ‘private’ and ‘public’.  For example, thinking about what ‘private’ means, it should be no surprise that private limited companies wish to hide behind the corporate veil in refusing freedom-of-information requests?

In 1941 (the year after Klee died), the celebrated art critic Walter Greenberg called attention to the “privateness” of Klee’s work. It had some reminiscences of a scathing review published in the 1920s in the Dusseldorf Review which likened Klee’s “private work” to “pig Latin” which was ‘unfit for public consumption’.  Indeed, walking around the twenty or so rooms of the Klee exhibition, you can really notice the change of style from a ‘completely personal’ style of illustration, more fitting perhaps for the decoration of picture books, to a more public style of display, more fitting perhaps for decoration of whole walls.

One of Klee’s more famous sayings is, “One is always in good company when one has no more money.” Possibly Klee was predicting the political pain of Liam Byrne’s oft-quoted ‘there’s no money left’ note with Labour losing the 2010 general election? However, a narrative in Klee’s art appears to parallel his imputed journey in political philosophy, for example in his attitudes towards ‘collectivism’.

Living with austerity is something which the NHS is trying to do, but it is still very striking how the shift in English health policy is taking place towards value-based outcomes rather than activity per se, mirroring a change in emphasis in US corporate management. Life after the global financial crash in 2o08, not unilaterally caused by Gordon Brown, has also seen a change in emphasis from output as measured by GDP to wellbeing. The concept of a ‘happy peasant’, a peasant who is extremely poor but more contented than an investment banker with a high income, has emerged in recent years in the wellbeing research. Klee’s exhibition at the Museum of Modern Art in New York had as its canvas the Wall Street Crash of October 1929. In the spring of 1930 Klee commented, “What do I prefer? international renown, without a penny; or the well-being of a wealthy local painter?’

Klee once remarked that, instead of taking part in the discussions between competing schools of the Bauhaus, he would sit back and watch both sets of academics fight it out between them. It is tempting for English health policy commentators to sit back and watch the political philosophies of socialism and neoliberalism fight it out for the soul of the NHS.

Unfortunately, this is a fight which there doesn’t seem resolution for in the near future. Even with Andy Burnham’s promise of the ‘NHS preferred provider’, there’s still a market, and there’s still a need for regulation. Possibly Burnham can get rid of the competitive elements with a final thrust towards ‘whole person care’. However, ‘whole person care’ may be a polite way of saying the ‘integrated share model’, and, with prime contractor models lasting at least ten years, Burnham and Miliband’s Labour might find this all remarkably difficult to unwind.

Paul Klee escaped to Switzerland from National Socialism.

Where Labour flees to from section 75 and associated regulations is anyone’s guess. Nonetheless, Burnham and Labour have been emphatic about repealing the Health and Social Care Act (2012).

It’s the necessary start, nonetheless.

“The EY Exhibition: Paul Klee – making visible” runs at the Tate Modern, near Blackfriars, London SE1 between 16 October 2013 and 9 March 2014. For further details, please go here.

Are integrated care packages like M&Ms? Expect a competition law armageddon.



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Somewhere along the path of the subconscious of this current Government they realised competition law, as the trojan horse for implementing the private market of the NHS, would be the ‘nuclear option’ gone too far.

After the original set of section 75 NHS regulations had been humiliatingly scrapped, Norman Lamb and other LibDem members in the Upper and Lower House had to ferret around for another way to sell this discredited policy. They found ‘integration’.

The idea of co-ordinated care bundles, delivering outcomes across a range of different domains, seems like an attractive one. For the privateers, their uncanny similarity to the Kaiser Permanente Integrated Care Plan is of course enticing.

Thrust on this that private providers can cobble together au “uber contract”, subcontracting bits of it to various bods, through the ‘prime contractor model’ – and job done.

However, this way of integrating services is a ‘red rag’ to the bull of the competition authorities both here and across the pond.

You have to have been living on the Planet Mars to escape the screw-ups of the regulation of the energy market in the UK.

In 2008, the Telegraph reported the following:

Regulator tells Treasury it has found no evidence that energy companies colluded to increase bills…
Energy watchdog Ofgem has dismissed suggestions that the UK’s six largest energy companies colluded to increase gas and electricity bills. The regulator has also demanded that those alleging price-fixing should produce the evidence.
Alistair Darling, the Chancellor, summoned Ofgem chairman Sir John Mogg and chief executive Alistair Buchanan after Npower, owned by the German giant RWE, last week increased gas prices by 17pc and electricity prices by 13pc.
Mr Buchanan said yesterday: “We have no evidence of anti-competitive behaviour. We see companies gaining and losing significant market share, record switching levels and innovative deals.”

That was unbelievably five years ago.

It was once famously said that, “Integration…is like M&Ms…a thin, sugary veneer of medical ‘science’ over a yummy core of price fixing…” (US Healthcare Executive).

In the US, health care providers are generally converge upon the view that competition concerns – namely the fear of violating competition law – have had a significant chilling effect on progress toward increased integration in the delivery of health care. This, it is claimed, has led to relative ‘conservatism’ over formal partnerships.

What happens in the UK depends on how ‘light touch’ Monitor ends to be – or whether it will be relatively supine. It is still claimed by some that the light touch regulation of the City, originally introduced by the Margaret Thatcher Conservative government, led to the City spiralling out of control.

Cartels are when companies act together to behave in a way together at the expense of the customer.

Quite irrespective of their clandestine character, cartels are difficult to prove due to their varying characteristics. Cartels can be evidentially complex in the sense that the duration and intensity of participation and the subsequent anti-competitive conduct on the market may vary and take different forms.

These specificities impose a near unbearable threshold for competition authorities to prove in detail an infringement, let aside to impose an appropriate sanction reflecting the cartelists’ real participation.

Montesquieu, in his seminal work ‘De l’esprit des lois’ observed that ‘natural equity demands that the degree of proof should be proportionable to the greatness of the accusation’. While the ‘greatness of the accusation’ in cartel infringements is undisputed – especially in light of the magnitude the incurred sanctions – it appears less clear to what extent this should affect the ‘degree of proof’ of those infringements, especially having regard to their specificities.

Article 101(1) TFEU sets out the European competition law position:

The following shall be prohibited as incompatible with the internal market all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

In a famous case called Bayer v Commission, the Court of the First Instance, for the first time ventured to define the term ‘agreement’ as a concept that ‘centres around the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties’ intention’.

Over two centuries ago, Adam Smith, the dean of free market economics, warned: “People of the same trade seldom meet together, even for merriment and diversion, but tbe conversa- tion ends in a conspiracy against the public, or in some contrivanee to raise prices.” ‘^

The costs of violating price-fixing laws are very high: lawyers’ fees, government fines, poor morale, damaged public image, civil suits, and now prison terms.

While the appearance of price collusion or price fixing may seem bad in the energy market, and unproven, what will happen behind ‘closed doors’ for procedures outsourced in the NHS is likely to be a hidden scandal.

There is some truth in making the energy market more ‘competitive’. One, often rarely discussed solution, way is to ‘differentiate the product’, such that they are not all selling the same thing.

For such a homogeneous item such as gas, it is difficult to propose to do this.

Differentiating hernia operations, the bread-and-butter of the cherrypicked NHS for ‘high volume, low cost procedures’, is easier. You can vary the quality of en-suite ‘refreshments’. It’s well known that cinemas attract clients not on the basis of the quality of films, but on their range of things to go with their popcorn.

It may be intrinsically more easy to distinguish different ‘integrated care packages’, by varying the relative proportions of physical healthcare, social care, and social care (the components of what Andy Burnham MP might call “whole person care”).

The “we’ve been doing it for years” phenomenon of collusive practices is a tougher nut to crack. But in some fairness, the new private health providers haven’t been “doing it for years”, as the jet engines for the Health and Social Care Act (2012) for competitive tendering – the section 75 regulations – have only just been legislated for.

Amazingly enough, some producers of ‘folding boxes’ were given hefty fines in the United States in the 1970s. The experience there was that executives in the convicted paper companies acknowledge that the lack of contact between them and company lawyers made it hard to apply the law.

Direct contact between operating managers and members of the legal staff seemed to be less frequent in the companies that were more heavily involved in the conspiracy.

As they say, we live in ‘interesting times’, but, helpfully on this occasion, the experience from other jurisdictions may be quite helpful. Don’t blame me – Le Grand and Propper started it!

What’s best for a person isn’t necessarily what’s best for a hospital



It is pretty clear that the NHS as currently engineered puts Foundation Trusts on an elevated platform. Hospitals, being paid on the basis of activity involved for any one patient, can act for a sink for funding, when the health of any particular person is not easily matched to the aggregate level of activity for that person in a hospital.

The problem with ‘money following the patient‘ is it depends on whether you view it to be a success or failure that more money is spent on you the more ill you become. When a patient is admitted for an acute medical emergency in England, the care pathway can be pretty unambiguous. Most reasonable doctors on hearing about a history of cough, sputum and temperature, for a person with new breathing difficulties, on seeing the appropriate chest x-ray, would embark on a management of pneumonia; depending on the hospital, the course of antibiotics would be pretty standard from i.v. to oral, and the person would end up being discharged.

intravenous antibiotics

intravenous antibiotics

However, ‘activity based costing‘ and ‘payment by results‘ for hospital totally ignore the health of a person outside hospital. And if a healthcare model is to shift with time to ‘whole person care‘, what happens to a person outside of hospital is going to become increasingly important. If a person is better ‘controlled‘ for diabetes in the community, it is hoped that emergency admissions, such as for the diabetic ketocacidotic coma, can be avoided; or for example if a person is able to monitor their breathing peak flow in the community and notice the warning signs (such as a change in the colour of sputum), an acute exacerbation of chronic obstructive pulmonary disease may be headed off at the pass.

Medicine is not an exact art or science, and the approach of ‘payment-by-results’, of a managerial accounting approach of activity-based costing, is at total odds to how decisions are actually made. Even in complex economics, within the last decade or so, the idea of “bounded rationality” has conceded that in decision-making, rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make a decision. Many ‘decision makers’ are not in fact perfectly rational, and it is likely that even the best doctors will differ in exact details for management of a patient in hospital for any given set of circumstances.

In health care, value is defined as the patient health outcomes achieved per pound spent. Value should be the pre-eminent goal in the health care system, because it is what ultimately matters for patients. Value encompasses many of the other goals already embraced in health care, such as quality, safety, patient centeredness, and cost containment, and integrates them.

However, despite the overarching significance of value in health care, it has not been the central focus.

The failures to adopt value as the central goal in health care and to measure value are arguably the most serious failures of the medical community.

Health care delivery involves numerous organisational units, ranging from hospitals, to departments and divisions, to physicians’ practices, to units providing single services. The fundamental failing has been not to acknowledge how all these units interact in the “patient journey”.

Patient journey for a surgical operation

Patient journey for a surgical operation

In health care, needs for specialty care are determined by the patient’s medical condition. A medical condition is an interrelated set of patient medical circumstances — such as breast cancer, diabetes, inflammatory bowel disease, asthma, or congestive heart failure — that is best addressed in an integrated way. Therefore, a patient can be ‘plugged into the system’, as Mr X attending the specialist cystic fibrosis clinic at a local hospital. However, it is equally true to say that there are many patients with many different conditions, which interact either in disease process or treatment. And there are people who may later develop a medical illness who are perfectly well at any  one ti,e.

For primary and preventive care, value could be measured for defined patient groups with similar needs. Patient populations requiring different bundles of primary and preventive care services might include, for example, healthy children, healthy adults, patients with a single chronic disease, frail elderly people, and patients with multiple chronic conditions. Each patient group has unique needs and requires inherently different primary care services which are best delivered by different teams, and potentially in different settings and facilities. However, life is clearly not so simple, and the beauty about the National Health Service is that it does not consider a person as the sum of his individual insurance packages.

Care for a medical condition (or a patient population) usually involves multiple specialties and numerous interventions. The most important thing here is that value for the patient is created not by any one particular intervention or specialty, but by the combined efforts of all of them. (he specialties involved in care for a medical condition may vary among patient populations. Rather than “focused factories” concentrating on narrow sets of interventions, we need integrated practice units accountable for the total care for a medical condition and its complications. To give as an example, optimal glucose control for diabetes in the community could possibly mean fewer referrals to the specialist eye clinic for the condition of diabetic retinopathy, an eye manifestation of diabetes, or to the vascular surgeon for a gangrenous toe requiring amputation.

blood sugar measurement

blood sugar measurement

A major barrier to delivering this care will be a fragmented, outsourced or privatised, NHS. In care for a medical condition, then, value for the patient is created by providers’ combined efforts over the full cycle of care — not at any one point in time or in a short episode of care.  The only way to accurately measure value, then, is to track individual patient outcomes and costs longitudinally over the full care cycle. And this will be difficult the more care providers there are for any one patient.

Although outcomes and costs should be measured for the care of each medical condition or primary care patient population, current organisational structure and information systems make it challenging to measure (and deliver) value. Thus, most providers fail to do so. Providers tend to measure only the portion of an intervention or care cycle that they directly control or what is easily measured, rather than what matters for outcomes. For example, current measures often cover a single department (too narrow to be relevant to patients) or outcomes for a hospital as a whole, such as infection rates (too broad to be relevant to patients). Or providers measure what is billed, even though current reimbursement is for individual services or short episodes.

A way to get round this problem is to consider “indicators” which are are biological measures in patients that are predictors of outcomes, such as glycated hemoglobin levels (“HBA1c”) measuring blood-sugar control in patients with diabetes. Indicators can be highly correlated with actual outcomes over time, such as the incidence of acute episodes and complications. A HbA1c can be a good indicator of the compliance of an individual with diabetes with his or her medication or diet.

Indicators also have the advantage of being measurable earlier and potentially more easily than actual outcomes, which may be revealed only over time.

This is where over-focus on the wrong measure can be unhelpful. The launch of the ‘friends and family test’, which has seen an explosion of innovative technologies being sold to NHS Foundation Trusts over all the land, may be an important means of ensuring patient safety. Or it may not. We don’t know, as the data on this doesn’t exist.

NHS Friends and Family Test

NHS Friends and Family Test

However, patient satisfaction has multiple meanings in value measurement, with greatly different significance for value. It can refer to satisfaction with care processes. This is the focus of most patient surveys, which cover hospitality, amenities, friendliness, and other aspects of the service experience. Though the service experience can be important to good outcomes, it is not itself a health outcome. The risk of such an approach is that focusing measurement solely on friendliness, convenience, and amenities, rather than outcomes, can distract providers and patients from value improvement.

Value measurement in health care today in the English NHS is rather limited, and highly imperfect. Most physicians lack critical information such as their own rates of hospital readmissions, or data on when their patients returned to work. Not only is outcome data lacking, but understanding of the true costs of care is virtually absent. Most physicians do not know the full costs of caring for their patients — the information needed for real efficiency improvement.

In the recent target-driven culture of the English NHS, senior physicians are well aware of how length-of-stay has been gamed so there has been a ‘quick in and quick out’ mentality, seeing readmission rates for certain patients with cardiovascular or cerebrovascular disease sky-high.

At worst, what could have been a properly managed non-ST-elevation acute coronary syndrome ultimately ends up being a full-blown heart attack. Or what could have been a minor transient ischaemic attack ends up being a full-blown haemorrhagic stroke, causing a patient to be in a wheelchair and numerous healthcare teams looking after him or her.

Today, measurement focuses overwhelmingly on care processes. Processes are sometimes confused or confounded not only with outcomes, but with structural measures as well. Radiologists focus on the accuracy of reading a scan, for example, rather than whether the scan contributed to better outcomes or efficiency in subsequent care. Cancer specialists are trained to focus solely on survival rates, overlooking crucial functional measures in which major improvements vital to the patient are possible.

Cost is among the most pressing issues in health care, and serious efforts to control costs have been under way for decades. At one level, there are endless cost data at all levels of the system. However, as an ongoing project with Robert Kaplan makes clear, we actually know very little about cost from the perspective of examining the value delivered for patients.

Understanding of cost in health care delivery suffers from two major problems. The first is a cost-aggregation problem. Today, health care organisations measure and accumulate costs for departments, physician specialties, discrete service areas, and line items (e.g. supplies or drugs). As with outcome measurement, this practice reflects the way that care delivery is currently organised and billed for. Today each unit or department is typically seen as a separate revenue or cost centre. Proper cost measurement is challenging because of the fragmentation of entities involved in care.

To understand costs properly, they must be aggregated around the patient rather than for discrete services, just as is the case with outcomes. It is the total costs of providing care for the patient’s medical condition (or bundle of primary and preventive care services), not the cost of any individual service or intervention, that matters for value. If all the costs involved in a patient’s care for a medical condition — inpatient, outpatient, rehabilitation, physiotherapy, dietician, occupational therapy, diagnostic services, pharmacy, physician services, equipment, facilities — are brought together, it is then finally possible to compare the costs with the outcomes achieved.

Proper cost aggregation around the patient will allow us to distinguish charges and costs, understand the components of cost, and reveal the sources of cost differences.

Today, most physicians and provider organisations do not even know the total cost of caring for a particular patient or group of patients over the full cycle of care. There has been no reason to know, and Doctors resent turning their profession of medicine into one of bean-counting.

In aggregating costs around patients and medical conditions, we quickly arrive at the second problem: “the cost-allocation problem“. Many, even most, of the costs of health care delivery are shared costs, involving shared resources such as physicians, staff, facilities, equipment, and overhead functions involved in care for multiple patients. Even costs that are directly attributable to a patient, such as drugs or supplies, often involve shared resources, such as units involved in inventory management, handling, and set-up (e.g., the pharmacy). Today, these costs are normally calculated as the average cost over all patients for an intervention or department, such as an hourly charge for the operating room. However, individual patients with different conditions and circumstances can utilize the capacity of such shared resources quite differently.

Mind the gap!

Mind the gap!

The NHS in England has latterly become obsessed by its “funding gap”. Much health care is delivered in over-resourced facilities. Routine care, for example, is delivered in expensive hospital settings. Expensive space and equipment is underutilised, because facilities are often idle and much equipment is present but rarely used. Skilled physicians and staff spend much of their time on activities that do not make good use of their expertise and training. It is not uncommon for junior doctors to end up spending hours in a hospital taking blood, putting in catheters, or putting in venflons.

It is likely that ‘payment-by-results’ will at some stage have to go. Reimbursement should cover a period that matches the care cycle. For chronic conditions, bundled payments should cover total care for extended periods of a year or more. Aligning reimbursement with value in this way rewards providers for efficiency in achieving good outcomes while creating accountability for substandard care.

Improvements in outcomes and cost measurement will greatly ease the shift to bundled reimbursement and produce a major benefit in terms of value improvement.  Current organisational structures, practice standards, and reimbursement create obstacles to value measurement, but there are promising efforts under way to overcome them.

The “payment-by-results” model is a complete anethema to how decisions are made in the real world. Prospect theory is a behavioral economic theory that describes the way people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are known. The theory states that people make decisions based on the potential value of losses and gains rather than the final outcome, and that people evaluate these losses and gains using certain heuristics. The model is descriptive: it tries to model real-life choices, rather than optimal decisions. The theory was developed by Daniel Kahneman, a professor at Princeton University’s Department of Psychology, who won the Nobel Prize for economics in 2002.

It is a pity that the payment-by-results ideology has been so overwhelming, perhaps powerfully pushed for by the accountants and management consultants wishing to drive ‘efficiency’ in the NHS, taking the media with them on this escapade. However, it is poorly aligned to how healthcare, psychiatric care and social care professionals make decisions in the real world.

Critics will correctly argue that value is notoriously difficult to measure, and might be virtually impossible to measure across a ‘care cycle’. Indeed the original criticism of the Kaplan and Cooper (1992) account of ‘activity based costing’ warned against organisations allocating excessive resources to collecting information which they are then able to make use of properly.

We are quickly coming to an age where it is going to be a ‘good outcome’ to keep a frail patient out of hospital through high quality care in the community through integrated teams. By that stage, the ideological shift from cost to value will have needed to have taken place, and funding models will have to reflect more the drive towards value and ultimate clinical outcome.

Do the ‘sunny uplands’ of Labour’s NHS demonstrate ‘the dividend obsession’?



Gas bill

With Andy Burnham MP ‘restored’ as Shadow Secretary of State for Health after the latest Shadow Cabinet reshuffle, one can only assume that ‘responsible capitalism’ has not totally subsumed UK Labour’s health policy. For now, Chuka Umunna remains where he is. And Burnham can remain resisting the latest weekly smear campaigns (usually timed, to clockwork, on Twitter nowadays for Tuesdays).

Burnham himself talked this year at the Labour Party Conference of the need to put ‘people before profit’.

With many significant contracts being awarded under section 75 Health and Social Care Act (2012) to the private sector, and with section 164(1)(2A) of the same Act allowing the non-NHS income cap to be considerably higher than before, it is an important policy issue to revisit the ‘dividend obsession’.

Hardworking nursing union members might like to consider, now, quite how much hardworking taxpayers’ money is being siphoned off into the hands of private equity and venture capital firms through their companies.

Labour’s history with business can best be described as: “it’s complicated.” Goldman Sachs recently boasted on Twitter of their involvement with Chuka Umunna, the Shadow Secretary for Business, Innovation and Skills. And in the past Lord Mandelson has claimed to be ‘intensely relaxed’ about business.

Labour’s ‘track record’ on “inequality” still fuels discussion. Tony Blair’s ‘Journey’, an autobiography possibly as exciting as Morrissey’s, doesn’t mention the word “inequality” once.

British Gas announced yesterday that it is to increase prices for domestic customers, with a dual-fuel bill going up by 9.2% from 23 November. The increase, which will affect nearly eight million households in the UK, includes an 8.4% rise in gas prices and a 10.4% increase in electricity prices.

Energy company bashing has become the new banker bashing (and investment banking is another poorly regulated oligopolistic market). Nevertheless, Labour also wishes to be seen to encourage wealth creation. It perceives any message that it is ‘anti-business’ as dangerous. The political message is reconciled if Labour is able to divorce very large corporates which are perceived to be ‘shirking’, from small businesses which are perceived to be ‘striving’.

There is no doubt, however, that Labour instinctively wishes to be seen to be on the side of the employee/worker too. The evidence is that Labour warns about a growing number of people in part-time employment. They have also held their nose while the current Government have tried to implement the ‘Beecroft’ proposals. For the employer, an ability to sack an employee is seen as ‘flexibility’, so that a business plan can adapt easily to changing circumstances. For the employee, the ‘readiness to fire’ is seen as an indication that employers don’t actually give a stuff about employment rights, and the threat of insecurity for staff.

This is why the Fabian Society, in their analysis of why Gordon Brown became so unpopular, tried to hang their thoughts on the ‘aspiration vs insecurity’ scaffold. Interestingly, Ed Miliband has wished to emulate the ‘aspirational dream’ of Margaret Thatcher. Margaret Thatcher once claimed that, for every socialist who woke up, there had to be a Tory who woke up an hour earlier to work.

Any business these days needs to have due regard to its environment and its workforce. This is called ‘sustainability’, and this comprises the ‘people, profit, planet’ mantra of corporate social responsibility. It is a well established concept, which far precedes the ‘responsible capitalism’ now belatedly “accepted” after Miliband’s famous “high risk” conference speech in Liverpool in 2011.

The Conservatives have thrown everything but the kitchen sink at this attack on energy prices. The problem for Cameron is that this lunge is not only popular but populist. It frames the question ‘whose side is the government on?’ in an unappealing fashion. Error after error has seen the notion of a Conservative-led government being ‘out of touch’ being reinforced. This has perhaps been symbolised ultimately by Tory MPs simply re-tweeting on Twitter press releases from energy companies.

Whilst leadership theories both here in the UK and US are well articulated, the literature on the involvement of stakeholders in business is relatively embryonic. Freeman and Mendelow are generally accepted to be the ‘fathers’ of ‘stakeholder theory’.

But the tension of who runs the company in English law is noteworthy in two particular places. One is section 172 of the Companies Act (2006) which attempts to draft a primacy of shareholder dividend with regard to ‘stakeholder factors’. The second is the relative ‘paralysis of analysis’ which can occur with too many conflicting opinions of stakeholders, in relation to shareholders, in relation to the business plans of social enterprises.

Ed Miliband used the following as symbolic as the war against energy companies, which is perhaps more accurately described as a war against unconscionable profitability of shareholders. Cue his quotation from “SSE dividend information” this week in Prime Minister’s Questions:

The Right continue to argue that the war is a phoney one, given that Ed Miliband introduced these ‘green taxes’ in the Climate Change Act in the first place. A problem with this is that David Cameron voted for these taxes. The Right continue to argue that the market is ‘not rigged’. A problem with this is that David Cameron wishes to encourage the ability of a customer to ‘change tariff’, which presumably would be totally unncessary if the market were not ‘rigged’?

The unconscionable profits, in economic terms, come about because it is alleged that the competitors, relatively few of them that there are, act in a coordinated way to set prices amongst themselves. It is further alleged that the competition regulators currently are unable to regulate this oligopolistic market effectively. Miliband’s ‘price freeze’ gives the Labour Party also some ‘breathing space’, in which to tackle the OFGEN problem.

Oligopolies are crowded markets with a relatively small number of competitors. This is why pricing can be ‘collusive’ in manner. They are notoriously hard to regulate.

We know about the whopping profit margins of key personnel in some of the markets like energy already, for example the front page of today’s Mirror newspaper. It is certain that exactly the same thing will happen in privatised health too in the UK. It’s no accident that the usual suspects run prisons, probation, workfare, benefits, security, and so on.

Fundamentally, Miliband’s narrative is extremely uncomfortable for the Conservatives. Far from being ‘liberalising’, in Miliband’s World, the markets end up fettering the behaviour of citizens. And this is a problem if citizens in Cameron’s World increasingly become mere consumers. If the market doesn’t work for Cameron’s consumer, the whole ideology collapses.

The Tories superficially may worry that the Hayek’s ‘Road to Serfdom’ has become a ‘Road to Slavery’, but ultimately their success depends on delivering a programme which benefits the big business and the City. Why else would Boris Johnson wish to go to legal war against Europe about banking bonus caps?

The narrative that Ed Miliband wishes to pursue of ‘putting people first’ is theoretically an amicable fusion between social democracy and socialism. While there are still clear faultlines in the approach, for example the maintained marketisation and privatisation of the NHS since 1979 (but which Burnham seems to wish to reverse), this narrative could prove to be even more popular and populist yet. Cameron’s World may just have been disrupted.

Like a faulty house of cards, the competition rationale for the Health and Social Care has fallen apart



 A house of cards

 In the beginning….

In the beginning, there was garbage and rhetoric. It sounded nice, but it was intellectually devoid of quality, there was not much competition for ideas even though this WAS bad, and so there was not much choice.

Julian LeGrand back in 2003 talks of the “competition juggernaut”:

Labour has made many mistakes, usually and unsurprisingly given its roots in socialism and central planning, in the direction of too heavy-handed central control. The public service juggernauts are now on a different course, with decentralisation, competition and choice as part of their route maps – and with plenty of resources as fuel. If they fail to arrive at their destination, if our expectations are dashed, there will be real questions over the future of each area of public services: how long can it remain public; how long can it remain a service?

Juggernaut

Competition fever‘ should have never have got off the ground. The University of York, Economics of Social Care and Health Unit, and Centre for Health Economics once published a study of ‘Hospital competition under fixed prices’ (research paper 80).

The argument that competition improves quality fell apart because of the sheer volume of invalid assumptions, as demonstrated in the following quotation from that document:

The review of the theoretical literature suggests that the plausible argument that greater competition amongst providers facing fixed prices will lead to higher quality rests on strong assumptions which may not hold. The literature shows that more competition increases quality when providers are profit maximisers and marginal cost of treatment is constant. Competition has an ambiguous or negative effect on quality when providers are altruistic, the marginal cost of treatment is increasing and quality is only imperfectly observable. The literature has been largely silent on the relationship between market size, as measured by total population or population density, and quality.

Competition as the failed central plank of the Health and Social Care Act (2012)

The raison d’être of the Health and Social Care Act (2012) is nothing to do with improving clinical care, though that could be a consequence of its three main areas. There is nothing about how patient staffing can be addressed, related to the equally potent issue of patient safety. It has never been entirely clear how the Act came about, but the three planks of policy are laid bare by the impact assessments from the Department of Health (2011) (published here on 19 January 2011). The three main planks of the Bill are firstly to establish the competitive market as the substrate for the National Health Service, to define better the insolvency régime (it is important to clarify how economic entities as autonomous units can be allowed to fail ‘to get them out of the system’), and the machinery needed to regulate the market. I will come to how Monitor has had to come into being to ‘regulate the internal market’, but it is not insignificant that introducing the market is itself a source of waste and inefficiency (such as duplicated transaction costs). Of course, the issue of how to regulate the internal market should be regulated has often been analysed in a substandard manner before by some social scientists, not competition lawyers, but this is now an important policy issue which has been thrust into the limelight.

Central to this argument is that competition promotes innovation. This is indeed cited on page 41 of the “Impact assessment”.

Ahn (2002) reviews a large number of studies on the link between competition and innovation and concludes that competition encourages innovative activities and has a significant impact on long-term productivity growth:

“Competition has pervasive and long lasting effects on economic performance by affecting economic actors’ incentive structure, by encouraging their innovative activities, and by selecting more efficient ones from less efficient ones over time”.

The myth that competition drives innovation, when COLLABORATION does

However, there is an intrinsic problem in business management: the assumption that competition drives innovation. This bit of missing evidence in the impact assessments totally distorts the raison d’être of the Act itself, and of course there is a separate debate in management as to whether innovation can be detrimental to organisational culture or learning. There is considerable evidence now that collaboration, not competition, can be essential for innovation. This theme is taken up in an interesting article about ‘internal markets’ from Forbes:

Major innovation needs collaboration, not competition. For innovation, internal markets have the same problem as hierarchical bureaucracies. Managers vote their resources for innovations that bolster their current fiefdoms and careers. The safest strategy is to stick to the status quo. Ms. Kimes’ article gives multiple examples where competing managers at Sears looked after their own units at the expense of the interests of the firm as a whole.

Second, innovation isn’t basically an issue of spending. Booz & Company’s annual innovation reports repeatedly state: “Spending more on R&D won’t drive results. The most crucial factors are strategic alignment and a culture that supports innovation.”

Finally, the hope of the internal markets theory is that, by funding a variety of different ideas, the organization will emulate the evolutionary process of natural selection and so the best ideas will survive and prosper. The problem is that once a disruptive idea starts to flourish and becomes more interesting than the normal bread-and-butter work of the organization, it risks becoming a threat to the rest of the organization.

The wheels are coming off the Competition Juggernaut a bit sooner than expected

David Williams at the Health Services Journal only very recently on 16 September 2013 reported that:

NHS England has delayed the publication of its choice and competition framework amid a “paucity of evidence” of the benefit to patients.

Policy director Bill McCarthy made the announcement at a board meeting on Friday, highlighting the issue as a new risk for the central body.

The framework and supporting documents were originally slated for publication in July.

Mr McCarthy said: “We’re having [a discussion] with Monitor around choice and competition, and how best they can be applied in healthcare to improve outcomes for patients, including a better experience.

“That’s taken a bit longer than we hoped.

“We had hoped to be able to put out some guidance early in the summer – I think that probably reflects… it is one of the areas where there is a paucity of evidence.”

“Operation Propper”

Clause “B47” (p.42/3) in the official Impact Assessments from the Department of Health cites one of the key planks of evidence that the Department of Health wishes to use in promoting its competition argument.

“A July 2010 study by health economists Martin Gaynor, Rodrigo Moreno-Serra, and Carol Propper investigated outcomes in the NHS following the introduction of choice in 2006. They conclude as follows: “We find that the effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost”. The study found that there was a larger inflow of patients to better quality hospitals after the 2006 NHS reforms, suggesting that popular providers in health care are able to expand supply.”

There is an even worse justification for the competition dogma later in the Department of Health’s official impact assessments:

B48. A January 2010 study by the London School of Economics also looked at NHS data post- introduction of choice in 2006. The key conclusion is as follows: “Using AMI mortality as a quality indicator, we find that mortality fell more quickly (i.e. quality improved) for patients living in more competitive markets after the introduction of hospital competition in January 2006. Our results suggest that hospital competition in markets with fixed prices can lead to improvements in clinical quality”.

B49. Evidence from the LSE shows that management quality – measured using a new survey tool – is strongly correlated with financial and clinical outcomes such as survival rates from emergency heart attack admissions (AMI). Moreover, the study finds that higher competition (as indicated by a greater number of neighbouring hospitals) is positively correlated with increased management quality.

The general issue received a scathing response from Allyson Pollock, Alison Macfarlane and Ian Greener who could not have put it any clearer.

The major improvements in outcome after acute myocardial infarction can be attributed to improvements in primary prevention in general practice and in hospital care, including the introduction of percutaneous IV angiography. The government’s own cardiac Tzar, Sir Roger Boyle, was sufficiently angered by their claims to respond with withering criticism: “AMI is a medical emergency: patients can’t choose where to have their heart attack or where to be treated!” It is “bizarre to choose a condition where choice by consumer can have virtually no effect”. Patients suffering “severe pain in emergencies clouded by strong analgesia don’t make choices. It’s the ambulance driver who follows the protocol and drives to the nearest heart attack centre”.

The intervention that the authors claimed reduced heart attacks and was a proxy for competition was patient choice. In 2006, patients were given choices of hospitals including private for-profit providers for some selected treatments. Less than the half patients surveyed in 2008 even remember being given a choice, and only a tiny proportion made those choices based on data from the NHS choices website. If patient choice was one of the two key elements of competition, it wasn’t prevalent and rather than being derived from the authors’ data, it was assumed.

Crucially, even if patient choice had occurred it does not explain why heart attack mortality rates fell. There is no biological mechanism to explain why having a choice of providers for elective hip and knee operations surgery (including hospitals which did not treat or admit acute MI patients) could affect the overall outcomes from acute myocardial infarction where patients do not exercise choice over where they are treated.

The problem of data dredging is well known; if you repeat an analysis often enough significant statistical associations will appear. But the authors make the cardinal error of not understanding their data and of confusing minor statistical associations with causation. Deaths from acute MI are not a measure of quality of hospital care, rather a measure of access to and quality of cardiology care. At best, what the paper appears to show is not the effect of choice on heart attacks but that if an individual has a heart attack in an area close to a hospital and their GP is near the hospital, then outcomes are better, but such findings are not new.

Going for their central criticism, in the same article, they explained:

The drip feed of pro-competition studies from Zack Cooper at LSE raises serious questions for the academic community and the public about what constitutes bad science and what to do about its politicisation. Recently, on 21 February in the columns of the FT, Cooper and colleague Julian Le Grand warded off serious scientific criticisms of the studies with an ad hominem attack, categorising those in favour of competition as empiricists and those whose work is critical of markets in health care as intuitivists. In so doing they sweep aside decades of careful economic theory and evidence which shows why markets do not work in health services and distract the reader from the facts that their work is ungrounded and far from empirical. Their repeated claims that competition in the NHS saves lives and improves quality and productivity have no scientific basis.

A litigation factory?

Of course the £3bn Health and Social Care Act (2012) which have no mechanisms of helping with clinical staffing or patient safety, in the drive for business efficiencies, have become a bonanza for private companies to which work has been outsourced, and a boon for the commercial and corporate law firms which are now nurturing them. The NHS of course has trouble in meeting the formidable legal bill against the private providers, as well as staff it has made redundant due to this top-down reorganisation.

I have long argued that the commissioning (‘competition and choice’) process through section 75 Health and Social Care Act (2012) would soon turn sour, for example in the original blogpost I did for the Socialist Health Association in January 2013 here. Crispin Dowler recently reported early tensions on 11 September 2013 in the Health Services Journal:

A number of private providers are likely to take complaints to the NHS’s new competition regulator Monitor over the next three years, the chief executive officer of Ramsay Health Care UK warned last week.

Jill Watts, whose organisation was ranked the largest private provider of NHS funded acute care in the most recent study by market analysts Laing and Buisson, said she could “almost guarantee” there would be challenges to come.

She told a Westminster Health Forum conference that the April switchover to clinical commissioning groups under the government’s health reforms had not produced uniform changes in commissioners’ attitudes to the private sector.

“In one part of the country, where we had almost adversarial relationships and they didn’t want to use us at all, they’re very keen to work with us now,” she said.

The New Labour Legacy, competition, performance and “the target culture”

Competition was intimately wound up in the target-driven agenda. NHS hospitals would have to meet targets to jump through regulatory hoops to become NHS Foundation Trusts. As long as finances stacked up, patient safety appears to have suffered in some Trusts under Labour’s watch. Whilst the evidence for competition being beneficial in the NHS market is weak, it has remained with us in policy like a bad smell. Julian LeGrand could have not put better how idiotic this policy really was.

The problem is indeed partly money – a historical legacy of underspending in all areas of public services. But, as John Hutton says, it isn’t only that. There is also a legacy of poor performance: of failing to use what resources there are effectively and efficiently. This is a lesson that six years in power have taught New Labour. The Government has tried and is trying a wide variety of techniques to lever up performance: publishing league tables on comparative performance, encouraging private sector involvement, offering independence to high fliers, stimulating competition and choice. But one of its favourite instruments has been targetry: the setting of targets with heavy penalties for failing to meet them. Many in government are convinced that this is the way to go.

Time for to ditch TINA as triangulation is strangulating the NHS



rotated-triangle There is of course plenty of money to drop bombs on Syria. Efficiency and productivity savings should never have meant cutbacks to clinical care, but that’s exactly what happened in some English NHS Foundation Trusts. Some English NHS Foundation Trust CEOs, who seem somewhat immune from accountability in a overpaid-overbloated management culture which appears to have thrived under New Labour, were the ‘action men’ in implementing such savings while trying to make their budgets add up. These budgets were of course crippled with loan interest payment debts. They couldn’t do it: of course some of the Trusts ended up in the Top 14 from Bruce Keogh. Mid Staffs was not the finest hour either for the ‘You can trust us withthe NHS’ brand of New Labour. People are who are now scuttling around presenting the views on the NHS as ‘incoherent’ are precisely the same people who have no vision on the NHS. Touring the country in tandem with people rubbishing the NHS as the most inefficient service in the world (whereas the opposite is actually true according to consistent research), management consultants who have allowed themselves to infiltrate English health policy for far too long have been siphoning off hard-earnt tax payer money away from clinical care into their own direction. More time is put into thinking about the optimisation tariff for innovation, or fostering leadership in a toxic culture, than doing a bedpan.

“There is no alternative”

“There is no alternative” is of course the philosophy made famous by the Margaret Thatcher government.

It is this ‘There is no alternative’ philosophy, aka TINA, which is strangulating the NHS, and is utterly shameless. It is where patients themselves are considered either crackpots or an irrelevance for hospital managers to achieve targets. Such a detached philosophy will inevitably wish to seem attractive to a current government or a Labour government in opposition, but the lack of listening to frontline clinicians is breathtaking. There seems to be no appetite to listening to junior doctors or Consultants either, let alone patients. What sort of NHS is this? Labour NHS hierarchy can do no better than to meet their real public. This does not involve dressing up in a nurse’s frock and checking a urinary pad for PR. This involves taking to patients who have had their A&E shut down. This involves talking to junior doctors who do not feel that acting like a technician on a conveyor belt is particularly helping their Foundation Programme training. This involves talking to patients who can’t for the life of them work out why so much effort, money and time has been put into a brand spanking state-of-the-art building which there is an insufficient number of nurses to keep up with the demand. Our Labour hierarchy need to talk to real people on the coal face, not talking to an inner circle of has-been management consultants. If they ignore patients as well, Labour will find itself reliving ‘The Tony Abbott phenomenon”. Time to ditch TINA. All this triangulation is strangulating the NHS.

The striangulation is occurring because England has not rejected the market. Whilst we try to embrace part-market part-comprehensive service, it WON’T WORK. It is simply not true that the market cannot be reversed. It is about the nation’s priorities. The goal for Labour should always have been a comprehensive, universal, free-at-the-point-of-use service, and this did not involve outsourcing vast chunks of it to the private sector. The game plan did NOT INVOLVE awarding vast private sector contracts at the expense of the NHS. Socialists know this. They feel this.

Scotland and breaking free from the “navel-gazing”

If you’re stuck looking for an alternative, look no further than Scotland.

A decade of bureaucracy and competition in the NHS in Scotland was finally been buried, when the Scottish NHS Bill received its Royal Assent in 1999. The Bill completed the abolition of the internal market, a delivery of a new co-operative structure for the NHS in Scotland; and the framework for higher standards of care through quality assurance. At the time, welcoming these significant changes for the NHS, Scottish Executive Health and Community Care Minister Susan Deacon said:

“Today marks the official death knell for a way of running the NHS which has come – and more importantly gone. The internal market, and its inefficiency and bureaucracy are now history. But today is not an end – it is a beginning. A beginning for the NHS in Scotland – and for the Scottish Executive which tomorrow will take over formal responsibility for its development. The vital legislative changes that have been made since 1997 now give us an unprecedented opportunity to put patients back in charge of their health care. I am determined to build on the solid foundations that the UK Parliament has delivered to us – and use the features of that new NHS structure to deliver real benefits for the man and woman in the street.”

She further added:

“Our challenge in the Scottish Executive is to provide the leadership and the conditions to help these new structures break free of ‘navel gazing’ and reach outwards to patients. This is the major culture change we must now make a reality. And I can promise that we will back that challenge with real increases in resources – over £15.7 billion to be spent on our nation’s health between now and 2002.”

Navel gazing

Navel gazing

The Nottingham Business School verdict on the progress of Scotland

Wind on the clock to February 2012 and the Nottingham Business School in England: and the NHS market in England is already evidenced to be falling apart. A major report into the NHS in Scotland (“Partnership in NHS Scotland 1999-2011“) cast doubt on the wisdom of its English counterpart’s continued and controversial pursuit of market-based reforms. The two-year study revealed how a “mature and positive” approach to industrial relations has helped underpin NHS Scotland’s “commitment to high-quality patient care”. At the time in 2012, the NHS in England had recently faced heavy criticism from the Care Quality Commission, the Health Service Ombudsman and the Patients Association. The Health Select Committee has also branded the overhaul of the NHS in England a “distraction” that is hindering its ability to make savings to protect its future.

Carried out by Nottingham University Business School, the NHS Scotland study examined how innovative industrial relations can help improve service delivery. It concludes that the health service north of the border represents a “leading-edge example” and offers “important lessons” for public services throughout Britain.  Study co-author Dr Peter Samuel said: “Effective partnership working requires the development of a shared aim and an agreed approach on the way forward.

“Partnership in the NHS in England and Wales is also built on a shared commitment to high-quality patient care, but partnership in NHS Scotland is unique. That’s because from an early stage it was also based on a strong consensus over the organisational structure that would best deliver the NHS’s founding principles. This involved a move away from most of the market-based reforms introduced from the 1980s onwards – reforms the NHS in England continues to pursue.”

The ‘death knell’ for competition in the English NHS delivered by Professor Walter Holland

Indeed, the final nail in the coffin for the competition and market evangelists came from a hard-hitting article in 2010 in the journal of the Royal College of Physicians of London, from Emeritus Professor of Public Health, Walter Holland, entitled “Competition or collaboration? A comparison of health services in the UK.”

coffin

Contrast Prof Holland’s first paragraph:

“Although devolution has had a major impact on the organisation of health services in the UK, there have always been differences between England, Scotland and Wales. Before the advent of the NHS in 1948 cooperative models of providing health services were more common, and more developed, in Wales than in England – indeed it has been suggested that Bevan’s ideas on the NHS were based on his experiences with the Welsh miners’ welfare system. In England the voluntary hospitals, including teaching hospitals such as St Bartholomew’s, St Thomas’ and Sheffield Royal Infirmary, provided a considerable proportion of hospital care, alongside the local authority and community hospitals. Voluntary hospitals, supported by charitable donations, were far less common in Wales and Scotland than England.”

with his last one:

“There are differences in the attitudes, behaviour and beliefs of the populations of the UK which have been addressed briefly above. Most of these have been present for a very long time. Devolution has enabled Wales and Scotland to pursue somewhat different paths to England. It is difficult to conclude that the market model with a strong regime of targets and ‘naming and shaming’ in England delivers better and more effective healthcare, as suggested by a recent Nuffield Trust report, than the more ‘communitarian’ policies of Wales and Scotland. For some indicators Wales is worse off than England, but for others Scotland has better results than England. The difficulty in all comparisons and in the assessments made is that there has been an improvement in almost all measures in the past 10 years in all three countries. But it must be remembered that health, environmental and social conditions were not, and are not, the same in the three countries. In the long term, the emphasis in Wales and Scotland on public health policies and communitarian cooperation may, if continued, be more effective in improving health than the emphasis on markets, competition and choice. Wales and Scotland consider the relationship between the patient/citizen to their national public service an important factor – as opposed to choice judgements on access times.”

The solution

Consistent with the reported philosophy that nobody should come to the table without offering a solution, I should like to offer a solution. External management consultants in the NHS have become overbloated as a personnel force. They have relentlessly pursued their own interests, creating more work for themselves, and not having patients’ real interests at heart. They say that patients do not ‘care about accountability’ while fixating on every possible new configuration of Blairite quality management possible. Wrong. Surveys have consistently rejected unaccountable NHS bureaucrats and managers protecting themselves and ignoring the views of patients. However, Mid Staffs and Morecambe Bay, whilst the use of the HSMR by the media has now been largely disgraced, serve as a reminder that you can’t keep the lid on an exploding kettle. The NHS needs much more policy expertise from within, preferably with some clinical experience, so that they can understand the people, culture, skills, behaviour and knowledge of the people they are influencing through their policies. There is no point thinking about a personal health budget for somebody with diabetes mellitus unless you can think about how even the most well controlled diabetic can end up in hospital with a diabetic ketoacidotic coma, or a normally well controlled patient with chronic obstructive airways disease can end up in hospital with a life-threatening exacerbation due to an underlying pneumonia. It’s time to stop paying these external management consultant ‘advisors’ for their glorified bullshit.

This is not simply a case of senior politicians not listening. It is about senior politicians causing damage to the nation’s health by causing mental stress and anguish over a person’s health budget rather than offering optimal care. The medical evidence  regarding “‘plain packaging cigarettes’, poor diets and minimum alcoholic pricing is overwhelming. It is about saying something if treatments don’t work, even if a private company wants to flog the person a treatment in the name of ‘choice’. It is about objecting to unnecessary private healthcare screening; nobody is denying that targetted evidence-based health-prevention measures are important in the National Health Service. These external management consultants, with an equally strong sympathetic workforce of medical charity leaders with no medical or nursing qualifications, have become a shambolic mess as people without such a narrow field of experience are left trying to deliver frontline care. The time is now to campaign for abolition of the internal market in the NHS in England, not producing a culture of muddle and obfuscation which is causing massive distress to the general public.

 

Lessons need to be learnt for the NHS from failure of competition in imperfect markets



ChampionThere are two ways of trying to understand the human body in medicine. One is to understand its anatomy and physiology in normal health, which gives you a definition of its structure and functions. Another approach is to understand what goes wrong in pathology and why. Both approaches give valid complementary information. The problem with singing the praises of the market is that it assumes that there is ‘perfect competition’, and that the relationship between supply and demand can be predicted accurately. There are very many reasons why markets do not obey this perfect competition. In fact, perfect competition is virtually unheard of. Many of us believe that the NHS does not meet the definition of a market anyway, but my article here is to try to explain to health policy works, many of whom are quasi-economists, how the failures of competition are patently clear in the current investigation of this market by the Competition Commission.

There are two highly influential ideas which have been applied in the NHS. One is from Professor Michael Porter and his “five forces of competition”, which provides a useful construct about how competitive factors interact in the market to determine a company’s competitive advantage. (Porter also has another strong theme called ‘strategy and society’, which is more to do with corporate social responsibility, which many believe to be the substrate of Ed Miliband’s ‘responsible capitalism’ theme). The second idea is that of “disruptive innovation”, also from Harvard Business School, first advanced by Professor Clayton Christensen.

The “Five Forces” model of competition assumes that there are five important forces that determine competitive power in a business situation.

Source

Porter's 5 Forces

Porter’s 5 Forces

These are:

  1. Supplier power: How easy it is for suppliers to drive up prices? This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers’ help, the more powerful your suppliers are.
  2. Buyer power: How easy it is for buyers to drive prices down? Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, then they are often able to dictate terms to you.
  3. Competitive rivalry: The number and capability of your competitors are important here. If you have many competitors, and they offer equally attractive products and services, then buyers will go elsewhere if they don’t get a good deal from the supplier. On the other hand, if a supplier produces an offering no-one else can do, that supplier will have considerable ‘competitive power’.
  4. Threat of substitution: This is affected by the ability of your competitors to find a different way of doing what you do – hence the growing importance of innovation in English health care policy. If substitution is easy and substitution is viable, then this weakens your power.
  5. Threat of new entry: Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it. Monitor has of course been very keen to lower the barriers-to-entry so that ‘any qualified provider’ can compete with the NHS for contracts.

The Competition Commission ‘Issues Statement’ from February 2013 adopts the structural analysis of Porter, without saying so. The privately-funded healthcare sector is a relatively small part of the wider UK healthcare sector, most of which is funded via each nation’s respective public health- care systems. Certain treatments, including elective cosmetic surgery and standard maternity treatments, were not included. The five largest hospital operators account for approximately 70 per cent of privately- funded healthcare revenues in the UK.Almost 80 per cent of UK patients using privately-funded healthcare services are funded by insurance. The other 20 per cent are ‘self-pay’ patients. These healthcare services are also used by overseas patients, particularly in London. The four largest private medical insurers account for approximately 87 per cent of  insurance premium revenue with the two largest alone accounting for 65 per cent.

A key issue for this investigation is the way in which the privately-funded healthcare sector is affected by the conduct of, and interaction with, the private medical insurers (PMIs).Defining the market in itself is difficult. Local aspects may arise because patients may prefer not to travel far to hospitals or because there may be limits on patients’ ability to travel (eg limited geographic coverage by the insurer or GPs referring primarily to local consultants). On the other hand, patients may be willing to travel different distances depending on the type of treatment (eg patients may be willing to travel further for treatments for more serious conditions). There also seems to be differences in the type of ‘product’ being offered; for example, oncology (cancer management) is offered by a lower proportion of general private hospitals.

The analysis nicely falls into the factors described by Porter, as follows:

Supplier power:

Many PMIs expressed concerns that HCA hospitals in London have market power. There are a substantial number of private hospitals in London, and London private hospitals differ from those in the rest of the UK in that they offer different sets of specialties, some hospitals are very specialised and their patients may work in London but reside further away. Their analysis identified some ‘hospitals of potential concern’ in London but it may not fully capture the extent of any competition problems in London. Consultant market power may be caused by several factors, some specific to the location in which the consultant works and others reflecting the way in which privately-funded healthcare services are purchased.

These factors include:

(a) a limited number of consultants in a particular local area for specific treatments or specialties;
(b) the way that referrals are made and consultants selected; we note that the pro- cess of choosing anaesthetists for a patient differs from that for other consultants and typically involves less input from the patient and/or GP; and
(c) joint setting of prices by some consultant groups.

Buyer power:

This theory of harm hypothesises that insurers may possess buyer power in relation to consultants.The Competition Commission have stated that if insurers are suppressing consultant fees to a level below those which would prevail in a competitive market, this could lead to a reduction in the quality of service provided by consultants to patients and affect the incentives to innovate. They also considered that insurer conduct may distort competition between consultants when caps on the reimbursement of fees are applied to some consultants (eg newer or junior consultants) and not to others (eg more experienced ones).

Threat of substitution:

There are real problems with the substitution arguments. Private hospitals may be able to change the treatments they supply if they supply a range of different treatments and may be able quickly to change how they operate. Supply-side substitution by consultants is likely to be more limited than supply-side substitution by private hospitals. In the absence of demand-side substitution, treatments (or specialties) that should be defined as separate markets may be aggregated into clusters of treatments (or specialties).

Threat of new entry:

These are complicated. For example, one source of a ‘barriers to entry’ could be that of customers into privately-funded healthcare resulting from bargaining between insurers and hospital chains. This theory of harm hypothesises that bargaining between PMIs and hospital chains creates barriers to new local entrants. In particular, it may result in contractual terms that disincentivize PMIs from recognizing new entrants. This bargaining pattern may lead to a hospital operator placing pressure on PMIs to continue to recognize all the hospital operator’s hospitals and not to recognize hospitals of new entrants. High fixed costs of hospitals make it attractive for hospital groups to offer ‘volume for discount’ deals to PMIs, if by doing so they can secure business from the insurer that they would not otherwise receive.

However, the Porter analysis is notorious for its poor comprehension of anti-trust of anti-competitive regulation across a number of jurisdictions. That’s why the Competition Commission is unable to address competitive rivalry at all – this is still extremely disappointing for a statutory legal authority for the regulation of competition, and provides for ultimately a weak, incomplete analysis whatever is finally returned. The analysis is traditionally attacked from the perspective that the conclusions from Porter’s analysis, originally achieved from the automobile industry, do not easily extrapolate. Whilst there have been attempts at applying Porter to the internet or telecoms in general, there is a real paucity of data looking at the application of Porter either in private healthcare markets. Therefore, one can only be immensely frightened to consider how such an analysis can be properly applied to the NHS, which can described as a ‘hybrid market’ at best (avoiding the flawed term ‘quasimarket’); it is beyond the scope of this article to consider how it may not be possible to consider the current NHS as an example of market socialism.

Competition image

 

 

 

 

 

The political lesson here is that privatisation of the utilities under the Conservative governments has been an unmitigated disaster from the perspective of the UK citizen. From the viewpoint of a company director or shareholder in a privatised utility, it is of course a ‘cash cow’ as there is no competitive rivalry. The competition authorities have immense difficulty in regulating this market, such that prices continue to go up under the pretense of ‘returning investment’ to the infrastructure. This argument cannot be easily applied to the NHS, as the Health and Social Care Act (2012) has totally demolished the ‘national’ nature of the NHS, delivering a highly fragmented service which is beginning to bear a resemblance to the disasters of the privatised railways industry in England.

The biggest problem with the fact that the new NHS is not a real ‘market’ is that in an oligopoly, a market with few players, the participants can easily bump up prices when they are not really competing with each other anyway. They either are offering the same product at the same inflated price (e.g. a ‘standard hernia operation’), or they can easily cherrypick what services they wish to provide at high volume and low cost to maximise their shareholder profitability. As the Secretary of State no longer has a duty for the NHS to offer a universal national health service, this is no longer an issue legally.

We can argue until the cows come home about the efficacy of the current political coalition in the UK, but the problems of ‘forming coalitions’ is well known in the legal academic press and increasingly so in the business press. For example, in an excellent paper called “Michael Porter’s Missing Chapter: The Risk of Antitrust Violations” from Fried and Oviatt in February 1989, the authors describe that:

Porter also proposes forming coalitions to raise entry barriers, although he does not provide any detail or exam- ples of what he means. Statutory prohibitions on conspiracies and combinations show that antitrustlaw takes a dim view of coalitions formed to raise entry barriers unnecessarily. In addition to the cases previously discussed involving coalitions, organizations (sic) in many industries have attempted to form “associations” for the purpose of limiting competi- tion in a trade by limiting access to suppliers. Diamond dealers, kosher butchers, and golf club manufacturers have all been ordered at one time or another to stop this behavior. Much more prominent is a Supreme Court case that dealt with the garment industry.^s Fashion Originator’s Guild of America, Inc, (EOGA) was an association of designs, manufacturers, and distributors of women’s clothes. The manufarturers in FOGA controlled over 60% of the high- price segment of the market, FOGA members were upset because after original clothes designed by FOGA members entered the retail market, competitors would copy the designs and sell identical garments. To combat this “style piracy” guild members refused to sell to any retailer who sold copied fashions. The Court ruled that in so doing FOGA was in violation of antitrust laws.”

One suspects that if the UK competition authorities, such as Monitor, OFT and Competition Commission, fails to regulate properly even the private healthcare market, they are going to have a pretty disastrous time with the NHS at general. But the people who wished to introduce the market in the NHS in the first place should have thought about. None of us, as such, voted for it.

If the NHS is not a market, why do we even bother to regulate it like one?



 

If the NHS is not a market, why do we even regulate it like one? In all the policy debates, this question has been either accidentally or deliberately overlooked, but it’s highly relevant in terms of who has captured the agenda. An alien perusing through ‘The Socialist Health Association blog” might reasonably be forgiven for thinking that we are all on some giant retainer from the management consultants, and we’re paid to shill on a daily basis about the joys of the market in the NHS. Markets mean diverting money from frontline care to wasteful. repeated, unnecessary work, substituting the NHS instead  with entities that have to pay their way like businesses and, like businesses, can fail. Needs-based planning, once the hallmark of the NHS in England, could ultimately turn into the car-crash of market failure. As can be seen from charting the numerous make-overs by the NHS (foe example the McKinsey’s-led ‘transformation in 1974), solutions are sought from  external consultants and turnaround teams using an antiquated management starting point that the NHS is a massive failure. It is held that the NHS is a “scandalously inefficient “and can “increase productivity”, and hence the “less for more” or “thinking smarter” approach. The system is in fact in distress in that a market-led approach is totally unsuitable for the NHS, and this leads to downstream ‘does not compute’ errors in its regulation.

In contrast to Wales and Scotland, England has established hospitals and services as competing trusts or firms operating in a market; competition has replaced the mechanisms which enabled health authorities to monitor and respond and direct resources to the needs of the populations that are being served. Markets create winners and losers, and for any health system that is concerned about preventing widening social inequality this is a ‘moral anethema’. It is intuitvely logical  that if the Department of Health in England commissions private management consultants that derive their profits from markets you will get market solutions. Even the late Baroness Thatcher made a good effort in the 80’s with her attempt to open the door to the market but even she feared the backlash from the public. “Thatcher 2 the revenge” is having a another go. During their years in opposition, the Tories developed a systematic plan to finally break up the service. This breaking up of the service is not only a prerequisite for parcelling up the NHS into ‘bite size’ chunks convenient for privatisation, but is also a professional regulatory nightmare. Key to their strategy was the need to shift public opinion. Firstly, they embarked on a costly and dangerous fragmentation of health commissioning. Secondly. they implemented a tight financial squeeze, starving the service of critical resources. This is in no way linked to the general state of the economy, as measured by the CPI or GDP, and seems to be yet another manifestation of ‘austerity first, think later‘. However, it is critical in understanding how a business model can have profit as a primary goal, not the safety of patients. It seems that the most important element of their plan was the hostile propaganda campaign against the service with the specific aim of undermining the public’s faith in the NHS. UNISON recognised this tactic and throughout the campaign against the Health and Social Care Act (2012), the union exposed the Tories use of the right wing media to denigrate health delivery in England.

And so it came to pass that successive governments were successful in producing a “NHS Frankenstein”: under this system, the purchase and provision of healthcare in the UK was split up, with government-funded GP fundholders “purchasing” healthcare from NHS Trusts and District Health Authorities, who competed against one another for the GPs’ custom. There was nothing to gain here. The market reorganisation itself gave the NHS and patients and taxpayers nothing but higher cost. Critics of quasi-markets argue that the ‘market’ led to the phenomenon of “cream skimming” notorious in other private sector activities (see for example a previous blogpost of mine). The final denouement of course comes from the destination of the transition we are now embarked upon; this unelected move will take us up to an estimated 31% of the budget going on admin. and wastage (as beautifully articulated by the Himmelstein and Woolhandler papers). The late Lord Stockton, himself a “Tory Grandee“, would be quaking in his boots from the ‘selling off the family silver” in a bid to execute the current McKinsey efficiency savings (“family silver” in this context could include Circle flogging off Hinchingbrooke Car Park, though there are plenty of other examples).

 

As if this construction of the cack-handed NHS non-market were not simply bad enough, there is a rude awakening that there can be no more light touch regulation for the NHS as it’s too dangerous. Examples are too numerous to mention, for example activity which has led nurses being struck off in the private sector (Winterbourne) and the public sector (Mid Staffs). One cannot comprehend how it has to come be that numerous healthcare regulators (such as the Health Ombudsman, GMC, NMC and CQC) often reduplicate the same cases, but still end up concluding that such cases are not worth investigating. Another emergent problem now is that there are mutations of healthcare regulators in this rapidly evolving ecosystem, and in a way the landscape of the regulator (and the relative allocation of scant resources) is an artifact of “regulatory capture“. Regulatory capture occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or special concerns of interest groups that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure, as it can act as an encouragement for firms to produce negative externalities. The agencies are called “captured agencies”. Except here, the danger is that the NHS is not simply an “industry”, and if one puts one’s regulatory eggs only into the economic regulatory basket, one can end up missing both the point AND the target.

Fast forward, onto this week where the Competition Commission (CC) is looking into a situation where just five private-sector hospital operators – General Healthcare Group, Nuffield Health Hospitals, Ramsay Health Care UK, Spire Healthcare and HCA – dominate this £5bn market. However, not content with struggling to meet domestic regulatory demands of the NHS, the present Government is wishing to unleash the rules of international free trade on the NHS behind closed doors. The irony is that the financial crash is seen as a failure in international regulation in the financial services. The reasonable response of this was to encourage financial regulators here in London to talk to the regulators in other jurisdictions such as New York. As a response to the failure of the free market, aka the ‘financial crash’, public sector nurses are now being redundant in a protacted set of nights of long knives. And yet it is international regulation of private healthcare providers, albeit working in a NHS disguise, which could hold the key to all this, and this is indeed alluded to in the recent Berwick report on patient safety. These key players in this latest UK transaction are very well  known. For example, it has been alleged that “Netcare” was warned by a top specialist to stop Israeli “tourist transplants” but the company dismissed his advice and hid behind a legal façade.“Kidneygate” is the long-running saga of how—between about 2000 and 2003—about 200 Israeli patients with kidney disease were brought to South Africa to receive organs from living donors who were presented as their relatives. To explain, I mention “Netcare” here as it was reported on 24 January 2013 that

“Listed private hospital group Netcare said on Thursday it had bought UK property investor Brockton Capital’s interests in the UK’s biggest private hospital group, General Healthcare Group (GHG), for £11m.”

This is of big news in the corporate world.  To make sense of it, you have to realise that international entities are often to be found lurking under a different name in certain jurisdictions: for example Walmart is better known as Asda here in England.

As another example, despite numerous internal reviews that turned up a widespread pattern of unnecessary cardiology procedures being performed at many of its hospitals, it is alleged that the giant HCA corporation did little to inform regulators, payers, or patients about the problem, according to an investigative report in the New York Times by Reed Abelson and Julie Creswell. The legal issues involving these companies are in a different jurisdiction to that of ours, our jurisdiction being England and Wales, and therefore it is important to state  that they, strictly speaking, have nothing to do with the current matter for consideration by the Competition Commission, where one assumes that such matters may have been disclosed in the due diligence of the investigation part of the regulatory process. Whatever one’s precise approach, the history can be indeed rather inglorious, the deeper you investigate.

This makes it all the more important that law and regulation has to be ‘effective’. This doesn’t necessarily mean that there has to be more of it. Given that this NHS ‘market’ is hugely distorted anyway, it seems insulting for public health policy experts to think about how best to regulate this non-market. Indeed, the lawyers have had difficulty anyway in dealing with traditional economic markets. Section 1 of the 1890 US Sherman act provide: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade […] is hereby declared to be illegal”. The prohibition contains no exemptions, and was seen as a ‘per se’ prohibition with extensive application areas. In order to narrow down its scope, US-Courts developed two separate approaches for determining whether or not agreements restrain competition, a ‘per se’ rule and the ‘rule of reason’. Meanwhile, the European Court of Justice assert that in situations where agreements do not have as object the restriction of competition, its “consequences” need to be analysed in order to know whether competition is distorted to an “appreciable extent”. Notwithstanding that, ‘undertakings’ between diifferent private providers that ‘distort’ the market can be considered unlawful under Article 101 TFEU, but the issue is that the economic regulation of this in other sectors is incredibly difficult to prove (take for example, ‘rudimentary’ petrol price fixing).

Berwick recently opined that:

“Delivering safe care is first and foremost the responsibility of providers, but having no regulation is not an option.The current NHS regulatory system is bewildering in its complexity and prone to both overlaps of remit and gaps between different agencies. It should be simplified. A high level of coherence is required across the system, with clear and fully aligned goals and incentives focused on the interests of patients at every level. All bodies involved in the oversight of health care providers need to actively avoid the creation of ‘priority thickets’ where providers become increasingly unclear about what they are doing and why, and where the goals they are supposed to achieve compete, conflict, or fail to cohere. Safety and quality stand the best chance when all of the drivers in the system – financial incentives, policies, regulatory strategies, use of competition, commissioning decisions, training, and organisational and professional norms – point in the same direction.”

Yes – they point in the same direction possibly, but it is inescapable that a failure to regulate the economic activity of the non-market in the National Health Service will force the best efforts of the professional regulators to implode. Regulators, including economic regulators here and across the pond, as well as all professional regulators domestically, need now to engage in making the NHS safe rather than simply reputation management of the NHS. It has been remarked that communication of regulatory information in the financial sector across different countries had previously been poor, necessitating better information sharing across jurisdictions (see for example this document regarding Basel). This requires a shift in culture, yet another one, to share information. The NHS is undergoing a series of critical ‘stress tests’ in regulation, and, if this regulation goes wrong, the impact could be our medical equivalent of the global financial crash. One good reason, I feel, why we must particularly try to regulate the NHS as a market even though it is not one is because the new NHS approach could introduce a component of fraud and corruption like never before.

You have a market (sort of). Now regulate it properly, or get rid of it.

“Co-epetition” – how collaborative competition might ultimately benefit the patient



Diogenes

The debate about competition is polar. Either you’re a believer or not.

Yet competition can co-exist with collaboration. Also, in theory, integration or bundling could even be seen as ‘anti-competitive behaviour’.

A trick will be ultimately to find a way in which integration of services cannot offend competition law. As an useful starting point, Curry and Ham (2010) suggest that there are three levels of integration, the top of which is a “a macro-level or systems-level integration”, in which a single organisation or network takes full clinical and fiscal responsibility for the spectrum of health services for a defined population, Underneath is a “meso-level integration of services” for patients with particular conditions, which encompasses a continuum of care for a subset of patients with those conditions.

Ultimately, clinical commissioning groups, whatever expertise they precisely consist of, will need to source services which promote highest quality and best choice for its patients. And yet the law has to reconcile one of its fundamental rules (that everyone is innocent unless otherwise proven guilty), and the law should not penalise people wishing to work together if it is for the benefit of the patient. One is reminded of Diogenes of Sinope (412-323 B.C.) who was seen roaming about Athens with a lantern in broad daylight and looking for an honest man but never finding one.

“Co-epetition” can mean a ‘joint dominance’ of suppliers of health services, provided their activity does not abuse that dominance or distort the market. There are good reasons in business management why certain parties might choose to coordinate their commercial conduct to benefit patients, such as in bundling. Despite certain conflicting interests, they also share strong common values and are exposed to common risks. Such synergies in competences is well known to be essential for building cohesive organisational entities, and in forcing strategic alliances even if there is formal relationship at all.

Unfortunately, joint or collective dominance has been traditionally treated by the Competition Authorities as equivalent to oligopolistic dominance. The concept of joint dominance has been developed under both Article 102 of the Treaty on the functioning of EU.  There is some consensus among National Health Service (NHS) researchers, managers and clinical leaders that increased integration within the health system will enable the NHS to respond better to the growing burden of chronic illnesses. In “real markets”, the prohibition laid down in Article 102 TFEU has been justified by the consideration that harm should not be caused to the consumer, either directly or indirectly by undermining the effective competition.  However, healthcare is not a “real market”. Unlike the other concepts, co-opetition (blend of cooperation and competition) focuses on both cooperation and competition at the same time.

Basic principles of co-opetitive structures have been described in game theory, a scientific field that received more attention with the book “Theory of Games and Economic Behavior” in 1944 and the works of John Forbes Nash on non-cooperative games. It is also applied in the fields of political science and economics and even universally [works of V. Frank Asaro, J.D.: Universal Co-opetition, 2011, and The Tortoise Shell Code, novel, 2012]. Although several people have been credited with inventing the term co-opetition, including Sam Albert, Microsoft’s John Lauer, and Ray Noorda, Novell’s founder, its principles and practices were fully articulated originally in the 1996 book, “Co-opetition”, by Harvard and Yale business professors, Adam M. Brandenburger and Barry J. Nalebuff.

One sincerely hopes that NHS management will be able to cope with the pace of this debate too. Competitors with such management ability will likely forge a co-opetitive relationship. When two companies compete fiercely in a market, they likely perceive each other as an enemy to defeat, and have less willingness to collaborate, even if they have complementary skills and resources. One day, the best minds in the world will probably ‘have a go’ at producing a coherent construct of this for the NHS quasimarket.

“Co-epetition” provides, furthermore, a mechanism for English health policy to revisit yet again the notion of “public private partnerships” which first probably became really sexy about a decad ago at the heart of the government’s attempts “to revive Britain’s public services”. A decade later, Cameron is still lingering with this particular revival. The problem with how this is sold is that many have rightly rubbished the idea that the private sector is necessarily more “efficient”, an ab initio basic assumption, The private sector, both accidentally and sometimes quite deliberately, introduces needless reduplication and waste, evidenced by the cost of wastage in the US health market. However, the “dream” is that, in trying to bring the public and private sector together, the government hopes that the management skills and financial acumen of the business community will create better value for money for taxpayers.

Globally, diabetes is the second biggest therapeutic “market segment”, behind oncology, in terms of revenues generated. IMS Institute of Healthcare Informatics forecasts that the global diabetic segment will grow to $48-53 billion by 2016. In India, it is already the fastest growing segment. Diabetes medicines currently fall into two broad categories — tablets and injectable insulin. While domestic players are market leaders in the conventional oral drugs segment (market share of 80 per cent), multinational corporations (17 percent) are fast catching up with patent-protected new generation oral drugs. The anti-diabetes market has been consistently growing well above the pharmaceutical market for the past few years. It is possible to see the future in this crowded market in a coupled business strategy that involves in-licensing one or more compounds (new products from multi-national corporations), while continuing with time tested, less expensive (own) products for the mass market.

If the NHS should wish work together with private providers in provision of integrated bundles of healthcare, and the feeling is mutual in a way which clearly promotes patient choice, assuming that all parties see a rôle for the private sector in the NHS, the legislative framework should be re-engineered immediately to reflect that. This should a pivotal task for Monitor to turn its attention to.

Whatever the precise approach taken to “co-epetition”, the current legislative guidance will need to much better defined to ensure that any form of integration does not offend the anti-competitive environment.

The author is extremely grateful for the rich conversations he has had with Dr Na’eem Ahmed who is the first person to the author’s knowledge to acknowledge the potential value of this mode of provider dynamics for the NHS.

Cutting the NHS cake. Who benefits from NHS competitive tenders?



NHS competitive tenders - a piece of cake?

NHS competitive tenders – a piece of cake?

In game theory and economic theory, a “zero-sum game” is a mathematical representation of a situation in which a participant’s gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s). If the total gains of the participants are added up, and the total losses are subtracted, they will sum to zero. Consider cutting a cake, where taking a larger piece reduces the amount of cake available for others; it is a zero-sum game if all participants value each unit of cake equally. In contrast, non–zero sum describes a situation in which the interacting parties’ aggregate gains and losses are either less than or more than zero.

As I have consistently maintained with others, although the only reason I know about this at all is due to Dr Lucy Reynolds at the London School of Health and Tropical medicine, the purpose of section 75 Health and Social Care Act (2012) was to ensnare the NHS in a free market. This market would be run according to competition rules, governed by European rules regulating ‘economic activity’, and the big corporates Circle, Virgin and Serco, for example, would have massive competitive advantage through their supplier power, economies of scale, and known expertise in procurement across a number of sectors. The National Health Service, which does not have the resources or expertise in complex procurement yet, would be at disadvantage, and unable to compete effectively.

That the market was not ideal for ‘our National Health Service’, as Prof Sir Bruce Keogh, Medical Director of the NHS, affectionally calls it has been seen in a number of recent instances. One for example is the furore with the privatisation of ‘Plasma Resources UK‘, with concerns about asset-stripping type behaviour of private equity firms for future transactions. The NHS has also not be able to implement ‘patient choice’ in complex rules about mergers, seen entirely through the competition law prism. As such Tony Blair’s dictum that ‘it doesn’t matter who’s providing my services, as long as they’re of the highest quality and I’m not paying for them’ runs into four big problems professionally.

  • Firstly, if you have a carousel of different providers in your care, this is a major barrier to continuity-of-care. Continuity-of-care helps for the reason that fewer mistakes are made by clinicians, and also saves on repeating transaction costs for doing the same thing, such as medical investigations, again-and-gain (with no change in results).
  • Secondly, outsourced services obtained through price competitive tendering might cost less, but profit becomes more important than value in the return on investment in services run by the private sector on the NHS’ behalf  (this is why the legal profession wisely decided to abandon competitive tendering on the basis of lowest price, because of the overwhelming criticism from senior lawyers of ‘a race to the bottom’).
  • Thirdly, it is a deception to the public, who feel that their services are being run by the NHS, whereas they are in fact being run by a totally alien entity in NHS uniforms.
  • Fourthly, it is not an innocuous ‘zero sum game’. For every gain in the private sector, there is a loss in the NHS both in morale, sustainable business plan and resources. This matters for the future of the NHS in its ability to run a comprehensive, universal service, but this will not matter if the Secretary of State absolves responsibility for running the NHS under law, and this aspiration gets deleted in time from the NHS constitution.

The NHS Support Federation have reported that commercial companies look set to gain £1.5 billion pounds worth of NHS funding from contracts issued within the last three months. This surge in commercial activity follows the government’s new competition rules (section 75 of the Health and Social Care Act (2012), which came into force in April.) Over a hundred opportunities have been advertised according to figures compiled by the NHS Support Federation. The latest contract notice is the biggest so far, to run community services in Cambridgeshire,  and is worth £800 million over 5 years. The private sector is easily winning in this competitive market, since April 2013, a sample of clinical services contracts taken from official tenders websites found that only 2 had been awarded to the NHS with 16 going to the independent sector.

The data set used for this research was taken from two procurement websites where NHS competitive tenders notices are advertised in keeping with UK practice and contract law - TED OJEU and supply2health

NHS competitive tenders have risen steeply.  Contracts awarded since April 2013 show 16 to the private sector only 2 to the NHS. An estimated £1.5 million worth of contracts have emerged in the first 3 month since the competition regulations were passed by Parliament. Outsourcing is increasing fastest in diagnostics, mental health, domicillary care and pharmacy. The largest appeared on the TED website at the end of the sample period, a contract to provide a wide range of community health services in Cambridgeshire. It is worth £800m over five years. The contract trumps the value of similar arrangements that have been made with Serco and Virgincare to run services in Suffolk (130m) and Surrey (500m). There were around twice the number of NHS competitive tenders for clinical services compared with the same quarter last year advertised on the Official Journal to the European Union – TED. Their sample is made up of 106 clinical contracts, so not those involving the pure supply of goods. Pharmacy contracts are included as a service that involves providing medical advice, but the supply of medical equipment is not. Ambulance contracts listed include those for blue light and patient transport.

It was predicted that the section 75 regulations (that passed through Parliament in April) would result in a sharp increase in the use of NHS competitive tenders as method of purchasing. The government, helped primarily by Lord Clement-Jones and Baroness Williams in the House of Lords, consistently argued that the section 75 regulations would not give primacy to the mechanism of ‘price competitive tendering’. The business problems of price competitive tendering are certainly infamous in other sectors, and, as a result of this ideological drive, outsourcing through price competitive tendering is being thrust upon the NHS (and also resisted) by the judicial system. In the NHS, there has been  an increase in tendering activity in the April-June period 2013 compared to the same period last year, where a search through TED archives showed that around half the number contracts for clinical services were advertised compared to 28 contract notices (worth £1,045,668,000) in the Apr-Jun quarter a year later. There were a further 57 notices published on the supply2health website, of which the majority were competitive tenders, although in some cases the purchasing method appears not to have been finalised. There is a wide range of opportunities to run services being advertised, from a £50m group of ambulance services in Exeter, including blue light, to an advert inviting competition to provide a package of care for a single patient in Corby. The range of services is also widening. As mentioned above last year the government asked PCTs to increase competition and patient choice by extending their use of AQP for commissioning. A list of thirty nine treatments and types of care was produced.

There is growing list of care types that are being commissioned through NHS competitive tenders. These contain some of the largest contracts and have attracted interest from large companies like Virgin and Serco. In Devon Virgin recently began a contract to run children’s health services after a legal challenge failed to prevent the contract going forward.Despite well publicised problems with outsourced contracts for GP out of hours in several areas involving Harmoni and Serco, five further contracts have been advertised in five new areas (East Midlands, Hackney, North East, Surrey and Sussex, Sutton). Our local City & Hackney doctors have worked for two years to put together a new not-for-profit social enterprise (City& Hackney Urgent Healthcare Social Enterprise – CHUHSE) , which involves City and Hackney doctors varying their contract in order to provide an Out of Hours service. In February 2013, a GP-led social enterprise in Hackney lost its bid to take  responsibility for out-of-hours care from private provider Harmoni, when the company’s contract expires on March 31. The service to be run by GPs had been intended to be be non-profit – i.e. local doctors are prepared to give up their evenings and weekends to ensure local people get the quality and continuity of service they need. However, Harmoni did not perform well elsewhere. In May 2013, it was reported that Care Quality Commission inspectors have found private company Harmoni in offence of running the out-of-hours (OOH) GP service for Hackney with so few doctors they are potentially placing patient’s safety at risk. The Care Quality Commission (CQC) had previously been reviewing staffing levels at Harmoni North Central London.The company admitted there had been no doctors based at Homerton Hospital on the evening of Easter Sunday, despite being contracted to provide a service when GP practices are closed. The CQC report has been published and concluded “there were not enough qualified, skilled and experienced staff to meet people’s needs”.

The way in which Labour had opened up the service, and brought in the “Tony Blair Dictum” is well known. The problem now is that there is an active competitive market, where there is no overall direction. Clinical Commissioning Groups are not GP-led in the majority, but followers of English policy know they were never intended to be. They were simply intended as state insurance schemes in the seminal ‘The Health of the Nations’ from the Adam Smith Institute. Recently, the following observations were made on May 19 2013:

“As only 22% of CCGs have a GP as accountable officer, there are those who believe that CCGs are simply management run organisations supported by a few enthusiastic GPs – PCTs in all but name.

Many of those working in CCGs would refute the suggestion, pointing to the fact that they are a membership organisation, and that the GPs are not supporters but the real engine of the CCG.

According to Wikipedia, ‘CCGs are clinically led groups that include all the GPs in their geographical area.  The aim of this is to give GPs and other clinicians the power to influence commissioning decisions for their patients’. But are CCGs really clinically led?

The number of management directors varies according to the size of the CCG.  Most (over three quarters) have a manager as Accountable Officer, and all have a Chief Financial Officer.  Larger CCGs may also have a management director for quality, for strategy or commissioning, even for contracting.  Where there is a director there is generally a management team, and so the risk is that much of the organisation can start to operate outside of the GPs’ control.”

Therefore, there is a good arguable case that “cutting up the NHS cake”, as first introduced by Thatcher and Major through its locking-in of PFI deals aka marketisation approach, regretfully advanced by Labour through continuation of the PFI approach and an addition of ‘independent sector treatment centres’ for good measure, and the Coalition’s continuation through advancing outsourcing with a view to final privatisation, does not necessarily benefit the patient. To provide balance, Andy Burnham has promised to repeal the Health and Social Care Act (2013), drive the competition arrangements into “reverse gear” in Part 3, and to introduce the ‘NHS preferred provider’.  The patient ultimately cannot be ethically called a ‘consumer’ as it is a rigged market, and half of the relevant information, at least, is not available. It is clearly not a ‘fair playing field’ as private healthcare providers are able to make profits for shareholders, do not contribute to the training of junior doctors or nurses in the NHS, are immune from judicial review, and are immune from freedom of information requests. “Cutting up the NHS cake” was an unnecessary shot in the foot in English health policy. But if it means that the result is that private providers ‘cherrypicks’ the most profitable services, leaving the NHS with the most expensive and clinically challenging cases, this could see the whole leg requiring amputation. Otherwise, the NHS will die of septic shock, through a toxic combination of the policies of the Conservative, Labour and Liberal Democrat Parties in the House of Commons and House of Lords over time.

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