Turning the NHS into a market

 Previously …. 

Over the past 30 years or so, different governments have introduced measures to open up the NHS to market forces and competition (‘marketisation’). Examples include:

  • The introduction of ‘general management’ in 1984.  This brought in a new layer of managers trained in business methods and thinking of patients as ‘customers’;
  • the contracting out of ancillary services (such as hospital cleaning) to private companies in the 1980s;
  • the creation in the 1990s of an ‘internal market’ in which the NHS was divided into those who provided services (e.g. hospitals) and those who purchased services from them: NHS hospitals and other service providers now had to generate their own income and compete for business;
  • the introduction of Independent Sector Treatment Centres in 2003, where privately owned organisations, paid by the NHS, could provide elective (i.e. planned) treatments specifically for NHS patients. This was the first example of the private sector competing to provide the clinical care of NHS patients;
  • The policy of ‘Any Willing Provider’, introduced in 2008, using patient choice to promote competition between service providers and hopefully drive up standards of care. Initially just for a limited number of services, AWP gave patients requiring routine treatment a choice between any NHS or independent sector provider (on the condition that the provider was registered with the Care Quality Commission and provided care at agreed NHS prices).

The role of the Health and Social Care Act (2012) 

The Health and Social Care (HSC) Act, brought in by the Coalition government in 2012, and enacted in 2013, changed things substantially. It created a competitive market for health services in which the government still provides the funding but no longer has responsibility for providing comprehensive healthcare.

Under the HSC Act, Any Willing Providers (AWPs) became renamed as Any Qualified Providers (QPs), some say to downplay the extent that this initiative opened up the NHS to the private sector. However, there’s no real difference between AWPs and AQPs – rather, it’s the context that changed.

The most crucial part of the HSC Act for marketising the NHS is Section 75, dealing with commissioning services, patient choice and competition. Section 75 turned the NHS from a predominantly internal market (in which the NHS was the ‘preferred provider’ of services) into a full market (in which it is not). All contracts for NHS services worth over £156K have to be put out to competitive tender, with no regard to planning for need: the only exception to having to tender services has been if commissioners can prove there is only one provider capable of delivering them – something that is almost impossible to prove without going through the tendering process! By 2018, over 60% of contracts are being won by non-NHS bodies.

The HSC Act, and specifically Section 75, changed the NHS from a social to an economic activity and, as a result, it became subject for the first time to legislation such as European competition law. Now it is competition law (and not, as promised, local decision-making by patients and clinicians) that largely determines the kind of health services we receive.

Section 75 requires that commissioners of health services treat all potential providers equally and in a non-discriminatory way, showing, for example, no preference for a bidder’s nationality, status or geographical location. This has not only opened up the NHS to the market but also to the constant threat of litigation – both from within the UK and beyond. This state of affairs becomes irreversible if the Transatlantic Trade and Investment Partnership (TTIP) is agreed, and the NHS not excluded from the treaty.

But the prohibition on discrimination only seems to work one way and that, for the NHS itself, the NHS market is not a level playing field:

Example 1: The NHS Choices website shows patients all the hospitals in their area, including private hospitals, that they can choose to go to for NHS treatment. However, while patients can find out about the safety record of NHS hospitals, for reasons of commercial confidentiality, only minimal information is available about private hospitals. For more details see https://www.opendemocracy.net/ournhs/colin-leys/why-do-private-hospitals-want-to-hide-their-patient-safety-records.

Example 2: Unlike NHS services, private companies that have won contracts to provide NHS care can recover the 20% VAT they pay on purchasing drugs. This gives private companies an unfair advantage as they can undercut NHS providers when competing for contracts.

Interestingly, the most recent plans for restructuring the NHS  include a requirement for experimental ‘models of care’ that provide new opportunities for private companies to plan and provide NHS services in ways that seem to disregard competition law (see the Five Year Forward View).

 Ensuring competition

Ensuring competition – or, preventing ‘anti-competitive behavior’ – is one of the duties of NHS Improvement or NHSI (perviously known as Monitor). A public body at arms length to the Department of Health, NHSI is charged with promoting economic, efficient and effective NHS-funded health services. It licenses and regulates health care providers (both public and private) and authorises NHS Foundation Trusts. NHSI is also responsible for the provision, pricing and procurement of NHS services.

Gauging what might or might not be anti-competitive behavior is not easy. For example, Bournemouth and Poole hospitals – both NHS Foundation Trusts – planned to merge, largely to ensure that some specialist services remained sustainable. However, Monitor (as it was then), together with the Office of Fair Trading, stopped this merger on the grounds that it eliminated competition and choice, despite the fact that there was no other competitor in sight.

Competition and patient choice 

‘Patient choice’ didn’t feature strongly in government policy until the NHS began to be marketised: as Andrew Lansley (the Secretary of State for Health who introduced the HSC Act) said, “Of course, patient choice implies competition”. The argument often given for introducing patient choice is that if patients have the freedom to choose between services – to vote with their feet – that this will drive up the quality of care.

However, there is no conclusive evidence that promoting ‘patient choice’ has made health services more responsive to patients – or even more competitive. On the other hand, there is evidence that ‘patient choice’ may lead to unequal access to health services due to pre-existing inequalities in income, class and so on: in other words, that not all patients can exercise choice in equal measure – patients may value greater support in making health care decisions rather than more choice between providers http://chpi.org.uk/wp-content/uploads/2014/03/What-market-based-patient-choice-cant-do-for-the-NHS-CHPI.pdf.

In addition, in the context of the HSC Act and the marketisation of the NHS, the term ‘patient choice’ does not seem to mean what we might think – i.e. that it’s about the importance of the patient’s perspective or that being able to exercise choice is central to patients’ dignity and autonomy. Instead patient choice is being used as a tool for quality improvement and cost containment. (https://abetternhs.wordpress.com/2011/09/29/point/).

And finally, there is evidence to show that patients are more concerned about retaining the NHS as a public and universal health system than having a choice of who provides their care. http://chpi.org.uk/wp-content/uploads/2014/03/What-market-based-patient-choice-cant-do-for-the-NHS-CHPI.pdf

 The costs of turning the NHS into a market 

It’s been argued by those in favour of privatisation that the private sector is more efficient than the NHS in providing services. There is little evidence for this. For example, research shows that outsourcing cleaning services to private companies may, at first sight, mean lower economic costs, but can also mean fewer cleaning staff per hospital bed and higher rates of infections like MRSA (leading, in turn, to extra costs for treating hospital-aquired infection) – see http://www.sciencedirect.com/science/article/pii/S0277953616306864.

There is also no evidence to show that turning the NHS into a market addresses any of the NHS’s real needs or problems, such as the increased number of elderly patients with complex needs, or the rise in diabetes.  Instead, having to purchase services through competitive markets introduces ‘transaction costs’ (such as advertising, legal advice on competitive tendering, monitoring contracts etc) for NHS commissioners that they would not otherwise have to face, and that divert vital funding from patient care.

Similarly, NHS service providers face huge costs as a result of having to operate through the market. For instance, one NHS provider spent £2 million just on drawing up a single bid, which it did not win. While private providers eager to enter the NHS market face similar costs, in contrast to NHS providers, they can use money from their existing profits to employ specialist staff and resources to develop numerous, well prepared bids.

Estimates of the extra costs arising from ‘marketisation’ are difficult to calculate but have been estimated as between £4.5 billion and £10 billion a year   – or enough to pay for either ten specialist hospitals; 174,798 extra nurses; 42,413 extra GPs; or 39,473,684 extra patient visits to A&E.

According to a House of Commons Health Select Committee report, before the NHS was run as a market, 5% of the NHS budget was spent on management and administrative costs. Research carried out on behalf of the Department of Health (but not published) has estimated that, after turning the NHS into a market, these costs rose to 14% of its budget each year (http://www.theguardian.com/society/2010/mar/30/nhs-management-costs-spending)

What other effects does competition have? 

A review of academic studies by the New Economics Foundation – a leading think tank promoting social economic and environmental justice – found that there is no sound evidence to support the claim that competition can improve efficiency and quality of care in the NHS. Instead, they find that a market in health care:

Hospital Trusts began outsourcing support services like cleaning, catering or laundry before the HSC Act (2012) but the Act made it compulsory. It was also argued that outsourcing would cut costs. Given that private companies tendering to supply support services had to make a profit while undercutting the cost of traditional, in-house provision, it is perhaps no surprise that outsourcing became linked to poorer wages and terms of employment for staff and poorer standards of service such as standards of cleanliness.  For example, data collected from 126 NHS Trusts during the period 2010-2014 shows that those Trusts that outsourced their cleaning services reported significantly higher rates of MRSA infection. MRSA is a type of infection that is resistant to many antibiotics. It can cause considerable distress to patients and prolong their stay in hospital. It can also have an impact on waiting times for other patients, reduce the availability of NHS resources and cause sickness and absence in staff. So while outsourcing may appear at face value to be the cheapest option, when the full costs are taken into account, it may prove to be a false economy (https://www.opendemocracy.net/ournhs/you-get-what-you-pay-for-landmark-study-exposes-nhs-privatisation-risks).

Research by the Centre for Health and the Public Interest has looked at social care in England as an example of what happens to quality of care and other issues when competition is used to reduce the costs of care in a publicly funded system. They found that

  •  the growth in private sector involvement was rapid;
  • competition introduced an incentive to keep costs down, and so drive down the quality of care;
  • there were pressures to reduce pay, reduce training while encouraging staff to take on more complex task; and
  • providers could go out of business, with serious implications for patients.

While the experience of markets in social care can’t necessarily be directly applied to the NHS, they do raise important questions about what the introduction of competition will do to the NHS (http://chpi.org.uk/wp-content/uploads/2013/10/CHPI-Lessons-from-the-social-care-market-October-2013.pdf )

 Problems associated with contracting with the private sector

Six years after implementation of the Health and Social Care Act, despite the mantra espoused by a succession of governments that the commercial sector is more efficient, private companies’ involvement in public services is creating growing concern.

An increasing number of companies are pulling out of contracts when they find it more difficult than expected to fulfil the contracts’ requirements and find that the contracts are less profitable than expected. The website nhfsforsale.com shows the range of services affected by contract failure, including ambulance services, back office functions, GP practices, Out of Hours services, community services and hospital services (like Circle running Hinchingbrooke Hospital, and Serco running Braintree Hospital).

The Smith Institute has published a timely report on out-sourcing. Among its key findings:

  •  Outsourcing is big business, worth up to £100bn a year, or around a half of total government spending on goods and services. Servicing PFI deals costs £10bn a year, with a further £95bn yet to pay.
  • Private sector involvement is heaviest in IT, construction, waste management, building maintenance, social care and defence but also includes services like ambulances, diabetes care, and blood testing, for example. Many schools and hospitals are locked into PFI deals, where catering and cleaning and IT have to be supplied by nominated companies.
  • Problems with outsourcing are becoming increasingly clear. Some contractors are in commercial trouble. PFI is now recognised as the costliest form of contracting, and not just because of exorbitant finance charges but also due to the rigidity and expense of the services element.
  • Outsourcing has weakened employees’ bargaining rights, cut productivity, and robbed public service of vital morale and vocational dimensions. Paying contract staff less than a living wage in order to win a competitive bid has dire social consequences.
  • Outsourcing has increased fragmentation of services when serious complex issues require joined up responses.
  • Contracts are being extended without proper consideration because Whitehall is consumed by Brexit.
  • Accountability is lacking: often taxpayers and service users are unaware of who is providing their services; where to complain; and whom to hold to account. Democratic oversight and control has been diminished.

NHS For Sale additionally finds outsourcing the NHS is linked to cuts in services, cost-cutting, a decline in the quality of care, and conflicts of interest (for instance, an investigation by the BMJ and The Times into England’s CCGs shows that many CCGs are commissioning from private sector organisations in which their own board members have an involvement).

There is also concern that several private companies with NHS contracts are financially insecure. In 2018 the NHS had to set up emergency contingency plans when Carillion – a giant outsourcing corporation involved in a number of PFI contracts and provided a range of services such as new building work,  maintenance, catering, portering and cleaning – went into compulsory liquidation. A second corporation, Capita, that also has significant contracts with the NHS, also appears to be struggling. Capita is one of eight organisations accredited by NHS England (NHSE) to deliver support services to CCGs and other commissioners of health and social care services. It’s infamous for what NHSE has described as an “unacceptable level of performance” in fulfilling a £700 million contract to provide back-up services for GP practices,  leading to shortages in basic equipment and delays in the transfer of medical notes. Despite this, Capita will be involved in the development of at least one Accountable Care Organisation. 


For a detailed explanation of why markets fail in healthcare, and why a market-based health system, despite its failings and the dangers it poses to the NHS, is still being promoted, see http://www.keepournhspublic.com/pdf/MARKET_FAILURE.pdf
For a discussion of how the introduction of markets and competition not only makes the NHS more expensive and less efficient but also dehumanises us all, see http://www.keepournhspublic.com/pdf/JTarticle.pdf.
For information on the costs of the market for the NHS, see https://www.opendemocracy.net/ournhs/caroline-molloy/billions-of-wasted-nhs-cash-noone-wants-to-mention
Updated February 2018

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