Private companies’ involvement in the NHS

Private companies have had a growing presence in the NHS, initially through providing support services (such as catering, portering, laundry, IT or cleaning) and, more recently, clinical services (for example, GP services, diagnostic tests, surgery), and increasingly, consultancy firms. In addition, private companies are now becoming involved in the actual planning and procurement of NHS services (see, for example, Commissioning Support Units and Accountable Care Organisations). This page of the website mostly deals with private companies’ involvement in the provision of NHS clinical services.

Early privatisation

Private provision of NHS clinical services initially came about in a number of ways, including:

  • The introduction of Alternative Provider Medical Services (APMS) contracts in 2004, to encourage non-NHS suppliers to provide primary care services. This has led, for example, to the take over of some GP surgeries and out of hours services by private companies, such as Virgin or Serco (for more details see https://abetternhs.wordpress.com/2011/05/29/gps-and-private-businesses/).
  • The creation of ‘independent sector treatment centres’ (ISTCs) in 2005. These deliver a set number of elective or routine treatments, like cataract surgery, under contract. They are paid whether or not the number of treatments specified in the contract is delivered. (For implications of ISTCs, see http://www.lse.ac.uk/LSEHealthAndSocialCare/pdf/eurohealth/Vol16No3/Vaid.pdf );

Privatisation and the Health and Social Care Act (HSC Act) of 2012

Subsequently, the scale and pace of private companies’ involvement in the NHS accelerated rapidly following the Health and Social Care Act  of 2012 (HSC Act). The rules on competition introduced by the HSC Act were called ‘the motor of NHS privatisation’, and made it mandatory for commissioners (usually Clinical Commissioning Groups) to put services out to competitive tender if they could potentially be provided by organisations other than the NHS.

In 1989 only some mental health, surgical and pathology services were run by private companies. But after the introduction of the HSC Act, the list expanded to include GP surgeries and Out of Hours services; urgent care and minor injury units; diagnostic services including imaging; maternity care, elective (non-emergency) surgery; community nursing and a range of other community services such as physiotherapy; ambulance services; and prison health. Private companies also became involved in running entire hospitals, including A&E departments.

This means you may now find that your GP works for a company like Care UK. Tests that your GP orders on your behalf (like blood tests or scans) may be carried out by companies like In-health. If your GP refers you to hospital for surgery, this might be to a privately run centre with an NHS contract, or to an NHS hospital run by a company like Circle. On return home, if you are lucky enough to receive community care (e.g. district nursing), this may be provided by a private company commissioned by the NHS, such as Virgin Care.

Capita: a case study

In 2016, the outsourcing giant Capita was awarded a £330 million, seven-year contract to run primary care support services. Its bid included cutting support staff from 1,314 to 314, reducing the cost of the service by 69% (a saving of £60 million). This and other high risk strategies led to widespread failures, such as serious problems with patient record transfers, shortages of medical and other supplies, and delayed payments, loss of earnings and chaos for many GPs, dentists, opticians and pharmacists.

A report by the National Audit Office in 2018 identified failings on the part of NHSE (e.g. it had not understood primary care support services well enough to set contract targets; and basic principles were still not agreed more than two years into the contract), while Capita’s failings potentially put patients at risk (e.g. 87 women were incorrectly notified that they were no longer part of the cervical screening programme). The British Medical Association (BMA) has called for NHSE to bring primary care support services back in-house.

Privatisation and NHS Sustainability and Transformation Plans (STPs)

Following NHS England’s (NHSE) Five Year Forward View of 2014, the English NHS was divided  into 44 ‘footprints’. Each was subsequently required to develop a Sustainability and Transformation Plan (STP) to bring health and care services in the area together to   provide ‘place-based planning’.

Partly, but not only, because of lack of in-house expertise, STPs involved the significant involvement of private management consultants – so much so that some leaders said that STPs had ‘created an industry‘ for management consultants. There were even reports that those developing STPs were under pressure from bodies like NHSE to commission managing consultants.

Certainly there was a reluctance to evaluate the quality or impact of consultancy advice, perhaps because some of the same consultants had been promoted to management roles in government departments, and due to what’s been called a revolving door between the civil service and consultancy firms. However, recent analysis has looked at the relationship between the money spent on consulting services and the efficiency of NHS Trusts over time. This has found that, overall, consultancy use led to inefficiency, with consultants actually making the financial situation of their clients worse: while the average annual expenditure on consultants was found to be around £1.2 million per NHS Trust, the financial position of Trusts declined, on average, by £10,600 (i.e. over and above the money paid out on consultancy).

The growing extent of private company involvement 

Between April 2010 and April 2015,

  • 86% of contracts for pharmacy services were awarded to non-NHS providers
  • 83% of contracts for patient transport services were awarded to non-NHS providers
  • 76% of diagnostic services were awarded to non-NHS providers
  • 69% of GP/Out of Hours services were awarded to non-NHS providers
  • 45% or community health services were awarded to non-NHS providers
  • 25% of mental health services were awarded to non-NHS providers.

Spending on management consultants has also more than doubled, from £313 million in 2010 to £640 million in 2014.

In the financial year 2015/16, the private sector won contracts worth just over £2.1 billion for providing clinical services, compared to £2.7 billion won by the NHS and £955 million  by the not-for-profit sector.

In the year 2016/17, 267 (almost 70%) of the 386 clinical contracts put out to tender, worth £3.1 billion, went to the private sector. Of these, Virgin Care won contracts worth £1 billion. It now has over 400 separate contracts with the NHS. The same year, Care UK, which has links to the Conservative Party, gained the second biggest share of contracts (£596.3 million).

However, the growing extent of private provision is not obvious to patients because most of the companies contracted to provide NHS services are able to use the NHS logo, and may even do so without using their own.

Is the private sector more efficient?

One of the rationales for privatisation has been that the private sector is more efficient in running services. This has turned out to be something of a myth: a number of corporations have withdrawn from large contracts or had their contracts terminated due to serious problems. For example,

  • in 2012, the company Circle took over operational control of Hitchingbrooke Health Care NHS Trust – the first entire NHS hospital to be run by a private company. However, just two years into its 10 year contract, after £5 million loss and a highly critical report by the Care Quality Commission (CQC), Circle gave up its contract, citing a rising demands and cuts in NHS funding – the same challenges that NHS-run hospitals have to cope with.
  • In 2013 Serco ended its contract to provide out-of-hours GP care in Cornwall after staff falsified data about its performance.
  • In 2015, a £800 million contract for older peoples’ services was eventually awarded to UnitingCare by Cambridgeshire and Peterborough CCG after a tendering process costing over £1 million. Eight months into the contract, UnitingCare withdrew stating that the contract was not financially viable.
  • The private company running Hinchingbrook Hospital (Circle) cited financial reasons for pulling out of a 10 year contract in January 2015. This was just two years into the contract and just before a highly damning report from the Care Quality Commission on the hospital’s management and culture and the quality of care it provided.

Tax evasion

There are also concerns about whether or not private companies are avoiding paying tax on their profits. For example, Virgin Care pays no tax in the UK: it’s parent company is registered in the British Virgin Islands. In October 2016, BBC Midlands reported that 12 NHS GP practices and urgent care centres across the West Midlands were ultimately owned by Malling Health, a company based in a tax haven in the Bahamas. Malling Health exchanged bank loans with an interest rate of 4% for a loan at 20% interest with the owner of Bahamas-based Butterfly Ventures. The company says this arrangement is more flexible, but experts claim it’s a way of diverting money into a low tax area (see video report at https://www.facebook.com/midlandstoday/videos/10154587299074761/).

What’s the problem with private companies’ involvement?

In contrast to NHS providers, the first priority of private companies providing NHS care is to ensure a profit for their shareholders. The fear is that to extract this profit, private companies have to reduce the quality of patient care.

Private companies don’t get involved in the services that are expensive to deliver, such as the delivery of A&E care, Intensive Care services, or the care of patients with long-term or multiple needs. Instead they cherrypick, taking the more profitable services, like routine hip replacement, that NHS hospitals count on to help subsidise their more costly departments. In other words, there is a danger that when NHS services are contracted out to private companies, established NHS providers – even those providing core services like A&E –  may not survive.

Privatisation also means that co-operation and communication between different services is undermined, there can be little long term planning and, as care is increasingly fragmented between different providers, the loss of continuity of care for patients.

Once NHS services are outsourced to the private sector it may be difficult to reverse the process, particularly if trade agreements like TTIP are signed. The leading bidders for the Staffordshire contract for cancer and end of life care, for example, are all thought to be US private health companies. Under the investment protection measures that TTIP will probably include, a transnational corporation that wins an NHS contract will be able to sue the UK government for huge compensation if new government or local authority policies undermine the corporation’s future profits. The threat of such action will be a powerful deterrent to the reversal of privatisation.

Further information

For up to date information on the scale of private companies’ involvement in the NHS, see http://www.nhsforsale.info.

For more information on privatisation, see for example:

See also our section on “Turning the NHS into a market“.

Updated February 2018

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