Yesterday the UK government passed the Health and Social Care Bill, which institutes sweeping changes across the National Health Service (NHS) that some observers claim will see it completely transformed from its present form into a privatized health provider. Depending on who you ask, we are about to witness the dawning of a golden age in health gains for ordinary Britons, or the unravelling of Britain’s healthcare system with terrible consequences. Those of us who don’t currently depend on the NHS for our healthcare get to watch the fascinating spectacle of the world’s largest centralized healthcare system (and I think according to some reports the world’s largest single employer) being dismantled piecewise from the comfortable vantage point of our functioning universal healthcare systems (unless we’re American, of course – you guys just get to be jealous that the UK has a universal health system to dismantle).

The Health and Social Care Bill contains, in  my view, one of the most appalling pieces of healthcare reform that a human being can conceive of inflicting on an otherwise functioning system, but it also contains at least the seeds of some important reforms that are long overdue for the British system. The former is, of course, the ludicrous idea of “clinical commissioning,” in which about 60 billion pounds of NHS funding is to be taken away from area health services (called “Primary Care Trusts”) and given to family doctors, who are expected to form up into consortiums that will then determine what care gets funded with the money they’ve been given. The latter is the decision to split the health system into providers of care (hospitals and health care services), who offer services that then purchased by the NHS (or the afore-mentioned godforsaken GP commissioners). If it were possible to achive this latter reform successfully, the NHS would have been transformed so that it worked along lines similar to almost every other universal health care system in the world, and would also open the way for significant private investment in healthcare infrastructure in the UK. I’ll give some examples of how simple and profound that could be in this post.

What’s Wrong with the NHS

The biggest problem with healthcare in the UK – and the problem that governments on both sides don’t want to talk about – is that it is underfunded. The UK spends just under 10% of its GDP on healthcare, compared to between 11% and 17% for France and the USA[1]; before Labour’s reforms in the early 2000s, it spent closer to 8.5% on healthcare. You can’t expect modern health outcomes with this level of funding, though the NHS has shown that you can still do pretty well. The reason that this funding is so low is that the UK system is a centrally managed, entirely publicly-funded service, from which private providers have been excluded since its inception. With no ability to participate in the NHS, tax rates high, and the NHS goal to provide all services free at the point of care, private providers cannot make money and are left providing boutique services to the very rich. Hence, private investment in health is low. But it’s extremely difficult for the government to make up this shortfall – it’s likely doing so would require the government to increase spending on the NHS by potentially as much as 20% (to take it from the 9.5% of GDP it is now to the 11 or 12% other countries enjoy). Obviously such a funding boost is politically impossible, and so the NHS has languished.

Funding isn’t the only problem though. A centrally-managed organization of this size is inflexible, conservative and inefficient, and forcing efficiency gains from such a behemoth is extremely difficult. Centralized decision making forces diverse organizations in diverse regions that have individual priorities to commit to goals and priorities set nationally, and leads to the classic inefficiencies and inflexibility of a centrally-managed utopian institution. Other health systems leave much regional flexibility and priority-setting to be determined both at a local level and privately, and force at least some health organizations to respond to patient needs by going out of business if they can’t. Classic examples of this kind of inflexibility abound in the NHS: until recently patients didn’t have a choice of hospital, but had to go to one that was linked to the area in which they lived. You can’t shop around GPs (in theory) but need to “register” with a GP and visit only one – you can’t, e.g. have a different GP for sexual health needs vs. chronic disease management, which is pretty common in other countries. Furthermore, GPs can refuse to accept new patients if their list is full, and many GPs require you to register before you can attend for health care, which is inflexible. There is no incentive for GPs to invest in their own services, since they can refer patients to a hospital for almost every condition, and have a largely captive audience, so the UK has an abundance of one-doctor surgeries with archaic opening times. At least a portion of their renumeration is based on their list size, so there’s no incentive for new GPs to enter the market or to try and increase the amount of services they provide: their ideal business model (financially) is to have a large list of patients and very short working hours, and there’s no incentive for them to merge to form larger GP clinics that might, e.g., provide out of hours services. This all changed slowly under labour since the mid-90s, but GPs – the gatekeepers into the health system in the UK – are very highly paid for a very poor service model.

The hospital sector in the UK is also under-funded and subject to the kind of rigid service models one expects of a centrally-managed system. The outpatient system is over-burdened from the broken gatekeeper model, and many of the hospital systems are lacking investment and modern infrastructure. This is a throwback to years of underfunding but it’s also a consequence of current funding constraints: both recurrent costs and capital investment need to be funded from the government’s budget, but they can’t contract out e.g. pathology services that would be routinely privatized in other systems, so where much of this investment is done by private companies in Australia, in the UK it’s all part of that 9.5% of GDP. The system is plagued with waiting times and archaic technology and systems, and everyone is overworked.

Hospitals can’t consolidate or specialize, which is a key method of improving efficiency, quality and safety of care. We know that larger facilities tend to have lower death rates and better success rates, but to achieve such benefits hospitals need to shut down under-performing clinics or specialties and focus on a more limited range of services – and some hospitals need to shut altogether. But in the UK there is a direct relationship between the government and the hospital sector, so every time a hospital plans to close even a single ward you see protests aimed at the local member, followed by political blowback, taken up with gusto by the press (who love an NHS scandal). The government inevitably buckles, and under-performing or inefficient (and sometimes dangerous) smaller facilities can’t relocate or close. In fact, the whole system is vulnerable to political campaigns – on nurses’ or doctors’ pay, on hospital closures, or even on particular treatment methods – in a way that a more mixed model is not.  So it creaks along, unable to consolidate for modern efficiency gains, unable to reform its failing gatekeeper model, and unable to inject the capital required to modernize. Plus, even if it did inject the capital, much of it would be subjet to political debate and delays that would mean it was inefficiently used.

A Model Example: Privatization of General Practice

For these reasons, the system needs to be diversified and decoupled from the political pressures that currently constrain its operations, and doing so is inevitably going to mean privatization. There is no reason, for example, that the entire primary health system (that is, GPs) couldn’t be thrown entirely to the whims of the market, with GPs offered payment only on a fee-for-service basis and the market opened up to corporate investors. If the government did this, international health care companies would be in faster than greased lightning, setting up large, efficient and modern clinics with heavy capital investment, bringing in overseas doctors or buying in the local younger doctors, incorporating allied health care services and providing a huge injection of capital to the GP market overnight. Older, settled GPs would hate it because they would be drummed out of the market, but this is exactly what is needed – get rid of these little shoddy one man clinics operating 9-5 and no weekends, and replace them with large, bustling services that provide evening and weekend medical care, physiotherapy, dental care, public health nursing and rehabilitation under one roof. It would immediately take pressure off of hospitals and make healthcare far more easily available for the majority of the working population. These services are the norm in other developed nations but still held back in the UK by the lack of private investment or public vision.

The Political Mistakes in this Bill

With these ideas in mind, the government has started outsourcing NHS services, and the Guardian reports on a controversial example from Devon, possibly the first in the UK: privatization of children’s health services. These services will be purchased by the NHS, but provided by either Serco (a private prisons company) or Virgin Healthcare (a branch of Richard Branson’s Virgin empire). This is a classic insurer/provider split: the NHS collects insurance from everyone in the UK and then purchases health services from a private provider. Unfortunately, from what one can tell of the process in the article, it’s going to go down the classic British privatization pathway: give the contract to a single provider without a fee-for-service element and then hope they don’t cock it up. The NHS, with no expertise in contracting from private services, is going to be writing a 100 million pound contract with a famously predatory company like Serco or Virgin. And not just for any services, but for the most controversial possible service they can find: child protection. This isn’t just a political risk but a healthcare risk, because these services are far more complex than say, radiology or pathology services, and there are very few private contractors with any experience in them.

The linked article on children’s health services makes the people bidding for this contract seem like very reasonable people driven by a genuine desire to provide decent health care and an awareness of what is holding the NHS back. For example, the Serco spokesperson says:

It has to cut £20bn a year. It can’t invest, but we can invest to improve quality and generate efficiency. We have to bid to deliver at prices that are a lot lower than the NHS to win contracts and that gives the NHS more money to put into the NHS itself.

This is a good example of why efficiency gains are important. They don’t just benefit the profits of the insurance company doing the purchasing, but also the health of all members of the plan, since they enable the insurance company to fund a greater number of services, and/or to extend its funds to new services. Unfortunately the Conservatives aren’t selling these points, but are instead talking up the need to save money.

Ideally, the privatization program the Tories are running would start with something simple – pathology or radiology services, or a small rural hospital – and be trialled over several years before being introduced nationally, and the most complex and controversial services (large teaching hospitals, prison healthcare, children’s services) would be privatized last or not at all. Lessons learnt in the initial small trials would be incorporated into the bigger privatization program, and where things failed they would be kept in public hands until better privatization methods could be trialled. Also, the system wouldn’t be privatized in a one-contract-per-service method as is shown here, especially not in rural areas where locals can’t easily choose another service not being provided by the sole contractor. Rather, services would be offered competitively to the lowest bidder, thus allowing the NHS itself to compete. The risk with solo contracts such as planned here are that they don’t actually exert a competitive pressure on the provider – they’re only as competitive as the tendering process. Patients as well as commissioners should have the ability to shop around.

Unfortunately, the Tories seem to have decided to push forward recklessly, implementing clinical commissioning and hospital privatization at the same time. There’s a risk of chaos, poor contract management, and cost overruns or service failures without any significant benefits to patients, at least in the short term.

The Most Likely Outcomes

The privatization of children’s services in Devon is a good example of the radicalism underlying the Conservative Party’s agenda on this topic: they don’t want to see a gradual unravelling of the NHS, starting with the easiest services and building up, and instead want to sell off the most complex bits while simultaneously managing the mish-mash of clinical commissioning, and cutting funding to the NHS by something like 20billion pounds over 5 years. The obvious result is going to be a 5 year torrent of bad news stories, and the public perception that health system privatization is both a kooky agenda (tainted by the confusion and chaos that clinical commissioning will bring) and driven only by the need to cut costs, rather than the very real need to improve the NHS. Thus, when the Conservatives finally lose power, the privatization agenda will be inevitably linked with their other policy radicalism and the agenda of “the cuts” (oh how I hate that term), and the chance to reform the NHS so that it actually works will be lost.

Furthermore, the Tories aren’t actually testing a health system reform that has any pedigree. A single payer insurer offering fixed payments on a fee for service basis to primarily private providers has been tried and tested in the USA (Medicare) and Japan (kokumin hoken). A weird system of ordinary family doctors holding millions of dollars in health system funding and using it to contract services from private providers on a block funding basis – that is unheard of in modern health systems. Why test it?

Mistaken Ideas About Health Inequality

Much of the debate about healthcare in the UK still revolves around this issue of central planning versus US-style free market models. In February the shadow (Labour) spokesperson on health, Andy Burnham, penned a piece for the Guardian in which he criticized privatization. There he claimed:

In the US system, for instance, it is possible to find some of the world’s most advanced and innovative examples of care. But, alongside it, we find very poor or non-existent care. The question we must ask is not which system produces the best individual examples of treatment, but rather which is best for everyone. On this test, the centrally planned NHS wins hands down.

This is a completely unreasonable comparison. The US has “poor or non-existent care” because it doesn’t have universal health care. The US could do away with this problem tomorrow by nationalizing all the insurance companies, forming one national insurance company funded by taxation, and then funding all medical care on a strictly fee for service basis. The system would be completely unplanned, with no government hospitals involved, but it would be pretty likely to eliminate “non-existent care” overnight, since all Americans would be eligible for care. Burnham also claims the NHS

provides the precious ability to set standards and entitlements to services at a national level. Market-based health systems do not afford a similar ability to control costs at national level, and allocate resources in a fair and consistent way.

But this is also not true. The government, providing all funds for purchasing health care services, can decide exactly how much it will pay, and provide it is not stupid or unrealistic, it is likely that the private sector will fall into line (we’re talking about 100 billion pounds a year of essential services here – people will be shoving into line to get a piece of that). Similarly, the USA has the ability to “set standards and entitlements” even now – for example, it’s very hard for a US health insurance company to refuse someone a policy because they’re black. The problem in the US is that the government won’t set those standards well enough, and by refusing to provide a universal health coverage model, has lost the ability to compete financially in this market place or to control it through its own considerable financial muscle. There have been many models proposed that would reform much of the US healthcare market without making it centrally planned, and would improve both its equality and its ability to contain costs – and in fact some private US organizations (especially HMOs) are famous for good cost containment. The tragedy of the US political system is that many of the education proposals coming from moderate republicans – voucher systems and the like – would significantly reduce health inequality if adapted to the health market, yet even relatively rational and minimal reform plans that would otherwise be favourable to their right wing are rejected out of hand because they involve “government intervention in medical care.”

The problem in the UK is that this debate about access to care has been framed as a debate between the NHS and the US system for so long that even experts and well-intentioned politicians with a strong understanding of the system (like Burnham) have fallen into it. But the reality is that centrally planned systems don’t necessarily reduce inequality. This is because inequality is not purely a function of inability to afford healthcare: it arises from the interaction between individuals and systems, the design of systems, and the inevitability of resource constraints. Wherever resources are restricted one finds that the wealthy, the educated and the powerful are better able to seize more of these resources, or seize them sooner (an important consideration in health systems). For example, in 2010 I showed that poor and older people tend to receive less referrals or take longer to be referred for a wide range of conditions within the NHS – this despite the fact that the NHS is free to all. This is because the referral system is a type of resource management system, and for reasons we don’t entirely understand, the wealthy and the educated are better able to negotiate any such system. So central planning doesn’t solve these problems, though the way the NHS is constructed makes these problems less life threatening than they would be in, say, the USA (where many of the people whose health outcomes I studied would simply not have access to health care at all).

Another reason that centrally planned systems don’t necessarily reduce inequality better than other systems is that health inequality is caused by factors outside the health system. It is, simply, a function of inequality, and there’s only so much that even the best health systems can do to reduce the effect of problems created in broader society. The UK is a very unequal society, and the NHS has to deal with the human consequences of that. The goal of health planners concerned about inequality is to find the best system to provide good healthcare to everyone that will also reduce inequality. Balancing these two goals in a resource-constrained setting is difficult, and I see no a priori justification for the idea that central planning is always the best way to do this.

Some Theories About Modern Healthcare Systems

Once the NHS and the US’s overly private system are done away with the world will essentially be left with a range of mixed-market models, largely based on the idea of a central universal insurance provider and a partially- or completely- privatized marketplace of service providers. Some, like Canada and Australia, will tend to be more heavily publicly run than others, like Japan or Germany. There will be a few unique hold outs, like China, Cuba and Switzerland, but largely the ideal form of health provider will have been settled. This decade the WHO is focusing on universal healthcare as a central policy theme, and the goal will then be to expand models like Japan’s to encompass the developing world – a pressing problem given the resource constraints there. There is no place in health policy for a purely market-based model and, as far as I can see, there is equally no place for a fully centrally managed model. The debate now is about how to extend the most functional mixed-market models to the rest of the world (including China and India) as a development goal, and how to resolve pressing issues of cost containment in the developed world.

Given this settled state of policy, it seems now to me that there are some central lessons that have been learnt since the expansion of universal care systems across the developed world over the past 100 years:

  • Governments and markets can’t go it alone: models based entirely on one sector running the whole show don’t work, because health systems are enormously complex, requiring market-based flexibility and government intervention to prevent market failure and enforce standards and access
  • Cost containment, universal access, and timely access are hard to balance: Most health systems can’t manage all three of these at once. The USA has managed timely access but not cost containment or universality; the UK has managed two of the three; Japan, Germany and France have probably got all three down but Germany is heading into financial trouble and Japan has inherited a unique set of social factors (a very healthy population and a very equitable society). This trio of goals for modern health systems are going to become harder and harder to balance as populations age and more expensive health care is developed
  • You can’t fix inequality just by throwing money at it: obviously achieving universal care is an important part of reducing inequality, but that’s not the end of it. How your system functions and how people interact with it is important in determining where inequality arises and how well it is reduced. A complex system with non-financial resource constraints (like the NHS) can create or perpetuate inequality even though on paper everyone has access to care
  • Centrally planned systems don’t solve inequality: Central planning can be an attractive way to reduce inequality, but it doesn’t necessarily work that way. In health systems, inefficiencies or inequities in one area inevitably produce problems and workarounds elsewhere, and centrally planned systems may be able to stamp out some inefficiencies or inequities, but they don’t necessarily have the capability to react to (or even notice) the problems their solutions create
  • Muddled political visions produce muddled outcomes: They may claim to be friends of the NHS but the Tory political program in health is not just about improving the NHS. They also want to cut costs (to the government), and they want to reduce government interference. I think they also have an ideological goal of increasing the role of the private sector in healthcare, and I don’t think this view arises purely from a belief that this will make the system better – they have an ideological commitment to reducing the size and role of government. This muddled goal will produce a partially privatized system that doesn’t work because it wasn’t privatized with the goal of improving the system. Similarly, the Labour party may be friends of the NHS but they also had a goal of privatization with the intention of improving services, but they couldn’t separate that practical plan from their commitment to a centrally planned and government run NHS. The result was a series of aborted privatization plans that satisfied no one.

Health systems planning is where ideologies go to die, and the NHS is the classic example of this. It has long since proven that the centrally planned, socialized system envisaged in 1948 is insufficient to the long term management of a health system, but subsequent interventions to improve it have been hampered by ideology and have inevitably failed when they meet reality. The latest attempt by the Tories, though it has some good qualities and has the potential to take the NHS in a good direction, is highly likely to meet the same fate. If they do fail the rapidity of the changes, their timing and their entanglement with the Tory cost-cutting agenda could permanently damage the idea of introducing a mixed market system to the NHS, setting back much-needed reforms for a whole generation. This will leave the British people very poorly served by their health system, and continuing to fall behind the rest of the OECD in health outcomes. It will be sad indeed if the country that introduced the modern, free health service is overtaken by even the post-Obamacare USA as a model for health service provision.

fn1: These figures taken roughly from the Commonwealth Fund’s annual report on health care comparisons between the UK, Germany, Netherlands, NZ, Australia and USA.