Continuing my series of ideas to reform the NHS, for this post I will consider a minimalist reform that aims to increase private investment and spending in the health sector without significantly disrupting the current form of the NHS. Mindful of the problems of central planning for resource allocation in health, this reform idea will introduce some mechanisms to allow increased flexibility in the public sector. It’s worth noting though that the last two governments (Labour and Conservative) have attempted to introduce flexibility into the public system through fictional markets, competitive budgets and the like, but these methods haven’t worked. Part of the reason for this is simple institutional inertia – the NHS is huge and has a 60 year history and its own culture, that won’t change quickly – but part of it is also due to the political sensitivity of the health sector, and the inability of the NHS to separate simple, practical decisions on how best to run the system from the political sensitivities of its political masters.

The reform plan I’m describing here doesn’t necessarily depend on a shift to fee-for-service payments, but it is considerably easier to manage if this does happen, so I’m going to wave my magic bloggers wand and assume that this happened. I’m also going to leave out all discussion of minimal privatization within the public system (of things like pathology services) because they’re irrelevant to the central model, but they could certainly be included. We also won’t look at the primary care sector, which is a desperate pit of trouble that deserves its own post, though in this one we’ll set up some institutions that might serve as competition to the current moribund GP model.

Introduction

This minimal reform model aims to achieve three key goals:

  • Increase private funding of the hospital sector without damaging the ability of the public sector to provide free, accessible care for all
  • Widen the range of service providers in the hospital sector (both public and private) to enable the sector as a whole to respond to health problems more flexibly than it does now
  • Make the public sector less vulnerable to political interference and more flexible

We will do this through allowing the establishment of private hospitals that provide care on a fee-for-service basis, having the government and private providers set up new, flexible specialist surgical centres and turning all hospitals into “Foundation Trusts” partially independent of the government, funded on a fixed and legislated basis (so free of political interference) and capable of responding flexibly to changes in the overall health market. The easiest way to do this is to introduce a fee-for-service funding system, but a system of contractual funding agreements wouldn’t necessarily hinder these reforms.

Increasing public hospital flexibility

One of Labour’s better ideas in this regard, transforming better performing hospitals into “Foundation Trusts” that were partially independent of the NHS with more financial flexibility, was a good one, though probably of limited effectiveness. I think now the Tories are extending this to all hospitals, so that on paper at least the hospitals are semi-independent of government and have more flexibility over their decisions. This model is supposed to enable the hospitals to make financial and governance decisions independently of political interference, potentially including contracting out some services to the private sector and reorganizing clinical services to be more efficient. I think they can be re-nationalized by the government if they fail to meet certain financial and healthcare standards, primarily to prevent market failure. The unfortunate side-effect of this re-nationalizability  is that the government can intervene where hospital decisions are politically inconvenient, but obviously this intervention is a significant political decision and carries its own political risks, so should reduce the inclination of governments to interfere in all but the very largest of decisions. The Tories have already introduced a system to Foundation Trusts to set up private wings, aimed initially at health tourism, as a way of making more money – a policy I said previously won’t work in isolation to solve the NHS’s problems. But if these hospitals are given this flexibility in conjunction with some additional government investment in new types of facilities, and the entrance of fully competitive private hospitals in a fee-for-service competition with public hospitals for extra money, then significant additional investment and structural reform can begin to take place.

Allowing hospitals to be flexible means allowing them to be able to close some services and expand others. Consider two hospitals, A and B, located relatively close to each other in a city like Manchester. Hospital A has a large hand surgery specialty clinic, incorporating a large number of surgeons, grand rounds, a research facility, extensive links with academia and a teaching role; Hospital B has a small orthopaedic clinic that occasionally attends to hand surgery in amongst its other functions. Almost certainly, Hospital A will have better surgical outcomes (less cock-ups) and much lower rates of readmission and corrective surgery; it’s also likely to have much better rehabilitation services and post-surgical management. It likely also provides each surgical service at a lower cost than Hospital B, due to economies of scale and efficiencies from its more experienced staff. So the logical decision is for Hospital B to close its hand surgery operations altogether, and simply send them all to Hospital A. If both hospitals are being paid the same fee for every surgical service, it’s likely that B is making a loss on these services while A is making a profit – potentially a large enough profit to pay the transport fees to the patients and/or a finder’s fee to Hospital B. In this case it’s rational to close them, unless there is some strong reason why patients can’t make it to A if they live near B (unlikely in the modern world, and especially unlikely if the local hospitals have the flexibility to arrange patient transport networks). Currently these kinds of closures and rationalizations are hard to achieve, because as soon as the local newspaper gets wind of the closure of a clinic (let alone a whole struggling hospital or wing!) they run a vocal campaign against the local member, and often get their way. But by converting all hospitals into robustly independent Foundation Trusts these decisions are removed from government interference to at least some extent.

Government investment in new types of facility

One type of simple reform that was introduced to me by a hospital performance director in the UK was of shared specialty rooms. The performance director told me that his hospital and a few neighbouring hospitals were all facing a problem getting in a certain type of specialist (cardiology, I think). For these specialists to be employed by a hospital, they typically need to have a mixture of surgical and consulting work – so they want to have a full-time work load structured around a mixture of non-surgical and surgical work. But my interlocutor’s hospital didn’t have sufficient demand to justify such a clinic full time, so their specialist was under-worked and overpaid – or they had to make a decision not to employ one. The neighbouring hospitals had the same problem, and they had a vision of setting up a shared specialist facility, funded by all the hospitals but set up either in one of them or central to all of them, in a new building. Unfortunately they didn’t have any ability to do this – as public hospitals they couldn’t invest in such a facility, and with no private entrants in the market they couldn’t do it. Thus they had to either go without a specialist, or waste money on a specialist, in this one discipline. Foundation Trusts with suitable powers would be able to get around this problem by consolidation, closure and mergers; there’s no reason why they couldn’t cooperate with each other for maximum benefit, since they aren’t actually competing per se. But another option for these trusts is to invest in a new facility, or to petition the government to fund the establishment of such a facility.

So, another part of the solution to the NHS’s current problems is the establishment of new types of facility, specialist centres serving multiple hospitals on specific disciplines. Another type of facility the NHS has been trialling is a type of private provider that takes up excess demand in high volume, low-risk surgery like cataract surgery. The government could fund the establishment of such centres to serve the needs of busy and overburdened Foundation Trusts, who could then close their own wards and theatres devoted to these specialties and focus on their core service areas. These smaller, clinical facilities would be somewhere between an outpatient centre, an inpatient facility, and a GP clinic, and would be quite easy to target at areas of need. For example in areas with a high burden of diabetes-related illness the government could set up a diabetes specialist clinic that provided GP services trained in diabetes specialties; minor surgical procedures related to diabetes; community nursing aimed at improving testing and dietary changes; and surgical facilities for handling common complaints related to diabetes (such as eye problems and possibly even some kinds of serious internal surgery). Then nearby hospitals would be free to give up some of these procedures, or handle only the most serious ones as part of their specialist services, referring all the minor stuff directly to the local facility.

In essence this means the government spending more money on the NHS, but doing so through investment in new facilities specifically aimed at enabling existing facilities to rationalize and become more efficient – this is a combination of capacity expansion and efficiency gains in a fairly easily identifiable package. Governments often talk about “efficiency gains” in the NHS as a magical cure for all the problems facing it, but these efficiency gains almost never materialize because they’re built around making existing staff work harder. In a system as resource-constrained as the NHS, putting your finger on a bulge in one part will just produce a lump somewhere else. A better idea is to invest in new facilities that will enable existing hospitals to cast off the things they don’t do well and focus on what they do do well.

These facilities could, however, be even more flexible – as could the Foundation Trusts themselves – if they were able to incorporate a private element of their funding. This is the third arm of the reform – to allow additional flexibility by allowing some private services on top of the existing structure of the NHS, either competing with it or topping it up.

Allowing private investment

There are two types of private investment that could be allowed into the NHS without significantly changing its remit. The first is to allow private hospitals to enter the market to compete with public hospitals on certain services, especially high-volume, low-risk services with long waiting times. The second is to allow full-fee-paying hospitals to take patients from the NHS and charge them directly. Both types of facility introduce private investment into the NHS, but for very different purposes.

The first of these exist now, and are used by the NHS to handle their waiting list problems. For some simple surgery (like cataract surgery) when someone’s waiting time for the surgery goes beyond 3 months, the NHS pays for them to be treated at a specially established private facility. These clinics typically handle things like cataract surgery that are in very high demand and easily handled. These clinics exist now, and could easily be allowed to expand and compete directly with NHS hospitals for all patients on a fee-for-service basis. If they can provide a better service than neighbouring hospitals, then those hospitals might be able to close their cataract surgery wards and focus on something else that they do better – or contract them out to the private facility, thus gaining income they can spend on other things. Foundation Trusts might even want to invest in setting up such facilities themselves, pooling the cost with neighbouring hospitals so that they can cast off their own high-demand services to a single specialist clinic. In such a case they might need to petition the government for support, but they could probably also just get investment from a private provider of some kind – not in a flawed private finance initiative, but in a straight out for-profit business plan. Because the Foundation Trusts are not for-profit services, any profit they make from this new service will be ploughed back into their own investment programs.

The second type of facility is more controversial, because it means splitting the NHS into a private-for-profit and a public section. The NHS could allow private health providers to establish new hospitals or facilities, that provide a range of services at a cost above the NHS tariff. Patients can choose to enter these hospitals instead of the NHS hospitals, but the NHS will only pay for the standard tariff portion of their service. The rest comes from their own pocket or from a health insurance program. Essentially, this allows private investment in the NHS, but prevents the private costs from blowing out so much that no one can afford the care. The advantage of this is that it relieves the physical pressure on the existing hospitals that leads to waiting times, enabling wealthier people to essentially jump the queue through private health insurance, but by allowing the NHS to pay some basic part of the service it extends this queue-jumping option beyond the realms of the super-rich, the only class of people who can currently afford private insurance covering full hospital care in the UK. Because people are already paying through their taxes for public care they won’t also pay for private insurance unless it is very cheap – and the best way to make it cheap is to make the costs it covers a top-up on the basic tariff, rather than the whole cost of hospital attendance. Of course the NHS could refuse to pay the whole tariff to private providers – so a private hospital patient receives, say, 80% of the NHS tariff and pays the rest plus the hospital’s additional private fee out of their own pocket.

It’s possible that Foundation Trusts would be the first organizations to establish such private facilities, so that they could take advantage of excess demand for certain common procedures and turn the money back into their own services. But it would also be possible for private companies to build these facilities. I imagine that this would take a long time and build up from very humble beginnings – a cataract surgery here, a hand clinic there – but over the long-term it would bring much needed funding into the system, as well as a small amount of private spending. Essentially it would enable the NHS to increase the volume of services it provides without a concomitant cost to the government. This partially tariff-subsidized model of private care is essentially what the Australian primary care system works on, and it seems to work well to both keep down costs and expand capacity – exactly what the NHS needs.

Effects on Inequality

The system described here wouldn’t fundamentally change the patient experience in any way, except to increase hospital choice, but it would lead to some mild increases in government costs – short term investment in small facilities and long term increases in services paid for. But it would lead to increased private funding and expenditure, and potentially the competition over services would enable the government to reduce the unit-cost of those services, leading to overall efficiency gains and long-term cost reductions. I think it would also have potential benefits in reducing inequality. For example, the diabetes clinic example would likely be implemented in areas of highest demand for diabetes services. In the UK, this demand is in primarily poor areas with large South Asian or black Caribbean minority populations, which suffer an unnecessarily high burden of diabetes illness. By establishing both government run and private facilities in these areas, and allowing neighbouring hospitals to consolidate and refocus services, it is likely that a significant health inequality problem in the UK could begin to be tackled, without necessarily incurring large cost burdens. By the same token, hospitals in poor areas suffering large waiting lists and underinvestment could close facilities that aren’t in demand but are being kept open for political reasons, or simply move services between hospitals so that they are run more efficiently, reducing waiting times and improving outcomes in these areas. The system remains largely publicy funded but more flexible, potentially enabling inequality to be reduced without introducing new inequalities through avoidable market failure.

The benefits of simplicity

The other major benefit of this reform idea is that it is achievable through gradual change, builds on existing structures, and can be done with minimal political risk. Whatever party introduces these reforms (and I think it is more likely Labour than the Tories that would do this) will be able to argue that it is building new hospitals and increasing investment, but that this comes with the cost of reorganizing existing clinical arrangements. This may be a risky sales task, but it’s a lot easier than “you’ll be better off once we’ve flogged the lot!” And the gradualism enables the government to experiment with the changes and adjust them as it sees problems arising. Nonetheless, many of the changes – especially ward closures and moving specialties – will be controversial, and until a government gets a strong majority and acts decisively, even change as minimal as this is unlikely to happen. Especially after the Tories stuff up their current plans and make anything with even the vaguest aroma of privatization off-limits for a generation. But I think this approach is the most likely to be successful in the UK, and is both achievable and capable of significantly improving the NHS.