Compromise and Conceit

Well, not quite, but in Sunday’s Daily Telegraph the UK Prime Minister, David Cameron, outlined his vision for the NHS (and all other public services) and it looks like a strong departure from the existing system, and a significant move toward the kind of system I’ve been suggesting would work well in the UK as it does elsewhere. Of course, we can’t judge a government policy on a newspaper editorial, and the White Paper hasn’t been released yet so we don’t know the details, but it appears that the plan is to open up health services for competition between private and public providers. I haven’t found much analysis of this yet (presumably because the details haven’t been published) but Polly Toynbee gives her typically strident take in the Guardian. Under her version of the policy, we read that companies will be able to force the NHS to open any service to tender competition, and if they can prove that they will provide the service at a lower cost than the government, and that quality won’t be reduced, then the NHS will be obliged to fund them to provide that service. This seems (ideological rants aside) broadly consistent with the implication of the Cameron article, where he says

We will create a new presumption – backed up by new rights for public service users and a new system of independent adjudication – that public services should be open to a range of providers competing to offer a better service

This will mean that significant services within the NHS that can be separated out from general services could be forcibly privatized, for example the provision of radiology services could be targeted by a major healthcare provider, and then prized loose from existing hospital services and tendered out. It also opens the field for (largely American, but also some European) private healthcare companies to conduct hostile takeovers of British hospitals, provided they can prove that they can offer the same services. It’s kind of the opposite of nationalization, being promulgated by a government.

Cameron then goes further, to argue that services should be localized as well as privatized, with communities being able to argue that a service should not be managed centrally:

For example, we will give more people the right to take control of the budget for the service they receive. In this new world of decentralised, open public services it will be up to government to show why a public service cannot be delivered at a lower level than it is currently; to show why things should be centralised, not the other way round.

I think this part will be a flop, and I have some concerns about its effects on inequality if it were successful, but regardless of its degree of success, I think we’re actually seeing something genuinely, amazing and new here: somewhere in the Western world, a Conservative party has come up with a new idea that works within the Social Democratic framework. We’re not just seeing a repeat of the tired mantra of “cut taxes! me!” And it isn’t a piece of naked self-interest either – as in all of his work to date on the NHS, Cameron retains an awareness of the issue of inequality:

Of course, the state will still have a crucial role to play: ensuring fair funding, ensuring fair competition, and ensuring that everyone – regardless of wealth – gets fair access.

So, how will this new service model resemble an Australian-style system, how could it be better than the current NHS, in what possible ways can it fail, and what will its effects on inequality be?

Resemblance to the Australian system

Australia of course has no model of enforced privatization or anything resembling it, but we do have a system in which a universal health insurer – the Federal Government – pays for medical services from a health care sector that is primarily composed of private providers. This is the primary care system in Australia, but what happens in practice is that primary care doctors (General Practitioners; GPs) provide a significant range of quite advanced medical services, including radiology and minor surgery. They then refer more complex patients to private specialists, or to publicly-funded hospitals that provide specialist services. These publicly-funded hospitals are funded by the State government, and serve to prevent market failure in the provision of healthcare, to prevent costs spiralling out of control, and to maintain a strong medical infrastructure. The single universal government run insurer helps to hold down the cost of health care, and the State-run health systems also fund some community health services that provide GP services to those who might not fit into the general health system (e.g. injecting drug users, transgender people, Aborigines, etc.) Australia also runs a fairly large private health sector, in which privately-run hospitals cherry pick the easy, high-profit cases from public hospitals and are paid from private health insurance funds that are affordable and accessible, and partially publicly subsidized. The reason these funds are affordable and accessible is that the government runs all emergency services and provides baseload public medical care, so that the private services don’t have to get into the business of providing extremely high-cost, high-risk services. Also, as far as I know there is no obligation for a publicly-funded hospital to provide all the services using public employees. I think they can contract out, e.g. cleaners, or form contracts with private specialists if they think it will benefit them (though of this I’m not 100% sure).

It’s a kind of mixed economy where public and private services cooperate to keep people healthy, and Australians are very healthy by world standards. We also don’t pay that much for our healthcare by international standards, because of the extensive cost containment built into the system. No one can say that the system is perfect but it works very well, it’s responsive to new threats (e.g. HIV/AIDS), it’s fairly equitable (except for the shameful issue of Aboriginal health) and it’s cheap.

David Cameron’s plans could well move Britain organically towards this same system. If the privatization process works effectively, we will see private providers cherry-picking the easy services and the best hospitals in the healthiest areas, providing services from these hospitals at less than it costs the government, and freeing up the government to focus resources in unattractive or challenging areas[1]. We will also see some services within hospitals being privatized at reduced cost, so that the hospitals have more resources to spend on other things. But at the same time the government will still be free to establish new hospitals in underserved areas, to invest in existing hospitals to upgrade or expand them, and to invest in programs to reduce health inequality.

How it Could Improve the Current System

The influx of service providers and private investment, the opening of the market to private providers, and the increased efficiency of small private providers competing against monolithic NHS systems will undoubtedly lead to increased capacity and lowered costs. It might also improve workforce size and skill, as these providers in setting up quickly would (hopefully) employ more people. There are a lot of caveats on this, though. If private providers aren’t able to compete in the GP marketplace they will be barred access to the most lucrative part of the market; many of the bigger hospitals and/or the services that they could provide are probably already being run at low cost and high efficiency, and private providers may find it unattractive to take them on after they do the maths.

With private providers given a foothold in public services, they will then have a presence in the British market that they can leverage to expand the private health industry, which may take pressure off public services[2] and enable private providers to achieve efficiency gains. In the long-term this system will potentially bring private investment in publicly-funded facilities.

If this model extends to primary care, we will also see large international companies (including, probably, some Australian ones) establishing new, vastly superior models of primary care service provision and competing with existing GPs to provide lower cost, higher quality primary care. And I bet some of those companies will set up in poor areas, where existing provision of GP services is poor. But I am also willing to bet (see below) that GPs will be explicitly excluded from the privatization model, because they have too much power and for GPs this model if implemented would mean a price war, that would drive their wages down rapidly[3].

I don’t subscribe to the view that all public services must be performing worse or less efficiently than private services, but it is undoubtedly the case that an organization as large and unruly as the NHS will have significant efficiency gains built into it, and it may well take an external provider to realize these. Also, the NHS is capacity-constrained by government funding limits, but private providers may see some benefit in initial infrastructure investment in order to compete for NHS services. The NHS needs investment, and there are some areas – especially elective surgery – where there is no reason to think that the private sector cannot provide a service that is at least as good as the NHS at at least the same cost. If in setting up these services the private sector need to invest, then this is a good thing for the British health system – especially if some companies invest with the long term intention of expanding the scope of services they provide into a growing private health care market. It’s also possible that private providers might combine plans for health tourism with plans for competition in the domestic publicly-funded market, which could make the Tory’s plans for health care tourism of greater benefit to the domestic population.

How Could it Fail?

There are a few ways in which this system could be a complete disaster, or at least fail to achieve any of the stated aims.

Failure to Include GPs: GPs in Britain provide a woefully inadequate, hideously overpriced service that is massively capacity constrained. The GP system costs a lot of money and compared to other primary healthcare systems it doesn’t do a very good job. Because the UK NHS operates a gatekeeper system, but has long waiting times. poor GP referral practices can lead to significant delays in access; there is some evidence that there is inequality in referral practices and access. If the GP system is not shaken up under this privatization process, one of the major barriers to better quality care will continue to function at a very poor level. Currently there is little to no incentive for GPs to improve their service in the UK, because there is no private competition and a demand management system that encourages them to work limited hours in small practices, providing little in the way of significant medical care. Introducing competition to GP services would be an excellent way to improve healthcare, but if this is not done the system will continue to be inefficient at the commonest first port of entry.

Failure to properly integrate private providers in planning: future growth in the British health system depends on expansion of the workforce, a slow process that depends on negotiation with universities (who train new staff) and representative organizations (who set and maintain healthcare training standards). If private providers are excluded from proper involvement in this planning process, then they will end up competing with public providers for limited workforce resources, rather than adding to them. This has been a perennial problem in the British system, which doesn’t have enough GPs or nurses. Proper workforce planning requires central involvement at least at a regulatory level (to prevent, for example, doctors choosing to restrict numbers of trained GPs in order to increase their wages) and it also requires government or private investment in universities. This needs to be coordinated in some way, and it’s not clear that this is easily done.

Paper Tiger Regulation: The British privatization environment seems to involve this model of private providers being regulated by public agencies, but these public agencies can often be toothless, weak agents. In order to ensure Cameron’s central goal of proving that the private sector will provide a service of the same quality at lower price, the agencies that assess quality need to be tough as nails. If they’re not, the British will get lower quality services. I suspect that the Tories are not the best party to oversee strong regulation of the private sector, but then Labour were terrible at this (there was a small financial problem in the UK partly related to their unwillingness to regulate their mates, after all). If regulation is not strong and well funded, there will be little oversight of the privatization process and quality will decline. On the flipside, the NHS is no doubt not great at managing itself (in fact Labour had to set up various arms-length industry bodies to do this) so maybe offloading some functions to private sector agencies will improve the ability of the NHS to monitor quality. Certainly, a wholesale recasting of the NHS as primarily a purchaser and regulator of healthcare services has the potential to vastly improve the quality of the services. But we’ve heard this before amongst the arguments for privatization in the UK, and the UK still has crap power systems, crap water systems, crap railways and crap phone providers…

Inequality: privatization has the potential to increase inequality, because private providers tend to find that providing services to the wealthy is more profitable than providing them to the poor; and private providers themselves have no particular obligation to look out for the poor or disadvantaged. We’ll look at this separately …

Contract Failure: Based on what little is available about the new plan, it doesn’t appear that the NHS will be moving towards a limited role as healthcare purchaser and regulator; it will be involved in service provision as well. Also, it doesn’t appear that a fee-for-service model or a straight out insurance model will be adopted. Rather, it appears that the government will put out bids for contracts to provide services. This is kind of similar to how it manages GPs (through contracts) and hospitals (through block grants, I think) now. But while such service agreements may work for publicy-owned and run services they may not be the best model for privately run services. If the funding model doesn’t suit the system, it may lead to under-funding, or to excessive funding of some private bodies. Also, I don’t think I’d be too confident with the ability of the NHS to assess tenders and make good contracts. My own experience of the NHS is that you can drive a truck through their contracts, and come out the other side loaded with booty; there is some recent evidence of huge variations in payment levels by area in the NHS that aren’t related to area-specific needs (i.e. some NHS areas are being fleeced). Contract failure runs the risk of turning the whole thing into a big rort for smart private organizations.

Effects on Inequality

Privatization and competition have the risk of increasing inequality, by concentrating private investment and better quality services in areas that have more money, and depriving poor areas of some services or forcing them to rely on second-rate under-funded government services. The government says it’s going to address this specifically, and for two or three years now the Tories have talked a lot about inequality, so I don’t doubt that at least some of them (Cameron and Lansley included) are serious. But how they aim to go about ensuring inequality doesn’t increase is not yet clear. There’s no fundamental reason it should, since the government will remain involved in providing care and so can address market failure in poor areas directly; and I presume that the increased privatization will come along with continual improvements in patient choice that free poor people up to go to wealthy areas for their care.

Another, in my opinion potentially more serious, cause of inequality is the Tory focus on localism. To my mind “localism” and “inequality” go hand in hand, and while it’s good to have local flexibility in the provision of services it’s also important to keep central control over just how much inequality in distribution of and access to services this causes. If “localism” means that local councils or community groups get to choose to defund GPs in one area so they can fund fancy services in a wealthier area, then someone at some point is going to have to step in and stop them. It’s not clear that the new Tory system has a way of doing this; but then, it’s not clear that this has ever been done effectively in the NHS. Plus, of course, much of health inequality in the UK is an upstream issue, caused by social inequality that is reflected in health, and better addressed through welfare and employment policy, urban planning, educational improvements, etc. than patched up by the NHS.

Nonetheless, when you overhaul a system to give it a greater dependency on service providers who are going to follow money rather than central diktats, you open the risk that they’ll provide less or lower quality services to poor people. This needs to be avoided. And when you introduce increased localism you also need to account for the increased risk of inequality (or, for that matter, just plain bad decisions) that comes with it. How the new plan will do that is not yet clear.

Conclusion

Though I still don’t think the proposed plans offer the flexibility the NHS needs, and while I still think injecting funds is more important at the moment than reform, these plans do suggest some cause for optimism, and may lead to a more efficient, more flexible system that is a little closer to the kind of systems that the rest of the developed world has found seem to work best. The changes carry the risk of failure, of some private providers being able to loot the system, and of an increase in inequality or loss of quality – particularly seeing as they’re being introduced at a time of cost cutting and funding cuts. But if they’re managed well, and properly regulated, they will at least open the NHS up to future improvements. I’m tentatively in favour of them, at least until I see the details in the White Paper.

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fn1: In theory. The UK government will probably choose to spend this money on something worthless, because this is Britain we’re talking about here, but let’s try and be optimistic

fn2: I’m really dubious that this is a big effect of private insurance in mixed systems, but with the private system in the UK quite small I can see how it would make a large difference in the short term

fn3: One of my visions for the UK system is an Aussie or South African private provider setting up a 24 hour GP clinic in a poor, inner city area in the UK, employing Aussie and Polish doctors at much lower wages than a British GP gets, providing all sorts of on-site services that a British GP will not offer, and vastly improving the quality of local health care, while taking pressure off local hospital emergency and elective care services, and driving all the surrounding GPs out of business or forcing them to negotiate new, lower-price contracts. Somewhere at the back of this will be a flamboyant, oily Antipodean doctor – in my vision he has been barred from practicing himself[4], probably for shagging patients – who drives fast cars, has 3 mistresses, and blows huge amounts of money up his nose. It’ll never happen, but it would be great if it did.

fn4: And this oily guy is always male