Feature

Getting a cut of the action

Giving private companies a bigger role seems central to Labour’s current NHS reforms – but as Richard Lewis explains, private health care seems to be less cost-effective and may even cost more

In his speech at London’s Royal Free Hospital last July, the prime minister set out his plans to reform public services in his government’s second term.¹ Tony Blair’s diagnosis of an apparent malaise in education, health and crime was uncompromising and followed by the suggestion that it was ‘reform or bust’. Yet, despite the fiery nature of the rhetoric and the urgency of his cause, his analysis of ‘the problem’ looked strikingly familiar.

The case for his proposed shake-up of public services was based on four key issues: higher expectations among consumers, greater demands on public enterprises, chronic under-investment, and difficult staff recruitment in conditions of high employment. Certainly, in relation to the NHS, these arguments have been common currency since the 1980s.

Mr Blair’s proposals for radical reform are composed of three key strands: that the role of the centre is to set a priorities framework and a system of accountability, inspection and intervention; that power will be devolved to front-line professionals; and that conditions of employment for professionals will recognise this new power (in part, through the use of appropriate incentives). But how much of Labour’s plans can honestly be termed new?

The relationship between the ‘centre’ and the NHS has waxed and waned over the decades. Labour has already demonstrated an ambivalence in setting the balance between top-down and bottom-up (accusations of control freakery notwithstanding).² National service frameworks are burgeoning, as are national guidelines on the use of new and existing technologies. These are backed up by a powerful regulatory (and punitive) agency in the shape of the Commission for Health Improvement (CHI).

What about the bottom-up counterbalance? Primary care groups and trusts (PCG/PCTs) have developed apace and have provided a vehicle for far more structured involvement of primary care professionals in NHS decision-making than has been seen before.

The delegation of NHS resources to these front-line organisations is a key plank in Labour’s plans. Yet, will they truly act as independent, professionally led bodies or simply slip into the comfortable client relationship with government that has for so long characterised NHS local bureaucracies? After all, some PCTs are now the size of old district health authorities and have take over many of their responsibilities.

The development of PCG/PCTs has clear antecedents in GP fundholding, ‘total purchasing’ and GP commissioning groups. A more surprising element of decentralisation (or at least so-called depoliticisation) is the recent announcement that responsibility for negotiating the GP contract is to be delegated to the NHS Confederation. This may be a significant change of tack.

What of Mr Blair’s plans to shake up the workforce? The championing of incentives is redolent of the previous Tory administration. In a speech shortly before the last election, the prime minister went so far as to raise the prospect of a reintroduction of indicative budgets at GP practice level, with more delegation of power to come.³

This challenge to professional demarcations is, once again, not new, although it may gain pace in Labour’s second term. Enhanced nursing roles have been developing across the NHS for many years and the transfer of clinical responsibility from the secondary to the primary sector has long been a bone of contention.

The prime minister appears convinced that more money alone is insufficient to cure the ills of the NHS. So where is the ‘radical improvement’ to come from, if his reform agenda is largely more of the same? If Labour’s second term is to be distinctive, the championing of public-private partnerships (PPPs) seems likely to hold sway. While this is controversial, Mr Blair appears unwilling to compromise. Furthermore, while accepting that private sector involvement is no universal panacea, he still devoted much of his speech to PPPs.

So what does the government expect to gain from this strategy? Four opportunities for private sector partnership have been identified:

• The use of spare hospital capacity in the private sector for NHS activities;
• Private sector management of new free-standing surgery centres;
• Extending the private finance initiative to funding primary care, and imaging and laboratory equipment;
• The use of private sector management expertise, for example to manage NHS buildings and information technology.

PPPs and particularly the private finance initiative (PFI) have been the subject of sustained and public criticism. Mr Blair and health secretary Alan Milburn have attacked this opposition, suggesting it is based on myth and stems from ideology rather than reason.

This is an interesting line of argument. Because so little evidence has been brought to bear in the debate, the government’s decision to extend public-private partnerships could itself appear to be one of principle. If PPPs stem from the anti-ideological position of ‘what counts is what works’, the evidence should be considered as to whether they do work.

It is not the intention to rehearse highly technical arguments in detail here. This has been done by others – most notably, Allyson Pollock and colleagues. However, the use of PPPs can and should be subjected to some basic tests. The following questions can be asked of PPPs:

• Will they provide new sources of investment for the NH
• Will they offer the NHS greater efficiency in delivering car
• Will they offer appropriate quality of car
• Will the services remain publicly accountabl

One attraction of the PFI process for NHS managers is a firm belief that there is no realistic prospect of any publicly funded alternative – it is PFI or nothing. Does this mean that PFI is increasing overall levels of investment, apparently at no charge?

Of course not. The key attraction of PFI schemes to the government is that they are ‘off the balance sheet’. In the short term, they do not count against the Public Sector Net Cash Requirement (formerly the Public Sector Borrowing Requirement) that is regulated as a proportion of gross domestic product. The costs of capital investment under PFI are still paid as revenue by the NHS. Any limit to publicly funded capital developments in favour of PFIs is a matter of policy rather than affordability or capital availability.

The announcement that PFI will be extended into primary care is disingenuous. General practice, of all the sectors of the NHS, has been most open to private investment (indeed, it is largely provided by private contractors).

With the exception of health centres, surgery developments have always been funded by private finance, managed either by GPs themselves or through third-party developers. Indeed, the unacceptable state of many primary care premises is poor testimony to the PFI approach.

Nevertheless, the introduction of NHS LIFT – a public-private investment and development agency – should be cautiously welcomed and may help improve primary care facilities. However, this will be due to new economies of scale and expertise, rather than any introduction of private finance to hitherto virgin territory.

The case for PPPs is founded on an almost talismanic belief in the superiority of the efficiency of the private sector. Indeed, this belief is necessary because private sector schemes start with significant financial handicaps.

The cost of borrowing is considerably cheaper for the public than the private sector (by several percentage points). Bidding for PFIs is expensive and adds cost to the process. NHS costs to external advisors alone constituted around 3.5% of the total scheme value.⁴ Finally, the private sector must generate profit for its shareholders.

PFI schemes in health are only just coming to fruition and evidence is scarce. Yet there is already cause for concern. PFIs must transfer risk from public to private sectors – this is a key benefit. This transfer is costed and forms part of a comparison with a notional publicly funded comparator. But the evidence now coming in from the first wave of PFI developments shows that the projected value for money gains may be relatively small and depend entirely on the assumptions made about risk transfer.⁵

This is alarming. As Boyle and Harrison point out, ‘the valuation of risk is an imprecise science. Other equally reasonable valuations would have produced precisely the opposite result’. Furthermore, only supply-side risks are considered (such as delays in the completion of construction). By signing 30-year contracts, the far bigger risk that the service may not be required at all in the future remains firmly with the public sector.

Evidence from abroad regarding the relative efficiency of different forms of ownership is similarly discouraging. In Australia research has demonstrated that public hospitals are more efficient than private institutions. In the US, for-profit hospitals appear no more (and, if anything, less) efficient than not-for-profit hospitals.⁶

The prime minister’s commitment to using spare capacity in private hospitals is perhaps more tempting, supporting NHS providers with temporary demand peaks at marginal cost.

But, again, there are flaws in this argument. Most professionals and managers would agree that demand peaks are not temporary; what is needed is permanent capacity. And yet this capacity is diminishing – the PFI process looks set to reduce bed numbers by more than 30% in the next three to five years.⁷

Within this context, the result of this policy may be a permanent, but back-door, incorporation of private providers into mainstream NHS provision. More NHS resources directed to private health care providers will increase competition for scarce staff and may drive up costs.

In his speech, Mr Blair asserted that the private sector was more responsive to consumer needs because it would go out of business if it were not. However, responsiveness to consumers will not be maximised under all conditions.

The long contracts that effectively bind the NHS to a monopoly provider are a key feature of PFIs. These are exactly the conditions that are least likely to promote responsiveness to consumer needs. An important source of cost efficiencies when contracting out services to the private sector are generally found in relation to the pay and conditions of a workforce. But is a workforce with depressed terms of service conducive to higher quality?

Existing staff transferring to new private employers may have their NHS terms and conditions protected. While this is welcome, it undermines the efficiency case for PPPs.

Nor does the evidence support the contention that the private sector will innovate in terms of design or operation of facilities. Research suggests that innovations have tended to come from public sector clients rather than private sector partners.⁸ This does not offer any compelling reasons why the government is setting such store on private sector management, or singling out the new free-standing surgery centres for the private sector.

The policy shift towards PPPs has said little about the implications for public accountability. Mr Blair’s proposals raise the prospect of many potential care providers contributing to an individual’s care. Some of these will be within the ‘NHS family’, others without. A patient admitted to an NHS hospital for treatment may be transferred to a private hospital for an operation, then to a contracted nursing home for convalescence.

This, in itself, need not be alarming from the point of view of accountability. However, lines of accountability and monitoring are far from clear. Will private providers develop their own patient advisory and liaison services and patient forums or come under the remit of the local NHS trust? What about the relationship with the proposed patient councils? Will private providers be required to implement clinical governance procedures and be subject to the same inspections as NHS providers?

The New NHS sets out a vision of patients’ involvement not simply as consumers but as active citizens. Patients have a role in designing services and challenging the professional monopoly. It is possible that private providers may be more receptive to this inversion of the traditional hierarchy.

Mr Blair has attacked those who refuse to judge new ideas on their merits and, instead, prefer to defend blindly the status quo. Yet government policies on public sector reform appear as the mirror image to this: change must be good and one ideology has replaced another. Proponents of PPPs will point selectively to individual schools, prisons or other public works. Opponents will point to Railtrack and other failures.

Predictably, policy is being rolled out before a full assessment of the evidence – but with 30 and 40 year leases currently being signed for PFI hospital developments, there will be plenty of time to reflect on policy failures.

The prime minister raised the spectre of the deconstruction of public services by the Conservative Party if reform is resisted. There is a pointed irony in the fact that it is a Labour government that will go much further in privatising the NHS than any Tory government has ever dreamt of.