Refusing treatment: the NHS and market-based reform

Civitas, 4 October 2010

Today, Civitas publishes the findings of a year-long study into the effectiveness of the market in the NHS: whether and why it has driven the performance of providers as was intended.

Based on in-depth interviews with executives at NHS (foundation) trusts, PCTs, practice-based commissioners and private sector providers across three health economies in England, the study finds isolated examples of the market having significant positive effects on quality, efficiency, innovation and patient-focus.

As one leading clinician said:

‘[The trust being a business] makes us think in a lean fashion. For example, we recently streamlined prosthesis and implants. It wasn’t our preference, but doing it saved money without adversely affecting patient care. We have to be making money in our own patch. If we’re not, we have to ask ourselves why, because other hospitals can make money on the tariff… You can’t lose money this way in the real world, and you shouldn’t be able to do it in the health service.’ (p.34)

However, the study concludes that overall the market has thus far failed to deliver such benefits on a systematic scale.

The question is why benefits have not been more widespread. Refusing Treatment draws on the evidence presented by interviewees to consider two explanations: one, whether this is so because the idea of a market is flawed; two, because it has been stifled and not allowed to take hold. On balance it finds in favour of the latter:

• Most participants saw the benefit of the basis of the market: an impartial purchasing function separate from providers.
• Where the market has been used (i.e. where providers report feeling genuine competitive pressure from patient choice and where PCTs have put services out to tender and chosen alternative providers) participants did report positive effects.
• Generally, a ‘market’ has not been in operation in the NHS: few services have been put out to tender and most providers are able to act as monopolies dictating terms to PCTs, rather than competing for PCT business. One provider executive said:

‘We don’t need to compete, we’re as full as we can be… simply being the local NHS provider has resulted in increased demand over the past few years. We’ve not needed to take any action.’ [p.70]

The study uncovers numerous barriers that must be removed, skills developed and attitudes changed if the market is to be effective. It finds:

• A structural imbalance of power favouring providers (hospital trusts) at the expense of purchasers (PCTs/practice-based commissioners).
• An uneven playing field between NHS and private/voluntary sector providers, to the tune of a 14 per cent cost-advantage for NHS providers.
• Severe constraints on the ability of PCTs to effectively tender services. These include: existing NHS providers operating at ‘full’ capacity; significant barriers to entry for private and voluntary sector organisations; bullying and predatory pricing by hospital trusts; poor data quality; and (above all) the bureaucratic and time-consuming nature of the procurement process.
• Payment-by-results for non-elective care to be inappropriate and encouraging unnecessary use of secondary care.
• PCTs and hospital trusts have yet to adapt to operating in a market environment. In particular, PCT management and commissioning skills – in terms of strategy, decision-making, performance management and tendering – are weak. Many hospital trusts, too, appear either unprepared or ill-equipped to respond to the needs of commissioners, with poor cost control.
• A deep cultural reverence for the NHS as something more than a health system is acting as a powerful break on market incentives. In particular, the emotive notion of the ‘NHS family’ encourages a counter-productive ‘us vs. them’ attitude between the NHS and private and voluntary sectors. It also enables hospital trusts to exert a powerful force on PCTs tending towards the status quo – often where patients would be better served by the introduction of new services in the community. One provider executive said:

  ‘PCTs are scared of the providers’ political power. They are afraid of putting services out to tender… and that the hospitals will then go and do something to retaliate that will cause the PCT managers to lose their jobs.’ [p.73]

The latter is found to be the most important factor explaining the failure of the market to bring greater benefit for patients. ‘Most people in most places have tried to block [it]’, said one DH official.

The report makes a number of recommendations that remain relevant as responsibility for commissioning is transferred from PCTs to GP consortia:

• There must be a sustained commitment on behalf of the Government to the market and to principles and parameters that support it. This, above all, means consistency in policy (the continued lack of which is discouraging long-term investment) and that ministers start telling a new story for the NHS as a health service that strives to offer high quality universal health care coverage, free-at-the-point-of-use, from the best providers available. It should no longer be presented as a culturally revered system of nationalised provision and government focus should be on supporting PCTs as commissioners, not on supporting hospital trusts.

• The DH should be re-cast from acting as the headquarters of a large corporation of providers to being the ‘headquarters’ of a commissioning system. It should be split into provisioning and commissioning arms (the NHS Commissioning Board). The temporary provisioning arm should provide management oversight before all NHS trusts become foundation trusts or are subject to alternative solutions (taken over, reconfigured or, where unsustainable, closed). Initial tasks for the new NHS Commissioning Board should be to: develop a more effective and less ‘tick-box’-type regulatory framework; encourage a less burdensome and prescriptive approach to tendering; encourage ‘relational’ contracting; simplify standard NHS contracts; and work towards a system of more integrated payment for non-elective care.

• The report does not support the abolition of PCTs in favour of GP consortia: it does not believe this addresses the root causes of the market’s underperformance. However, when formed, GP consortia should be framed along the lines of local health insurers charged with the goal of securing the best possible health care for their citizens within a constrained budget. They should act as independent, unbiased, evaluators and purchasers for patients free from institutional allegiance.

• Providers should be placed in a more competitive framework. This would entail: the enforcement of meaningful competition law; the enforcement of full cost allocation and accounting; ironing out cost disadvantages for the private/voluntary sectors; and the creation of a proper failure regime for NHS providers.

Full copies of the report can be purchased online at Amazon.co.uk.