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Refusing Treatment: the NHS and market-based reform

Laura Brereton and James Gubb, October 2010

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; and what should be done to make it work better going forwards.

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 were not, we have to ask ourselves why, because other hospitals can make money on the tariff… You cant lose money this way in the real world, and you shouldnt 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 any systematic scale.

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

Further Analysis and Commentaries

Lord Warner, former Labour Health Minister

This Civitas study thoughtfully unpicks some of the myths about the extent of markets in the NHS. Neither Labour nor the Conservatives completed a full purchaser/provider split or enabled a market to be achieved across most NHS services. The ISTCs of the Blair government never gained more than 4-5% of the electives market rather than the 15% the critics feared. As the report shows PCT commissioners have mostly lacked the strength and competence to challenge powerful acute hospital trusts effectively. As the NHS moves from feast to famine this report is a timely reminder that we should return to the lapsed debate about whether a more effectively marketised NHS would deliver the innovation, quality and productivity the NHS will need to satisfy a demanding public.

The report brings out well the point well that too many organisations have had so much new money that they didn’t need to chase new business. It has been difficult for new providers to enter the NHS market and bring the challenge and innovation they bring in other sectors. Politically it remains easier for politicians and managers not to rock the boat by replacing failing and underperforming services. As the interviews in this report reflect too many NHS personnel are too comfortable of frightened to create the discomfort and public angst that a properly functioning market would bring. At the end the publication leaves nicely poised whether as the money gets ever scarcer ministers, doctors and managers will choose to reach for more effective market mechanisms if central targets and performance management are also to be abandoned. The Treasury may want to have more of a say on these issues.

Dr Bill Moyes, former Executive Chair, Monitor

For the first 55 years of its existence the NHS was run on the basis of central command and control. Patients had almost no information about its performance and no means to influence where or how they were cared for, waiting times for treatments lengthened, changes in services were politically – driven and there was little incentive for clinicians and managers to improve the productivity of staff or assets. As this report concludes, many of these flaws can be tackled by the introduction of market-like mechanisms without sacrificing the ability to offer care free. But achieving this will require major shifts in the culture of both the commissioners and the providers.

The new NHS Board needs to develop a strong commissioning function, locally and nationally. It should set clear standards of clinical outcome, quality of care and patient satisfaction and purchase care from any provider – public, voluntary or private sector – who can consistently deliver healthcare to these or higher standards within the tariff. Providers who cannot do that, and who fail to improve their performance, should not be allowed to sell services into the NHS until their performance meets the standards required. And the NHS Board should publish information on the performance of providers so that commissioners and patients can make informed and good choices, rather than being persuaded to use the local service simply to keep it going.

Providers also need to change. They need to become dynamic, patient-focussed businesses operating in a challenging environment. The techniques of service line management need to be adopted across the whole provider sector to illuminate the performance of each service, and clinicians need to use this information to all aspects of service performance.

The underlying model on which the NHS is based is a good one, but its operation has been consistently poor. It needs to change if the provision of free care is to survive. Adopting enthusiastically the market-based reforms of Labour and now the Coalition is the right way forward.

Martin Rathfelder, Director, Socialist Health Association

Socialists have always been suspicious of markets, and some still think that the National Health Service is an island of socialism in a sea of capitalism. But in reality it has proved impossible to repeal, or even amend, the laws of supply and demand in the NHS. Even though the patients don’t pay directly for treatment people make their living out of the NHS, buying, selling, investing money, losing it and making profits. People with more resources generally get a better deal than those with less. Treatments are still rationed, and always will be.

The Labour Government’s tentative attempts to harness market forces to improve quality and efficiency in the NHS have created an unstable situation, as this book describes. Markets seem to have made a minor contribution to the reduction of waiting lists, but otherwise we seem to have all the costs of markets with few of the benefits. This publication points a way forward, but it is still unclear whether the proposals of the coalition government can harness market forces for the benefit of the large majority of NHS patients who are unable personally to exercise much choice about where they are treated, and are more concerned about how they are treated. If GPs are going to be exercising buying power on behalf of their patients can we really align their incentives with the interests of their patients? Because if we can’t we might as well go back to centralised direction.

David Worskett, CEO, NHS Partners Network

In the context of the challenges now facing the NHS, it is more important than ever that the process of NHS market reform is revitalised as it provides potentially one of the most important means of helping the NHS meet the challenges it now faces. As this report and others correctly identify, the independent sector is uniquely placed to help develop innovative approaches to healthcare that drive quality and patient satisfaction up, increase productivity, and thus ensure that the unprecedented funding pressures on the NHS do not lead to a decline in the quality of care available in England.

Extending the principle of “any willing provider” beyond acute care to other NHS services will ensure that further opportunities to maximise value and encourage innovation are realised and will place power and choice firmly in the hands of the patient. The new government’s commitments in this area will remove some of the many barriers that have prevented the market from reaching its full potential. As always under such circumstances, good providers will have nothing to fear, but poor providers will be forced to improve.

Dr Peter Davies, GP, Halifax

Agoraphobia is a fear of the marketplace. In this book the authors show us just how afraid of the marketplace the NHS actually is. And strangely it is probably the shoppers (commissioners) who are more scared than the shops (providers). The story of the NHS in the last several years is that commissioners have been afraid of their own shadow. They have been both clinically and managerially underpowered. What’s reassuring, and fascinating, is that the themes James Gubb and I described last year in “Putting Patients Last” recur but this time from the managerial perspective. The managers are just as frustrated as the doctors.

In May in the British Journal of General Practice I described the NHS as being like an overgrown garden – large hardy perennials, many overgrown weeds, many slugs and snails, no one having really taken it in hand and cut back overgrown vegetation. I still think the metaphor is correct. The market may be the means by which the NHS garden becomes an integrated functional whole, and the weeds get removed. We may move towards a market as envisaged by Adam Smith and his description of how competition also leads to co-operation via the action of the “invisible hand” that guides multiple providers to meet the needs of multiple purchasers. No non-market, planned economy has ever succeeded in matching supply with demand. You can have as many intermediate process measures and lengthy reports as you like, but the outcome of centralised processes such as Ukrainian Tractor Production or the NHS’s MTAS scheme tend to be disastrous.

Perhaps it is now time to allow the market, within a proper regulatory framework that protects the core values of universal access, free-at-the-point of need, to do its work on the NHS: to see if GP commissioners can get the purchasing decisions made that will allow the NHS to bring demand and supply into alignment. Andrew Lansley in his recent White Paper has set out a very challenging set of changes for the NHS, and has given my speciality its biggest ever challenge and biggest ever opportunity. For the patients’ sake I hope that as a GP I am up to it.