Market based NHS reform

The new model NHS is a marketplace, where public and private health providers compete for contracts to care for NHS patients. The government believes that competition will raise capacity, choice and standards.

To encourage NHS providers to join in, a system of payment by results is being introduced, where a hospital’s income is linked to the number and type of patients it treats. Foundation trusts are leading the way as the first NHS providers to compete for income this way. Patients will have the choice of the provider, e.g. hospital or clinic, they want, boosting the income for some, but leaving other hospitals less money to maintain services and improve care.

Private providers will be able to win contracts not just to provide parts of NHS care, but under recent legislation to run a foundation rust. Deals are being been struck with private healthcare companies to run treatment centres, specialising in procedures like cataract removal. In the past this has been at significantly greater cost than the NHS. Now the Health Secretary has introduced a national tariff - essentially a list of fixed prices - which is to apply to all providers of NHS care, public and private. Some NHS hospitals have expressed alarm, claiming that the new fixed prices have been set too low. They will not get the full cost of treatments back, leading, they fear, to loss of staff and of financial stability.

Viewpoint: market impact

It might be sensible to purchase spare capacity from the private sector to lessen delays in treatment, but if this is sustained this approach will prevent the NHS from building its own capacity. Long term, if private providers control supply they are very likely to push up the price the NHS pays. It is both impractical and bad for continuity of treatment to expect commissioners to keep switching providers to avoid paying more. Crucially throughout, the NHS will be subsidising private sector expansion as staff trained in the health service are drawn away from it.

The NHS works as a network sharing technology and expertise. The rules of the new market will discourage co-operation and hospitals with foundation status will be free to act independently of local health strategies.

The government is planning to make all hospitals compete for contracts as foundation trusts but this will take several years. In the meantime gaps in resourcing and staffing will widen as foundation trusts enjoy additional resources and freedom to borrow.

Previous attempts at market based reform were hugely wasteful doubling expenditure on administration. A similar outcome is likely this time around with rises in legal and marketing expenditure. Contracts must be negotiated, won, and disputes settled, all giving providers new ways to spend their money other than on patient care.

There is little evidence that financial competition will raise clinical standards. Currently the NHS is a network of providers co-operating to provide care. The market will introduce disincentives to sharing information and resources where a competitive advantage can be achieved.

The new system of payment by results will reward those treating more patients with extra funding. One route to financial success for providers will be to choose the treatments or patients that give the greatest return. Complex cases or patients with chronic conditions may lose out, considered too costly or risky. We should be watchful for discrimination or attempts to put financial success before local health needs. There is already evidence that new foundation trusts have asked the Regulator if they can cease or reduce services in the areas where costs are high and income low.

Questions to ask
  1. What does your trust spend on administration, legal fees, consultancy? is it increasing? How does it compare with what went before?
  2. What services does your local Trust supply at a greater cost, than the price that they can charge under the new national tariff?
  3. Are there plans to cut services where the profit is limited?
  4. What is being done locally to ensure that private providers are inspected and their standards are high?
  5. Will your local non-foundation hospitals get comparable additional funding to help to improve their standards?


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