The Healthcare Business in the UK

by Michael Patrick O'Leary

I posted a version of this on Open Salon in February 2010. Further “reforms” seem to be stalling.

I have been fortunate in that I have had few encounters with the UK National Health Service (NHS) as a patient. The encounters I did have were all related to head injuries. When I was about four years old I fell down the stairs while attempting to play the ukulele and landed on my head. That was the end of my musical education. The only time I ever scored a try playing Rugby, I contrived to get kicked in the head at the same time and had to be stitched up.  Some years later, while leaving a hostelry (sober, I might add) in Manchester with a group of friends, we were unexpectedly set upon by a gang of ruffians and again I was kicked in the head. One of our company fared worse, suffering a broken jaw.

I know something about the NHS from the inside. After graduating from university, I worked as a hospital porter for six months. I was originally hired because the hospital lifts were being replaced and I had to carry patients to and from the operating theatre. My duties also included assisting at post-mortems and taking corpses on my own to the mortuary in the middle of the night. This was more of an education than university.

That hospital was originally built as a brewery in the 18^th century. It was an NHS institution, but private patients were treated in what was called the “new building”. It had been built in the 1930s. When there was a cardiac arrest on the public wards we had to run over to the “new building” and collect the necessary equipment which we then trundled through underground passages to the old building.

Since I worked there, those premises have been closed and the hospital has moved to a state-of-the-art skyscraper. Is this better? More about state-of-the art modern English hospitals later.

I also know something about the NHS on a more scientific basis having done many studies as part of a Department of Health team looking into day-to-day practices and assessing how efficient they were. This was at the time when the Conservative government, through Secretary of State Kenneth Clarke, was introducing NHS “reforms” designed to make the provision of healthcare more “business-like”.

The English love to complain about the NHS and perhaps compare it unfavourably with what they imagine things are like elsewhere. When I was visiting the United States I developed a severe, and possibly serious, eye-condition. I received excellent care and friendly and concerned attention at a clinic in Baker, Louisiana, and the costs were covered by my travel insurance. I needed to continue treatment for six months after my return to London. Greenwich Hospital was drab and unfriendly. Luckily, I kept a diary note of my appointments as the reminder letter I received in the post was virtually blank because the hospital’s printer had run out of ink. The receptionist looked at this and said: “If you could read this there can’t be much wrong with your eyes”. The doctor was rather brusque and gave the impression that he had more important things to do than deal with me. When I pressed the point that the American doctors had told me to mention that I was also suffering back pain and this could have a bearing on the eye-condition, he became quite angry and told me to forget about it.

Although many people complain about similar incidents, there is in the UK also a deep affection for, and pride in, the NHS. Paul Addison wrote in 1985 about people who had grown up with the NHS: “While critical of this or that aspect of the service, they are profoundly glad of its existence and appalled by the prospect of its destruction. But, however genuine, their appreciation is limited in one respect. Much as they value the NHS, they do not remember what the health services were like before it started.”

The historian, Peter Calvocoressi, wrote in 1978: “For its customers it was a godsend, perhaps the most beneficial reform ever enacted in England, given that it relieved so many, not merely of pain, but of the awful plight of having to watch the suffering and death of a spouse or a child for lack of enough money to do anything about it. A country in which such a service exists is utterly different from a country without it.” Professor Rudolph Klein described it as “the only service organised around an ethical imperative”. He also wrote: “At the time of its creation it was a unique example of the collectivist provision of health care in a market society”.

Health Minister, Aneurin Bevan, was an unexpected choice to be the man to establish the NHS in 1948. He was an ex-miner from Tredegar in South Wales, a militant trade unionist who had been a dedicated Marxist. He was an inspiring orator in spite of a stutter. Despite his working class background he acquired sophisticated tastes and wealthy friends. Brendan Bracken called him to his face a “Bollinger Bolshevik, you ritzy Robespierre, you lounge-lizard Lenin”.

The revolutionary thing about the NHS was its universalism and the fact that it was paid for from central funds. It was open free of charge to upper, middle and working classes. In effect, Bevan nationalised the hospitals, which had previously been operating under a hodgepodge of different administrations and funding arrangements. By doing this, Bevan brought hospital consultants into the scheme. Lord Moran, Churchill’s doctor, was very helpful to Bevan in winning them over. As Bevan put it: “I stuffed their mouths with gold”. Under the NHS, the consultants would be paid for providing their services to hospitals and also carry on their private practice, even using NHS beds for their paying patients.

The free market alone would not provide adequate health care. General Practitioners (GPs) had to be persuaded to set up practices in poor areas. As small businessmen they would naturally be more attracted to wealthy areas in which they could make more money. In present-day Detroit most of the conurbation’s poor are excluded from healthcare because GPs have moved to the suburbs where they can earn more. Winning over GPs was more difficult than co-opting hospital consultants because they were anxious about losing their independence and becoming salaried public servants. During my time studying the NHS I found that there was a general opinion among hospital doctors and nurses as well as NHS management and civil servants that GPs were difficult and fractious. They eventually joined the NHS when offered a salary plus a larger amount in “capitation fees”, that is, payments based on the number of patients on their books. In spite of this there has been tendency to put more healthcare work to locally-focused GP surgeries and away from hospitals.

One of the key provisions of Bevan’s Act was Section 21: “It shall be the duty of every local health authority to provide, equip and maintain, to the satisfaction of the Ministry, premises which shall be called ‘Health Centres’.” The socialist vision was that the centres should house GPs, dentist, chemists and also receive visits from hospital consultants. Preventive and curative medicine would be equally important and in time all primary care would be provided within them. It is ironic that Bevan exerted none of his political skill and socialist fire to bring this about, probably because he knew he could not defeat the medical profession’s entrenched opposition, but a conservative government, widely accused of trying to wreck Bevan’s creation, brought local primary care centres into being in the 1990s.

Funding a universal health care system was always going to be difficult. Sir Kenneth Stowe was Permanent Secretary at the time I was at the Department of Health. After his retirement he made a speech in 1989 in which he put some questions that he would have liked to put to Beveridge and Bevan in 1948. “How did you get the costings so wrong? Didn’t anyone listen to the Treasury? Prescription charges had to be applied within three years of the NHS coming into existence. Wouldn’t it have been better to go for viability rather than have everything free when, in fact, nothing is free?”

The service certainly cost more than expected. Four million dental cases a year were projected but the actual figure was eight million. The cost of ophthalmic services was estimated at one million GBP in the first year and the actual cost was 22 million. Bevan said: “I shudder to think of the cascade of medicine which is pouring down British throats at the present time. I wish I could believe that its efficiency was equal to the credulity with which it is being swallowed.” Another stutterer, George VI, could not understand why people should get free teeth paid for by the taxpayer. He pointed to his elegantly shod, in-bred feet and asked why the masses should not get free shoes also. His Majesty seemed unaware of the irony of the fact that his own shoes and everything else he had was paid for by the taxpayer. The taxpayer might echo Faron Young’s immortal words: “I bought the shoes on your feet”. Bevan and Harold Wilson made dramatic resignations from the Labour government on the grounds of principle when Chancellor Hugh Gaitskell introduced charges for teeth and glasses.

Stowe was responsible for the Thatcher government’s white paper Working for Patients, which he said was long overdue in its “willingness to break the monolithic structure and make a start at least on dumping some of the structural garbage”. “Even more important is the acceptance and promotion of diversity in institutions in the shape of Trust-owned and managed hospitals with the freedom to buy and sell services to meet the needs of the communities they serve”.  The Thatcher administration’s aim was to make the NHS more “businesslike”. To this end it drafted in businessmen from the retail trade, from Marks and Spencer and Sainsbury’s. Sir Roy Griffiths, from the latter company, in his report on health service management wrote: “If Florence Nightingale were carrying her lamp through the corridors of the NHS today, she would almost certainly be looking for the people in charge”.

A problem that I saw at first hand from the very early days of Working for Patients was that implementing the reforms entailed recruiting armies of accountants and managers. Vast amounts of money seemed to be spent on that rather than patient care.

The short-hand term for what was proposed in Working for Patients and put into practice by Secretary of State for Health Kenneth Clarke in the 1990s was “the NHS reforms”. The Blair government carried Clarke’s policies even further and Gordon Brown was a firm supporter of public-private financing in all areas of service provision including health care.

The Blair government kicked off in 1997 with a White Paper entitled: The new NHS,
modern, dependable. Blair said in his foreword: “I know that one of the main reasons people elected a new Government on May 1st was their concern that the NHS was failing them and their families. In my contract with the people of Britain I promised that we would rebuild the NHS. We have already made a start. The Government is putting an extra £1.5 billion into the health service during the course of this year and next. More money is going into improving breast cancer and children’s services. And new hospitals are being built. The NHS will get better every year so that it once again delivers dependable, high quality care – based on need, not ability to pay.”
He claimed that things were going to be different under New Labour. “It replaces the internal market with integrated care. We are saving £1 billion of red tape and putting that money into frontline patient care.” The New Labour mantra was “modernisation” but was this any better than Harold Wilson’s much-derided “white heat of technology” in the early 60s? In the light of what has been reported in the UK press only this week, Blair’s promise of “new technology that links GP surgeries to any specialist centre in the country” elicits a hollow guffaw.

The BMJ (British Medical Journal) called the White Paper a compromise and was not impressed by the claim to be replacing the internal market. “The rhetoric is that the internal market, which supposedly resulted in damaging competition, has been abolished. In reality, competition was weak, the purchaser-provider split will remain, and purchasers will still have some choice between providers.”

The main change promised by the White Paper was related to primary care. The chief responsibility for purchasing health care  moved from the previous 100 health authorities, 3600 fund holders, and 90 total purchasing pilots to 500 primary care groups each covering “natural communities” of roughly 100,000 people. Primary care groups were to consist of groups of general practitioners (around 50) and community nurses which were intended to hold a budget for virtually all hospital and community health services for the area plus the cash-limited part of the general medical services budget—for example, for prescriptions and practice staffing. Health authorities would continue to purchase only selected specialist services, and fund holding was to be scrapped from April 1999. The plan was for primary care groups to develop in four stages over the next five years: at a minimum they could leave all purchasing to the health authority and have an advisory role only; at a maximum they could purchase almost all services and merge with community trusts to form primary care trusts providing all primary and community health care. The overall budget for patient care was to be cash-limited, and the primary care groups would be able to keep any savings made. Management costs of the health authority and fund holders were to be pooled, capped, and shared out between the health authority and primary care groups.
The BMJ saw the main effect of Labour’s policy to be: “softening the harsher edges of the internal market by increasing collaboration and openness; involving all general practitioners in commissioning/purchasing; and strengthening central control over the quality of, and access to, clinical care. They rest on several beliefs, which, as in all policy-making, are the messy product of political values, aspiration, practical judgment, and evidence: that competition in the NHS has generated bureaucracy and inequity; that the most promising way to manage scarce NHS resources is through devolving budgets to clinicians; and that existing systems to monitor the quality of clinical care (Royal Colleges and General Medical Council take note) are poor.”

The BMJ sounded a prescient warning note: “There are also notable omissions. For example, there is nothing new on overall funding of the NHS except that the changes in themselves will save £1bn in bureaucracy over five years—a fiction since developing the primary care groups will need high start-up costs. At best these reforms could give the service a real chance to manage scarcity better—through effective managed care. At worst they could just be the internal market with its motor removed, while perennial problems which undermine support for the NHS— haphazard rationing, financial deficits, the ‘winter crises’, and lengthening waiting times—go unaddressed.”

Whilst the stated purpose of NHS Foundation Trusts was to devolve decision-making from a centralised system to local communities in an effort to be more responsive to their needs and wishes, others saw the change towards semi-independent hospital boards as a move towards privatisation of the health service. Some contended that NHS Trusts went against the spirit of the principles laid out by Bevan. Others said that it would lead to a two-tier system, as in Canada. Although the quality of healthcare in Canada is excellent, the WHO has shown that it has the longest waiting times for any developed country. A further concern was that NHS Trusts would copy the USA (those drafting the reforms were much influenced by American thinkers) in seeing some illnesses as more profitable than others, and concentrate on those at the expense of others.

It was unfortunate for the UK and the NHS in particular that Blair and Brown were fixated on the idea of the Public Private Finance Initiative. If I go into all the details of that, this post will be even more intolerably lengthy. PFI (these days sometimes called PPP) can be summarized as Public Pays Private Profits. The “risk-taking” entrepreneurs of the private sector are on a certain winner. They will not enter into a contract with the government unless all the risks are covered. They put in incomplete tenders underestimating the costs and then the taxpayer makes up the shortfall and the companies rake in the profits.

Let Carlisle NHS Trust Hospital stand as an emblem of PFI in the NHS. Nick Wood, the chief executive of the North Cumbria Acute Hospitals NHS Trust, resigned a few days before a damning report was published by the Commission for Health Improvement (CHI). The CHI report coincided with criticism of the hospital by the public service union Unison, which is opposed to PFI hospitals. It published a dossier of complaints from members, including lack of beds and sewage bubbling out of theatre sinks when nurses were scrubbing up.

Another design flaw was a glass atrium which heated up in summer because there was no air conditioning. Sir Stuart Lipton, head of the government’s Commission for Architecture and the Built Environment, said: “The present round of PFI is effectively sub-contracted obligations. It is not that the buildings are being built inefficiently, but the contractor has got nothing to do with the medical process – they are two separate functions, which effectively should be one”.

David Hinchliffe, chairman of the House of Commons Health Select Committee, was also concerned about the design of PFI hospitals. His committee uncovered a number of problems:

• confusing layouts
• corridors being too narrow to be able to turn a hospital trolley round
• difficulties for nursing staff actually seeing patients because of the layout of the wards

The Health Secretary at the time, Alan Milburn, invited the Prince of Wales to be design champion for the new hospitals. Mr Hinchliffe was not impressed. “I don’t know what experience Prince Charles has of working in hospital kitchens, or taking clinical waste to sluice areas, or removing bodies from hospital wards to mortuaries. If he has got experience in that then I think he would be ideally suited to offer advice to the government.” I should have been offered the job because I have experience of those things as well as being adept at cleaning human bones out of the incinerator.

In December 2006, the Guardian revealed that half-year accounts for NHS hospitals, ambulance services and mental health organisations showed 121 NHS trusts across England overspent by £372.4m in the first half of the financial year. At least a dozen NHS hospital trusts were technically bankrupt, with no chance of meeting a legal obligation to balance their books. Data provided by the Department of Health under the Freedom of Information Act showed 103 hospital trusts across England expected to end the year with accumulated deficits of £1.6bn, caused by overspending since 2001.

The financial rules governing NHS Trusts were described by one NHS finance director as “a nightmare from Alice in Wonderland”. Their financial difficulties became impossible to manage because of a mistake made by the Department of Health and the Treasury in 2001, when they put NHS trusts under a financial regime known as Resource Accounting and Budgeting (RAB). The new system was designed to regulate spending by Whitehall departments, but had a devastating effect when it was applied to overspending hospital trusts. If a trust spent £105m, but had an income of only £100m, it would end the year with a deficit of £5m. The new rules sliced £5m from its income in the following year and obliged it to make a £5m surplus. That required the trust to cut its spending from £105m to £90m. Trusts faced with this triple whammy could not achieve the target without damaging patient care and so their deficits escalated. Many took corrective action, including sacking staff, closing wards and reducing the time patients spend in hospital, but the Guardian identified a group of trusts that had passed the point of no return.

Nigel Edwards, policy director of the NHS Confederation, said “Financial recovery would imply such damage to patients that no sensible person would go for it. They would not compromise the survival of the people they serve.”

One of the reasons for the financial difficulties of the NHS is the incredible amount of money the government has wasted on IT systems rather than patient care and funding for more practical areas of the NHS. Whilst a new IT system may improve some areas it is a luxury that is not anywhere near the priorities of most NHS employees and is also vastly expensive. The other problem with the government’s IT investments is that they have an uncanny ability to make a hames of it. The Independent newspaper reported on January 21 2010 on  the failings of Labour’s most costly programme, the mammoth £12.7bn IT scheme to revolutionize the way the health service worked. But far from heralding a new age of efficiency, the National Programme for IT is now widely perceived as the greatest government IT white elephant ever. As well as the huge costs involved, suppliers have walked away, projects are running years behind schedule, while medical professionals have complained that they were never consulted on what they wanted the new system to achieve. The Independent has learnt that just 160 health organisations out of about 9,000 are using electronic patient records delivered under the scheme. The vast majority of those were GP practices. New figures have also revealed that millions of pounds have been paid out in legal fees. Alan Milburn, the former health secretary, said in 2001 that everyone would have access to their health records online by 2005.

In August 2011, it was announced that the NHS was to abandon the national database of patients’ records, as originally envisaged by the previous Labour government in 2002. The cost of the fiasco was £6.4bn with a further £4.3bn  needed. As the Independent editorialised: “But we must not forget that each botched IT project also represents a private-sector shortcoming. Many firms have promised a great deal but not delivered. The PAC today rightly singles out CSC and BT for criticism for their inability to live up to their contractual commitments over the NHS IT projects. These businesses have been – and continue to be – rewarded for failure.”

The move towards Primary Care Trusts (PCTs) has not been easy. The Health Service Journal reported on 21 January that most PCTs will be unsustainable because just 10 per cent have successfully reduced emergency admissions. The CEO of Peterborough PCT recently resigned because of budget deficits.

The NHS is also likely to suffer because of factors beyond its control. The world financial crisis will have an impact as the government struggles to balance the books. NHS trade union Unison has warned against punishing public services for the excesses of “greedy bankers”, following the government’s Budget statement in 2009. King’s Fund (a healthcare think tank) chief economist John Appleby says it is very hard to see how the NHS can escape a real-terms cut. A real-terms cut would be a major adjustment for the NHS, which received annual real-terms growth of 7.4 per cent from 2002 to 2008. KPMG (financial consultants) head of healthcare Alan Downey says it is likely the cuts would mean the NHS will need to scale back its ambitions. “Noble aims are things which aren’t going to be pursued over the next ten  years. It’s going to be about retrenching back to what are seen as the priorities. The target to reduce health inequalities could be dropped, particularly under a Conservative government with less commitment to equality.”

Recent events seem to confirm that the NHS has never been clearly a national or a local service, and existing trends seem to lead to the worst of all worlds: the disadvantages of central control, and local differentiation without any genuine local autonomy. As the NHS is arguably the most national service in the British welfare state, it is possible that the heyday of the national welfare state may be over.