Analysis

How the secretary of state for health proposes to abolish the NHS in England

BMJ 2011; 342 doi: http://dx.doi.org/10.1136/bmj.d1695 (Published 22 March 2011) Cite this as: BMJ 2011;342:d1695
  1. Allyson M Pollock, professor ,
  2. David Price, senior research fellow
  1. 1Centre for Health Sciences, Barts and The London School of Medicine and Dentistry, Queen Mary’s College, University of London, London E1 2AT, UK
  1. Correspondence to: A M Pollock allyson.pollock{at}gmail.com
  • Accepted 9 March 2011

Allyson Pollock and David Price examine the proposed statutory changes to the NHS and raise concerns that the government’s role could be reduced to that of payer

The coalition government’s Health and Social Care Bill 2010-11 heralds the most controversial reform in the history of the NHS in England.1 2 3 The government plans to replace the NHS system of public funding and mainly public provision and public administration with a competitive market of corporate providers in which government finances but does not provide healthcare.4

Primary care trusts and strategic health authorities are to be abolished and replaced by general practice commissioning consortiums, which all practices must join. As incorporated bodies, consortiums will not be directly controlled by the secretary of state for health and may enter into commercial contracts with “any willing provider” for all health services and will set terms and conditions of staff. They will have extraordinary discretionary powers to define entitlement to NHS provision and charge patients. Direct management and control of NHS providers will cease as foundation trust status becomes mandatory for all trusts. Provider regulation will be overseen by a market regulator, Monitor.

Since 1948 the government has had a duty to provide comprehensive healthcare free at the point of delivery. This duty is underpinned by structures, systems, and mechanisms that promote fairness and efficiency in resource allocation and facilitate planning of services according to geographical healthcare needs through risk pooling and service integration. These mechanisms have been eroded by a succession of major regulatory changes, including revision of funding and responsibility for provision of long term care; creation of an internal market; introduction of private providers and capital through the private finance initiative, independent treatment centres, foundation trusts, and the 2004 general practice contract; and creation of a tariff system of payment for providers.5 We examine the proposed statutory protections of the duty to promote and provide comprehensive care in the bill.

Duty to provide a comprehensive public service

Although the bill retains the secretary of state’s duty to promote a comprehensive service, the duty to provide a comprehensive health service in England is abolished.4 It is replaced with a duty to “act with a view to securing” comprehensive services. The health secretary’s general powers of direction over NHS bodies and providers are also abolished, and the focus of his or her role will shift to public health functions, which become the responsibility of local authorities.

Section 9 abolishes the duty on the health secretary to “provide [certain health services] throughout England, to such extent as he considers necessary to meet all reasonable requirements.” Commissioning consortiums will “arrange for” the services necessary “to meet all reasonable requirements” and determine which services are “appropriate as parts of the health service” (section 9, 2a).4 A consortium does not have a duty to provide a comprehensive range of services but only “such services or facilities as it considers appropriate” (section 10, 1). In making these arrangements, commissioning consortiums must ensure that their annual expenditure does not exceed their aggregate financial allocation (section 22, 223I-K). Consortiums may join together to form a single commissioning group for England (section 21, 14Q, 2b),4 but they are not required to cover all persons or provide comprehensive healthcare when doing so.

The NHS Commissioning Board must “ensure that . . . commissioning consortia—(a) together cover the whole of England, and (b) do not coincide or overlap” (section 21, 14A, 2) but the board will not have a power of general direction over the health services for which consortiums contract or patients’ entitlements. The secretary of state’s influence is indirect, exercised through an annual “mandate” that will set out the objectives of the independent NHS Commissioning Board (section19). The economic regulator, Monitor, also has no duty to ensure provision for all residents. Its main duty will be to “protect and promote the interests of people who use health services . . . by promoting competition.”

The commissioning consortiums’ duty to arrange for health service provision applies to their enrolled population. In contrast to primary care trusts, the populations of consortiums will be drawn from the patient lists of member general practices rather than all residents living within a defined geographical area (section 9, 3, 1A). Practice boundaries may be abolished as part of patient choice, which means that “practices can accept patients regardless of where they live, effectively allowing patients to choose their commissioner,”6 or commissioners to choose their patients. If this happens, practices and consortiums will be able to compete (and advertise) for patients from across the whole country just as private healthcare corporations and health insurers do now.

The bill makes consortiums responsible for services such as emergency care with respect to “persons who have a prescribed connection with the consortium’s area” (section 9, 3, 1B) and requires that they must specify their “area” in their constitutions (schedule 2, section 2), but responsibilities and services for people who are not enrolled with them are not defined. Pooled funds will provide a mechanism for compensating commissioners and providers for these unspecified responsibilities with respect to the unenrolled populations.

Provider of last resort

Because the secretary of state will no longer be able to ensure comprehensive, universal cover to all residents in geographically defined areas, the legislators have drafted a safety net whereby local authorities can be required to undertake NHS functions. Under section 8 (2B, 3c) of the bill, the health secretary can require councils to provide “services or facilities for the prevention, diagnosis or treatment of illness.” Local authorities alone have a duty to provide for geographical populations. Healthcare services that consortiums and market providers deem will threaten their financial viability can therefore be transferred out of the NHS in much the same way as long term care and continuing care responsibilities were transferred out in 1996. Patients who cannot get access to general practices or services of commissioning consortiums may have to default to local authorities, which would become the provider of last resort, and the core functions of the health secretary will shift to the chargeable local authority sector.7

Equity of access

The secretary of state has no duty to promote equity of access apart from a vague duty to “have regard to the need to reduce inequalities between the people of England with respect to the benefits that they can obtain from the health service” (section 3). The NHS Commissioning Board will not have a general power of direction over consortiums or be under a duty to ensure equal access for equal need to health services. A vague and unenforceable equity duty also applies to consortiums, which will be required to “have regard to the need to reduce inequalities between patients” (sections 19 and 22). Equality of access is not a required outcome of consortiums’ duty to secure “continuous improvement” from the provision of services (section 22, 14L, 3); nor is it part of annual “commissioning plans” that consortiums will be required to prepare (section 22, 14Y). These will cover only continuous improvement and the financial duty to break even.

Duty to provide services free of charge

There are new mechanisms to introduce charges and privately funded healthcare. The secretary of state’s duty to provide free services that are “part of the health service in England,” except where charges are expressly allowed (section 1, 4), is undermined because the power under the Health and Medicines Act 1988 to impose charges is transferred from the secretary of state to consortiums (section 22). Consortiums will determine which services are part of the health service and which are chargeable (section 9), and they have been given a general power to charge (section 7, 2h).

The cap on foundation trusts’ generation of income from private care will be abolished (section 150). They will be able to charge for hospital accommodation7 and, without reference to Monitor, amend their primary purpose of providing services to the NHS (section 146). The government has signalled elsewhere that the introduction of personal health budgets is “a high priority,”8 and pilots show they are linked to top-up charges.9

Mechanisms for allocating resources

The funds allocated to primary care trusts are determined by using formulas adjusted for area based population and needs. However, the budgets of consortiums will be allocated on the basis of aggregated general practice lists rather than geographical population.8

To mitigate the risks of adverse selection (risks that some consortiums will attract sicker and more expensive patients) the bill proposes a risk equalisation mechanism in which consortiums can establish a pooled fund to off-set costs in consortiums that have different proportions of high and low risk patients.10 However, the absence of individual risk data and robust resource allocation methods is problematic,11 12 as are the high transaction costs associated with risk equalisation funds.

Commissioning budgets based on membership resemble European sickness funds, in which members share costs among themselves rather than across the whole society.13 Sickness funds are associated with unequal risk bearing among pools, risk selection, patient charges, and supplementary insurance. Compensatory risk equalisation mechanisms are inefficient, expensive,14 and increase risk selection because funds avoid high risk patients on financial grounds.15

Abolition of direct control over NHS provision

Greater corporate involvement in primary care

Although the NHS Commissioning Board will have a duty to “secure the provision of primary medical services throughout England” (schedule 4, part 5) “to the extent that it considers necessary” (schedule 4, part 4), consortiums will become budget holders and determine which primary services they contract, from whom, and at what cost. Patients may therefore be exposed to a plurality of primary care contractors for different services. All general practices will be required to join a commissioning consortium. Various bodies can apply to become a commissioning consortium, including foundation trusts and for-profit organisations that run general practices.

Increasingly, general practice and commissioning functions will be operated and managed by for-profit companies, 23 of which (including Virgin, Care UK, and Chilvers McCrae) reportedly already run 227 general practices.16 Professional autonomy will be eroded if, for example, referral management centres run by corporate providers are used to ensure referral and prescribing practices conform to corporate budgets (schedule 12, 1) and the needs of shareholders. These centres are currently rejecting one in eight general practitioner referrals17 and seem to operate along the lines of “prior authorisation” arrangements in the United States, whereby doctors are required to obtain approval from a higher authority before making a referral for treatment or investigation. Some of the centres, such as UnitedHealth UK’s recently established “referral facilitation service” in Hounslow, London, are run by subsidiaries of US multinationals.

Abolition of NHS trusts

From 1 April 2014, all NHS hospital and community trusts are required to become foundation trusts. Foundation trusts may enter into joint ventures with and distribute surpluses to for-profit companies and raise commercial loans without restriction. The NHS Commissioning Board and general practice consortiums will also have powers to form and invest in commercial companies (schedule 4, part 10).

Provider regulation will be overseen by Monitor, whose primary duty will be to promote competition. Controversially, regulation by Monitor and the Quality Care Commission will be chiefly through commercial licensing and contracting (box 1)18 and limited by a duty of “maximising the autonomy of individual commissioners and providers and minimising the obligations placed upon them.”8 Regulators are required not to impose “unnecessary burdens” and regulation can be dispensed with as more providers enter the market place.7 The “necessity” of public regulation can be challenged by corporations in the courts. Proposals by the European Commission to introduce such tests to health services created Europe-wide controversy in 2004 and had to be withdrawn because they were deemed to conflict with public health policies such as controls over market access.19 However, conflict between competition policy and the health secretary’s duty to promote a comprehensive service will be resolved not by parliament but by Monitor, “in the manner it considers best” (section 55).

Box 1 Regulating providers through commercial contracts

The government proposes to regulate providers through commercial contracts:

“The Government’s approach is that where specific control mechanisms are needed for providers, these should in general take effect through regulatory licensing and clinically-led contracting, rather than hierarchical management by regions or the centre.”18

Most economists agree health services cannot be sufficiently controlled through market regulation because the complexity and unpredictability of treatment makes it impossible to set out all eventualities in a contract.

This problem of incomplete contracts was first described by the founding father of health economics and Nobel laureate, Kenneth Arrow.31 He argued in 1963 that producers of healthcare services will always have more information than purchasers, who will never be able fully to evaluate the likely consequences of different services and so will never be completely certain that they have chosen the best provider or that the outcome is optimal.

When market contracts are used to regulate providers and commissioners, managers have an incentive to exploit the information deficit on the part of patients and government by reducing service quality in order to maximise profits.

According to Arrow, incomplete contracts can explain why “the association of profit-making with the supply of medical services arouses antagonism and suspicion on the part of patients and referring physicians.”

Section 52 of the bill proposes new competition duties that will allow remaining public controls over health services to be challenged by multinational companies and investors anywhere in the world.20 Trade rules outlaw public policies that prevent, restrict, or distort competition in trade within the UK or the European Union such as setting prices, public subsidies for teaching and research, and controls designed to ensure fair distribution of resources. Rules on free movement of capital could undermine powers that the government proposes to reserve for protection of service continuity.21 One company, Circle, the first to take over a foundation trust, is already using competition rules to challenge a primary care trust’s decision to restrict the volume and range of services under the commercial contracts for NHS elective surgery.22

Freedom to create surpluses from care budget

The bill explicitly authorises the creation of surpluses from the patient care budget and their distribution to staff and shareholders as part of financial incentive or bonus schemes (section 23). Surpluses can be generated by selecting patients or services, denial of care, or reductions in staff terms and conditions, responsibility for which will be transferred to corporate bodies. The secretary of state cannot be held to account for diversion of NHS funds from patient care to staff or investors.

The end of the NHS?

The government proposes a commercial system in which the NHS is reduced to the role of government payer, equivalent to Medicare and Medicaid schemes in the US. However, government belief that cost efficiency, improved quality, and greater equity flow from competition in healthcare markets22 is not supported by evidence, the Office of Fair Trading, the government’s impact assessment, or its experience of independent treatment centres and private finance initiatives.23 24 25 26 27 28 29 30 31

In order to create a commercial market the government has repealed the health secretary’s duty to provide or secure the provision of comprehensive care and has abolished the structures and mechanisms which follow from this duty. It has granted new powers and financial incentives to corporate commissioners and investors to redefine eligibility and entitlement for NHS funded care, select out profitable patients and services, and introduce regressive funding through patient charges and private healthcare (box 2).

Box 2 Freedoms created under the new bill

Investor-run commissioners and providers will be free to

  • Invest in and form companies

  • Use commercial contracts to bring in commercial providers

  • Define the range of services to be provided and patient entitlements under the NHS

  • Charge for some elements that are currently NHS services and for health services they determine are no longer covered by the NHS

  • Generate and distribute surpluses to shareholders, investors, and employees by underspending the patient care budget

  • Use competition law to challenge public policies that impair their profitability and freedom to operate

  • Contract out all NHS services to a range of private providers

  • Select patients and services

  • Determine staff terms and conditions

In box 3 we list some key amendments to ensure continuation of NHS comprehensive healthcare throughout England. The stark alternative is exposure of NHS funds and provision to international competition laws that will further limit the ways in which governments can intervene in markets to off-set unwanted effects for public health. Unless the amendments are made, the bill as drafted amounts to the abolition of the English NHS as a universal, comprehensive, publicly accountable, tax funded service, free at the point of delivery.

Box 3 Amendments to ensure continuation of NHS comprehensive healthcare

  • Restore the duty of the secretary of state for health to provide or secure the provision of comprehensive healthcare throughout England to such extent as he or she considers necessary to meet all reasonable requirements

  • Impose a duty on general practice commissioning consortiums to provide comprehensive healthcare for all residents in geographically defined areas and fund them accordingly and on the basis of need

  • Impose a duty on the NHS Commissioning Board to retain and further develop a system of resource allocation based on the healthcare needs of all residents of geographically coterminous areas

  • Withdraw the power granted to commissioners to charge for healthcare services and reserve the power to the health secretary

  • Remove health services from jurisdiction of competition law

  • Require the health secretary to ensure continuity of patient care through administrative and financial integration of provider services under the jurisdiction of geographically defined consortiums (as in Scotland and Wales)

  • Impose a duty on the health secretary to protect professional autonomy and increase direct public accountability

  • Impose a duty on the health secretary to abolish financial incentives to create and distribute surpluses by underspending patient care budgets

Notes

Cite this as: BMJ 2011;342:d1695

Footnotes

  • Contributors and sources: AMP and DP have studied, taught, and reported widely on health system reform in the UK and abroad. This article follows extensive research into government policy and on private sector participation in the NHS over two decades.

  • Competing interests: All authors have completed the unified competing interest form at www.icmje.org/coi_disclosure.pdf (available on request from the corresponding author) and declare no support from any organisation for the submitted work; no financial relationships with any organisation that might have an interest in the submitted work in the previous three years; and no other relationships or activities that could appear to have influenced the submitted work.

  • Provenance and peer review: Not commissioned; externally peer reviewed.

References