Market reforms and privatisation in the English National Health Service/Mercado reforma y privatizacion en el Sistema Nacional de Salud ingles.

AutorRuane, Sally

Sumario: 1. Introduction. 2. Capital investment and extending market forces in the procurement of new hospitals. 3. The marketisation of non-clinical services. 4. The marketisation of clinical services. 4.1. The creation of an internal market 1991-1997. 4.2. Re-creating the market 2000-2010. 4.3. Restructuring the market 2010-present. 5. Growing privatisation in clinical services. 5.1. Hospital services. 5.2. Community services. 5.3. Out-of-hours primary care. 5.4. Expenditure on private provision. 5.5. Policy making. 6. The impact of privatisation on staff. 7. Some of the consequences of choosing the market. 8. Popular resistance to marketisation and privatisation. 9. Concluding discussion: what future for the integrity and sustainability of the NHS?. 10 References.

  1. Introduction

    This article examines key developments in marketisation and privatisation in the English National Health Service (NHS). The paper does not attempt an evaluation of the effectiveness of the reforms but will assess their significance more broadly, including some of the implications for the workforce and for the founding principles of the NHS. The paper examines opposition to these policies, focussing on the mobilisation of resistance to the most recent development, namely the passing of the 2012 Health and Social Care Act under the Conservative-Liberal Democrat Coalition government.

    The article will focus primarily on policy after the election of the Labour government in 1997 although some brief discussion of earlier developments will be necessary on occasion for context. As health has been a devolved policy since 2000, the developments described in this paper concern the English NHS only. First, the article will examine the marketisation and privatisation of the procurement policy for new large scale infrastructure projects, specifically the Private Finance Initiative in large hospital builds. The application of market processes to ancillary services and back-office functions will be discussed. The article then turns to the spreading out of market policies to embrace an ever widening range of clinical services. The extent of privatisation and some of the consequences for staff will be discussed. The paper provides an overview of the popular resistance to the most recent market restructuring and concludes with a discussion of the implications of these reforms for the founding principles and sustainability of the NHS. Marketisation is understood as the (re)structuring of services so that 'purchasing' organisations are separated from 'providing' organisations with these relating to one another through contracts for which providers must compete; the financial system is redesigned so that 'the money follows the patient'. Privatisation refers to the transfer, on a temporary or permanent basis, of activities, staff, assets, responsibilities, funding, regulation or decision-making out of the public sector to private individuals or private organisations.

  2. Capital investment and extending market forces in the procurement of new hospitals

    In 1994, a new approach to capital investment, the Private Finance Initiative (PFI), was imposed as a requirement in NHS capital procurement processes, including for new hospital builds. Although initially a Conservative policy, it was the New Labour government elected in 1997 which championed it as the solution to finding finance for capital investment. PFI was described as a mechanism for levering private finance into public infrastructure development (Department of Health (DoH), 1997).

    Under PFI, as part of the process of procurement, decisions about whether or not to build a new hospital are taken by individual NHS Trusts (2) which are looking to improve their own estate although in practice they need to be supported by local commissioning bodies. The individual Trust invites private sector consortia to bid to supply the new hospital. The NHS Trust enters into detailed negotiations with the preferred bidder. The consortium undertakes to design the hospital according to the output specification of the NHS Trust, to borrow finance to invest in its construction and to construct the hospital. The hospital once built is made available for use by the NHS Trust but the consortium of companies, or 'special purpose vehicle' (SPV--a specially created shell company) owns the hospital in that it has a right to the financial flows arising from it. This means that the NHS Trust must make payments to the SPV each year for the duration of the contract (typically around 30 years). (3) Part of these payments is for the availability of the hospital and part is for the associated services such as maintenance, catering, help-desk support, cleaning, estates management or other facilities management services which form part of the contract. While the ownership and provision of these services are in private hands, the hospital Trust itself remains publicly managed and clinical services remain public. (4)

    The attractiveness of PFI lay in the fact that capital investment under PFI does not immediately affect the most widely used measures of capital spending, net borrowing and the stock of national debt, despite the fact that PFI debts are owed by public sector bodies and underwritten by the state (Hellowell, 2014). This allowed the impression of greater fiscal prudence to be conveyed than was actually the case and so had political benefits. By 2014, there were 123 operational PFI projects with a capital value of around 12.1bn [pounds sterling]) and many run-down hospitals had been replaced (HM Treasury, 2014).

    However, PFI entails much higher costs to the public sector for capital investment than was previously the case. These arise from the various factors including the higher cost of private borrowing, high levels of development costs (e.g. legal and financial advice) and the difficulties of predicting accurately at the time of negotiation what the contract needs to cover throughout its duration resulting in costly modifications to the contract in later years (e.g. see Ruane, 2010a). Thus although the capital value of the 123 schemes mentioned above stood at 12.1bn [pounds sterling], total repayments by the time they are made will amount to around 80bn [pounds sterling] according to official figures (HM Treasury, 2014). Because PFI repayments are underwritten in law, NHS Trusts must prioritise their PFI repayments above other demands on their revenue. As the capital element of the tariffs paid to hospitals for their clinical work does not reflect the full cost of PFI payments, there is evidence that PFI payments are an important part of budgetary pressures and NHS Trusts with large PFI schemes have become more vulnerable than others to falling into deficit (Pollock et al, 2011; Plimmer, 2014).

    An example is the 600-bed Peterborough and Stamford Hospitals NHS Trust. The Trust began repayments on its PFI contract following the 335m [pounds sterling] construction of a new hospital and two new health centres in 2010. Payments amounted to around 45m [pounds sterling] per annum but the hospital faced a projected deficit of 50m [pounds sterling] each year on little more than 200m [pounds sterling] revenue and the economic regulator concluded in June 2013 that the Trust, although it worked well 'clinically', was financially unsustainable (BBC News, 2013; Edwards, 2013). Rising with inflation, payments could potentially reach a total of almost 2bn [pounds sterling] by the end of the 35 year contract.

    PFI has also been held responsible for bed shortages in some Trusts (BBC News, 2000; Pollock and Price, 2013) (5) and has distorted planning priorities by requiring patient care in the local system to be channelled to the PFI trust to ensure revenue is generated to make repayments. It stands in contradiction to other policies aimed at securing efficiencies and transferring a greater proportion of care out of hospitals and into community settings. It has removed hospitals from public ownership and to some extent concealed their ownership since the selling on of shares is difficult to track. Moreover their ownership is sometimes held by offshore companies which are structured to reduce their tax liabilities (Armitage and Holmes, 2014). It distracts managers from patient care and reduces the flexibility with which managers can direct aspects of the service where staff have been transferred (Ruane 2002).

    PFI was revised under the Coalition government and PF2 has taken its place. This new version of PFI alters the types of investors providing the capital and changes the ratio of debt (in the form of bank loans or bond finance) to risk capital (or equity) (HM Treasury, 2012). However, although it has been presented by the Treasury as reducing the risk of schemes, financial analysis has indicated that it is likely to push up the cost of capital further and consequently the Trust repayments, making PF2 even more expensive than PFI (Hellowell, 2014).

  3. The marketisation of non-clinical services

    The first concerted application of market forces to staff within the NHS began in 1983 under Margaret Thatcher's administration when hospital managers were required to embark upon 'compulsory competitive tendering' to procure cleaning, catering and laundry services. The policy, along with its successor in the 1990s, 'market testing', was effective in reducing the direct costs of providing these services (Cm 2212, 1993), largely because private contractors offered workers poorer conditions of employment (HM Treasury, 1986). As these are labour intensive services, it had the effect of reducing the numbers of staff employed, increasing the workload on those remaining and consequently reducing the quality of work done. Around 108,000 jobs in cleaning, catering and laundry were lost between 1983 and 1992 (Kerr and Radford, 1994; Joint NHS Privatisation Research Unit, 1990).

    In a context of funding constraints and efficiency initiatives and in which...

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