The NHS Internal Market: a Neoliberal Confidence Trick

External privatization isn't the only threat to the National Health Service. Looking closer at internal market reforms, we can already see the disastrous effects of a consumerist approach.

May 2. 2017

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The NHS Internal Market: a Neoliberal Confidence Trick

External privatization isn't the only threat to the National Health Service. Looking closer at internal market reforms, we can already see the disastrous effects of a consumerist approach.

The possibility of a free trade deal with Donald Trump is focusing attention on a future US corporate takeover of the UK National Health Service. While there are fears and criticism surrounding the corrupting influence of such private interests, we don’t have to look to the future to be concerned. The current arrangements within the NHS, such as the internal market, have fallen short in delivering promised ‘innovation’ and in some cases, have proved to be dangerous for patients.

In February 2016, NHS whistleblower Sarah Hayes revealed the chaotic state of the NHS 111 service in the South West of England. NHS 111 is a free-to-call medical helpline intended for ‘urgent but not life-threatening’ health issues.

It is often overlooked that we have lived with an internal market for 25 years

Hayes told of exhausted staff sleeping on the job and calls being handled by teenagers who had recently completed their GCSEs with minimal or no medical training. The story was associated particularly with a scandal involving the death of baby William Mead in Cornwall.

Defenders of the NHS had criticized the 111 facility for some time, claiming the unacceptable level of service was a direct consequence of privatization. But the situation in Cornwall was complicated by the fact that the NHS 111 service in the area was at that time contracted by the local Clinical Commissioning Group (CCG) to a public organization, the South West Ambulance Foundation Trust (SWAFT).

Rather than being a straightforward case of the dangers of external privatization, the story tells us something more general about the market model in large organizations, private as well as public. With serious concerns over external privatization, it is often overlooked that we have lived with an internal NHS market in some form or another for 25 years.

Rather than driving innovation, business units started fighting each other

The narrative that the way to promote service innovation and drive down costs is via competition is so dominant that many people accept it uncritically. But does it work? It is interesting to start by looking at the private sector itself where surprisingly internal markets are not popular.

A 2013 article by Steve Denning outlined the problems. While Denning focused on innovation rather than service provision the principles are almost identical since the goal of delivering more medical services for less cost relies on creating or adopting ‘innovative’ ideas. Denning mentions the case of American retailer Sears whose chairman Eddy Lampert is an enthusiastic proponent of internal business units for driving innovation. As Denning says:

An outspoken advocate of free-market economics and fan of the novelist Ayn Rand, [Lampert] created the [business unit] model because he expected the invisible hand of the market to drive better results. If the company’s leaders were told to act selfishly, he argued, they would run their divisions in a rational manner, boosting overall performance.

Even sympathetic private sector advocates admit the internal market model is far from universally applicable

The consequence however was that business units started fighting each other, efficiency plummeted and financial results were disappointing. Sears had to hire and promote dozens of financial and marketing officers, greatly increasing overheads. A holistic strategy for the entire organization became impossible and customer focus was compromised. These consequences bear similarities to the experience of the NHS’ own internal market.

In How to Dismantle the NHS in 10 Easy Steps, Youssef El-Gingihy notes:

Administrative costs rose from 5% in the mid 1970s to 14% in 2003 mainly due to internal market operations. Around 10% of the NHS budget or £10 billion a year is therefore spent on running an internal market. The Health and Social Care Act could push these administrative costs to 30%, which is similar to the US.”

Together with the already mentioned turf wars, duplication of effort and poor financial performance, it is also indicative of an inability to define a clear strategic direction. Even sympathetic private sector advocates admit that the model is far from universally applicable.

Speaking of his experience in a very different organization, the World Bank, Denning says:

A huge amount of time [was] spent on [the internal market] for very little gain. The negotiations were all about a few percent of activities at the margin but one hundred percent of people were involved in a massive negotiation, all aimed at protecting their own activities and work programs.

Contract termination adds extra costs and puts extra strain on services such as GPs and A&E

Returning to the South West NHS 111 scandal, the SWAFT pulled out of the Devon and Cornwall contracts in 2016 citing an inappropriate business model. This created exactly the inefficiency highlighted by Denning where Clinical Commissioning Groups had to spend time and effort putting in place a new contract.

The destabilizing effect of contract termination is significant, with extra strain being felt on other services such as GPs and A&E departments. Not widely reported was the fact that this was actually the second time the NHS 111 service contract was disrupted – neighboring Devon having been the victim of a contractor withdrawal in 2013.

The additional costs resulting from these kinds of disruptions adds to those incurred from duplication of work and unnecessary activity, which already makes internal markets undesirable. Following the withdrawal of SWAFT the 111 service in Devon was restructured and amalgamated with the out-of-hours service run by Devon Doctors, a social enterprise organization owned by Devon’s GP practices.

The stiffer the competition in an area, the lower the quality of care

The new Devon 111 contract at least had the advantage of re-integrating services, running against the current of fragmentation and consequent damage to a holistic approach, which is felt most keenly at the individual patient level. Service fragmentation is of great concern as the population ages with an increase in overlapping chronic illnesses. A Kings Fund overview of market reforms emphasized:

Recent NHS initiatives have increased the range of providers in both primary care (eg, walk-in centers) and secondary care (eg, independent-sector treatment centers). This has the potential to worsen co-ordination of care – an area in which UK performance is already poor compared with other countries.

The adverse effect of such reforms on providing a coordinated service becomes dangerous within healthcare as a 2003 study by Bristol University found. Focusing on just one feature, the death rate following heart attacks, they discovered that the death rates in hospitals in areas of greatest competition were higher. The overall conclusion of the report was that the stiffer the competition in an area the lower the quality of care.

With compelling evidence that the market does not work and is in fact harmful, what possible reason can there be for continuing with it? As Calum Paton, Professor of Health Policy at Keele University argued in a February 2014 paper, it is ideology:

Not only has evidence to justify ‘market reforms’ to the English NHS from 1990 to the present-day [2014] been absent, but the recent Health and Social Care Act of 2012 actually ignores, or even inverts, evidence which suggests that ‘commissioning’ by GPs in local markets characterized by separate ‘purchasers’ and ‘providers’ is costly and of dubious effectiveness. The only reasonable conclusion is that market policy is based upon ideological dogma, pressure from commercial interests or both.

Government policy often resembles rummaging around in the eponymous garbage can

For Paton, the NHS internal market is an example of the Garbage-Can theory of decision making. The theory originated in a 1972 publication by Cohen, March and Olsen and holds that problems, solutions and decision makers are disconnected from each other.

In their view, an organization is more a collection of choices looking for problems, solutions looking for issues to which they might be the answer, and decision makers looking for work. This certainly describes the appearance of a Government policy which often resembles rummaging around in the eponymous garbage can.

Such administrative reforms and the resulting disruption of a very efficient system is viewed as puzzling by overseas observers too. For example, a Brazilian report concluded:

The British system is an international historical reference for health entitlement, prioritizing universality, and organizing a system with primary care as the portal of entry with case-resolution capacity, acting in cooperation with other sectors of care to ensure comprehensive healthcare. Such administrative reforms, part of an adverse political and economic context, interpose market logic in clinical and epidemiological reasoning in management decisions, thereby jeopardizing the reason for being of the public health system itself: the population’s universal right to care and prevention.

Solutions will not be delivered by current ideological commitments

The story surrounding the NHS 111 scandal has revealed something fundamental. Not only is the external market inappropriate for public health provision, but we should be looking closely at the whole issue of internal markets as well. Internal markets foster a consumerist rather than a citizen-centered approach. If you provide few resources to one part of the system, then they will try to squeeze as much as possible from another sector.

There are two basic facts about the NHS which cannot be disputed. Firstly, it is extremely popular with the public, being a matter of pride and source of identity for many people. Secondly, with more technologically advanced care, sophisticated drugs and an aging population costs are escalating rapidly. Evidently, solutions must be found, but will not be delivered by current ideological commitments to models such as the internal market.

We must stop the commodification of healthcare. Various organizations are campaigning to spread awareness of the policy and campaign to prevent its extension. 999 Call for the NHS organizes local campaigns with a national agenda while both the Green Party and National Health Action Party field candidates dedicated to reversing competition and privatization.



Image: Rohin Frances

May 2. 2017