A YEAR ago, the Labour government was convulsed in an argument over the future of the National Health Service. The debate was about a proposal to give a bit more local autonomy to NHS hospitals awarded “foundation” status. In the middle of this brouhaha, the government was quietly assessing bids from private medical groups to do elective treatments like hip replacements for NHS patients. The first ten public hospital trusts got “foundation” status in April and there was barely a ripple. But the results of that tender to the private sector are creating waves.
A new model for the NHS is emerging—one in which a big chunk of patient care is procured publicly but delivered privately. That prospect is already starting to transform the private medical market in Britain.
Until now, the independent sector has been a cottage industry in Britain. Its small scale reflected the dominance of the NHS, with a total budget this year of £82 billion, in both financing and providing health care. The annual turnover of the independent sector for acute medical services is £2.5 billion, providing 13% of all elective surgery, according to Laing & Buisson, a health-care market analyst.
In Labour’s first term of office, the government was initially unenthusiastic about getting NHS patients treated privately. That changed in late 2000 with a “concordat” setting out the terms for a partnership with the independent sector. However, the scale of purchases remained small: around 60,000 procedures in 2002 according to the Department of Health compared with nearly 5m elective operations in the NHS. The arrangements were also expensive: the NHS has been paying around 40% more than internal costs to buy private operations. That partly reflects inefficiency in the independent sector, but it also reflects the higher expenses of meeting small-scale, ad hoc purchases.
The new tender introduced the potential for much cheaper provision since it was for bulk purchases of 250,000 treatments a year over a five-year period. But Britain’s existing independent providers failed to rise to the challenge. Most of the successful bids for the 34 treatment centres were won by new entrants into the British market from America, Canada and South Africa. Swedish-owned Capio Healthcare, already operating in Britain, was also awarded some of the business.
This galling result forced Britain’s domestic medical providers to rethink their business models. The first to respond was Nuffield Hospitals, the third largest by revenues. Together with Capio, it won a contract in April with a low-cost bid to carry out 25,000 operations for the NHS this year. Now BUPA, the country’s biggest private medical insurer, has announced a big shake-up in its hospital business. It is streamlining its activities by selling ten of its 34 hospitals and is investing heavily in the remaining ones so that it can compete on lower prices. The independent sector is gearing up to deliver higher volumes at lower unit costs, says William Laing of Laing & Buisson.
A more efficient private sector will in turn put pressure on NHS providers. The first tender for 250,000 annual treatments amounts to about 5% of total NHS elective operations. But John Reid, the health secretary, now envisages this share rising eventually to 10-15%. The government wrangled endlessly over foundation hospitals. But this barely controversial policy will do a lot more to pep up the NHS.