Privatisation of health by stealth

Submitted by Anon on 20 April, 2005 - 2:16

By Stan Crooke

New Labour’s sustained attacks on the NHS are the most graphic illustration of their promotion of a big business agenda and their abandonment of basic labour movement values.

When the NHS was created in 1948 it was based on the simple idea that health was a right, not something to be bought or sold. Its basic principles were comprehensiveness (meeting all medical needs), universality (covering all parts of the country), and equal access (irrespective of income).

Some compromises were made at the time of its creation — hospital consultants were allowed to continue with their private practice, for example. But these compromises did not undermine the essential character of the NHS as a provider of free medical services for all.

In the post-war decades Labour and Tory governments alike underfunded the NHS, but there was no attack on the basic principles underpinning the NHS.

For example, in 1962 Conservative Health Minister Enoch Powell produced the “Hospital Plan” to expand hospital capacity, gearing it to meet the needs of the most disadvantaged groups and areas in the UK. Powell described it as “planning on a scale not possible anywhere else, certainly this side of the Iron Curtain”.

Tory cuts and privatisation

The onslaught on the NHS began with Thatcher’s election in 1979. Thatcher’s initial targets were to cut spending on the NHS, undermine trade union organisation in the NHS, and reduce the power of hospital consultants (whom she regarded as obstacles to reduced spending and greater efficiency).

Promoting a private-business management culture, “out-sourcing” (i.e. privatisation) of services, and introducing “free-market competition” were the means to achieve these goals.

The number of general or senior management posts in the NHS increased from a thousand in 1986 to 26,000 by 1995. This invading horde of managers had a profit-and-loss-based culture, rather than a care-based culture. They re-allocated resources — to themselves. The proportion of NHS spending on administration increased over the same period from 5% to 12%.

This new breed of managers “outsourced” all hospital services other than “core” clinical ones. Non-clinical employment in the NHS fell from 260,000 in 1981 to 120,000 in 1994. On average, the staff who replaced them were paid 20% less. Standards of cleanliness and meals in hospitals slumped — by the end of the 1990s 10% of seriously ill patients suffered from malnutrition while in hospital.

In 1991 the Tories introduced the so-called internal market. The NHS was split into “purchasers” (the health authorities and GPs who opted to become fundholding GPs) and “providers” (hospitals, community health services, and GPs). The role of the “providers” was not to provide the best health care possible, but to “sell” their “commodities” in “the marketplace”.

By 1997 the UK had one of the fastest rates of hospital closures in Europe, and one of the lowest ratios of hospital beds per thousand of population in Europe. Services previously available on the NHS had been scrapped. Popular disgust at the Tories’ destruction of the NHS helped propel Labour back into power in 1997.

But Labour was to accelerate and extended the onslaught on the founding principles of the NHS.

New Labour: maintaining the Tory agenda

During the first two years of the first Blair government, Gordon Brown — supposedly the more “left-wing” alternative to Blair as potential party leader — maintained the Tories’ public spending limits.

Underfunding, among other factors, resulted in an accelerated closure of hospital beds: between 1997 and 2002 more than 10,000 hospital beds were closed in England alone. Underfunding also meant an ongoing dearth of capital investment in hospitals. (By 1997 most capital expenditure on NHS hospitals was already financed by borrowing or from the hospitals’ own revenue budgets, not from central government grants.)

The two-year restriction on spending was really a “softening up” process. In January 2000 Brown announced that over the following four years the government would increase spending in real terms on the NHS by 6.1% annually. But the increased expenditure was tied to a package of “reforms”. Much of the extra money for the NHS was to be creamed off by the private sector, at the expense of the quality of service provided to NHS users.

The Government was quite open about its intention to bring big business and market forces into the NHS. In October 2000 the Government signed a “Concordat” with the Independent Healthcare Association (IHA), under which the Government committed itself to promoting a greater role for the private sector in health care.

In May 2003 Blair told private sector healthcare executives: “We are anxious to ensure that this is the start of opening up the whole of the NHS supply system, so that we end up with a situation where the state is the enabler, it is the regulator, but it is not always the provider.”

PFI: “a Trojan horse for privatisation”

Hospitals are at the heart of the NHS, accounting for around two thirds of all spending. Blair demonstrated his commitment to big business by transforming the public hospital estate into a vast terrain to be exploited and plundered by market forces. His chosen method for this was Private Finance Initiatives (PFIs).

The Tories’ plans to use PFIs for hospital-building had been denounced by Labour in opposition as “a Trojan horse for privatisation”. But one of Blair’s first acts on gaining office was to push through the legislation needed to extend the reach of PFIs into hospital-building.

PFI hospital-building contracts are normally for a 30-year period. An NHS hospital trust pays an annual charge to a consortium of builders, bankers and service operators, to cover the capital construction costs of the hospital and the provision of services over a period of 30 years. At the end of this period the hospital does not become the property of the trust. The contract simply comes up for renewal.

Using PFIs to build hospitals (or anything else) makes no sense. Legal fees and consultancy charges are a major item of expenditure. And private-sector borrowing is more expensive, because of higher interest rates, than public sector borrowing.

Legal and consultancy fees alone add around 8% to the cost of a PFI hospital. Adding in management and finance costs, a PFI hospital is some 40% more expensive than a publicly built hospital. The private financing of Worcester Hospital added nearly £30 million to the bill.

These additional costs are paid back by the PFI consortium’s contractual partner, i.e. the hospital trust. Debt repayments are financed by reducing running costs: closing beds, reducing staffing numbers and salaries, and speeding up the discharge of patients.

Thus, the first wave of New Labour PFIs for hospital-building resulted in an average reduction of 30% in bed numbers, and a cut of 25% in the salaries budget.

In the face of underfunding and the need to generate extra funds to cover the costs of PFI repayments, hospitals were forced to turn to treating private patients. The NHS is now the largest single provider of private healthcare.

More than 3,000 NHS acute hospital beds — more than 3% of the total — are now reserved as paybeds. Nearly half of them are in separate private-patient units. By 2002, when more than a million people remained on hospital waiting lists, £359 millions of NHS income was generated from private treatment. The same year, the Department of Health began building private wards for fee-paying patients in a number of towns where the NHS had become the only provider of private treatment.

Although Alan Milburn, the then Secretary of State for Health, boasted that the PFI hospital deals were the largest hospital-building programme in the history of the NHS, they were also the largest hospital closure and service closure deals in the history of the NHS.

In 2002, by which time 34 PFI hospital-building contracts had been signed, the government announced another 55 major hospital schemes, most of which were PFI projects.

DTC debacle

In 2000 the government invited bids from private healthcare providers to run 27 Diagnostic and Treatment Centres (DTCs), later renamed Independent Treatment Centres. The centres were to carry out routine hip, knee and cataract operations, with an annual income of £2 billion of public money.

By December 2003 the first 11 such centres were to have opened. In fact, by early 2004 just two of the centres had opened — the cost of the privately run centres was greater than what the NHS would “charge” for the same operations. And the difference in costs was so great that not even the pro-business-in-principle Labour government could accept all the bids put in to run DTCs.

Undaunted, the government continued to insist that operations be commissioned from private DTCs. Local Primary Care Trusts were pressurised into entering into contracts with DTCs, with the government promising to underwrite the additional expenditure incurred in switching from an NHS provider to a private provider.

In November 2003, for example, Oxfordshire Primary Care Trust voted reluctantly to “commission” operations from a local DTC only after it had been promised an extra £250,000 in funding in order to cover the higher costs involved in using a private provider to carry out the operations.

Primary Care

Even where Labour appeared to be undoing the damage wrought by 18 years of Tory rule, it was often more a question of semantics than of substance. This was most apparent in the government’s approach to primary care, the largest recipient of NHS funding after hospitals.

Frank Dobson, the first Minister of Health in the newly elected government of 1997, announced the end of the “internal market” which the Tories had created in the NHS. But he did not end the division in the NHS between “purchasers” and “providers”. In fact, “purchasing” was simply re-named as “commissioning”, and some secondary changes were made to the terms under which “commissioning” took place.

Dobson also announced the end of GP fundholding under which the Tories had allowed individual GPs an annual budget with which to purchase medical treatment for their patients. This had been part of the Tories’ “internal market” in the NHS.

In fact Dobson made all GPs into fundholders. He re-organised all the UK’s GPs, plus local community health staff, into Primary Care Groups, later renamed Primary Care Trusts (PCTs). By 2003 PCTs had control over at least 75% of the NHS budget for their area, including the budget for general hospital care, and also the prescription budgets of all GPs in their area.

But PCTs were in no position to put demands on the “big players” in the increasingly privatised provision of health service. In practice, PCTs proved to be subordinate to the market-driven decisions of local hospitals, and to the increasing penetration of primary care itself by private healthcare providers.

PCTs themselves soon became a mechanism through which to expand the role of market forces in primary care. As of 2004, contracts for individual GPs ceased to be negotiated with the Secretary of State through the BMA. Instead, contracts came to be negotiated between PCTs and general practices.

National terms and conditions of service have been abolished, leading to local pay bargaining and wider inequalities in pay. GPs have also been made accountable to PCTs through a series of market-based financial incentives, in which rates of pay are linked to performance and quality.

Under the contracts offered by PCTs, GPs and their practices have to provide defined “essential services”. PCTs themselves, however, can decide for themselves how other services (“additional” and “enhanced” services) should be provided in the area they cover. Their solution has increasingly been to sub-contract the provision of these services to private healthcare providers.

PCTs also provided an opportunity for the private sector to expand into the ownership and construction of primary care facilities. In 2000 the Topland conglomerate announced plans to invest £100 million in primary care, by buying up GP surgeries and then leasing them back at agreed rents, which would be paid for by PCTs.

Other private companies have been awarded contracts to build new primary care facilities from scratch, and then rent them out to healthcare providers — the primary care equivalent of the use of PFIs in hospital-building.

Foundation Trusts

Labour’s sudden creation of “foundation trust” status for PCTs and hospitals which met the relevant criteria represented another major step towards a fully privatised system of healthcare.

Under legislation completed in 2003 Labour allowed any NHS hospital and any PCT to apply for “foundation” status. A foundation hospital or PCT is a commercial concern whose assets cease to belong to the state. They can set their own rates of pay, borrow on the private market, make contracts with private providers, and set their own priorities.

Labour presented this as another example of “empowering” local communities, which, supposedly, would be able to exercise some degree of control, for example, through electing the “governors” of foundation hospitals. In reality, foundation status means the “right” to operate on the basis of purely commercial considerations. The focus of a “foundation” PCT or hospital must be its balance sheet, not meeting patient need.

The creation of “foundation” trusts ran in parallel with another New Labour innovation which further underpinned the commercial nature of the foundation trusts.

Under the Tories the Department of Health produced “reference costs” for each treatment or operation provided by the NHS. In 2003 Labour changed the “reference costs” into set prices. All services were now bought and sold at a price set according to a fixed “national tariff”.

Hospitals and other health-providers whose costs exceeded the “national tariff” were left with the alternatives of “subsidising” the “excessively expensive” procedures from other parts of their budget, or abandoning provision of the services in question — leaving would-be patients with no local source of treatment for their illness.

Excluding the old

The two Blair governments have done nothing to reverse the way in which the Tories had excluded growing numbers of elderly people from free healthcare. The Tories had introduced a distinction between “healthcare” and “social care” (which did not count as healthcare, and for which ever greater charges were levied).

A Royal Commission was set up by the incoming Labour government to examine the provision of care for the elderly. It concluded that “social care” as much as “healthcare” should be available as of need and paid for out of general taxation. A minority report produced by two members of the Commission recommended maintaining the distinction between “healthcare” and “social care”. The Government chose to follow the minority report. The Blair governments also expanded the role of the private sector in meeting both categories of care.

Labour’s preference for private provision of care for the elderly was spelt out by Paul Boateng, the then Health Minister, in 1998 with these pugnacious words: “The days when a local authority could get away with a… [preference for] their own provision before that of the private sector are dead and gone and will not be tolerated… If a local authority seeks persistently to undermine the private sector, that local authority will answer for it.”

The role of local authorities in providing residential care for the elderly was steadily stripped away. Local authorities were denied funds to invest in their own care homes. Under the Best Value policy of 1999, local authority homes were deemed to be less cost-effective than privately run ones (in which standards of care and rates of pay were substantially lower).

Between 1998 and 2002 the number of local authority residential care beds fell from 54,610 to 37,310. Between 2000 and 2003 local authorities sold off nearly 150 residential and day care centres for the elderly. Whereas in 1992 98% of domiciliary care for the elderly had been provided by local authorities, by 2002 this had slumped to 40%.

By 2003 90% of nursing home beds and 63% of residential care beds for the elderly, chronically ill, and the physically disabled were run by private sector bodies — netting them nearly £7 billion a year. The market in domiciliary care was worth another £1.4 billion to the private sector.

Labour has “opened up” the NHS, even more than under the Tories, to market forces and private business. The result has been a radical and ongoing deterioration in standards of healthcare (except for those who can afford to pay).

The NHS has an annual turnover of £74 billion. Private healthcare providers want as much as possible of that money going into their coffers. New Labour has pursued policies which have made this possible. In doing so, it has demonstrated where its loyalties lie: to the needs and demands of big business, not to the needs of the sick and the elderly.

In implementing such policies it has abandoned the founding principles of the NHS. A Labour government created the NHS. And the two governments dedicated to its destruction have been the last two Labour governments.

There is resistance from workers in the NHS to these changes. But it is scattered, inchoate, timid.

On a key issue it has failed —the left lost the fight to stop a new pay deal, Agenda for Change, which will screw the workers for more hours and less pay.

However, campaigns to stop Foundation Trusts have happened in one or two areas. And there have been a number of fights by ancillary workers to force private contractors to increase pay. One big battle must be get staff who have been privatised back onto NHS pay and conditions.

NHS workers urgently need a national campaign involving NHS workers and the communities they serve. Such a campaign must fight both to reverse the inequalities and injustices in conditions of NHS workers and the privatisations that have done so much to undermine the founding principles of the Health Service.

Material for this article is taken from: NHS plc by Allyson Pollock (Verso, 2004).

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