The New NHS

A Guide

Alison Talbot-Smith, Allyson M. Pollock

• Publisher: Routledge
• Year: 2006
• ISBN:
  9781134334490
• Edition: 1
• Topic: Medicina
• Subtopic: Salud pública, administración y atención

Dr Alison Talbot-Smith, an experienced doctor and researcher, and Professor Allyson M. Pollock, one of the UKs leading authorities on the NHS, give a lucid and incisive account of the new NHS – which has emerged from a far-reaching programme of market-oriented changes.

Providing an authoritative and accessible overview of the new NHS, the book describes:

• the structures and functions of the new organizations in each of the devolved countries
• the funding of NHS services, education, training and research and resource allocation
• the regulation of the new NHS systems and workforce
• the relationships between the NHS, the Department of Health, local authorities and regulatory bodies, and between the NHS and the private sector
• the future implications of current policies.

This is an indispensable resource for those working in healthcare today as clinicians, academics, researchers and managers. It will also be essential reading for academics, students, and researchers in related fields, as well as the general public.

1 Introduction

The NHS is in transition. Its publicly-funded system of publicly-owned and provided health care is being replaced by a healthcare market, in which public providers of services compete with private ones for NHS funds, with legal contracts and external regulation replacing direct political accountability. The pace of the transition is rapid, and the change is more far-reaching than is generally realised. The old structures and organisations are being dismantled and a plethora of new organisations and agencies is evolving.

In 1948 Aneurin Bevan famously promised that ‘a dropped bed-pan would resound through the corridors of Whitehall’, alluding to the strong system of political accountability which had been established. But just as steel bedpans have been replaced by disposable grey cardboard, the whole NHS has become in a sense disposable: its hundreds of hospitals and other organisations, transformed into independent market actors, must now increasingly fend for themselves financially. They are becoming answerable to market forces rather than elected ministers, and may even be closed down if they fail to give enough priority to solvency rather than patient care.^*

For many if not most people within the NHS, not to mention those outside it, the new market-based relationships, and the array of new organisations and terminologies, are confusing. Many healthcare workers – doctors, nurses, paramedics, technical and ancillary staff, and even some administrators – no longer have a clear picture of how the NHS works, how its services are organised and accounted for, where its income comes from and how money flows through the system. Members of the general public are understandably even less clear. Yet understanding the way the NHS works has never been more important, and this book is intended to be a guide to the way it works now. The focus is unavoidably mainly on England, which as well as being the largest of the four countries of the UK is also the one where the drive to a healthcare market is most advanced; but a final chapter notes the most important ways in which Scotland, Wales and Northern Ireland, with their varying degrees of devolution, diverge from the English pattern.^*

While the book aims to be descriptive rather than analytical, the significance of what it describes must not be lost sight of. So this chapter begins by setting out what the NHS was designed to do when it was first established in 1948, and how it evolved afterwards. It then briefly describes the transition to the market which began in the 1980s and was consolidated in 2000 by the NHS and Community Care Act of that year, and outlines the essential features of the new healthcare market.

The original NHS

The NHS was founded on three core principles. It was to be universal, i.e. to provide health care of the same standard throughout the UK. It was to be comprehensive, covering all health needs. And it was to be free at the point of delivery, available to all citizens equally on the basis of need, not ability to pay. To keep costs down, and to ensure efficiency and integration, the government abandoned the previous mixed system of social insurance (with employer and employee contributions) and private voluntary insurance, created by Lloyd George in 1911, in favour of central taxation. The insurance system had proved expensive and generated too much unfairness, leaving 50 per cent of the population, mainly women, children and older people, without coverage, and providing care of very uneven quality for those who were covered.

Funding

The arguments for using central taxation are compelling. Since 1948, successive governments have undertaken major reviews of the funding of the NHS – the most recent being that of Sir Derek Wanless in his final report for the Treasury in 2002 – and they have all concluded that central taxation remains the most efficient as well as the fairest system. First, central taxation is partly related to ability to pay. Second, it is cheaper to administer. Third, so long as there is also no internal invoicing and billing for treatments, it separates clinical decision-making from funding, allowing doctors to focus on what is best for each patient without any thought for the revenue they may represent. Fourth, and most fundamentally, it makes health care one of the things that binds society together, on the principle that we all take care of each other when things go wrong. Perhaps it was for this reason that, as ministers acknowledged in 1951, the NHS became ‘the most popular of our new institutions’ – a situation that has remained unchanged over six ¹ decades.

There were also strong economic arguments for a centrally-administered system. Costs were kept low, partly because billing and marketing were eliminated, and partly because of the integrated nature of the system (what was a cost for one part of the NHS – money spent to prevent illnesses, for example – was a saving for other parts, in terms of primary care, hospitals, drugs, etc).

How the NHS’s structures evolved from 1948 to 1980

From 1948 until 1980 the NHS evolved on the basis of rational planning, aimed at redistributing healthcare resources and services across the country on the basis of need and ensuring efficiency through integration. The aim was to make the health service as universally available and reliable as the postal service, and its structures were widely copied throughout the world.

Although the original NHS is often described as based on ‘command and control’ this is a mis-description, because despite the strong systems of bureaucracy and political accountability that were built into it much decision-making power was devolved to regional and district health authorities. Instructions were issued by the Department of Health (DH) but there was considerable local discretion to determine how local services were organised and delivered. Individual MPs and local authorities had a good deal of influence on local developments too – which sometimes worked for greater equity, and sometimes against it. And devolution for Scotland, Wales and Northern Ireland, introduced after 1997, allowed for still greater national autonomy and policy divergence.

The structures of the NHS were related to the nature of each kind of service it provided – preventative, primary, secondary and tertiary care.^* The Department of Health and the NHS Executive were responsible for developing strategy and implementing policy, and for the performance of nationwide functions including workforce planning, managing the NHS’s estates (its land and buildings), data collection and IT. In practice many of these functions were performed in conjunction with the regions and districts. Regional health authorities or (in Scotland and Northern Ireland) boards were responsible for planning and overseeing the provision of tertiary care in their regions and also for blood transfusion, cancer strategy and intensive care beds, IT, workforce strategy, ambulance services, training, and education. District health authorities were responsible for planning and providing secondary care (hospital) services for their local populations, and overseeing the provision of primary care. GPs were ‘independent contractors’ with the NHS, not directly employed by it, but there were strategies to bring about a more even distribution and supply of doctors and staff, including GPs, over time. Public health and communicable disease control were handled at all levels. In reality, planning was fl uid and responsive to changing needs and circumstances, new technologies and advances.

Accountability and regulation

The NHS had a strong system of political accountability. All NHS organisations were directly accountable to the Secretary of State for Health through the DH. Detailed annual reports and accounts were laid before Parliament. There was also patient and public representation through the inclusion of local councillors and other members of the public on health authorities and boards. From 1974 onwards this was supplemented by Community Health Councils, local statutory independent bodies with some paid staff, but mainly made up of volunteers. NHS bodies were required to consult CHCs over any proposed major change in local services and CHCs could refer disputed changes to the Secretary of State.

The only areas where the state did not have the final word were in the regulation of the medical profession, and setting standards for training and accreditation. The medical professions regulated themselves. In the wake of the Nuremberg trials, which had highlighted the state-ordered wartime crimes of some German doctors, it was widely agreed that it was important to balance the role of the state in providing care with the freedom of the profession to practise to the highest independent ethical and professional standards. The General Medical Council or GMC, consisting of doctors from all specialties, was therefore responsible for certifying and licensing healthcare practitioners and for defining standards of education, clinical performance, and professional conduct to be followed by doctors. The GMC was supported by the Royal Colleges of medicine, professional organisations largely predating the NHS which set standards for education, training and knowledge in their respective fields. The DH had representation in the Colleges, but no authority to give them directions. Workforce planning was under the jurisdiction of the DH, since it controlled the number of places in medical schools, but at the postgraduate level the Colleges exercised considerable influence over the formation of specialists, being responsible for approving training places and training grades in NHS hospitals.

How money flowed through the system

In 1948 the NHS inherited an inequitable distribution of services, and critics pointed to the fact that resources still flowed to where they had always been more plentiful, rather than areas of greatest need. To remedy this the government eventually appointed a resource allocation working party (RAWP) which led to the establishment of a fairer system whereby revenue for hospital and community health services was distributed on the basis of resident population size, adjusted for indicators of the local need for services and the local costs of providing them. True equity was still far from being achieved, but the distribution of resources did gradually become more even throughout the country.

Hospitals received annual budgets from the health authorities. Revenue for primary care services was distributed to individual GPs on the basis of the numbers of patients on their lists, supplemented by a system of fees and allowances to cover their infrastructure (surgeries and equipment), as well as for achieving targets such as immunisation rates.

The transition to a market

The transition to a market has occurred over several decades, the result of more than 30 acts of Parliament. The consensus that the NHS should be under public ownership and control was gradually undermined by disagreement over levels of funding for the NHS, what it should and could provide, and how it could be run efficiently – and by the effects of chronic under-funding, which had dogged it from its inception, leading to long waiting times and dilapidated premises. It was of course also the target of a great deal of hostile commentary in the media, focussing exclusively on its shortcomings – which were real enough in practice, as they are in any complex public or private service – even though the level of public support for the NHS remained remarkably constant.

The 1980s: general management and outsourcing

A decisive turning-point was reached in 1979, when Mrs Thatcher came to power. The Thatcher administration quickly introduced two new policies of great long-term significance: general management, and the outsourcing or ‘contracting out’ of non-clinical services such as hospital cleaning, laundry and catering. General management introduced a new layer of hospital managers, increasingly trained and disciplined in business methods, between the civil service and healthcare professionals, distancing policy-makers from the doctor–patient interface; while outsourcing catering and cleaning services introduced the private sector for the first time directly into the provision of NHS care. The outsourced services were turned into very profitable businesses, some of which were floated on the stock market.

Long-term residential care for frail elderly or disabled people also began to be privatised under the Thatcher governments.^* By the end of the 1990s free long term care provided by the NHS had been largely replaced by care in independent sector care homes (mainly for-profit), for which fees had to be paid.

The 1990s: the ‘internal market’ and the Private Finance Initiative

In 1991 the government restructured the NHS more radically, creating a so-called ‘internal market’. The 1990 NHS and Community Care Act turned NHS hospitals, or groups of hospitals, and other bodies like ambulance and community health services, into semi-independent ‘trusts’, and required them to behave like businesses in a marketplace. The health authorities became ‘commissioners’ or ‘purchasers’ of health services, and the trusts became ‘sellers’. Although the ‘contracts’ involved in these transactions had no legal force, the DH required them to be honoured, and the new system brought about a sea-change in the way NHS resources and the funding of services were accounted for.

The provision of services was still meant to be based on an assessment of the needs for services in each area, but since NHS hospitals and other services could no longer rely on an annual block budget they no longer had an incentive to give priority to needs. They now had to break even by generating their own income and cutting costs, and competing with each other for business. The priority became what would allow them to balance the books.

All of these measures were aimed at increasing efficiency and choice, but hospitals and community services which were already short of resources now faced the extra costs involved in competing for funding, dealing with risk, and administering the complexities of making and monitoring hundreds of contracts. Within a short space of time more than a third of the new trusts faced serious financial difficulties and were forced into mergers and service closures (between 1990 and 1994, 245 hospitals were closed in England and Wales).

Another change was that trusts were no longer given free support from the DH’s regional offices for capital planning, estates management and IT. In the interest of business efficiency they now had to buy these services from private management consultancies out of the revenue they earned from the services they ‘sold’. The resources and expertise of the NHS regional offices in these areas were disbanded.

The introduction of the ‘internal market’ also changed the way in which NHS capital was accounted for. For the first time all NHS service providers – now constituted as semi-independent trusts – had to pay an annual charge (originally 6 per cent) on the value of their land and equipment, out of the revenue they ‘earned’. Known as the ‘capital charge’, it was paid to the Treasury. The idea was to make trusts more economical with their capital assets – and to encourage them to sell off any they did not need, or which were too valuable (such as land in city centres) – by making them pay for their use.

But capital charging also paved the way for a more profound change, the Private Finance Initiative or PFI. The PFI was introduced by the government in 1992 as an alternative way of mobilising capital for public investments. A consortium of bankers, construction companies and ‘facilities management’ firms come together in a joint venture to design, build and operate NHS premises in return for an annual charge paid by the NHS over the life-time of a contract, usually 25–30 years. In effect NHS trusts lease back their facilities, paying an annual fee to the PFI consortium instead of a capital charge to the Treasury. In reality these leases are often extended more or less indefinitely through the renegotiation of contracts. By 2005, 50 hospital building schemes, out of the 100 promised in 2000 in The NHS Plan, were operational, 42 of them via the PFI;² and the total value of PFI-financed hospital schemes approved since 1997 was £17 billion, creating a very large new business sector closely tied into the provision of NHS clinical services.³

Meantime a further step was taken towards a full market when the purchasing was devolved from district health authorities to some 300 ‘Primary Care Trusts’ or PCTs, each representing the local primary care community (GPs, dentists, etc.) and local residents. By the early 2000s 80 per cent of the total NHS budget was being distributed to PCTs, which now ‘commission’ all NHS secondary (hospital) care as well as primary care.

The emerging market in clinical care

Until 2000 the government maintained that clinical services would not be privatised, but The NHS Plan, published in 2000, made it clear that they would after all be opened up to the market, in order to provide much-needed additional capacity.³ It quickly became apparent, however, that private providers could not provide significant volumes of services without using NHS doctors and staff, and the policy rationale shifted from providing extra capacity to giving patients a wider choice of service providers.

The model that gradually emerged from a succession of policy statements was thus of the NHS as a sort of holding company, ‘franchising’ health services out to various providers, public and private. The NHS is to be the government-funded payer, but less and less the direct provider, of health services. The old system based on political accountability (and on public trust...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Illustrations
• Preface
• Acknowledgements
• 1: Introduction
• 2: Organisations with strategic roles
• 3: Organisations commissioning services
• 4: Organisations providing services
• 5: Funding and resources
• 6: Efficiency and standards
• 7: Research and development, and research governance
• 8: The NHS workforce
• 9: Devolution: the NHS in Scotland, Wales and Northern Ireland
• 10: The future
• Notes