National planning and the internal market

At the inception of the National Health Service (NHS) in 1948 a nationalised system of healthcare funding was created. Comprehensive care was provided free of charge for all on the basis of need and funded from taxation. Secondary care in the NHS was provided by a national network of NHS-owned hospitals; however, primary care (i.e. general medical, dental, ophthalmic and pharmaceutical services) was the domain of independent practitioners, acting as contractors to the NHS. ^{Reference Rivett1} This structure was modified but continued in essence in this format for 40 years, until the introduction of the internal market outlined in the 1989 White Paper, Working for Patients, ² passed into law as the NHS and Community Care Act 1990. The purpose of introducing the internal market was to open up healthcare to competition, with hoped-for benefits of innovation, cost reduction and improved quality brought about by market forces.

The 1991 market reforms were based on the purchaser–provider split. It was thought that, whereas in the past providers, usually hospital doctors, had largely determined which services would be delivered, new commissioning bodies would act on behalf of patients to purchase the services which were really needed. ‘Purchasers’ (initially health authorities and some family doctors) were given budgets to buy healthcare from ‘providers’. To become a provider in the internal market, hospitals became NHS trusts, separate organisations with their own management.

The purchaser–provider split in the English healthcare system was retained by the Labour governments of 1997–2010. The commissioning bodies were the primary care trusts and reorganisations and central directives were designed to improve commissioning. The devolved administrations of Scotland, Wales and Northern Ireland have chosen to go down a very different route by doing away with the purchaser–provider split and introducing regional health boards to plan the provision of health services through integration and cooperation between primary and secondary care services. There are, therefore, different health systems in the UK, one in which the approach to improving healthcare is through planning and cooperation and one in which improvement is to be brought about by market forces bringing in the innovation and productivity of new providers.

Market-driven healthcare in the USA – not a success story

Although the UK healthcare system differs very significantly from that in the USA, there are common problems across both. The summary of the Institute of Medicine about the US healthcare systems applies equally to the NHS: ‘The current US system is characterised by highly variable care, widespread failures to implement best practices, and inability to change patterns of practice’. ⁴ Market-driven and state-provided healthcare are thus not inherently better or worse than the other. The question then is what is most likely to bring about the improvements in both care and productivity that both professionals and patients desire, the English model (based on US style competition) or that of the devolved nations (based on planning and cooperation).

The Royal College of General Practitioners in their response to the proposed English health reforms ⁵ describe how the market in healthcare is different from the market in commodities such as cars or utilities. For example:

1. • there is asymmetry in knowledge and power between patients and doctors

2. • patients when ill are vulnerable, unlike most consumers

3. • patients and doctors, particularly in primary care where the diagnosis is not yet clear, often lack the information to make precise, informed choices

4. • most markets encourage activity to increase profit, but in the NHS, additional activity results in a greater burden on the taxpayer.

The NHS has traditionally had a low cost of administration which until the 1980s amounted to about 5% of health service expenditure. After 1981, the administrative costs rose and in 1997 stood at about 12%. An estimate of administrative costs since 1997 has been made by a team at York University which concluded that management and administration salary costs represented at a very crude approximation about 23% of NHS staff costs and around 13.5% of overall expenditure. ⁶ The need to create a mixture of public and private provision has created a bureaucracy to meet the demands for tenders, payments and monitoring arrangements.

The USA is the biggest healthcare market in the world. It is salutary to note that it spends US$7290 per capita on healthcare compared with US$2992 in the UK while delivering significantly poorer health outcomes for the population. ^{Reference Davis, Schoen and Stremikis7} In 1999, health administration costs accounted for 31% of US healthcare expenditure, ^{Reference Woolhandle, Campbell and Himmelstein8} although the main reason for increased costs is the cost of hospital and physician care. ⁹ In the USA, therefore, competition has not been successful either in driving down costs or in improving population outcomes.

Competition: potential benefits and risks

One of the major concerns about unbridled competition in the health service, and particularly in mental health, is that it will lead to cherry picking of profitable services leaving less money for other areas. In addition, there is a real danger of services becoming fragmented, with different providers delivering different aspects of the service. Could it really be better for patients if in-patient care, the out-patient psychiatrist, community nursing, psychological treatments and additional services were delivered by different organisations? Although it is reasonably straight-forward for services to be tendered with clear specifications for non-urgent care and discrete packages of treatment, for example, a course of cognitive–behavioural therapy, it is much more difficult to have competition for emergency work and low-volume complex care cases, particularly in the community. The quality benefits for competition have yet to be seen in mental healthcare. Despite significant private provision in secure in-patient beds, there is no evidence that the range of quality is any different to the NHS provision, and in both cases provision may not be local to where a patient's family and friends live.

In conclusion, competition offers theoretical benefits of innovation, bringing in new providers with fresh ideas and models of care, but this needs to be offset against the costs of competition transactions and the dangers of fragmented and non-integrated care provision. It would seem sensible that competition should be tested out in areas where services are not delivering the outcomes that patients and clinicians desire and that such competition needs to include integrated and complex services as well as simple, low-volume, low-cost services. If possible, agreed outcome measures ¹⁰ should be shared across areas so that, with time, a clearer, less politically driven approach to the benefits of planned v. competitive care can be determined.