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Earl Howe letter 22 December 2011 on Competition

Letter reproduced in full in bold with intercut response in italics

Sections of Earl Howe’s speech numbered for ease of reference.

This also includes some material drawn from a speech made by Andrew Lansley in 2005 explaining his plans for the health service.

29 January 2012

Competition

1. As I said in my opening remarks during the debate, Monitor’s role as sector regulator would be to support commissioners, who would decide where and how to use co-operation, integration and competition to improve quality or efficiency or reduce inequalities.

This formulation presents the three goals of co-operation, integration and competition as ranked equally, or even implies that cooperation is most important and competition least. But as the economic regulator for the health sector, Monitor’s primary duty is to discharge the government’s responsibility to apply competition regulations to all competitive markets. A competition authority is required to enforce competition law. It may tolerate cooperation and inter-service coordination insofar as these do not conflict with its primary duty. Since all NHS service provision is now in the process of being turned over to competitive markets through the use of competitive tendering and AQP, the government will not be able to evade its duty to apply competition regulation throughout the NHS as required by the EU. If the system uses competitive tendering or AQP, then the government is required to regulate the competitive markets created. Whether Monitor regulates it or the Office of Fair Trading does so, competition regulations must be applied and enforced.

We have the Dutch example to show how the imposition of a competition regulator such as Monitor affects health care provision in practice. In 2006, the Dutch turned the administration of their national social insurance system over to the private health insurance industry.

The Dutch competition authority (the NMa), as can be seen from its website[i], penalises attempts to coordinate service provision in the interests of patient welfare and of efficiency on the grounds that this could interfere with competition. Its decisions have the effect of fragmenting service provision and impeding the provision of high quality care[ii]. We have learnt this month of a 7.7 million Euro (£6.4 million) fine levied on the Dutch GP association for “a bad case of anti-competitive behaviour”, this being the national association’s efforts to ensure that all areas of the country were adequately provided with GP services[iii].

While the Secretary of State assures us that these changes are being brought in here for the sake of patients, the Dutch Patients and Consumers Federation is now calling for the involvement of competition in health care to be urgently reviewed. Since the enforcement of competition in the Netherlands and in the UK are both subject to the same EU regulations, Monitor will have to work in exactly the same way as the NMa to force clinicians to obey competition law, and if Monitor does not carry out this role, it will default to the Office of Fair Trading. It is disingenuous to suggest that this activity will constitute “support” rather than enforcement, or indeed to imply that the use of competition will be somehow optional for commissioners[iv]. Recent guidance issued by the Office of Fair Trading (Public Bodies and Competition Law, December 2011) tells us that for both UK and EU competition law, “non-compliance with competition law can have serious consequences”.

In 2005 Andrew Lansley made a speech to the NHS Confederation (a body which represents the health care companies which are already involved with NHS service provision) about the Party’s plans for the NHS19. In it he said that

“much of what I have described is like the EU’s developing framework for services of a general economic interest. I recognise this and I welcome it. A vital aspect of our relationship with Europe should be to encourage the EU to be concerned with promoting competitive markets.”

In other words, the Minister charged with implementing these reforms fully intended that the health care provision of this country should be entirely governed by EU competition law. The Health and Social Care Bill is designed to accomplish that aim.

2. Lord Rea noted his concerns about introducing market competition into the provision of healthcare services and I undertook to write to him about evidence on this. There is emerging academic evidence that competition can create benefits for the NHS. Some of the most cited UK studies of health outcomes resulting from competition between hospital providers include the work of Professor Martin Gaynor and Professor Carol Propper. They find that competition can lead to better outcomes, increased satisfaction for patients and better hospital management[v],[vi].

The few studies claiming that competition in health care improves quality have indeed been very frequently cited by the Conservative party and other parties promoting the marketisation of the NHS. However this appears to be because they are convenient to the point they want to make, and in the absence of any more credible studies, not because this research is robust. That is not at all the case; in fact one might speculate that most of those quoting their conclusions as reliable did not read them, or perhaps did not understand them well. The most commonly cited “competition saves lives” paper, Cooper et al, was comprehensively debunked in the Lancet by Pollock et al last year[vii], but the other studies Earl Howe cites share the same flaws.

The “Competition saves lives!” studies (several by Carol Propper and her team, and the 2010 paper by Cooper et al) do assert “that competition can lead to better outcomes, increased satisfaction for patients and better hospital management”, but these conclusions do not flow from the results presented because of methodological problems which have been overlooked.

The common factor of these papers which has drawn attention is the measure of quality in medical outcomes, mortality within one month from AMI (acute myocardial infarction, usually known as heart attack). The studies state that this was chosen because it cannot be gamed (the patient being either alive or not). Unfortunately the authors overlooked that the diagnosis at admission is not a dichotomous variable of this nature, but may be hard to ascertain and arguable even among specialists. For each patient showing some signs and symptoms which could be consistent with an AMI, it is this initial diagnosis that decides whether or not the patient would be included in AMI mortality statistics. The higher the percentage of cases with less severe pathology who are included, the better the AMI statistics will look, since the extra cases included will be those least likely to die. No test to verify the accuracy of the reported data is reported in any of the papers; all simply assumed that gaming the AMI data was impossible.

The proxy used for the level of competition faced by hospitals is “concentration” i.e. geographical density of hospitals. The rationalisation given for this is that more density equals more competition. The logic is that a hospital which has five others within a 30 minute travelling time faces more competitors than one with only two hospitals within the same journey time, though this of course assumes that they are in fact in some kind of competition for patients. Hospitals will co-locate with population density, so that this paper automatically treats urban centres as the most competitive, and rural areas as the least. Of course urban and rural areas have many other areas of difference, some of which the authors managed to exclude but some of which they did not.

The output from their mathematical models suggests that death within a month after a heart attack is, other things being equal, reported as less common in areas where there are more hospitals. This general trend could well be due to under-compensation for the impact of delay in being reached by paramedics in an ambulance in less heavily settled areas where there are fewer hospitals.

3. In a study led by Professor Martin Gaynor (2010)5, he finds that the “effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost. Therefore the results suggest that “competition is an important mechanism for enhancing the quality of care patients receive”.

Professors Gaynor and Propper and their team-mates have indeed made these claims. However they are not justified by the data on which they based them. All of this set of studies are econometric difference-in-difference studies, which is the economists’ name for a time series study involving intervention versus control measured over a period before and after a change. The changes used in these studies were, variously, more or less hospital density, or change in intensity of competition-based arrangements.

Their contention is that this study type removes confounders (other influences on the outcome), because of its inherent double control and the fact that the switchover event is not coterminous across all the different hospitals surveyed. It is indeed a strong design and does eliminate some key confounders, including general economic and social trends, but not all of them, specifically not those directly aligned with the proxy variables. What is noticeable is that while the econometric side of these studies is capably handled, the teams involved are clearly much more expert in economics than health services delivery, resulting in the use of some incorrect assumptions.

The paper that Earl Howe cites (Gaynor, Moreno-Serra & Propper) looked at hospitals that merged. It too overlooks a major confounder: it concludes that because heart attack outcomes were worse in hospitals that had recently merged than before they merged, this proves that “competition saves lives”. The authors did not compensate for the fact that the performance of organisations that merge is frequently worse immediately after the merger, because (for instance) of the use of voluntary redundancy schemes to remove staff whose functions are duplicated, which tends to result in the loss of the better staff as it is easier for them to get other jobs, leaving the weaker staff from both to run the merged entity. In addition the internal cultures of the two merging organisations often clash somewhat and that causes operational problems. One think-tank study predicted an absolute fall in “quality of service” of at least one year in merged primary care trusts[viii].

The authors of all these “Competition saves lives!” papers omit to offer any suggestions as to the mechanism by which "competition" as represented by density of NHS hospitals could affect reported survival after heart attack treatment. They acknowledge that the outcome they examine was not in fact directly affected by competition between hospitals, since the selection of which hospital should treat a possible AMI case is made by the ambulance driver who is entirely unlinked to hospitals’ internal incentive schemes relating to competition between them.

While the authors cannot account for these findings, a fairly common phenomenon can, one known to anyone who has been involved in running such services. This is upcoding: a systematic overstatement of the diagnosis[ix] which is induced by the linkage of financial rewards to reported data. They overlooked this because of their assumption that AMI mortality could not be gamed.

Payment is made under the internal market according to the severity of the diagnosis, with a standard treatment package at a fixed tariff attached to each of the preset diagnostic categories. In most parts of the hospital that diagnosis is initially set by a GP, and then modified thereafter as new information is gathered. AMI, however, is diagnosed at the hospital, who can make hitting their performance targets easier by systematically erring on the side of over-diagnosis. By so doing they can inflate their own bonuses and the hospital’s income by misreporting in a way that makes the statistics look better.

When competition-based management and fee-for-service payment (PBR) is involved, financial incentives for overstating the severity of all cases on admission are present. In 2006, when PBR was introduced, the Audit Commission started to monitor this. In 2006 they found 11% of codes were incorrect, with some undercoding, but also “evidence of trusts actively working to optimise their income”[x]. In 2010, again 11% of codes were found to be wrong[xi], which could indicate a serious problem given that errors in 2006 might have been attributable to unfamiliarity with the system. A GP practice in London found that patients choosing one particular PFI-burdened hospital were resulting in PBR bills overall 30% in excess of what they should have been[xii]. There is a great deal of research evidence on this from the USA: for instance a classic paper by Silverman and Skinner found twice as much upcoding in for-profit hospitals as in non-profits, with upcoding by non-profits increasing with the intensity of competition[xiii]. Pauly and Redisch reported that where clinical staff had a personal financial stake in a for-profit hospital this increased the likelihood of upcoding[xiv]. Competition in health care is detrimental to service quality, and the peer-reviewed literature as a whole reflects that[xv].

Both the hospital and the individual staff who misstate the data will earn more by doing this, and the more competition there is, or the worse the financial situation of the hospital is, the more incentive there will be for such conduct.  This phenomenon is capable of producing precisely the associations found by these modelling studies and could thus account for their findings.  

Thus what these studies appear to demonstrate is not that “Competition Saves Lives!”, but that

“Competition Fosters False Figures!”

This has clear implications for all medical outcome statistics, as it appears that competition itself and competition-based management set up perverse incentives to manipulate medical outcome data. The current efforts to introduce more bonuses for achieving particular medical outcome targets are pertinent. Staff are offered bonuses based on targets they can influence (the theory being that they will work much harder to attain excellent results so as to obtain the targets and bonuses), but this always provides an incentive for misstatement. In the absence of really thorough regulation, misreporting will always be much easier to achieve than the complex and challenging task of working to achieve fundamental improvements in medical outcomes. Such regulation is bound to be not only inconvenient but extremely costly.

Worse, upcoding resulting from these unwise arrangements incentivises overtreatment. Many therapies and medications have undesirable side effects. Overtreatment and over-investigation can thus harm patients who receive treatment for a condition more serious than the one they actually have.

If money and staff cannot be spared for comprehensive regulation of inappropriate behaviour produced by perverse incentives, then the safest and cheapest arrangement is simply to avoid the creation of these perverse incentives by avoiding use of competitive markets in health care.

But instead, Clause 4 of the Bill creates the right of providers of medical services funded from the NHS budget to conduct their business however they see fit. We know that this is something keenly awaited by the private healthcare industry and associated suppliers paid on government contracts, because it will reduce the regulation of their activities. But after the insight we have had recently on the conduct and qualifications of the cosmetic surgery industry, how can the government claim that this under-regulation is acceptable for the whole NHS?

4. In addition, academics have found that, within the NHS, competition under fixed prices, as used in recent years, appears to be associated with beneficial changes in the quality of hospital services. In 2011 research, Gaynor and Town reviewed a growing evidence base of empirical studies. Though limited to hospital services, the findings showed a positive relationship between competition and quality in health care. They conclude that when prices are fixed, competition leads to improved quality – in other words, competition on quality, not price, can drive up the quality of services in the NHS.

As explained above, no proof of a positive relationship between competition and quality in health care in the NHS exists.

In addition, competition on price will be the usual arrangement for contracts arranged through competitive tenders. Although the government has declared that competition is to be on quality rather than price, in fact the “Most Economically Advantageous Tender” (MEAT) arrangement is permitted[xvi], which is recommended as combining quality and price, with contracts chosen at lowest price for some acceptable pre-declared level of quality. However, of course this is how all competition on price works – in reality bids should not ever be accepted which do not actually propose to deliver the services needed to an adequate standard! So what we should really be looking at here is the impact of price-based competition, which is widely acknowledged to generate production of a race to the bottom on quality of provision[xvii] as over time competition to cut overall bid prices in order to win tenders pushes the amount which can be spent on services down to levels which compromise their quality.

In an environment of limited budgets of course there is going to be keen interest in saving money. In fact that pressure is at the core of the economic model used to justify these changes. A medical negligence QC has predicted an upcoming spike in his medical negligence workload because of the “race to the bottom” on quality which often follows introduction of price-based competition in medical care (Whitting 2010)[xviii].

The explicit intention to move the NHS toward competition on price was announced by Andrew Lansley in his 2005 speech[xix]. He explained on the benefits of his full competition-based reform compared to the market reform and partial privatisation of services being put into place in the NHS at the time:

“However, it is not full competition. There is no right to supply for new and independent providers. The competition is on the basis of quality but not price. Between now and 2008, pressure on price will be exerted through the introduction of, and transition to, tariff-based funding. And after 2008, there is no clear forward path. There are two choices: a regulated price, or opening up progressively to price competition, at least in terms of providers offering a discount to the tariff. If - and it does depend on this coming first - if the standards required to be met and the quality of information to purchasers and patients is established, then I believe it will be right and secure to permit price competition. That will enable realistic benchmarking to inform future tariff changes. It will enable GPs, if they are budget-holders, to be able to purchase actively, including negotiating offers on quality or price that help them better to utilise their budget for their patients.”

Here the use of tariffs is presented not in its 2011-12 incarnation as a way to ensure that price-based competition does not enter the NHS, but as a way to introduce it covertly.

He also told this audience of “the need for practice-based commissioning to be extended”, which explains its similarities with the earlier representations of CCGs, or “GP Commissioning” as it was initially called. A paper by Propper, Burgess and Abraham[xx] found that price-based competition under practice-based commissioning during the 1990s caused loss of quality in service provided, using data on mortality as a measure of hospital quality. This result is the opposite of her later studies cited by Earl Howe: in this one, as competition increased, service quality declined. This study seems far more pertinent to the situation of CCGs than the ones cited by Earl Howe and the market zealots.

5. It has also been noted that even the potential for competition can generate benefits for the patient. For example, recent research by Dixon and Robertson (2011) found that the extent to which patients were actively making choices has, in some areas, been limited, but that greater choice for patients may have stimulated providers to improve services in order to enhance their overall reputations.

This example is even further away from refuting the case that competition in healthcare is likely to result in a “race to the bottom” on quality. Note the use of the conditional “may have stimulated providers” despite the acknowledgement that patients were not in fact exercising any meaningful choice. In fact, the demand for “choice” of hospital claimed by the authors was extrapolated from questions which looked only at whether patients are in favour of “choice” as an abstract concept - and who would claim to be against that? The maximum actual choice they were given was to choose a hospital for treatment based only on the names of five local hospitals and the relative distances from the GP surgery, without information on medical outcomes or even on the views of other patients.

This study (not peer-reviewed research), makes an explicit assumption that the basis of patient choice is “quality” which remains undefined. They do not question this assumption even after ascertaining that 69% of patients picked their local provider. Given each patient had 5 choices available, this finding is incompatible with patients choosing on the basis of any objective quality criterion: logically an average local hospital would gather only 20% of preferences cast if patients really chose based on “quality” as the authors assumed.

Turning away from data analysis and to a health services research perspective, one can certainly not assume that information about the medical quality of hospitals is well reflected in the reputation of hospitals among patients, the vast majority of whom would lack the tools to judge quality even if provided with any data on which to base such a judgement. Patient choice of provider is easily swayed by comfortable waiting rooms and friendly staff, but as we saw with the PIP scandal, women who may have tried to take care in their choice of their cosmetic surgery provider were quite unaware that in many cases a cheap substitute for a medical implant had been used, and were surprised that their surgeons would not cover the costs of rectifying this when the need arose. Should we then really be expecting to arrive at competent and trustworthy medical services by relying on patients’ judgement as a marker of the quality of all aspects of the service?

The fact that the government cites only evidence this weak in support of its case tells its own tale.

6. Also Professor Peter Smith, in a 2009 health report to the OECD commented that, “competition can take many different forms, and sharpening competitive forces is likely in general to be an important tool for most health systems”.

Professor Smith suggested that for completeness and balance, this quote ought to have included the previous sentence too:

“True market competition introduces a set of raw incentives that carry serious potential for adverse outcomes for many aspects of health care.”

Of the foreign corporations who have been lobbying for increased market access to NHS funding[xxi] through this reform, some have a record of predatory behaviour[xxii],[xxiii],[xxiv],[xxv],[xxvi] including fraud against the US government and organ trafficking[xxvii]. The Bill contains no fit and proper person test for providers: financial services providers have these quality screens in place but health services do not. Why is this? The Bill should be amended to protect patients and the Treasury.

7. The government proposes that clinical commissioning groups would decide when and how to use competition as a means of improving services. They would do this within a framework of sector-specific rules designed to protect patients’ interests, which would be set by the Secretary of State under Clause 71. Lord Owen questioned Monitor’s role in enforcing those regulations.

Could Earl Howe please confirm formally that it will be up to GPs to decide whether to use competitive commissioning at all? It would appear to be compulsory, but if that is not the case perhaps he would be so kind as to furnish some legal guarantees that CCGs will henceforth not be forced into the use of competitive tendering and the competitive market known as AQP, and that NHS services can be provided entirely without the use of competitive markets.

On the question of improving patient service quality and safety, it is worth noting that there seems no reason to believe that quality standards applicable to NHS doctors through regulation by the Royal Colleges will transfer over into the new system, which will be governed by the Care Quality Commission to the same standards as currently apply to cosmetic surgery, which as we have seen are of doubtful adequacy[xxviii].

Indeed we should expect deskilling in order to reduce the unit cost of services[xxix]. We have seen where that may lead[xxx].

8. The aim is that NHS services should be commissioned from the best providers and that patients would be given choice and control over their care wherever possible. Regulations under clause 71 would achieve this by ensuring transparency in the commissioning process, protecting patient choice and requiring commissioners to justify their decisions in terms of benefits to patients and value for taxpayers’ money.

The inflexible provider-friendly AQP process will have the effect of providing patients with a form of choice, yes, but unfortunately not with the sort of choice most of them would like to have, an informed choice arrived at with the assistance of their GP. Competition law may, bizarrely, have the effect of blocking GP advice to patients on their choice of hospital. Such advice might be deemed to be anti-competitive by any private hospital not thereby selected, there being at least four unchosen providers for each patient treated under AQP. As noted above, any contravention of competition rules may result in serious consequences under EU law. Thus a choice that patients say they want, to have their GP’s help in choosing an appropriate provider, is to be denied under the new arrangements. For whose benefit is this?

If the government were truly concerned about value for taxpayers’ money then it would not destroy the Beveridge system and replace it with a competition-based healthcare system which raises costs by creating redundant capacity and extra bureaucracy for individualised billing. But the new system will cost more for inferior service to patients.

The actual priorities of the reform were disclosed by Andrew Lansley in his 2005 speech, talking about the failure of the Railtrack privatisation and its lessons for his healthcare reform:

So the first guiding principle is this: maximise competition. There are, of course, potential benefits from privatisation in terms of access to capital, flexibility, and creating new markets; but private sector ownership is a secondary consideration to competition, which is the primary objective.

There’s nothing there about patient welfare or quality of service or public health: his stated first priority is to maximise competition so as to ensure that privatisation is not reversed as it was with Railtrack, and his “secondary consideration” is to increase private sector ownership.

Mr Lansley also said in the same speech:

Government proposals envisage limited competition in supply of elective surgical operations from the end of 2005 and, by 2008, in theory, full competition for those services. However, it is not full competition. There is no right to supply for new and independent providers. (Emphasis added)

Here, we have a credible explanation for the obsession with competition despite strong evidence that it has undesirable effects in health care and no credible evidence that it can have a positive effect. Creating a right to supply for new private sector providers through “full competition” is the desired outcome of the competition scale-up and is the driving force behind the Health and Social Care Bill.

The use of competitive markets for health service delivery will create a right to supply our NHS-funded healthcare services for corporations. Of those who have been lobbying for increased market access[xxxi], some have a record of predatory behaviour[xxxii],[xxxiii],[xxxiv],[xxxv],[xxxvi] including fraud against the US government and organ trafficking[xxxvii].

9. The regulations would reflect the existing Principles and Rules for Competition and Cooperation in the NHS, introduced by the previous government, which we will retain to ensure continuity.

Hindsight shows that the exploration of market arrangements in the NHS which once seemed a good idea has since been shown to have generated problems. These problems caused both Scotland and Wales to reverse the market changes some years ago, and their health systems now function better than ours in England. Research shows that extra costs attributable to marketisation in the English NHS amount to around 14% extra, a not inconsiderable sum[xxxviii], and one which will grow greatly as these market reforms are fully scaled up in order to create legal rights for the private sector to provide NHS care.

As Earl Howe’s quote from Professor Smith highlights, “true market competition introduces a set of raw incentives that carry serious potential for adverse outcomes for many aspects of health care”. Such undesirable outcomes occur largely through the introduction of perverse incentives created by the market, such as supplier-induced demand and the distortion of statistics reviewed above.

While in many areas this government might profit from following the example of the last one, such in assuring decent treatment of people disabled by serious illness, the country would benefit from ditching these inherited “Principles and Rules for Competition and Cooperation in the NHS”, and instead adopting a more rational approach to organising services which would avoid unproductive expenditure and incentivisation of undesirable outcomes.

10. We consider it vital that regulations set by the Secretary of State are capable of being enforced and that remedial action can be implemented, to protect patients’ interests, in the event of a breach. One option would be for the Department of Health to oversee the regulations and enforce compliance.

Much of the country, including the medical profession is against the passage of this Bill. The nurses, the midwives, the physiotherapists, the paediatricians, the cancer doctors and radiologists, the psychiatrists, the A&E doctors and a high proportion of other hospital doctors and public health doctors have declared their explicit opposition. Although the Bill was marketed to GPs as a better arrangement for them and their patients, almost all GPs are against the changes now as the realities have emerged. More register their disapproval every day, as information spreads about the true nature of the healthcare industry that the Bill will create out of our public healthcare service.

11. However this would require powers for the Department (or Secretary of State) to direct commissioners and would therefore be inconsistent with other parts of the Bill and increase risk of political interference.

Also known as the democratic process.

12. A second option would be for the NHS Commissioning Board to oversee the regulations, but this would amount to a ‘self-policing’ arrangement and would involve a conflict of interests because the Board would itself be a commissioner. The third option is for independent oversight of the regulations, which would benefit from an objective and impartial assessment and avoid the conflicts of interest and risk of inappropriate political intervention that would arise with alternative options.

If the government were interested in eliminating conflicts of interest it would have responded to objections about inappropriate arrangements in the CCGs involving conflicts of interest which have drawn complaint from medics and patients alike. Far from removing these conflicts, the government has chosen to create a right for providers to conduct themselves as they please, enshrined in Clause 4, the autonomy clause. An example: a pathfinder CCG in York unilaterally declared that minor surgery was no longer covered on the NHS, and then offered to provide it themselves on a private basis[xxxix]. Such conduct should be prohibited by the law, but it will instead be protected by this Bill.

13. We have proposed that Monitor would be the most appropriate body to perform this role – as a dedicated sector-specific regulator for healthcare with an overriding duty to protect patients’ interests, and as an alternative to establishing a separate body, which would be unnecessarily costly.

The draft legislation covering Monitor’s role is written on the model of the laws which set up the utilities regulators. Such regulators enforce competition law, and that is the new duty given to Monitor, which has recently appointed two new Non-Executive Directors to join the CEO. All are former McKinsey senior management specialised in privatisation[xl],[xli],[xlii],[xliii],[xliv],[xlv],[xlvi],[xlvii],[xlviii],[xlix],[l].

A 2010 think-tank report[li] explained

“Monitor, the economic regulator will have greater powers and broader responsibilities, regulating all providers of services to the NHS, irrespective of ownership and governance. Not only will Monitor oversee the journey of NHS providers to FT status and beyond, it will also be responsible for maintaining an orderly market, setting prices, ensuring fair competition and assuring continuity of services. Its powers will be significant, not very different from the economic regulators it is modelled on. Where current suppliers seek to block the entry of a new provider, they can be obliged to make their premises available.” (Emphasis added)

‘LIBERATING THE NHS’ - THE NEXT TURN IN THE CORK SCREW? An analysis of the Coalition Government’s proposals for health, Tribal. 2010

Monitor’s role is to privatise NHS hospitals and foundation trusts, and to run the competitive markets which will administer our future health care. It is interesting that this quotation envisages private providers being allowed to set up within NHS premises if they appeal to Monitor to arrange this for them.

Since the Dutch turned aspects of their healthcare over to competitive markets and clinicians now find that the Competition Authority interferes with their attempts to coordinate services for patient care. Reports are that it is not patients who petition the Dutch competition regulator, but private sector “competitors”. Indeed we see the same phenomenon with the “Cooperation and Competition Panel”[lii], Monitor’s precursor in regulating the early competitive markets set up within the NHS. The claim that competition is being introduced for the benefit of patients is thoroughly dishonest.

14. The House spent considerable time debating the application of competition law to NHS providers. As the Department set out in its response to 38 Degrees, competition law would apply where it applies with or without this Bill. It is not for the Secretary of State for Health, now or in the future, to decide where competition law applies.

This is an exquisitely lawyerly statement, at once entirely accurate and highly misleading. It is absolutely within the power of this government to drop a Bill which will bring this full-scale competitive healthcare industry into being.

There are arrangements for organising referral services which trigger the requirement to apply competition law and there are others which do not. Those that do include the processes of competitive tendering and AQP, which are the commissioning mechanisms inherited from the last government. As Earl Howe has told us previously, the regulations introduced under s71 (now s73) of the Health and Social Care Bill will be these. What he has so far not mentioned is that these regulations are currently used for only a small subset of services, but the Bill will roll out this mechanism to almost all functions of the NHS, bringing the whole system into the ambit of competition law.

It will also destroy our universal risk pooling system through shifting the whole system from a population-based payment system to an individually-based system, for the first time creating a primary care system compatible with introduction of user fees and top-up insurance accounts. This next stage of the reform remains unannounced as yet, except within the formulation “services will continue to be free at the point of need”, which of course leaves open the question of them not being free at some other juncture.

15. As I said during the debate, the Competition Act would only apply in respect of activities where a body was acting as an ‘undertaking’. As noble Lords noted, the absence of directly applicable case law to NHS providers means there is uncertainty as to when and where a specific provider of NHS services might be deemed to be acting as an ‘undertaking’.

This uncertainty is an important reason why the Bill proposes that Monitor should have the alternative option of addressing abuses through its licensing powers. Therefore, Monitor can take action to protect patient interests without getting caught up in technical, legal arguments.

Notwithstanding this, however, the key factor in determining whether a provider of NHS services would be acting as an ‘undertaking’ would be about whether the activities in question constituted ‘economic activity’ or, in other words, whether such activities amounted to the provision of goods or services within a competitive market.

In this way, for example, the question of whether an NHS trust or foundation trust was acting as an ‘undertaking’ would have to be considered in relation to each of its activities and would not therefore be a matter of ‘yes’ or ‘no’ in relation to the organisation as a whole. This fact is reflected in the Office of Fair Trading’s guidance ‘Public Bodies and Competition Law’, which makes clear that a public body

“may be an undertaking (and therefore subject to competition law) in respect of some of its activities but not others”

This is a red herring. The definition of ‘economic undertaking’ is likely to capture any activities conducted through the competitive tendering or AQP that the regulations issued pursuant to this bill will require. In any case the government has made it clear that it intends to regulate these markets to enforce competition.

The Bettercare case illustrates where the adoption of procedures which bring us within the ambit of competition law will take us thereafter. In this case, a Belfast commercial care home service provider attempted to use competition law to shut down subsidised care home provision from the council, although these facilities were open only to elderly people who were not able to pay full market rates for the care they needed. Bettercare objected to council provision of subsidised care for those in need as a threat to the maximisation of its profits. Presumably Bettercare’s owners foresaw that some families of the impoverished old people denied subsidised care through its victory at the Competition Tribunal would be able to beg or borrow the money to enter a Bettercare home and pay Bettercare fees for at least a short while, so swelling its profits.

From Bettercare to Southern Cross and Winterbourne View, evidence mounts that the “commercial care sector” is at its heart an oxymoron.

16. ...”compliance with competition law should not materially impede public bodies’ efficient exercise of their functions”

Wouldn’t the people of this country prefer that ”compliance with competition law” should not impede “public bodies’ efficient exercise of their functions” at all? The Bettercare case gives a clue to the sort of activities which may come under attack: among them the ones which make us a civilised society.

The real fans and beneficiaries of this Bill are those like Bettercare who stand to gain from it financially, including what we might call, paraphrasing the government’s pet think-tanks, ”wannabe-producer interests” such as those to whom Earl Howe himself [liii] has promised profit opportunities[liv]. We know they have been lobbying government for these changes for years31.

In addition, the public is concerned not just about competition per se, but about the impact on our health care provision of the switch of public sector to “independent” or private sector providers. In an analysis in the BMJ entitled “Competition in a publicly funded healthcare system: are the UK and other countries right to adopt a market based model for improving their health services? Steffie Woolhandler and David Himmelstein believe that the appropriate response to the US experience with such policies is quarantine, not replication”, the authors warn that we have reason to be alarmed[lv]:

“US experiments in using public money to buy care from private firms have also disappointed. Costs for the private insurance that government purchases for public employees have risen even faster than Medicare’s[lvi].

According to comprehensive meta-analyses, investor owned renal dialysis centres (funded almost entirely by the special Medicare programme that covers everyone needing long term dialysis) have 9% higher mortality than non-profit centres despite equivalent costs[lvii]; and investor owned hospitals—which receive most of their funding from public coffers—have 2% higher death rates and 19% higher costs than non-profit hospitals[lviii],[lix].

Health care’s shift from a public service to a business model has raised costs, partly by stimulating the growth of bureaucracy. The proportion of health funds devoted to administration in the US has risen 50% in the past 30 years and now stands at 31% of total health spending, nearly twice the proportion in Canada[lx]. Meanwhile, administration has been transmogrified from the servant of medicine to its master, from a handful of support staff dedicated to facilitating patient care to a vast army preoccupied with profitability.”

17. We therefore consider that a foundation trust may well be acting as an ‘undertaking’ when providing private healthcare in competition with other providers. However, it would be very unlikely to be acting as an ‘undertaking’ when providing NHS services (e.g. A & E, trauma, obstetrics, critical care) in the absence of competition. This would be particularly evident where the provider was subject to licence conditions, set by Monitor, which required it to maintain continuity of those services (due to the absence of alternative providers).

However, I have agreed to consider Lord Clement-Jones and Lord Owen’s request for Ministers to publish an independent opinion on the Department of Health’s assessment of these issues, prior to Report.

The important issue here is the government’s choice to use competitive markets for all service procurement henceforth. It is the use of the competitive market mechanisms which are most likely to trigger the creation of rights under competition law, and there are other ways of organising services which would not have this effect. Creating these rights was declared as the main goal of the competition-based reform by our Secretary of State for Health. Why is someone with that job title declaring these to be his goals? He has custody of a key role in the safeguarding of our health and welfare, but his loyalties lie with those seeking business opportunities paid for from the health budget.

We can see his priorities from what is happening in public health. The SoSH has done a “responsibility deal”[lxi] with his former clients as the employee of a marketing company[lxii], and now soft drinks and confectionery manufacturers (etc) head up our diet-related disease strategy[lxiii].

The benefits for patients and taxpayers of competition-based reform have been asserted by the government, but remain elusive to pin down. Patients will gain a form of choice that they have not expressed interest in, and will have their health put at risk by the system’s perverse incentives for over-treatment induced by the PBR payment regime and bonus-linked targets.

Taxpayers will see a rise in cost because the new arrangements involve extra administration and the persistent service overcapacity implied in having competing services instead of rationally designed, financially efficient provision.

18. Finally, as regards review of mergers involving foundation trusts, Lord Clement-Jones rightly argued that the paramount consideration for the Office of Fair Trading (OFT) must be the impact on patients’ interests, including patients’ interests in having access to a comprehensive health service. The Government agrees entirely with this principle. However, we are confident that the OFT would be entitled, and moreover obliged, to consider the impact on patients in this way.

The principles of UK merger control require the OFT to consider ‘relevant customer benefits’ resulting from a merger. This would involve balancing any substantial lessening of competition – for example a reduction in patient choice or a rationalisation of services across fewer geographical sites – against potential overriding benefits to patients – such as improvements in quality and/or efficiency. Given this, I am not convinced of the need for the OFT to apply a broader ‘public interest’ test and consider potential impacts of mergers over and above the impact on patients’ interests.

England currently does have a comprehensive universal healthcare system, but the passage of the Health and Social Care Bill will destroy it through switching from population-based to individual-based coverage. The market will expose the ailing and vulnerable of our society to unpayable costs for health care, and is likely to cause a deterioration in public health as it fragments service provision.

Himmelstein and Woolhandler reviewed the evidence for the relative costs and benefits of commercialisation of national health services through the HMO (health maintenance or “integrated care” organisation) insurance-based model on which CCGs will function:

“Why would anyone choose to emulate the US healthcare system? Costs per capita are about twice the Organisation for Economic Cooperation and Development average. Forty seven million people are completely uninsured. Many others with insurance face high out of pocket costs that hinder care and bankrupt more than a million annually[lxiv]. Mortality statistics lag behind those of most other wealthy countries, and even for the insured population, clinical outcomes and patient satisfaction are mediocre[lxv],[lxvi].

This dismal record arises, we contend, from health policies that emphasise market incentives. Even as the public share of health spending in the US has risen to 60%, investor owned firms have eclipsed the public, professional, and charitable bodies that previously managed the financing and delivery of care. The development and effect of US policies that mix public funding and private management has wider relevance because politicians in Europe and beyond are pushing analogous schemes.

Evidence from the US is remarkably consistent; public funding of private care yields poor results. In practice, public-private competition means that private firms carve out the profitable niches, leaving a financially depleted public sector responsible for the unprofitable patients and services. Based on this experience, only a dunce could believe that market based reform will improve efficiency or effectiveness. Why do politicians - who are anything but stupid - persist on this track?

Such reforms offer a covert means to redistribute wealth and income in favour of the affluent and powerful. Privatisation trades the relatively flat pay scales in government for the much steeper ones in private industry; the 15-fold pay gradient between the highest and lowest paid workers in the US government gives way to the 2000:1 gradient at Aetna.

But even more important, privatisation of publicly funded health systems uses the public treasury to create profit opportunities for firms needing new markets.”

The implementation of the Health and Social Care Bill will harm patients through over -investigation or over-treatment for some and, send costs soaring so as to create a justification for imposing compulsory private health insurance, and cause a deterioration in public health and the exacerbation of social inequalities. It will pave the way for the introduction of user fees.

It is about to be passed through the House of Lords, many of whom will benefit financially from the changes outlined above through ownership shares in business interests in private healthcare providers, insurance companies, business service providers, lawyers, lobbyists and other companies which are eligible to compete for the upcoming bonanza of outsourcing contracts. The highest value of these contracts will surely be for the outsourcing of the work formerly undertaken by the “redundant” PCT commissioning staff, which will now be done largely by accountancy firms and insurance companies.

In 2010 private equity investors in New York received a personal invitation to enter NHS provision from a former NHS Director of Commissioning through a presentation on profit opportunities arising in the UK health care sector:

“In future, the NHS will be a state insurance provider not a state deliverer. In future ‘any willing provider’ from the private sector will be able to sell goods and services to the system. The NHS will be shown no mercy and the best time to take advantage of this will be in the next couple of years.

GPs will have to aggregate purchasing power and there will be a big opportunity for those companies that can facilitate this process.

The monolithic arm of state control will be relaxed which will provide a huge opportunity for efficient private sector suppliers.”

Every person in this country may have cause to resent those that vote for this Bill for damaging the standards of the healthcare available to them and sending its costs to the country soaring, and for allowing the Lansley reform to lock that situation in place through the creation of financial barriers to renationalisation by the scale-up of the use of competitive markets in service provision which create legal rights for public sector providers.

The public is increasingly aware of this issue of vested interests among decision makers through past press reports, and is able to research them through the Register of Members Interests, inter alia. They will be watching to see who votes for this Bill to pass.

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[ii] Sheldon T. Is competition law bad for patients? BMJ 2011;343:d4495

[iii] Sheldon T. Dutch GP association is fined ¬ 7.7m for anticompeDutch GP association is fined €7.7m for anticompetitive behaviour. BMJ 2012;344:e439

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[v]Gaynor M, Moreno-Serra R and Propper C (2010) Death by market power: reform competition and patient outcomes in the National Health Service. NBER Working Paper

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[xi] Audit Commission. Improving data quality at trusts for PCTs Payment By Results Data Assurance Framework 2010/11 Programme July 2010

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markets, Handbook of Health Economics.

[xviii] Whitting J. The hidden cost of NHS reform. New Statesman 23 June 2011

[xix] Lansley A. Extract from: 'The Future of Health and Public Service Regulation' Speech 9 July 2005



[xx] Propper C, Burgess S, Abraham D. Competition and Quality: Evidence from the NHS

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[xxi] Cave T. Revolving door is unhealthy & following pages. Spinwatch.

[xxii]Anthony Barnett and Solomon Hughes, ‘UK’s elderly care plan run by “cheats”’, Observer 10 November 2002.

[xxiii] ‘United Health Group Settles for $350 million’, Reuters 13 January 2009.

[xxiv] McKesson press release, January 12 2005.

[xxv] Karen Gullo, ‘Ex-McKesson chairman McCall gets 10-year prison term for securities fraud’, Industry-, March 6 2010.

[xxvi] ‘Judge Federico Moreno approves Aetna settlement’, Connecticut State Medical Society, May 29 2003

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[xxxiv] McKesson press release, January 12 2005.

[xxxv] Karen Gullo, ‘Ex-McKesson chairman McCall gets 10-year prison term for securities fraud’, Industry-, March 6 2010.

[xxxvi] ‘Judge Federico Moreno approves Aetna settlement’, Connecticut State Medical Society, May 29 2003

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[xxxviii] Government Response to the Health Select Committee on Commissioning. Presented to Parliament by the Secretary of State for Health by Command of Her Majesty. July 2010 Cm 7877 Crown Copyright. Her Majesty’s Stationery Office.

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[lvi] Davis K, Cooper BS, Capasso R. The federal employee health benefits program: a model for workers, not Medicare. New York: Commonwealth Fund, 2003. usr_doc/davis_fehbp_677.pdf.

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