NOT FOR PROFITS AND PATIENT CHOICE: THE ROUTE TO …



IPPR HEALTH POLICY SEMINAR

NOT FOR PROFITS AND PATIENT CHOICE: THE ROUTE TO BETTER HEALTH CARE?

Background

In a speech earlier this year[1] the Secretary of State for Health said that transforming the relationship between patients and the health service and between the health service and government are critical to modernising the NHS. Two key areas of reform were suggested: giving patients greater choice over the services they use and giving hospital trusts greater freedom, for example by enabling them to become not-for-profit organisations or ‘foundation hospitals’.

Too often individual health policies are developed in isolation rather than as part of an overall strategy for reform. The purpose of this IPPR seminar (held under Chatham House rules) was to explore how the twin objectives of enabling NHS trusts to become not-for-profit organisations and increasing patient choice might impact on one another, and to assess their combined implications for patients, practitioners and the service as a whole. This paper is an interpretation of the main points made during the seminar’s presentations and in the subsequent contributions and debate.

What are not-for-profit organisations?

Delivering public services through not-for-profit organisations (NFPs) is not a new idea: housing associations have been working in this way for over one hundred years. Other examples of NFPs delivering public services include some ex-local authority leisure services, further and higher education colleges, NFPs managing public sector schools and NFP utilities such as Glas Cymru (the Welsh water utility). However, NFP organisations are not a major element of public service delivery at the present time.

‘Companies limited by guarantee’, such as Glas Cymru, are perhaps the most common form of NFP. These operate like a public limited company but instead of having shareholders appoint ‘members’ to their boards. Companies limited by guarantee can be criticised for simply appointing members of ‘the great and the good’. However, board members can include service users, local citizens and members of staff. How and by what criteria members are appointed is a key issue when assessing the appropriateness of using companies limited by guarantee to deliver public services in future.

Another form of NFP is the ‘industrial and provident society’. Examples include many registered social landlords and some ex-local authority leisure services. Industrial and provident societies come in two forms. Classic mutual societies are owned by staff. An important issue for consideration about this type of organisation is whether services can be managed and delivered in the interests of local users, not just members of staff. In ‘for the benefit of the community’ societies, local people can become members and services are explicitly run, as the name suggests, in the interests of the wider community. However, members need to keep an active interest in the service, holding the board to account.

Other types of NFPs include public limited companies which are wholly owned by Government like British Nuclear Fuel Limited, PLCs which are owned by the users of services, such as the National Air Traffic Service, and public trusts like the Port of London Authority. Public trusts are not a recent example of a NFP but they do illustrate the historical precedent of establishing a public institution which can issue its own bonds.

Although the NHS faces different challenges and problems from other public services like housing, transport or education, it is important to learn lessons where appropriate and to avoid ‘re-inventing the wheel’. The experiences of other countries should also be examined. For example NFPs play a much larger role in delivering health services in the Netherlands. What have these organisations achieved? What have been their advantages and disadvantages?

Why use not-for-profit organisations to deliver healthcare?

Using different organisational forms such as NFPs is only one way of trying to improve the quality and efficiency of public services. Having the right policy framework and high and sustained levels of public expenditure are also critical. We should not assume that simply changing the legal governance or form of an organisation will of itself deliver substantial improvements. Having said that, organisational form can have an effect as part of an overall package of measures.

In his speech, the Secretary of State for Health put forward the following reasons for using NFPs to deliver healthcare:

They have a clear public service ethos and are not-for-profit. The assets remain within public ownership so there is no question of the NHS being privatised. They offer specific public benefits and cannot be transformed or taken over by another form of organisation which will not provide such benefits. They motivate staff and management alike through more active involvement and control. They offer freedom from top down management but are regulated in the interests of consumers. They give greater control to those who use them. They open up more options for greater community accountability.

It is important to have a clear rationale for using not-for-profit organisations to deliver health care. This means developing a coherent analysis of the problems that need to be addressed in the NHS, such as the need to increase investment and patient choice, to encourage greater diversity in who provides services and to enable local providers to have greater freedom from central Government control (these issues are clearly interlinked). There are different ways of addressing these problems. Trusts could earn greater autonomy not just by becoming a not-for-profit organisation outside the NHS but by removing the barriers to greater freedom within the NHS, for example. Different options need careful examination in order to determine the best way forward.

Political reasons for using not-for-profits

One reason why the Government may be keen to use NFPs is that they want to avoid confrontation about plans for greater involvement of the private sector in managing and delivering public services. The key difference between NFPs and private businesses is that NFPs do not have shareholders which they have to distribute profits to.

However, whilst it is true that most NFPs do not distribute profits to shareholders, they do make a surplus so the term ‘not-for-profit’ can in fact be highly misleading. BUPA, seen by many politicians and members of the public as a private sector company, is actually a not-for-profit organisation. The Government needs to develop a more coherent approach to when and where it is acceptable for organisations to make a profit from delivering public services. Why is it acceptable for private companies to make a profit by running some public services, including elements of healthcare, but not others?

Financial reasons for using not-for-profits

One of the main arguments made in favour of NHS Trusts becoming not-for-profit organisations is that this would enable them to ‘get round’ the Treasury’s current financial arrangements.

As part of its strategy to keep the public finances sustainable, the Treasury will only borrow to invest: the so-called ‘golden rule’. The Treasury controls the capital and revenue budgets of individual public service institutions like NHS Trusts so they cannot initiate capital investment projects on their own. However, if Trusts became ‘not-for-profit’ organisations outside the NHS, they could avoid such financial constraints. If the Government was satisfied that they had transferred enough risk and control away from the state, these organisations would then be free to use private finance to pay for capital investment projects as the projects would not show up on Government’s balance sheet.

Many have questioned the validity of this argument, saying it is spurious to claim that using private finance to pay for public service capital investment projects allows the government to undertake more projects than would otherwise be the case because they are moved ‘off balance sheet’. All such projects are ultimately publicly funded and incur future liabilities for the exchequer. Furthermore, the Government can borrow money more cheaply than either private or not-for-profit bodies. If the problem that NFPs are supposed to address is the Treasury’s funding arrangements then a more appropriate answer might be to change these arrangements, rather than seek to create a new type of organisation to get round them.

Attempts to solve this problem are beginning to be discussed in local government. The recent Local Government Finance Green Paper, for example, suggested that the Treasury should only be concerned with ensuring councils have sufficient revenue to service any capital investment projects they wish to undertake. Although this point was more opaque in the subsequent Local Government White Paper, perhaps the same approach could be explored in the NHS. Trusts could borrow to undertake capital investment projects so long as they could demonstrate sufficient revenue to service their borrowing. This would allow Trusts to borrow money more cheaply because they would remain within the public sector.

Income, risk and choice in the NHS

What has been the experience of not-for-profit organisations in raising private finance? The evidence suggests that some NFPs, such as leisure centres, have struggled to raise substantial funding from private sources whereas others, like Glas Cymru, have not. A major factor determining their success appears to be whether the NFP has a guaranteed income stream or substantial asset base.

This raises important questions in relation to the NHS. The Government has replaced annual contracting with Long Term Service Agreements between the commissioners and providers of health services. These typically cover a period of at least three years. Will even longer term agreements be required if Trusts have to guarantee their income streams in order to raise private finance? Are much longer term contracts appropriate - and indeed possible to write - for services as complex and rapidly changing as healthcare?

Devolving power to Primary Care Trusts (PCTs) to commission services will have an impact on a Trust’s ability to guarantee its income stream. Although some commentators have questioned whether PCTs will have genuine power to influence local service providers, there is likely to be increased competition between providers in future and commissioning patterns may become less predictable as result.

Increasing patient choice may also have an effect. If patients can choose which hospital they go to, Trusts may find it difficult to guarantee their income streams over the longer term. What will happen to hospitals patients choose not to go to because they perceive the quality of care to be worse than that available elsewhere? Should all potential consequences of patient choice be accepted, such as the closure of local hospitals or other types of health services? Is a more market based approach to healthcare acceptable - to Government, practitioners, patients and the wider public? If not, what should be done about it?

Whilst it is important to address these questions, the point should not be overstated. Not all patient choices will lead to substantial changes in service provision such as the closure of local hospitals. It may be easier to predict the potential consequences of patient choice, and to develop appropriate responses, than the above scenario suggests.

Autonomy and independence

A key argument in favour of using NFPs is that they could give local services greater freedom and independence from central Government control. Greater autonomy need not stop at giving organisations the freedom to raise money from the private sector in order to fund new capital investment projects. NFPs could have a range of other freedoms, for example the ability to franchise out different services, to make decisions about the pay and conditions of local staff, to set the outcomes the organisation is seeking to achieve, or to determine how the service will be held accountable to board members and staff, to local purchasers, and to patients and the wider public.

These different types of freedoms might be grouped in two ways: autonomy over managerial decisions and autonomy over outcomes. The Government believes that the objectives of the health service should be established centrally in order to ensure the fair and equitable provision of healthcare across the country. How these objectives are delivered should more appropriately be left to local organisations. However, whether such a simple division is workable in practice is open to question.

It is important to remember that the different sorts of freedoms outlined above might be achievable without turning NHS Trusts into not-for-profit organisations. If the problem the NHS faces is too much bureaucracy and centralisation, then the most appropriate solution might be to remove red tape and decentralise power, rather than creating a new organisational form. Otherwise NFPs will simply be a mechanism to protect local services against central political and managerial interference.

If local services are granted more freedoms (via new organisational forms or by removing current political and bureaucratic constraints), public service managers will need to effectively use them. This degree of independence is not something health service managers have been used to in the past and they will therefore need proper training and development to do so.

Who might become a not-for-profit organisation?

The Secretary of State’s speech raised the possibility of NHS Trusts becoming not-for-profit organisations or ‘foundation hospitals’. However, foundation status might apply to a much wider range of organisations including Primary Care Trusts, new networks of care such as cancer services, and clinical support services or procurement consortia.

Different forms of NFPs might be more appropriate for different sorts of NHS bodies. PCTs, for example, might be better suited to forms of mutual organisation because of their proximity and connections to local people. Hospitals might be better suited to more of a stakeholder model. If we want to move away from a ‘one size fits all’ health service then we must avoid a one size fits all approach to healthcare organisations.

An important question is whether NFPs are appropriate for ‘failing’, ‘successful’, or ‘average’ healthcare organisations. The Secretary of State suggested that only those hospitals with ‘three star’ status – ie the best performing hospitals - could choose to become foundation hospitals. If three star hospitals are already successful, why do they need to take on a new organisational form? What would happen if a hospital started off performing well, became a foundation hospital but subsequently performed badly? Could and should its foundation status then be removed? Might a more consistent strategy instead be to determine whether NFPs are appropriate for the ‘average‘ health service organisation, rather than just for those at either end of the spectrum?

Increasing involvement, changing culture

The potential advantages or otherwise of NFPs are not simply financial. NFPs could help deliver other desirable public policy outcomes. Patients, staff and members of the community could be more closely involved in their local health organisations by becoming members of a mutually based PCT. This could help ensure services are more responsive and accountable to the needs of local patients and citizens.

NFPs could also help change the culture of health services. Greater diversity in the types of organisations delivering health care could give patients greater choice about the sorts of services they use. NFPs could encourage greater efficiency and focus more on the outcomes that services achieve, rather than the inputs as is currently often the case. Whereas private companies measure management performance in relation to shareholder price (which can have a distorting effect on service delivery as in the Railtrack experience), NFPs like Glas Cymru have tied management incentives to both the financial health of the organisation and to key service delivery indicators.

However, there is currently little evidence about whether NFPs will necessarily deliver new and more innovative cultures within the health service. Policy makers have yet to fully explore the relationship between the form of an organisation delivering public services, its culture, and the type of outcome it achieves.

Is patient choice possible in the NHS?

Encouraging greater diversity in the provision of health services through not-for-profit organisations could help improve patient choice. However, some commentators claim it is only by changing the way health services are funded that genuine patient choice will be achieved. They point to the experience of countries with social insurance systems like France, where patients can choose which specialist doctor they see, and to Germany, where patients can choose which sickness fund they pay into.

However, the trade-offs that are associated with patient choice in other countries must be recognised. For example, not all patients can participate in the choices that are available on the continent: in Germany you have to earn over a certain amount to be able to choose which sickness fund you use. France is actually moving towards a more tax funded system because of concerns about equitable access to health care. Some analysts claim that social insurance systems can also contribute to higher labour costs and lack of labour market flexibility. All countries are struggling to find the right balance between choice and equitable coverage and to contain the overall costs of healthcare. This is something critics of the NHS in this country often fail to recognise.

Furthermore, the experience of countries like Denmark prove that an NHS-style tax funded system can also deliver patient choice. As part of a Government scheme to reduce waiting times for non-emergency operations, Danish patients can choose which hospital they use regardless of where they live. This has led to greater competition between hospitals who increasingly advertise the services they provide. There has been an increase in the proportion of patients being treated outside their local area, without causing major disruption to the system. The Danes appear to regard the initiative as a success.

What choices do patients want?

Patients want different degrees of choice and involvement in their health care. Whilst some are more demanding and less deferential than in the past, wanting a greater say in how, where and by whom they are treated, many still want their doctor either to be in charge or to take on the majority of responsibility for healthcare decisions. The degree of choice patients want may differ according to a range of factors, including the condition they have and the stage of the treatment process.

Government policy has so far focused on enabling patients to choose where they are treated. Quantitative and qualitative research suggests that many patients are willing to travel in order to receive treatment more quickly. However, some people may choose to stay and be treated in their local area, even if the services are not as high quality or quickly available as those elsewhere.

There is some evidence which suggests that patients in disadvantaged communities may be less willing to travel for their healthcare than patients from more advantaged areas. This may be because patients in deprived communities have lower expectations about their health services, rather than because they do not want choice per se, as a result of historically lower levels of service provision in disadvantaged areas (the ‘inverse care’ law). The condition patients have may also effect the likelihood of their exercising choice. People with sexual health problems, for example, already have to the choice to go anywhere in the country to receive their treatment but the majority chose not to do so. It may be that patients are unaware of the choices that are available to them or that attitudes will change over time. However, the sorts of choices people want are likely to continue to vary from patient to patient.

The Government is providing more information to patients about local services, for example through hospital league tables. Plans to publish information on individual doctors such as heart surgeons are already in the pipeline. Initiatives like this are important as there is evidence which suggests that patients who are treated by more expert doctors have better outcomes and survival rates. However, it should be recognised that league tables can often be a crude way of measuring and comparing complex public services like the NHS. Improving the quality and accessibility of health service information will therefore be critical over the coming years. Patients may want choices over the full range of health services that are available in general practice and primary care, community and social care, acute care (both emergency and elective) and specialist and tertiary care.

Patients may also want choices about the type of treatment or care they receive. For example, patients may want to choose the drug they take according to its side effect. Again, different patients may make different choices. A mother with young children may be less prepared to accept fatigue as a short term side effect of drug treatment than other, more long term consequences. Patients currently have more choice about drugs in some parts of the country than others because of the so called ‘post-code lottery’ in healthcare (although the National Institute for Clinical Excellence is working to address this problem). Some patients may want the choice to take alternative treatments and medicines. Questions about the efficacy of these treatments may come to the fore in the years ahead.

Patients may want more of a say over their health services not just as individual users but as a members of their wider community. Patients will want the right to choose whether to be involved in the new structures that are being developed, like Patient Forums, or in the increasing number of consultations that are taking place. Some may be reluctant to take part in public forums, for example patients with mental health problems or those with HIV and AIDS. Alternative mechanisms must be found to ensure these patients voices are heard. Public involvement and consultation exercises must also be honest and realistic about which decisions patients and citizens can really influence, and which they cannot.

Improving information for patients

Information is critical to choice and improving the quantity and quality of health information will be a key challenge over the coming years. Making progress on this issue will require far more effective partnerships between statutory bodies, industry and patient groups.

Choice only becomes meaningful if patients can act on the information they receive. There is a danger that some Government policies which seek to provide patients with more information and choice will simply raise expectations without being able to fulfil them. For example, the Government’s decision to publish hospital league tables is welcome but if patients cannot act on the information and choose to go to another hospital, it could lead to frustration and disillusionment.

Such disillusionment may be compounded by the increasingly global nature of health information. Patients can see which drugs and treatments are available across the world through health websites on the net, but these services may not yet be available in the UK.

Implications of patient choice for local services

Greater patient choice will mean a shift in culture for local service providers, health professionals and patients alike.

A fundamental barrier to improving patient choice is the current lack of capacity in the NHS. More choice will be possible as increased investment comes into the system and as other initiatives come on stream, including new diagnostic and treatment centres, greater use of spare capacity in the private sector and initiatives to give patients the choice to receive treatment abroad.

In future, local service providers will need to move away from the sense that they somehow ‘own’ their patients to the need to ‘attract’ patients in a more competitive environment. If patient choice is to be genuine, local services will have to attract sufficient numbers of patients. Not doing so could have a number of knock on effects. For example, if fewer patients choose to use to their local hospital it could mean the accreditation of professional training programmes becomes un-viable. Ultimately, some local hospitals might need to close. Local services will therefore have to develop a much better understanding of what patients really want from their health services and to improve the information they provide. The reputation of the organisation will be a critical factor here, but so too will its marketing skills.

It is important to remember that increasing patient choice will have an impact on other local services. If patients choose to travel further afield for their health care, whether in this country or abroad, they may still need to use local community or social services when they return home.

As with all policies, evaluation is critical. Choice must not become a replacement or substitute for service improvement but it may be a spur for change across the system. Local providers will need to be aware that initiatives which seek to increase choice may reveal hitherto unmet needs. Effective mechanisms for identifying and addressing these needs must therefore be put into place.

Implications of choice for professionals

Whilst some patients will be happy to choose which hospital, doctor or service they use on their own, many will want their GP to continue to provide help and advice. GPs are the nearest thing patients have to an individual adviser and will need to be well informed about the local services that are on offer. They may increasingly need to demonstrate their independence when advising patients about which services to use. Other professionals could also have a role to play, such as patient care advisors who will guide patients through the information maze.

In order for patients to become properly informed, professionals will need more time during consultations so they can talk through issues and concerns. However, time is in short supply in today’s NHS: the average time GPs have for consultation in this country is 9 minutes, compared to 18 minutes in the United States. This clearly links back to the earlier points that have been made about lack of capacity within the NHS.

Increasing patient choice will have other implications for health professionals. For example, clinicians may be wary about taking on responsibility for patients who have been treated by doctors elsewhere in this country or abroad. Ensuring the right mechanisms are in place to deliver effective continuity of care will be vital if more patients choose to be treated outside their local area.

Implications of choice for patients

Patient choice could be a crucial dynamic for major cultural change across the NHS. Policies which put patients firmly ‘in the driving seat’ could help drive up standards of care as providers seek to attract more patients to use the services they offer.

If moves to encourage greater individual patient choice are combined with moves to give patients a greater collective voice in how services are organised and delivered - for example through membership of their local, mutually based PCT - then people may feel much greater ‘ownership’ over their health and healthcare. This could lead to a virtuous circle where people are prepared to pay more taxes for the NHS because they feel empowered by having a greater say over where, how and by whom they are treated, both as individual patients and as members of the wider society.

However there are major challenges on the way to achieving this long term goal. The current problems with capacity in the NHS mean that not all patients will be offered choices. Raised expectations without subsequent delivery could increase patient dissatisfaction in the short to medium term.

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[1] “Redefining the National Health Service”, speech by Secretary of State for Health to New Health Network conference, 15 January 2002

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