The Politics of Health Policy Reform in the UK

England's Permanent Revolution

Calum Paton

• Publisher: Palgrave Macmillan
• Year: 2016
• ISBN:
  9781137473431
• Topic: Politics & International Relations
• Subtopic: Public Policy
• Index: Politics & International Relations

This book explains the politics of thirty years of 'market reform' in the English NHS, with the rest of the UK a counter-factual. Paton shows how each subsequent reform has been shaped by the confusion left by the previous reform. The long-term ideology has been anti-statist but policy-making at each stage of 'reform' has been driven by short-term politics. The outcome in England has been ever-increasing complexity in the NHS, with significantly increased management costs and no commensurate benefit.

© The Author(s) 2016

Calum PatonThe Politics of Health Policy Reform in the UK10.1057/978-1-137-47343-1_1

Begin Abstract

1. The Politics Behind the Conservative ‘Internal Market’ in the 1990s

Calum Paton¹

(1)

Keele University, Keele, UK

End Abstract

The Background: Of ‘Reform’ and ‘The Market’

It is important to define these two terms, which are much-bandied about both by supporters and opponents of ‘market reform’ in health services. For convenience, the word ‘reform’ will be used from now on without inverted commas. But, as in the Introduction above, it should have such a characterisation, or alternatively be written with a hyphen, that is, re-form. That is because much reform is not improvement. Yet the prescriptive use of the word is deliberately played upon by reforming politicians to imply that those who oppose their reforms are dinosaurs or at least, in Tony Blair’s infamous but effective phrase, ‘the forces of conservatism’ (Blair 1998),that is, Old Labour, in Blair’s New Labour eyes.

This is—as one suspects Tony Blair considers history, following Henry Ford—bunk. To oppose particular reforms does not imply a Panglossian belief that all is currently for the best in the best of all possible words. But it does imply an open mind, and a healthy scepticism when confronted with politicians of a messianic bent peddling ‘solutions’ which are the political equivalent of the ‘solutions’ and reforms marketed by management gurus, with those who oppose or beg pause dismissed as ‘laggards’. Additionally, the prescriptive component which the word reform has come to incorporate has led some, indeed many, commentators to develop a reform fetish: even when they oppose particular reforms, their bias is to assume that an alternative ‘grand reform’ or systemic change is required.

None if this is to deny that reform is sometimes necessary and indeed desirable. It is simply to point to an incontrovertible fact—that the direction which reform has taken as regards England’s health policy concerning the NHS over the last 30 years, and its legitimacy, is now seen as an orthodoxy. This is an assumption unjustified by the evidence, as I will show.

That direction is towards ‘more market’. So let us now examine what we mean by market reform. There have always been markets in supply to the NHS, as with drugs and equipment. There have also been varying arrangements through which particular services and professions have been organised and ‘contracted’ as with GP services since the NHS’s foundation in 1948. The latter can only be called markets if the aim is to mislead in order to proselytise for markets more widely.

What market reform means however is organising the supply of core clinical and managerial services through competitive markets rather than through public service. The latter is sometimes called ‘planning’, although in the neo-liberal age that word has come to have prescriptive connotations of the negative sort—a ‘boo’ word just as reform has become a ‘hurrah’ word. Planning in this general sense does not necessarily mean central planning, hierarchy (in the negative sense, through which the economist’s neutral, technical term has been coopted by the marketeers), or ‘command and control’, where once again a technical term from the military has been applied pejoratively to the NHS.

One must further distinguish amongst the following terms—the market; the private market; and competition. The first phase of the NHS reforms (1991–1997) was overtly to create an ‘internal market’, that is, a market in which the suppliers were public, NHS bodies. Later this was extended to include tendering by private suppliers on a systematic basis, as opposed to ad hoc and occasional use of the private sector which had indeed been possible since 1948. Next, markets may or may not be competitive—either in design or (more likely) in outcome. Seeking to reap the benefits of competitive markets within the NHS, in line with neo-classical economic theory, has indeed resulted in more heartache and cost—than ever anticipated by reform enthusiasts.

Another important distinction is between neo-classical economic theory and neo-liberalism—and between both and the so-called new public management.

Neo-liberalism (Plewhe 2009) is the revival of classical economic liberalism in a modern context—the re-assertion of the doctrine that the state cannot do much, if anything, better than the market and/or private arrangements. This is one variant of individualism—and one which is many poles apart from (for example) the ‘new liberalism’ in the UK from the early twentieth century onwards, perhaps traceable to the older John Stuart Mill; equally, poles apart from modern US liberalism as the left-of-centre alternative to US conservatism (which contains within its contradictory cocktail elements of neo-liberalism in the sense of Hayek (1944) and the Friedmans (1980).

It is thus possible to subscribe to neo-classical economic theory as a description of what happens when certain conditions for the ‘perfect market’ are realised, and—as with health policy reformers such as Le Grand (Le Grand 2003) to seek to model and indeed realise in practice these conditions as far as possible in order to create or mimic public-sector markets. This does not make such ‘neo-classicists’ neo-liberals, although there is an overlap in values and indeed also beliefs in many instances.

Neo-classical perfect competition is a technical prescription (although, as I say, many of those who believe in its possibility also are suspicious of the state): it is theoretically possible to believe in its application in a context of public financing and public provision, as with the NHS. That is, the competition need not be private competition.

On the other hand, neo-liberalism is much more of a world-view, with both descriptive and overtly prescriptive elements (think of the title of the Friedmans’ book, ‘Choose Freedom’ and Hayek’s title, ‘The Road to Serfdom’.) Nevertheless, it should also be remembered that, just as the power of an autonomous state may be required to realise the conditions for neo-classical competition, the state may be required to ensure the conditions of the ‘neo-liberal’ society or polity. For example, the democratic polity may have a tendency to result in an interventionist state which undermines neo-liberalism (the claim of public choice theorists)—and paradoxically therefore a different type of state action (to restrict democracy) may be necessary.

Yet overall one can be a neo-classicist without being a neo-liberal and indeed (perhaps less commonly) a neo-liberal without being a neo-classicist. Hayek himself was sceptical of the claims that ‘justice’ either economic or political could be guaranteed through neo-liberalism: he justified it on other grounds.

Turning to the ‘new public management’, it can merely be noted here that it refers to the use of business, and particularly private business, techniques, incentives, and management approaches and structures in public services generally and in the public sector specifically where provision of services is public, that is, the providers are publicly owned. It need involve neither neo-classical market competition as a technique or belief, let alone neo-liberalism.

Why does all this matter for health policy and NHS reform? In a nutshell, it matters because there has been a perceptible evolution, both chronological and psychological yet not in my view logical, from the ‘new public management’ to market competition to a wider distrust of the state, in England, in health policy. In the 1980s, we saw the ‘new public management’ (before it was called such) applied to the UK NHS, following the Griffiths Report (1983). In the 1990s, we saw the ‘internal market’ justified (if not necessarily created) on the basis of neo-classical market theory. And from the Noughties onwards, we have seen a wider penetration of the state through private interests, not least through the Private Finance Initiative (PFI) and the take-over of key management and ‘commissioning’ arrangements by private interests—whether or not on a competitive basis, and usually not.

The Internal Market: Technical Fix or Political Fist?

The mechanism which soon was christened the ‘internal market’ by Alain Enthoven (1985) was first suggested as a technical solution to a practical problem in the NHS, not as an ideological alternative to public service. It was initially seen as a means by which ‘money could follow the patient’, by those who believed that this was not possible the pre-reform NHS. Thus it was about efficiency rather than ideology, although I think that it was and is a mistake to believe that market mechanisms within the NHS are likely to be efficient.

It is true that those economists who advocated it or supported the idea were mostly either ‘free market’ converts who were on a political trajectory to the Right, like Alain Enthoven, who had begun as a Democrat working for Robert McNamara in the Department of Defense in the Kennedy Administration but by now was closer to Republicans, or the small minority of die-hard neo-liberal stalwarts associated with the Institute of Economic Affairs who sensed that the tide of history which had beached them might be turning. Yet at this stage this ideological current was not embedded in either public service discourse in general or the culture of the NHS debate in particular.

It was indeed only much later, in an academic rewriting of history, that the Thatcher reforms to the NHS, which created the internal market, were interpreted as having been launched as a response to a social climate of anti-statism or, less controversially, ‘consumerism’. But there was no ‘comsumer tide’ or demand for ‘patient choice’ from patients or the public on any meaningful scale. This is a post-hoc rationalisation for the ‘inevitability’ of reform, and history simply is not like that.

Just as the intellectual supporters of the idea had included those of neo-liberal bent, of course the politicians and advisers in the Thatcher administration who were enthusiastic about the idea included those who saw it in grander terms as part of the fight-back against the state and the public ethos. Thatcher’s Health Secretary from 1987–88, John Moore, was for example associated with the neo-liberal Mont Pelerin Society. But those who came to support the Thatcher reforms, including the lady’s old enemy Kenneth Clarke, the Health Secretary (1988–90) most associated with them, often did so for pragmatic reasons, or at least for managerial reasons rather than ideological ones.

Indeed the internal market was a Janus-faced policy. To some it was a half-way house to more thoroughgoing anti-statist reform to healthcare. To others, it was a means of keeping the NHS flame warm in a cold political climate: that is to say, it preserved public provision while embracing reform enough to please the Thatcherites. Indeed John Moore had wanted more thoroughgoing privatisation, and a move to an insurance system for financing. It was his inability to come up with any practical or affordable scheme for such which finished him off politically after only one year in the job, along with the Chancellor Nigel Lawson’s justified scepticism that such privatisation would allow financial control (Lawson 1992).

Margaret Thatcher eventually saw the idea as being in tune with her own personal anti-statism, admittedly, although it is interesting to remember that she had shunned the idea when it was presented by Enthoven at a private seminar in Downing Street in summer 1984 when he was working on his monograph. This seems to have been ironical: aware of his dubious status in NHS circles as the potential privatiser from California, Enthoven was at pains to present his ‘market’ idea as compatible with public sector health services, as a kind of ‘market socialism’. Presenting it thus to Thatcher was however to treat with kid gloves the one part of Enthoven’s audience where such protection was unnecessary. He was shown the door and it was left to Dr. David Owen, inter alia the former Labour Health Minister and by now leader of the Social Democratic Party, to adopt the idea as a public sector reform without overtones of privatisation, having procured Enthoven’s report from the Nuffield Trust before its publication.

The Red Herring of International Reform

As reform took on momentum through the 1990s and later, international ‘lessons’ for the NHS were increasingly sought. This was more as a result of the self-aggrandising nature of the health reform industry—looking for ideas (or actual services) to sell—than out of any rational or carefully-structured search. For, as has recently been noted, there is no conclusive body of evidence—indeed no body of evidence at all, as opposed to fragmentary items which can be selected to prove the point either way—which tells us that NHS-style (‘Beveridge’ or ‘state’) healthcare, Continental (‘Bismarckian’) social insurance for healthcare, combinations thereof, or particular types thereof, offers the best model for equitable and high-quality health-care which is affordable (EHMA 2000).

The task for the UK has therefore been to improve upon its chosen system, the NHS. Yet the ahistorical and arational import of both ideas and ‘lessons’ from other systems has grown geometrically and has probably contributed to many falsehoods, often in the form of reassurance about certain worrying consequences of ‘reform’. For example, worry about the growth of administrative-managerial costs in the English NHS has been dismissed as ignoring the fact that only now is England approaching the level of such costs in many other ‘Western’ systems, as in the USA, much of Continental Europe et al (House of Commons Select Committee 2010)—entirely missing the point that the comparative advantage of the NHS has lain inter alia in avoiding such costs.

Beyond the issue of costs, important as they are at a time of long-lasting so-called austerity in public services, the role and nature of reform in systems very different to the NHS is often advocated for the NHS even when the NHS’s problems, such as they are, may be almost the opposite of those in the systems to be copied. For example, it may be rational to rationalise a bloated private, non-competitive system through the application of competitive pressures—as may be the case in Bismarckian systems such as in Germany, Switzerland and Belgium. But the NHS’s problems may not be susceptible to such a ‘solution’, which—in a very different context—may create new costs rather than diminish those already existing (Paton 1996). Creating markets where they are not necessary is a prime example.

Planning and Markets

This brings us back to the internal market at the end of the 1980s. What is the technical problem to which markets were alleged to provide the answer?

In the 1980s, the NHS was experimenting at regional level (in England) with different ways of funding hospitals and district services at sub-regional level. Simplifying somewhat, there were two main approaches: firstly, using a formula to allocate resources from the Region to District Health Authorities according to population need as measured by the formula; and secondly, developing regional plans for where to site major services (such as the larger hospitals) and then sending the money to match such developments (both the ‘capital’ moneys for developments and the ‘revenue’ money for recurrent costs.) The former approach can be termed ‘resource-based planning’ and the second approach ‘plan-based resourcing’ (Paton 1985; Mays and Bevan 1987).

One of the main reasons that it was difficult to allocate all or most funds to the more local Districts (of which there might be typically eight or ten in a Region) was because of patients flowing across the boundary from their District of residence to another District for treatment, if not out of the Region altogether. It was possible to fund the receiving District or Region directly for such so-called Cross-Boundary Flows—or at least to adjust the formula for allocating resources to take account of such flows. This seemed straightforward in principle even although there were numerous alternative options at the technical level as to how to do it. But there was a non-technical reason for the difficulty, or at least a reason which straddled the technical and the political—in the sense of raising the spectre of the overall adequacy of NHS funding, and therefore taking the debate from ‘low administration’ into ‘high politics.’

In a nutshell, if patients crossing boundaries were costed at the actual or average cost for their specialty or diagnosis, then this became the tail which wagged the dog in terms of funding—for what was left over for the core residential population—the clear majority, in most cases—which did not cross the boundary was, per capita, significantly less per capita receiving treatment and/or per population need. This was because there was not enough money in the system—at prevailing costs, at least—to ensure that all ‘needed’ care could be reimbursed (i.e. hospitals and other providers paid.) The result was rationing, or more accurately unmet need, since it was not a systematic process which deserved the name of rationing.

In a system where Districts were responsible both for accounting for local need and for running their local services, there was no intrinsic reason to cost at the level of individual patient care—and it is a serious misconception that this is a desirable or necessary feature of any healthcare system. One of the comparative advantages of the NHS used to be that it could account for salient costs without ‘individual billing’ (whether that billing is for commercial purposes or for ‘internal’ accounting or contracting purposes.) Yet where the lack of adequate resources—for the overt purposes of the system; this is not (only) a value judgement—was being fudged, it came to be seen as desirable that the discrepancy between the two types of patient (those treated locally and those flowing across boundaries) be tackled.

Enthoven: A ‘Man from Mars’

On a parallel track in the mid-1980s, and without any ideological desire to promote markets (quite the reverse, if anything), the Nuffield Trust had invited Alain Enthoven, a health policy re...