Equity and Efficiency in Health Markets

“The NHS is the greatest expression of social solidarity found anywhere in the world: it is as much a social movement as it is a health system. It is not just that we stand together but what we stand for: fairness, empathy and compassion. It is for these reasons that we all care so deeply about its future; and it is why I stand ready to contribute to ongoing efforts to invest in and improve the NHS, in any way I can.”

Professor the Lord Darzi of Denham KBE; resignation letter to Gordon Brown. July 13th 2009

When London GP Iona Heath introduced an article for the British Medical Journal criticising the effect of markets on health care she began, “The UK National Health Service is designed as an expression of social solidarity and provides universal access to health care funded through general taxation and free at the time of need.”[1] She was criticised for her “socialist parody of how real markets function”[2] This is the usual retort whenever doctors criticise the real or potential effect of markets. Hoping to avoid this charge I am presenting the evidence about the effects of real markets on two essential components of the NHS; equity, and efficiency.

Equity is the ability to distribute resources to those who most need them; people who are overwhelmingly and increasingly elderly, disabled, mentally ill, and suffering from multiple chronic diseases, rather than those who are the most demanding, articulate, enabled consumers.

Efficiency is the ability to use resources most appropriately; to ensure that patients are not inappropriately screened, scanned, medicated or dissected.


There is a social gradient in health, meaning that the less wealthy you are the lower your life expectancy and the higher your burden of disease. A report by diabetes UK this month showed that the UKs poorest had the highest risk of diabetes and its complications.[3] Poor people are more likely to have unhealthy lifestyles due to lack of education, hope and self esteem. Despite this, the differences in mortality and morbidity persist even when lifestyle factors are corrected for.[4]

Research by a colleague at my surgery in Hackney, East London of the highest attendees at the local A&E department shows that these people are more likely to be elderly, have multiple chronic diseases, have psychological co-morbidities, in particular anxiety and/or abuse drugs or alcohol.

Policies such as user fees, like the £20 fee to see a GP proposed this month by the Social Market Foundation shift the financial burden of healthcare onto the sickest and poorest in society so widening the health divide.[5] There are alternatives. Our practice is working with the local A&E department and out-of-hours service to develop shared care planning for the highest users in order to treat them more appropriately, so increasing both equity and efficiency. User fees would do the opposite.

Equity and choice.

The growth of markets in the NHS is linked to the increased emphasis on choice. Being able to make a choice and see it through is related to your level of autonomy. Because poverty, lack of education and ill health all undermine autonomy, unregulated choice also results in a widening of health inequalities.[6] [7]


Submission to the BBC Today programme request for suggestions for cost cutting in the NHS on June 30th 2009:

According to the WHO Committee on Social Determinants of Health:

“In middle-income countries, higher levels of commercialization are systematically associated with worse and more unequal health-care access and health outcomes (HSKN, 2007). In low-income settings, unregulated fee-for-service commercialization is particularly damaging to health outcomes. In terms of health equity, publicly financed health care, regardless of ability to pay, is the preferred policy option. (See Chapters 9 and 11: Universal Health Care; Fair Financing)[8]

Administration costs and transaction fees in the NHS have increased from 5-6% in the mid 1970’s to over 20% today. This is due primarily to the introduction of markets within the health service and a massive management expansion including the use of external consultants. Before long it may reach the extraordinarily inefficient 34% common in the US for profit hospitals unless the privatisation agenda is abandoned[9]. A fully publicly funded NHS could reduce administration costs to below 10%, saving the £10bn a year that’s required, without any reduction in services, indeed services would improve without the duplication and inefficiencies that competition has introduced.

The NHS spent £350 million on external management consultants in the last financial year. More than £273 million of this was not related to direct patient care and equates to the cost of 330 fully staffed medical wards, each with 28 beds.[10] Latest figures suggest the cost may be nearer £500 million and Labour ministers and high ranking civil servants are profiting.[11]

And the costs for IT have more than doubled to at least 15 billion so far with estimates that it might increase to over 30billion.[12]

The PFI initiative means that for an investment of 10bn, private companies charge the NHS over £50bn in rental over the next 25 years. The PFI companies are borrowing money from the same banks that we own, and then we are paying their profits (rent) as well.[13]
A few years ago I started a project with MEDACT to look at making the NHS sustainable. The possible savings for the NHS would be phenomenal if money was invested in making hospitals more energy efficient. The Royal Free in Hampstead invested in a combined heat and power plant and is saving over £1million a year with all savings going back into clinical services. [14] There are over 1000 hospitals and clinics in the UK, representing a potential billion pound a year saving. Other energy efficiency and waste reduction measures, in an organisation the size of the NHS could save millions.

GP led health centres.

Every PCT in the country has been forced by the DoH to build a GP led health centre. They have been given up to 7 times the amount of funding per patient than GP surgeries they are in competition with. “With the cost of GP-led health centres averaging three times as much as GMS practices, and rising to as much as seven times the price, serious questions must be asked over value and affordability” [15]

Independent Sector Treatment Centres

These were introduced to increase capacity in the NHS but at least 25% of their staff has been taken from the NHS. Their contracts mean that almost all the clinical and financial risk burden is still on the NHS. In spite of this the Department of Health own research has shown that the cost of care in the first 20 ISCTs is 12% higher than in the NHS.[16]

Commissioning and the Purchaser Provider split

Recently PCTs (Primary Care Trusts) have been forced to separate into commissioning and providing arms with the eventual aim of transforming the entire NHS into a commissioning organisation that pays competing private contractors to do the work. The claim is that competition between providers will drive costs down and increase efficiency. One example in Hackney is that a private company, InHealth has been paid a lump sum by the PCT (Primary Care Trust) to provide ultrasound scans, MRI scans, and various cardiology investigations. Because they are paid a lump sum it doesn’t matter how many investigations they perform, they still get to keep the money. If Hackney GPs refer to them it doesn’t come out of our PBC (Practice Based Commissioning)/ referral budget, but we refer to the Hospital it does. Many practices are tens of thousands of pounds overspent with their referral budget already because of the arbitrary pricing procedure so they are effectively blackmailed to send their patients to InHealth instead of the local NHS hospital, in our case the Homerton. The Homerton, like all hospitals now, is contractually bound to make a profit, by selling services (like scans and cardiology tests) to GPs, but it cannot compete with InHealth because their scans don’t come out of our budget. The risk, of course, is that our local hospital goes bust.

The US experience.

The US spends more per person per year on health than any other country as a result of greater administration costs, defensive medicine (over investigation and treatment due to fear of litigation), greater use of branded drugs and high-tech equipment and so on.[17][18][19] New medical technology such as complex scanning devices and chemotherapeutic drugs tend to be a lot more expensive than existing treatments. The costs are continuing to rise as new treatments become available and an aging population needs more health-care. The costs of operating a market – the costs of promoting and advertising insurance plans and providers’ facilities, of making contracts between insurers and providers, of accounting and invoicing for every individual treatment, of recording payments and chasing non-payments, of auditing and litigation – are huge. In US public hospitals in 2004 administrative costs accounted for 22.9 per cent of total costs; in private non-profit hospitals they accounted for 24.5 per cent; but in for-profit hospitals they accounted for 34 per cent.[20]

The US surgeon Atul Gawande recently examined healthcare in Mc Alpine a small Texas town on the Mexican border where the average per-capita healthcare costs exceeded the average annual income. [21] The costs there were the second highest of any US town. The main reason was a result of “financial incentives that drive unnecessary care”.

“Medicare payment data provided the most detail. Between 2001 and 2005, critically ill Medicare patients received almost fifty per cent more specialist visits in McAllen than in El Paso, and were two-thirds more likely to see ten or more specialists in a six-month period. In 2005 and 2006, patients in McAllen received twenty per cent more abdominal ultrasounds, thirty per cent more bone-density studies, sixty per cent more stress tests with echocardiography, two hundred per cent more nerve-conduction studies to diagnose carpal-tunnel syndrome, and five hundred and fifty per cent more urine-flow studies to diagnose prostate troubles. They received one-fifth to two-thirds more gallbladder operations, knee replacements, breast biopsies, and bladder scopes. They also received two to three times as many pacemakers, implantable defibrillators, cardiac-bypass operations, carotid endarterectomies, and coronary-artery stents. And Medicare paid for five times as many home-nurse visits. The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine.”


Complaint submitted to BBC Newsnight on July 27th 2009

Dear BBC,

I am writing to complain about bias in the programme Newsnight (July 27th 2009) The programme was billed as a serious report on ways to cut costs in the NHS but instead you presented a platform for advocates of privatisation.

The two health ministers, Mike O’Brien, Labour and Steven O’Brien, Tory started the program by stating their commitment to the purchaser-provider split and an internal market, joined by private hospital cancer specialist Karol Sikora who started off by saying that neither of them were going far enough with privatisation.

You then interviewed David Locke a barrister MP who lost his seat to Richard Taylor MP, a doctor that campaigned to save Kidderminster hospital.

You also interviewed someone from Doctors for reform, an organisation dedicated to profiting from privatisation of health services.[22]

I have submitted evidence about the increased costs and damage to equity and efficiency of markets in the NHS to your programme and the Today programme which has not been disputed.

I was very disappointed by Newsnight’s extraordinary bias. You didn’t have anyone who actually worked for the NHS or anyone committed in any way to preserving the NHS as a publicly funded organisation.

[1] Heath, Iona Only General Practice can save the NHS BMJ  2007;335:183 (28 July), doi:10.1136/bmj.39286.704722.59

[2] Black, Stephen, Myths about markets and health, rapid response to Heath, Iona, Only General Practice can save the NHS, BMJ  2007;335:183 (28 July), doi:10.1136/bmj.39286.704722.59

[3] UKs poor twice as likely to have diabetes and its complications. Diabetes UK July 27th 2009 http://www.diabetes.org.uk/About_us/News_Landing_Page/UKs-poorest-twice-as-likely-to-have-diabetes-and-its-complications/

[4] Marmot, Michael. Wilkinson, Richard. The Social Determinants of Health. Oxford University Press 2006 Second ed.

[5] From Feast to Famine: Reforming the NHS for an age of austerity. Social Market Foundation. July 20th 2009

[6] Marmot, Michael. Status Syndrome. How Social Standing affects our Health and Life Expectancy. Bloomsbury 2004

[7] Sen, Amartya. Development as Freedom. Oxford University Press 2001

[8] World Health Organisation Commisson on Social Determinants of Health. Closing the Gap in a Generation. Final Report Chapter 12 http://www.who.int/social_determinants/final_report/csdh_finalreport_2008.pdf

[9] New England Journal of Medicine vol 336 1997, pp 769-74

[10] NHS spending on management consultants in shoking. Royal College of Nursing May 10th 2009 http://www.rcn.org.uk/newsevents/news/article/uk/nhs_spending_on_management_consultants_is_shocking

[11] Millions spent on NHS management consultants with Labour links Telegraph 23.08.2009 http://www.telegraph.co.uk/health/healthnews/6073354/Millions-spent-on-NHS-management-consultants-with-Labour-links.html

[12] NHS programme for IT http://en.wikipedia.org/wiki/National_Programme_for_IT#cite_note-15

[13] New hospitals ‘could drain NHS’. BBC Health

[14] Estates Manager, Royal Free Hospital London. Rob Speight. Thursday 20th March 2003  Society Guardian http://www.guardian.co.uk/society/2003/mar/20/hospitals.publicvoices

[15] Cost of GP led Health Centres. Pulse Editorial comment July 1st 2009 http://alternativeprimarycare.wordpress.com/2009/07/01/one-year-on-is-the-cost-of-darzi-centres-too-high/

[16] http://www.publications.parliament.uk/pa/cm200708/cmselect/cmhealth/1190/1190w118.htm

[17] Steffie Woolhandler, M.D., M.P.H., Terry Campbell, M.H.A., and David U. Himmelstein, M.D. Costs of Health care Administration in the US and Canada. New England Journal of Medicine. Volume 349:768-775 August 21st 2003 http://content.nejm.org/cgi/content/short/349/8/768

[18] The US Health Care system, Best in the world, or Just the most expensive? Bureau of labor Information, University of Maine, Orono, Maine. Summer, 2001 http://dll.umaine.edu/ble/U.S.%20HCweb.pdf

[19] Why does US health care cost so much? New York Times November 14th 2008 http://economix.blogs.nytimes.com/2008/11/14/why-does-us-health-care-cost-so-much-part-i/

[20] Woolhandler and David Himmelstein, ‘Costs of care and administration at for-profit and other hospitals in the United States’, New England Journal of Medicine Vol. 336, 1997, pp. 769-74.

[21] Gawande, Atul. The Cost Conundrum, What a Texas Town can teach us about health care. The New Yorker. June 1st 2009 http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=1

[22] http://www.keepournhspublic.com/pdf/Reform.pdf

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