The Role of Privatisation in the NHS: How PFI Shape UK Healthcare
When London hosted the Olympic Games in 2012, part of the opening ceremony was dedicated to the history of the UK’s National Health Service (NHS). While Mike Oldfield performed Tubular Bells from the stage, hundreds of members of staff from Great Ormond Street Hospital, dressed in period dress dating from the birth of the NHS, began a choreographed dance routine.
Non-Brits would have no doubt found this spectacle somewhat peculiar. It is hard to imagine another country championing a public service at this moment of nationalistic pageantry. Yet the moment perfectly reflected the almost sacred position the NHS holds in the British psyche.
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Founded on the principles of universal access, free at the point of use, the NHS is one of the hallmarks of British identity. Like anything placed on a pedestal, it is the recipient of reverence and scorn, and its stewardship by the government of the day carries acute political sensitivities.
No topic relating to the NHS is more sensitive than the debate over its perceived privatisation. Those fearful for its future spy a slow disintegration of its founding principles with each successive reform.
“When you look at each of the reforms that have happened, the government has done down the service, pulled out investment to the point that it breaks, then utilised the public outcry to weaponise blame towards NHS staff,” says Dr Julia Grace Patterson, the founder and CEO of doctor-led NHS campaign group EveryDoctor. “It has happened systematically.”
To others this threat is overstated, with the popularity of the NHS protecting it from any dismantling and replacement by a private system by any government.
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By GlobalData“Whenever there is reform in the NHS, the cry will go out that this is privatising the NHS, regardless of what the reform is and regardless of evidence,” argues Helen Buckingham, director of strategy and operations at independent health think tank Nuffield Trust. “So to see significant increases in the use of the private sector would be quite a big political step for any party to take.”
Understanding how much private sector participation there is in the NHS today, and what impact it is having, is complicated by the lack of a plain vocabulary when discussing the organisation and its frustratingly opaque datasets. Those arguing for and against private sector involvement in the NHS often seem to be speaking different languages to each other and everyone else.
This is the consequence of successive reforms of the institution that have introduced myriad ever-changing organisational entities, which have made the inner workings of the NHS all but indecipherable to the general public.
Yet at a time when the services of the NHS are under increasing strain, it is important to decode the doublespeak and understand the real role of the private sector in the country’s health provision.
What does ‘NHS privatisation’ actually mean?
Clouding the debate on private investment in the NHS is what exactly is meant when people say it is being privatised.
A traditional definition of privatisation, for any sector, industry or business, would mean the ownership of previously state-held assets or services by private companies. These companies would then directly charge users for use of their service, although prices for public services would typically remain regulated by the government.
That description does not fit with the NHS model as it currently exists. Instead, some of the assets and services of the NHS have been contracted out to the independent sector, which includes private companies, charities and voluntary organisations (jointly referred to as the independent sector, in NHS speak). Almost all services remain free at the point of use.
Since the birth of the NHS, general practitioners (GPs), who treat common medical conditions and make referrals to hospitals, dentists and consultant doctors have been allowed to practice privately, with work conducted for the NHS done so under contract.
Yet opponents of private sector involvement in the NHS say that reforms by successive governments have seen the role of the independent sector gradually expanded, paving the way for a more traditional form of privatisation in the future.
Patterson of EveryDoctor describes the privatisation of the NHS “as the move from a centrally organised, funded and run public service to one that is provided by an outsourced third party”.
How much NHS spending goes to the private sector?
Finding definitive data for how much of this outsourcing is happening, and how much it has increased over time, is difficult.
According to NHS accounts, the purchase of healthcare from independent sector providers rose from £9.69bn in 2019/20 to £12.17bn in 2020/21, although the percentage of NHS spending with the private sector was 7%, roughly the same as in recent years.
Yet research by the London School of Economics in 2019 estimated that rather than the widely reported 7%, the real figure was roughly 25%.
The research highlighted what it said were several flaws with the government’s methodologies, including a lack of clear definition for independent sector organisations. It also highlighted how funding from local authorities to the independent sector was excluded from the main figures, and how some major items of private sector expenditure were excluded from the government’s calculations.
Analysis from Nuffield Trust estimates that the proportion of NHS spend on all non-NHS providers has stayed between 20% and 22% since 2009/10. The main thing that has changed over that period is how the government categorises different chunks of spending.
While the percentage of total NHS spending may have remained stable in recent years, private sector participation in the NHS is certainly much higher than when it was founded. Analysis by Full Fact shows that the rise in spending on independent sector providers predates the Conservative-led government elected in 2010, almost doubling during the previous Labour governments.
Both Labour and Conservative governments since the mid-1970s have undertaken reforms of the NHS, and many of these have been specifically designed to allow greater involvement of the private sector in health provision.
A brief history of NHS reforms
The public provision of healthcare had been debated politically since the start of the 20th century but had not been meaningfully supported by any government. Then the Beveridge Report, published in 1942, set out a blueprint for a future welfare state in post-war Britain, a period in which state intervention had become an increasingly popular political stance.
When the Labour Party won a large majority in the general election of 1945, Minister of Health Aneurin Bevan was tasked with creating what would become the NHS.
Healthcare in the UK before the NHS was introduced in 1948 was based on insurance to cover most medical bills, meaning the poor and uninsured could often not afford treatment. The introduction of the NHS meant that care was based on need and not ability to pay for the first time.
It was originally organised as a tripartite system, with hospital services coming under more direct government control, GPs, dentists and pharmacies operating on contract from the NHS (required to conduct its business), and local authorities managing health services such as immunisation and maternity care.
Dentists, GPs and the most senior doctors (consultants) had opposed the new system and as a concession to get them onboard they were allowed to practice privately.
This tripartite structure remained in place until the NHS reorganisation Act of 1973 replaced it with a unitary structure, consisting of 90 health authorities reporting to 14 regional health authorities.
This was just the first of dozens of reorganisations of the NHS, which have featured a bewildering array of management units. The Area Health Authorities introduced in 1974 were abolished in 1982. Family Health Authorities were replaced by Family Practitioner Committees in 1990. Primary Care Groups were established in 1999, only to be replaced by Primary Care Trusts in 2001, which in turn were abolished in 2013. This is to name just a few of the NHS organisations that have come and gone since its inception.
Thatcher and the introduction of competitive tenders
The most significant changes for the private sector were the introduction of compulsory competitive tendering in 1983, and the subsequent establishment of an internal market for the NHS in 1989 under the governments of Margaret Thatcher.
Outsourcing began with domestic, catering and laundry services, which was opposed by NHS management. Some initial contract failures led to protests, yet having pushed through full privatisations of many other sectors, this opposition was never likely to make Thatcher reverse course.
Yet the next major reforms did not occur until the Labour governments that held power between 1997and 2010. Labour focused on patient choice in what it called the “third way”. This saw independent sector treatment established separately to acute hospitals to take on some routine elective surgery. The move increased capacity, lowered waiting time (a big political issue at the time) and introduced competition between services providers.
For Patterson, this corporatisation of the NHS structure has had as profound an impact as the introduction of outsourcing. “If you have third-party providers coming in, often on short-term contracts to provide care, the infrastructure [of the NHS] is damaged, [and] that has an impact on patients,” she says.
Research published by The Lancet in July 2022 seems to support this view. Its analysis shows that an annual increase of one percentage point of outsourcing to the private sector was associated with an annual increase in treatable mortality of 0.38%, or 0.29 deaths per 100,000 population in the following year.
Although this is just one study, any evidence suggesting outsourcing to private companies in the NHS could lead to more death is a sobering statistic for any proponent of outsourcing.
The legacy of PFI on the NHS
The New Labour years also saw a huge increase in the use of the private finance initiative (PFI), cautiously introduced by the previous Conservative government. PFI was a funding model for capital investment, which saw private investors cover upfront construction costs for new hospitals they would develop and operate in exchange for regular payments over long-term contracts.
PFI delivered 99 capital projects for the NHS, according to UK government data but became widely criticised due to the ongoing costs burden to NHS trusts the contracts caused.
Some PFI contracts have durations of more than 30 years and the way they have been agreed means their annual cost to the NHS has risen over time. In 2022, payments under outstanding PFI contacts in the health sector will total more than £2.1bn, more than 2% of the entire budget of the NHS.
The annual cost of PFIs to the NHS will not peak until 2030, at just under £2.5bn, and the last of the existing health sector PFI contracts will not expire until 2050.
With the PFI model now politically toxic, capital spending in the NHS has declined, as has the quality of infrastructure in the country. The UK is now an international outlier in having very low levels of capital spending on health, with a budget of just £4bn between 2014 and 2019.
“There is an argument that even if you are not going to increase spending on the NHS significantly in real terms because of all the issues with public sector finances, failure to invest in capital is shortsighted,” says Buckingham at Nuffield Trust.
A report from NHS Digital in 2022 on the condition of the NHS’s estate showed the cost to improve rundown buildings and dilapidated kit had reached £10.2bn. This was an 11% rise from £9.2bn in 2021 and more than double the figure from 2011/12.
Without a significant increase in NHS spending, which looks unlikely in light of the current economic outlook, more private investment would be needed to rectify this situation. Yet the Conservatives’ manifesto pledge from 2019 to build 48 new hospitals looks no closer to being delivered. The scheme still lacks an approved budget, project scope or timeline.
Pre-Covid reforms of the NHS
The most sweeping reforms of the health service came with the 2012 Health and Social Care Act. This introduced clinical commissioning groups that gave greater control of secondary budgets to GPs. This was an attempt to shift care away from hospitals and towards community service. Research published in 2017 in the British Medical Journal suggest it largely failed in this goal.
The legislation also allowed NHS hospitals to increase the proportion of their revenues they make from private patients from 2% to 49%, and introduced compulsory competitive tendering for the provision of services. Compulsory tenders have since been widely condemned as overly time consuming and costly.
Research from the British Medical Journal suggests the change led to a major increase in the number of contracts awarded to private providers, if not a major increase in total private sector spending (as many of the new contracts were small in value). In 2014, one-third of contracts awarded since the legislation came into force in April 2013 had gone to private companies.
As highlighted by Kings Fund, there have also been some very large contracts tenders in recent years, including £1.2bn to deliver end-of-life and cancer care in Staffordshire and an £800m contract for services for older people in Cambridgeshire and Peterborough.
"In both cases it was expected that consortia including private providers would bid for these contracts. But in both cases, after widespread criticism, lengthy delays and problems with designing the contracts, the tenders were dropped," says the Kings Fund report.
The government-commissioned Naylor Review of 2017 predicted the need for more PFI-like schemes to build new hospitals, cuts of up to £22bn by 2020/21, the closure of local hospitals and the sale of existing NHS buildings to then be leased back to the service.
Reforms to the NHS post-Covid
The Covid-19 pandemic reminded UK citizens how much they rely on the NHS, while also increasing the pressure on the service. Almost all metrics of NHS performance have declined in recent years, some in stark terms.
While only one patient in the whole country waited longer than 12 hours to be seen in an NHS A&E department in August 2010, by October 2022 that had risen to more than 43,000 people. Patients waiting more than 52 weeks for an appointment rose from fewer than 3,000 in April 2018 to more than 387,000 by October 2022.
“The numbers on waiting lists and the time that people have been waiting for elective surgeries has been going up inexorably in recent years,” says Buckingham. “It well predates Covid, which definitely made things worse but did not cause the problem.”
She argues that the two main causes are a failure to invest in infrastructure and a failure to invest in the workforce, with the number of beds, hospital equipment and clinical professionals all trailing other OECD countries.
“We were knocked for six by Covid, obviously, but other countries, broadly speaking, have been able to recover better and more quickly due to a greater fundamental level of investment in their services,” says Buckingham.
The government has increased the total NHS spend in recent years, but this figure can be misleading. Once adjustments are made for changes in population size and demographic structures (an ageing population), then NHS spending has plateaued since 2010.
The UK government passed more legislation to reform the structure of the NHS in 2022, yet the latest bill does little to address these underlying problems. Instead, it seeks to establish a framework to support collaboration and partnerships at a local level to better integrate services for patients. In a break from the past, it aims to reduce requirements for competitive procurement processes.
Buckingham is hopeful the reforms could have a positive impact on the way services are delivered. She says that while they don’t take away organisational boundaries between different services providers, hopefully now “the boundaries fit together in a jigsaw, rather than overlapping or having gaps”.
Yet there are fears that the integrated care boards (ICBs), which will oversee these processes at local level, could be controlled by private companies pushing their own interests at the expense of patient outcomes.
Patterson argues there is not “enough clinical involvement of people sitting on those boards who understand how the healthcare system works”.
She found the appointment of Samantha Jones as an advisor to then Prime Minister Boris Johnson in April 2021 worrying. Jones was previously the CEO of Operose Health, owned by US health insurance giant Centene Corporation. Operose took over four GP surgeries in London in February 2021 to become one of the UK’s largest primary care service providers.
“They have infiltrated the healthcare leadership in England with people who have worked in healthcare insurance companies in the US,” Patterson says.
Buckingham argues, however, that it will be right for representatives of private sector companies to be involved in ICBs if they are already involved in the local healthcare provision.
“There is no question that if you have a significant independent sector provider in your patch, they need to be involved,” says Buckingham. “A reasonable proportion of community services are delivered by either the independent sector or community interest companies such as social enterprises… they need to be involved in the planning conversations.”
She argues there should be sufficient checks and balances to prevent conflicts of interest given chairs will be given discretion as to whether independent sector representatives can be included, because the board must include representatives of GPs in the primary care network, and that the board’s meetings and decisions must be made in public.
What now for the future of the NHS (and its privatisation)?
The NHS generates such fierce emotions and public debate because it touches the lives of everyone living in the UK. As a publicly owned entity, it belongs to the country as whole, yet it affects everyone individually. That it functions properly is a matter of life and death.
Yet because everyone has an opinion on it, much of what is said about the NHS is untrue. To its detractors, it is a monument to wastefulness and inefficiency. Yet research by the University of York’s Centre for Health Economics shows NHS productivity grew by 16.5% between 2004 and 2016. Productivity growth for the UK economy as a whole over the same period was just 6.7%
Others complain about its middle managers. If only they would sack some of the pen-pushers, it wouldn’t be such a money pit, so the argument goes, yet managers account for just 2% of the NHS workforce, compared with 9.5% of the whole UK workforce.
Understanding the NHS is not made easier by its labyrinthine organisational structure and never-ending reforms. Perhaps that is the intention of the ruling Conservative government. Perhaps they want to disguise what is going on because they truly do want to sell it off to the highest bidder. Or perhaps successive governments have sought private investment principally to save the public purse.
Either way, it feels like an inflection point. An informed public debate is needed to decide what the NHS of the future should look like, what people would be willing to pay for and how much private sector investment there should be.
“The only important group of people who should have a voice with this is the public, who never get asked,” says Patterson. “I don’t really mind what any government does to the NHS, as long as that is done democratically, with the public understanding what is going on and what they are getting for free or not.”
