"The NHS will last as long as there are folk left with the faith to fight for it"
Aneurin Bevan

Saturday, 22 January 2011

Level Playing Field

The problem I have with many broadcast journalists is that they do not listen to what their interviewer is saying and they do not question them carefully on their responses. Instead, it appears that broadcast journalists seem to have a list of questions and when one has been answered they move on to the next one, almost regardless of the answer they are given.

In the last few days I have heard Andrew Lansley questioned several times, and often he is asked about privatisation. He claims that his policy will not privatise services. He is very keen on making this point since an admission of privatisation would create a political furore. Instead, when he has been accused of privatisation he talks about "creating a level playing field".

For example, here is a quote from the transcription of Lansley's press conference on the Health Bill on the Guardian website:
3.00pm: Q: What is the bill doing to encourage private companies to bid for more work?
Lansley says that "strictly speaking" this bill will not make any difference. After the election he implemented an "any willing provider" policy in the NHS. This meant anyone could bid for NHS work. Previously (under Andy Burnham) the NHS was the "preferred provider".
But the bill makes it clear that politicians won't be able to ignore competition rules. It will impose a consistent competition framework. And, for providers, it will mean they have to deal with a regulator who is responsible for creating a level playing field. But it will be a level playing, he says.

What does this mean? The phrase "level playing field" is usually used when one party has an advantage over another and action is taken to remove the advantage. We assume that the two parties involved are NHS providers (ie hospitals) and private providers. Which has the advantage over which?

Interestingly, the LibDem manifesto talked about such level playing fields:
Giving Local Health Boards the freedom to commission services for local people from a range of different types of provider, including for example staff co-operatives, on the basis of a level playing field in any competitive tendering – ending any current bias in favour of private providers.
The implication here is that the LibDems do not like the private providers (particularly, Blair's Independent Sector Treatment Centres, which were given extraordinarily beneficial contracts) and they want the advantageous benefits given to ISTCs removed. This is laudable.

However, I do not think this is what Lansley is talking about. When the Health Bill was published it was accompanied by a document called the Impact Assessments. In this document there is a table (Table B1) called Fair Playing Field Distortions which lists conditions that may give an advantage or disadvantage to the NHS (or private provider) and in some cases a monetary figure is given representing this advantage.

The Health Bill says that private providers should be able to bid for NHS work as long as the cost is at or below the NHS cost (the tariff). However, if the NHS has an advantage that can be quantified then surely the private provider's tender should take this into account? That is, if NHS providers have (say) a 10% advantage then the private provider should be allowed to charge 10% more and this tender will be treated as being the same as the NHS rate. When I looked at the White Paper in July last year I suggested that Lansley will introduce a weighting for private providers so that they can charge extra and "compete" with the NHS providers. This seems to be the purpose of the Fair Playing Field. Here I have listed just the "distortions" that have been quantified:

DistortionCost (per £100)
If the employee and employer contributions payable under the NHS pension were used to buy a pension in the financial markets, the benefits would be significantly less than those offered by the NHS pension – there is effectively government subsidy of NHS pensions.
Cost of Capital
a) Public dividend capital rate paid on public investment is much cheaper than private cost of capital, giving NHS providers an advantage over non-NHS providers.
b) PFI. NHS providers with PFI schemes are disadvantaged relative to NHS providers who do not have such schemes, due to the higher cost of capital.
c) PFI guarantee. State under-writing of PFI schemes means long-term private capital projects are cheaper than on fully commercial terms.
d) NHS capital constraints. Although NHS providers have access to capital at interest rates below market rates, they are subject to capital rationing.
a) £4
Corporation Tax
Private sector providers and social enterprises are disadvantaged by being subject to corporation tax, reducing their returns. NHS providers and charities are exempt.
Private sector providers benefit from the VAT exemption for healthcare in that they do not have to charge VAT on many of the services they provide. The other side of this is that they consequently cannot recover a significant portion of the VAT costs they incur. Likewise, VCS providers do not have to charge VAT but cannot recover their VAT costs. However they do benefit from certain other reliefs applying to the wider charity sector. NHS providers are advantaged in as much as their overall funding takes account of VAT costs in the same way as any other cost.

A couple of points: first note that it only quantifies the advantage that the NHS has, not the advatnage the private sector has. Funny that. So while there are 103 PFI projects in the NHS and the table says that the NHS pays more for these than they should if they used commercial rates, the table does not quantify this. Instead, it only quantifies the advantage that the NHS has from public sector borrowing. The other point is that this table completely ignores the benefit that the private sector gets from the fact that the NHS trains ALL healthcare staff. This is a huge cost - the recent white paper on NHS training says that £4.8bn out of the £105bn NHS budget is spent on training, the private sector does not pay towards the training of the highly skilled doctors it uses.

The Impact Assessments document concludes (B55):
The majority of the quantifiable distortions work in favour of NHS organisations; tax, capital and pensions distortions result in a private sector acute provider facing costs about £14 higher for every £100 of cost relative to an NHS acute provider.
This is suggesting that the private sector would have to charge 14% more for their tender to be treated as the same as the NHS rate if there was a "level playing field". (Level only when you ignore training.) This is very different to the LibDem manifesto that suggested that private providers were treated better and that they should only be paid the same rate as the NHS providers. Indeed, this document suggests that private providers should be paid more than NHS providers.

For example, NHS providers are paid £741 per eye for cataract surgery. Under a "level playing field" private providers would be allowed to charge £845 and this would be treated as the same as the NHS rate.

If Lansley had been pressed more on this subject when he was interviewed, and he had said that he intends paying private providers 14% more than NHS providers then I think there would have been quite a loud uproar. Sadly, the British Press are more concerned with asking the questions the Department of Health has told them to ask.

UPDATE: Health Service Journal have now picked up this story. They add a new detail:

Mr Dingwall [partner at Hempsons lawyers] said the most likely scenario would be the creation of a system whereby commissioners paid the same tariff rate to NHS and private providers, but the 14 per cent was subsequently deducted from NHS providers and placed in a central pot to fund their state subsidised benefits.
So this will mean that rather than private providers paying more NHS hospitals will have their income cut.Few hospital trusts will be happy with this. A cut as large as 14% is likely to push most of them into bankruptcy since the best Foundation Trusts only generate surpluses in the region of 5% a third of what is needed to handle the 14% cut in income.


  1. You have hit the nail on the head with the issue about training. If NHS institutions stopped training in order to compete with the private organisations, they would be more than competitive on price, but we would have no more senior doctors in 20 - 30 years time once the current lot have retired.
    Moreover, the current policy of selection of the uncomplicated cases for the private sector leads to fewer cases which are appropriate for training purposes.
    The complexities of training of medical staff have been completely ignored by these proposals.

  2. I think your comments are excellent

  3. Once again, I am in complete agreement Richard.

    The massive cost of training is entirely covered by the public sector via the education budget and the NHS budget. I haven't got the figures to hand but the total training costs of the NHS are way-beyond the ~£5Bn figure you quote. And rightly so, as that's the only way to provide any kind of service for longer than a year or two. One of the massive problems with these reforms is that training will be squeezed out. So, let's do a thought experiment; what happens in 5 years time when there aren't enough qualified nurses, there is a consultant shortage, there aren't enough physiotherapists or occupational therapists? Shall we suggest that maybe just maybe, waiting times will go up and quality of care will go down?

    My big question is this; I completely agree that the media is not good at pressing for an answer. But what do we do about it? Your blog is excellent but that's not the same as getting the message to the public-at-large.


  4. AFZ the £5bn comes from two sources. The official source is the DH white paper "Developing the Healthcare workforce". This states £5bn. The second source is an estimate that I made from the accounts of NHS London which gave a breakdown (very useful!) of where the training budget is spent. I used the total training figure for NHS London and then using the proportion of the NHS budget that is spent by this SHA I extrapolated the training figure to get an overall figure. Again that came to about £5bn.

    I think that training is one of the most important subjects in this re-organisation, but no one seems interested. Elsewhere on this blog I mentioned that I asked a local hospital for figures and found that a quarter of their salaries are provided through MPET - the training budget that pays salaries during in-service training. (I cannot find figure for GPs but I suspect GP practices also rely heavily on NHS training budgets.) If the government makes any serious cuts in this budget it would make many hospitals unviable. (And many GP practices too.)

    I agree with your thought experiment, but I would add another idea to it. There will always be some people who are willing to fund their training (after all, medicine can be a well paid career) so we will find that in the future clinicians will be from those part of society that can borrow maybe half a million to pay for their training. Hardly equitable access to higher education.

    Thanks for your compliments. I've tried to publicise this blog as much as I can, unfortunately I'm not much of a publicist :-(

  5. Good work on the calculations. That suggests that £5Bn might be an accurate figure. You're completely right about the threat to hospitals from the loss of training money - two thirds of my salary are paid by the Deanery (responsible for training) and only a third by the hospital I work for. Training numbers are already being slashed across most specialities. In general, GP practises do not depend on training money nearly as much. GPs are all fully trained in the same sense that consultants are and it is essentially voluntary whether GP practises take on GP-registrars (GPs in training). The service provision of GP registrars is much less than junior hospital doctors - the training money essentially covers the extra costs of taking on a trainee. In hospitals, trainees are much more the backbone of the service.

    You're probably right that there could be a shift to self-funding in training. That is indeed what happens in the US.

    What's depressing me most, is a sense of powerlessness. I am going to write to my MP - but uniquely the managers, the nurses, the doctors (GPs and hospital doctors) and independent analysts ALL think the plan is madness - and yet it seems that Lansley is going to press-on anyway.


  6. AFZ

    If you can, go and see your MP, face-to-face is always better since if they are truly concerned they can actually ask you. You would be the expert, you'll be able to educate them. You would be surprised how little people know about the NHS.

    I went to see my MP at the end of last year, he's a Tory and what surprised me is that he was as concerned about the re-organisation as I am. There are MPs in all parties who are do want to do the best for their constituents (I admit there are some who see the job as simply furthering their career).

    In a couple of days I'll post the blog post of another Trory MP who has found that his surgery is now full of people being denied straightforward care like hip, knee and cataract operations. He's concerned about this, although I think he has got the reason for this slightly wrong - I need to look up some figures before I get in contact with him. I think I may be able to persuade him that GP commissioning, Any Willing Provider and enforced competition will make the situation far worse.

  7. Thanks Richard,

    I have written to my MP. You can see a version of my letter here: http://alienfromzog.blogspot.com/2011/02/letter-to-my-mp.html

    On your advice, I also intend to go and meet him. I have tried to use facts rather than opinion as much as possible - hence a long letter and the references.