30 years of marketisation

The government’s new White Paper setting out plans for a new top-down centralising “reform” of the NHS presents itself as stepping away from competitive tendering – but explicitly retains the split between purchaser (commissioner) and provider.

We have become so accustomed to the existence of NHS Trusts, and the separation of commissioners from providers within the NHS that it’s hard for people in 2021 to grasp what a shock it was when Trusts were first allowed to “opt out” of the control of local health authorities exactly 30 years ago. Much of the action running up to and following the NHS and Community Care Act of 1990 was reported for campaigners and trade unionists in issues of Health Emergency newspaper, which published 23 issues between the end of 1988 and the general election in 1997.

Margaret Thatcher’s “internal market” swung into chaotic action – a year after she had been bounced out as PM. The Act (described in Part 2 of this occasional series) had received the Royal Assent in the summer of 1990. 

But there had been substantial resistance to the “internal market” reforms, and as the first hospitals applied in 1990 to ‘opt out’ and become an NHS Trust (after a tokenistic 3-month “consultation” period) many were met by a wave of active local anti-opt out campaigns. These often linked broad sections of the community, reaching from health unions through Community Health Councils, councillors, Leagues of Friends, pensioners groups and broader sections. 

Many large, angry public meetings were held. Polls revealed upwards of 70% of the public and 75% of health workers opposed to opting out. 

However the government had convinced most senior managers that there was little choice but to seek Trust status, and in December 1990 the first 57 Trusts were announced by the new Health Secretary William Waldegrave, set to opt out of DHA control in April 1991. 120 more hospitals and community units were already lining up with second wave Trust bids. 306 Fundholding GP practices, involving 1700 GPs were also launched, with more expressing an interest.

Two years of debate on market-style reforms to the NHS had triggered some outrageous plans by some local hospital management as part of their plans for “self government” as trusts. “Income generation” wheezes were being hatched up in all directions: QEII hospital in Welwyn Garden City was offering business sponsors the chance to have wards not only named after them but painted out in their corporate colours. 

Private patients

Early in 1990 the Sunday Correspondent revealed that Newcastle’s Freeman Hospital (which had had to cut back NHS hip operations by 16% for lack of cash) proposed to use “spare capacity” to carry out private operations on patients from Europe, aiming to under-cut the fees charged by BUPA hospitals by up to 50%. 

Similar plans to increase private patient activity at ridiculously low prices were developed in East Anglia hospitals, while Harefield Hospital was also looking for a big expansion of private income and hoping to increase NHS workload “at the expense of other hospitals.” 

St Thomas’s Hospital management were anticipating extra overseas referrals as soon as the Channel Tunnel was completed. In Tunbridge Wells, too, the health authority allocated 13 rooms for private patients – at a fee lower than any private hospital. Great Ormond Street Hospital quoted a price for one operation £3,500 cheaper than a private hospital – leaving more profit for the private insurers.

The new Central Manchester Health Trust launched, proudly announcing a new “preferred provider” agreement with a private health insurance firm in an effort to fill unused NHS pay-beds. 

By autumn 1991 a new consortium had been launched involving 29 District Health Authorities and Trusts with under-used private beds, to investigate marketing “package deals” including travel, treatment, convalescence and even car rentals for wealthy patients from Europe.

Manchester’s Christie Hospital offered 26 health authorities the opportunity to buy preferential access for cancer patients, cutting the normal 6-week wait to just two weeks – by paying an extra £10,000-£25,000 per year. 

The expansion of NHS pay-beds continued apace: analysts Laing & Buisson reported a staggering 84% increase in NHS private bed numbers in 1992-3; however figures showed 3,000 NHS pay beds had generated an average income of just £92 per day in 1989, while private hospitals were charging up to £400.

Attacking jobs, pay and conditions

The internal market brought a new level of instability and desperation to the new trust managers. Trusts were soon opting to exploit their new “freedom” to alter staff pay and conditions. 

Ambulance Trust bosses lost no time in seeking to cut back on jobs, pay and conditions, with a 33% pay cut for non-emergency ambulance staff in Lincolnshire, and hefty cuts for emergency and non emergency staff in Northumbria – along with a “single union agreement” with the scab union APAP with just 40 members among 670 staff. 

Almost every trust opted to discard the Whitley Council procedures that gave disciplined staff a right of appeal to the health authority.

As the new market opened up, in Autumn 1991 a confidential report to the NHS Management Executive from Keele University Professor Roger Dyson suggested turning staff into self-employed freelances – with no sick pay, holiday pay, premium rates for overtime or unsocial hours and no pension rights.  The savings to trusts would be so enormous Dyson suggested trusts could offer much higher hourly rates and voluntary redundancy payments or lump sums to lure staff into going self-employed. 

If this was seen as outlandish by most Trusts, it was later the basis of plans in Enfield (slapped down by the Department of Health), and in South East Staffordshire Community Trust (who also hoped to privatise portering, catering, laundry, transport services and even chiropody services).

Many Trusts did take up another Dyson idea, putting an ever-increasing proportion of their nursing and professional staff on short-term contracts, making it easier to shed jobs when cash pressures began to bite. And there was and continuing interest in Dyson’s call for a dilution of the “skill mix” in key departments, replacing more highly qualified nursing and other staff with (cheaper) staff on lower grades. Many second and third wave Trust applications drew attention to their on-going “skill mix review” as a way in which costs would be reduced. 

Chiselling health bosses were also still seeking savings by contracting out non-clinical services: in 1991 West Berkshire put all of its support services including admin and clerical work out to tender, a model followed by Essex Rivers Trust. The rumble of tendering, often with significant job losses, continued into 1992, in Worthing, Barnet, St Mary’s (Paddington), and Redbridge. In London, Parkside Community Trust management, copying the Royal Free Hospital, attempted to cut redundancy costs by “reckoning” that all trust employees had only started on April 1 1992.

There were welcome signs of a fightback by contracted out staff, with successful strikes over pay at London’s Maudsley Hospital at Cardiff’s Ely Hospital.

However trusts’ bureaucratic costs were boosted by an explosion in salaries for top Trust directors, who were quick to cash in on new “freedoms” to set their own pay scales, while – as many had predicted – the wages of most lower-paid staff continued to rise at less than inflation. 

The first £100,000-plus NHS chief executive was Peter Griffiths at Guy’s Hospital Trust, where his package reportedly also involved two cars – one for him and one for his wife!  But inflation of management pay was not restricted to Trusts: in Waltham Forest the Community Health Council complained bitterly at a top-heavy management structure in which the local Health Authority had a chief executive and eight directors as well as no less than 24 “Associate Directors.”.

Rise of consultancy 

The grimly familiar spectacle of costly but unworkable plans being drawn up by management consultants was already in evidence in 1990, with £200,000 (£1,000 per page) squandered on a Price Waterhouse plan that collapsed almost at once, proposing a new 900-bed £140m hospital to replace 1,300 beds at West Middlesex and Ashford hospitals. Price Waterhouse were even brought in to run the finance department at Guy’s after its director resigned.

Deloitte produced a plan to separate out the patient transport services from London Ambulance Service and put them out to tender, since unlike the emergency service there was a greater tolerance of failure and “many of the people so transported do not require an ambulance at all.” Deloitte were also busily urging the Blood Transfusion Service to become “more business-like in its approach, particularly in the light of an increasingly commercial NHS market.”

But one consultancy that could not survive the commercial market was Qa Business Services, formed from a buy-out of computer staff from West Midlands Regional Health Authority, which collapsed in the autumn of 1991 with debts unpaid and contracts unfulfilled

The King’s Fund was urging a Californian-inspired reorganisation involving a massive programme of mergers to reduce the current 190 health districts to just 50 mega-districts – to allow management to “buy in” services more efficiently. Sound familiar?

Competition within the NHS

Within six months of the internal market the chaos was growing.

Orthopaedic patients from Exeter were jumping the queues of local patients waiting for operations in west London.

Consultants at St Mary’s hospital were having to wait 4 days for authorisation from clerical staff before offering waiting list patients the treatment they needed – to ensure their health authority would pay the bill. 

Bloomsbury and Islington health authority was complaining at unpaid invoices for elective treatment for patients from other districts. 

The specialist child heart surgery unit at Guy’s Hospital exhausted its 1991-92 contract budget for local patients with six months of the financial year still to go. 

And the University Funding Council called for government intervention to prevent contracts in the new market going automatically to the cheapest hospitals – which threatened to put the teaching hospitals out of business.

Nonetheless in January 1992 NHS Chief Executive Duncan Nichol claimed that “both patients and staff are feeling the benefits” of the reforms. His offering was castigated by the Health Service Journal  and there was a flurry of debate over such a prominent civil servant embracing the political line of one party.

Cold Feet

Waldegrave, heralding the brave new world, began with bravado, declaring in April 1991 that: “It is essential that we let the internal market indicate what is needed in London, and we will then have to respond to those signals, which will force us politicians to take some decisions which have been postponed for much too long.”

But ministers were already getting cold feet on the possible impact of the new market system, especially in destabilising services in the run-up to the coming general election: the market itself was to be heavily controlled, with instructions to health authorities to maintain a “steady state”.

Civil servants had predicted that the new capitation-based funding formula in reforms would lead to the closure of another 2,000 acute beds and the loss of at least one teaching hospital in London, and that health authorities in the home counties would seeking to save money by switching contracts for routine treatment to cheaper hospitals outside the capital.

Additional cash suddenly became available – to increase numbers of NHS managers and admin staff to implement the extra bureaucracy in the reforms, and to avert any fresh cuts crisis in the run-up to the election. 

With 82% of hospitals facing financial problems, many because they were treating more patients than expected – but not being paid extra because they had agreed to fixed price contracts, an extra £200 million was being pumped in to the NHS behind the scenes to prop up hospitals facing deficits. 

Out of control

As the “steady state” wound up from 1993, the fight for contract income was uncovered when leaked documents showed a bitter conflict between acute Trusts in East Anglia. 

In London, Charing Cross Hospital bosses were exposed plotting to destabilise a competitor in the specialist cancer market. A leaked letter declared that “poaching” a top consultant from the Royal Marsden Hospital three miles away “would have the additional benefit of weakening one of our strongest competitors”.

Financial pressures forced more closures of acute hospital beds, with the effects masked by a succession of mild winters and the use of “waiting list initiative” funding to reduce the numbers of patients waiting over a year for treatment. 

But the sharp winter of 1995/96 triggered a “trolleys crisis” in London and other big cities, and Hillingdon Hospital, struggling to cope with many of its beds “blocked” by elderly patients, hit the headlines when it announced it could admit no more patients aged over 75 until social services found nursing home places for some of those who should be discharged.

The first six years

As the May 1997 election drew closer, the disruptive consequences of the 1990 Act were increasingly exposed, even though some of the wilder plans and projects had been rejected – or swiftly reined in by cautious ministers and more thoughtful NHS management who recognised the need to recruit and retain sufficient staff to maintain services. 

Many of trusts had been launched on false claims of financial viability and lurched on in near-permanent cash crisis. Private bed numbers had been hugely expanded, but the hoped-for bonanza of private cash had not materialised and many were run at a loss.

Contracting out had continued to erode the standard of non-clinical services. But there had been an extension of privatisation into long term care of older patients, and into mental health.

The increased privatisation of long term care as a result of the Community Care reforms had brought bitter localised disputes over “eligibility” for NHS – and the means tested charges for social service – care. 

Mental health services too had become increasingly dependent on private provision of medium secure and acute beds as the big old NHS hospitals were run down and closed without adequate alternatives in place.

Strangely almost none of these issues figured strongly in New Labour’s electoral challenge – but voters were sick of the sleaze-ridden Tories, and Tony Blair romped home with a 97-seat majority … and a promise to “rescue PFI.” 

More on that in Part 4.

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