Abstract
In the early days of the COVID crisis, many commentators argued that it presented opportunities for progressive change, notably toward redress of structural inequalities in health. As with the financial slump of 2008, however, such notions have proved almost ridiculously optimistic as it has been capital, through its near symbiosis with the state, that has been best able to respond, with the English government—the devolved nations adopted a markedly different approach—taking every opportunity to ensure the pandemic has proved a bonanza for private-sector healthcare interests. However, this has not just been about individual contracts in, for example, test and trace, vaccination, or personal protective equipment; the crisis has been used to both rescue the private acute market following 2 years of contracted revenues and to provide enormous stimulus for its future growth. This has required the support of several organizations acting in concert, including the NHS Confederation and the Royal Colleges. While the pandemic has served to illuminate such relationships, the author also argues that the oft-recurring governmental praise of the NHS needs to be matched by genuine investment in public hospitals.
In its 2019 review of the UK's private acute sector, leading analysts LaingBuisson identified several problems for the market. While continuing to attract new entrants, the “main conundrum is how to achieve growth as the market has contracted for the second year in a row.” 1 The reason given was “changes in behavior of the traditional funders,” although with Private Medical Insurance (PMI) experiencing only a marginal downturn, and self-pay continuing to rise, the chief difficulty was with National Health Service (NHS) demand. Tariff prices were proving inconsistent, as were referral management practices from NHS Trusts and Clinical Commissioning Groups, particularly as waiting list penalties—historically a key incentive to outsource NHS elective treatments—had been removed.
Similarly, there were “significant concerns” regarding changes to competition and procurement rules within NHS England's (NHSE) 2019 Long Term Plan, as well as the extent of private hospital participation in developing integrated care systems and the new commissioning structures and models of care in the NHS that these implied. There was also uncertainty about the sector's ability to respond. As shown by a Competition and Market Authority inquiry in 2014 and by a series of reports from the Centre for Health in the Public Interest, the market was uncompetitive, with leading companies frustrating new entrants and charging excessive prices, as well as presenting singular problems in relation to patient safety. The aim of profit maximization had led to a series of irregular practices in the search for market power, together with unregulated, and at times dangerously weak, governance regimes.
“As a result,” LaingBuisson concluded, “this £5.8bn market is at a crossroads. Lacking overall market growth, it needs new development to assure a sustainable future.”
Background
Such development had, however, to be state-directed. Indeed, it is hard to downplay the extent to which the market is reliant on state sanction and support, which, since the Concordat of 2000—co-authored incidentally by the current chief executive of NHS England, Sir Simon Stevens—aimed at transforming a niche resource catering for the better-off, located primarily in London and dependent on NHS clinicians, into a thriving, UK-wide market with a host of high-profile players.
Through several stages, successive governments have provided the stimulus and resources for the market to reorganize business structures while enabling the leading companies to develop regional presences, capital investment toward new-build hospitals, and considerable service diversification. These developments were legitimized through the offer of additional capacity, choice, and competition, and, more recently, in collaboration with the NHS. It is also important to emphasize that such business restructuring was aimed primarily at low-cost and high-throughput elective procedures—in, for example, orthopedics and ophthalmology—which provided the foundation of subsequent expansion. While 2018 figures show that the market as a whole depends on the NHS for 32% of its revenues, for the major companies, the figure is closer to 45%. 1
Any fluctuation in NHS demand was therefore keenly felt by such companies, particularly the leading incumbents, Spire Healthcare and BMI Healthcare. Indeed, Spire presents a compendium of many of the above charges regarding market behavior, including excessive pricing and illegal price-fixing, with several of the highest-profile malpractice scandals occurring at Spire hospitals. 2 In the Ian Paterson case, for example, until its position was found to be legally untenable, Spire was unwilling to pay any compensation to the surgeon's victims—over 500 women—but eventually, in September 2017, agreed to pay £27.2 million in damages. 3 This contributed to a first-half profit slump in that year of almost 75%, and by early 2019 the company's problems continued, with, as the Financial Times reported, its share price falling 60% in 6 months. 4
While Spire is the leading company by overall revenue, the largest by size (until recently), with 55 hospitals, was BMI Healthcare. A combination of fluctuating demand and lower tariffs from the NHS, as well as exorbitant rentals from its sale and leaseback arrangements, prompted the company's owner, the South African healthcare company Netcare, to put it up for sale in March 2018. 5 It was not until November 2019, however, that it eventually found a buyer in Circle Health, with considerable capital investment from the giant US insurer, Centene. 6
Such instability prompted the Independent Health Providers Network (IHPN), the leading organization representing private providers and insurers, to highlight the need for renewed synergy between government and market, particularly with regard to waiting times. NHSE had just allocated £22 million to NHS Trusts to increase elective and diagnostic capacity over the winter, and although some Trusts indicated plans to use private-sector capacity, NHSE said that in “many cases,” it would be used for insourcing work. In response, the IHPN's chief executive, David Hare, said that it was “vital for the sector to develop long-term partnerships with the NHS to address rising waiting times. The latest waiting list times show that over 4.4 m people were waiting for planned treatment in November 2019, with these projected to rise to 5.6 m by 2025.” 7
COVID Strategies
These problems were to transform dramatically following the onset of the COVID pandemic in early March, and while the short-term interests of the private sector were relatively easy to secure, the longer-term interests required a concerted strategy from both government and leading participants within the English policy community and would hinge almost exclusively around the question of growing waiting times.
Short-term Interests
However, securing the market's short-term safety was the first item of business, and on March 21, 2020, Health Secretary Matt Hancock announced that for the following 10 weeks, as part of an overall response to the crisis, the private sector would “reallocate practically its entire national hospital capacity en bloc to the NHS,” including the provision of 8000 hospital beds across England, 1200 ventilators, and some 20 000 staff. 8
The terms of the contract were not released until October 2020 and revealed that its total value was £1.56 billion, with 15 providers being reimbursed “at cost,” meaning the payments would cover all “operating costs, overheads, use of assets, rent and interest,” and with open book accounting and external auditors used to verify the public funds deployed. The major contract winners were Circle/BMI £346.6 million, Spire £345.9 million, Ramsay £271.1 million, Nuffield £165.2 million, and HCA International £153.2 million 9 (see Table 1).
Wave One Private Hospital Contracts.
The Contract Notice said: “In view of the extreme urgency, NHS England did not have time to conduct a procurement procedure for these arrangements in accordance with the timescales set out in the Public Contracts Regulations 2015.”
Hancock stressed the deal would not involve profiteering, and executive bonuses or share awards, for example, would not be permitted. However, knowing the territory, this had to be considered, and indeed in early April, Spire's 2 top executives granted themselves share options worth £1.5 million, much to the annoyance of even their own shareholders. 10 Also, as Kotecha 11 pointed out, the asset-heavy nature of the sector entails the servicing of several forms of debt, often heavily geared, to numerous lenders, including banks, private equity, and offshore Real Estate Investment Trusts, and the “at cost” provisions secured the ongoing rental profits made by these organizations.
As mentioned, the contract lasted 10 weeks until May 29, after which private-sector capacity was retained on a monthly rolling basis, an arrangement that was thought to last until the end of 2020. Providers were now permitted to resume treatment of private patients as well, although any income from this would be deducted from the state subsidy. 12
The initial contract was, however, remarkably lacking in transparency, particularly with regard to overall activity and value for money, 2 of the points highlighted by the Parliamentary Public Accounts Committee (PAC) in its report from the end of July. Indeed, the basic details regarding costs were not publicly released until October. These concerns extended to the rolling Phase 2 contracts, including the pricing mechanisms involved and how capacity in private hospitals would be allocated. According to the Committee, “Despite the open book accounting arrangements in the contract, NHSE&I would not provide even a rough estimate of costs until these had been audited and said it might be ‘several weeks’ before it could share the data with us.” 13 In its written report in July, the Committee insisted on detailed information by September 1 at the latest. This has not been forthcoming. 13 While claims of the need for emergency measures and suspension of formal procurement procedures have some basis, the governmental decisions involved should not escape overall scrutiny, particularly as they have extended well beyond the initial crisis.
The most that Stevens would offer in his evidence to the PAC was that “several hundred thousand” treatments had been carried out by the market during the initial phase, with at least half of these in oncology, although some reports said that the private hospitals had been “paid millions to stand empty.” Irrespective of the Committee's concerns, Stevens added that “my hunch is that we will want to sustain the relationship with the independent hospitals.” 14
Massaging the Waiting Lists
By this juncture, however, Stevens had already been brokering a £5 billion-per-year deal with the private market. According to a Guardian report, the Treasury “stepped in at the 11th hour to stop the [Department of Health and Social Care] from announcing the deal and has told NHSE to get more detailed commitments from private firms about the numbers of patients who will be treated every month,” believing the evidence that the department had submitted to it to justify extending the deal was “flimsy and inadequate.” 15
Following Stevens' meeting, several organizations began to ramp up the offensive on behalf of the market, with, as could be expected, the main weapon being waiting times. These, it was argued, were growing rapidly owing to NHS hospitals being forced to observe social distancing rules and viewed by the public as increasingly unsafe. The strain on the public sector was also being felt at the level of staffing; the NHS Confederation's chief executive, Niall Dickson, said, “In all the time I’ve been in the health service, I’ve never heard such anxiety from the leaders of services about the mental strain on their professional staff,” 16 with many experiencing posttraumatic burnout.
Indeed, it was the Confederation that was to play the leading advocacy role for the private sector within this phase. The organization claims to be “the authentic voice of NHS leadership” and “the only membership body that brings together, and speaks on behalf of, the whole health and care system.” 17 Representing the managerial class within the NHS, it has, however, throughout its existence consistently pushed for the transformation of the public service toward an insurance-based market. Alongside NHS Hospital Trusts and Clinical Commissioning Groups, it has also since 2007 contained within its ranks the IHPN, formerly known as the NHS Partners Network.
As mentioned at the outset, the pandemic has been seen as a potential lever for change, and, in its “NHS Reset” campaign, the Confederation sought “to shape what the health and care system should look like in the aftermath of the COVID-19 pandemic,” and to accelerate and strengthen various aspects of the transformation agenda. This included the legal ratification of integrated care systems, embedding best practice and innovation, and to “address the geographic, socio-economic and socio-demographic inequalities exposed by the pandemic.” In the first version of “Reset” from June 10 (an update followed in September), at the top of the Confederation's list of “practical solutions” going forward, however, was, “putting in place ongoing arrangements with the private sector to provide the health service with the capacity to deal with the major backlog of treatment that has built up since COVID-19.” 18
In a press release, it said, “analysis shared with the NHS Confederation suggests that the NHS waiting list could reach 10 million by the end of the year, possibly higher if there is a second wave of COVID-19 and a lack of treatment or a vaccine.” The analysis was undertaken by the IHPN. The 10 million figure was rapidly reproduced throughout all major media outlets, even though Stevens reported to the PAC that waiting list numbers were in fact dropping, and subsequent analysis has shown the analysis to be false.
The data did, however, have the required effect of portraying the NHS as increasingly beleaguered and unable to cope on its own, and a few days after the Confederation's announcement, the president of the Royal College of Surgeons, Professor Derek Alderson, told members of Parliament that it could take years for routine NHS surgery to return to normal, and, “[b]arring NHS use of independent sector capacity would consign NHS patients who are in need, and in pain, to even longer waits than they already face. It would further reduce patients’ treatment options and, for many cancer patients, their chances of survival. We therefore urge you to make available the funds to secure continued use of the independent sector capacity for the NHS.”
The organizations need not have worried as NHSE was firmly on the same hymn sheet. The rolling monthly contracts with the private sector were consolidated by the announcement on August 17 of a framework arrangement to be openly procured in September and awarded in November, which was expected to be for 2 years and with the option to extend for a further 2 years. 19 The estimated value of £10 billion is based on a potential upper value over a 4-year period and will depend on demand. 20
Embedding
A momentum for market development was clearly in evidence by this juncture, and opportunities were soon found to build upon this. At the same time as the new procurement process was announced, Stevens instructed NHS hospitals to get back to “near-normal” levels of activity from September, 21 even though many NHS leaders said it was unlikely the health service would be able to restore activities fully—with some running at only 60% capacity—due to protective restrictions regarding COVID.
Stevens' instructions were soon consolidated into a series of financial incentives and penalties regarding performance targets. 22 The letter to NHS system leaders said 80% of normal overnight electives and outpatient activity were expected in September, rising to 90% in October, while outpatient attendances had to reach 100% by the end of September. Where aggregate activity delivered is below the expected value, 25% (for elective and outpatient procedure activity) and 20% (for outpatient attendance activity) of the shortfall would be deducted from national funding envelopes.
A similar level of incentive is in place for those who meet and exceed the targets, but as one NHS Trust Finance Director told the Health Service Journal, “no one's really thinking about the incentives as who can do it?” 23 However, the letter also said, “where actual independent sector usage exceeds/falls below levels seen in the same period of the prior year, 10% of the difference in value will be added to/deducted from nationally determined funding envelopes.” Given the absence of pressures on this sector, notably regarding safety, such targets are far more likely to be achieved.
A further opportunity lay in the issue of surgical training. The Royal College of Surgeons, for example, had concerns about such training during the pandemic as private hospitals were not all automatically approved for such training and junior surgeons had lost out on months of training due to the suspension of elective operations in the NHS. By early September, however, this had been resolved, with the publication of a position statement by the IHPN, NHSE, Health Education England, and the Confederation of Postgraduate Schools of Surgery “setting out a series of high-level principles to ensure medical trainees have new opportunities to train in elective surgery or diagnostic activities taking place in the independent sector.” 24
As the IHPN noted, “IHPN and other key health bodies such as the Royal College of Surgeons have long been calling for the widespread provision of training in the independent sector.” 24 In a joint statement, along with the 3 other surgical colleges, the vice-president of the Royal College of Surgeons of England, Professor Cliff Shearman, said, “we are delighted with this announcement of an agreement to allow surgeons in training access to independent hospital operating lists.” It is worth pointing out that, on June 30, Healthcare Markets reported that Spire Healthcare appointed Professor Shearman as an independent non-executive director with effect from October 1, 2020. 25
Conclusion
As mentioned at the outset, before the pandemic the private acute sector in England was in difficulty, notably regarding sustainable growth and clinical legitimacy, and the IHPN was desperately trying to drum up business and achieve some form of security through the issue of waiting times although even within its own frame of reference these were growing slowly. The NHS Long Term Plan, with its emphasis on integration rather than competition as a means of improving delivery, also appeared to undermine the sector's rationale.
As LaingBuisson identified, some new development was urgently needed to ensure a sustainable future for the companies involved and the response to the COVID pandemic has ticked all the boxes. The need for emergency measures can offer a useful shroud, notably a suspension in formal procurement procedures and the level of debate and accountability that goes with them. However, while the government has so far dodged its commitment to transparency with regard to the evaluation of the temporary contracts, this needs to be insisted upon and rigorously applied to the terms and conditions of the 4-year extension as well.
Indeed, the earlier suspicions regarding a significant amount of unused capacity in the private hospitals during COVID have proved accurate. According to internal documents leaked to the Health Service Journal, “two-thirds of the private-sector capacity that was block-purchased by the NHS—costing hundreds of millions of pounds—went unused by the service over the summer, despite rocketing long waits for operations.” 26 Different interpretations naturally followed; some senior sources thought it was due to “poor communication and confusion in the NHS about how to use the private sector,” while others thought, “[t]he national contract for private sector capacity was for the company shareholders, not for NHS patients.” 26
Arguably, however, the national contracts were not about adding capacity nor about seeking value for money. First, they ensured the market's continuity within the health care economy, using public money to maintain its viability and safety in a time of crisis. Subsequently, it was about enabling expansion, offering fiscal growth for the major companies to be able to participate more effectively within the next stage of overall transformation, namely the provider collaboratives and prime contracting arrangements laid out in the Long Term Plan. Additional measures such as the transfer of NHS surgical teaching to companies not only offer them added legitimacy but also further blurs sectoral distinctions.
Throughout the process, the sector has drawn significantly on its associates within various fora, most notably the NHS Confederation and the Royal Colleges. This will continue. The 4-year, £10 billion procurement framework is one in which different areas are expected to use to commission private capacity on a local basis, 27 allowing much to escape national direction and public oversight and leaving decisions to local leaders. It is not too much of a stretch to predict the Confederation will encourage its members at both NHS Trust hospital and commissioning levels to ensure that private players will not only be fully rewarded but feature prominently in any reconstituted health economy. The crisis has to some extent proved beneficial in exposing such linkages and revealing the true ambitions of organizations that claim to represent public-sector interests.
Following his release from hospital last April after contracting the COVID virus, the UK's prime minister, Boris Johnson, praised the NHS as the country's “greatest national asset,” adding, “we will win because our NHS is the beating heart of this country. It is the best of this country. It is unconquerable. It is powered by love.” 28 Something more tangible is, however, required, and if such statements—somewhat akin to the weekly round of applause that frontline NHS workers were rewarded with in lieu of a pay rise—are to prove more than glib sentimentality, they need to be matched by genuine investment in public hospital facilities. And, unlike the money spent on the private acute sector, such investment would be unalloyed. In other words, it would not have to constantly hide from public scrutiny, nor seek above all to service shareholder value or offshore accounts.
Footnotes
Declaration of Conflicting Interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author received no financial support for the research, authorship, and/or publication of this article.
