For several weeks now, the news has been dominated by the failing NHS. I’m not keen on making predictions, but am willing to stick my neck out – this issue will loom large for the foreseeable future, because there is no obvious mechanism for resolution.
A hysterical politically polarised shouting match rages in the public square about the future direction of healthcare in the U.K.
Most rational observers and participants accept things can’t go on like this, and the best outcome would be to change our current system to one more like the European social insurance model, with a mixed healthcare economy.
The problem of course is that there is no mechanism or clear pathway to arrive at that destination, due to a lack of political and institutional consensus.
In previous articles, I have tried to explain to readers some of the road-blocks to reform within our current system: structural problems, legacy problems and the plethora of hidden agendas. In the short term I think we are heading for the worst possible outcome – a two tier system by default. Those who can pay will be exploited by insurers and private hospital providers. Those who can’t will continue to receive a failing NHS service. Interest in both private health insurance policies and the self-pay sector of the private market has increased significantly, and will continue doing so as the NHS collapses.
I will briefly discuss how the private health system currently works in the U.K. It is a fragmented and opaque market – even more so than the NHS – and very difficult for non-medical people to understand. I should start with a trigger warning: a lot of readers probably aren’t going to like this, and you probably won’t like it if the current model of private healthcare becomes a major feature of life in this country. I have worked in the private healthcare sector for 20 years, the last seven in full-time private practice. I have also had 20 years of interaction with healthcare insurers as both a practitioner and as a customer – I don’t have a good word for any of them. There are some things the private sector does well, but the overall model is highly unsatisfactory for many reasons.
By necessity, this piece will be a very high-level analysis of a complex subject. If there is sufficient interest among readers, I can write more specifically focused granular articles at a later point.
The private healthcare economy can be separated into the following categories. Healthcare ‘providers’, defined as hospital or clinic chains, regulated by the Care Quality Commission (CQC); healthcare insurers, regulated by the Financial Conduct Authority (FCA); healthcare practitioners; individual physicians and surgeons, regulated by the General Medical Council (GMC); and the ‘market’ – all the people wishing to purchase private healthcare. The market as a whole is regulated by the Competition and Markets Authority (CMA). Confused yet? If not, you will be.
Along with these key market participants there are a variety of associated trades – marketing and advertising organisations, economic analysts, business consultancies providing practice software, billing and secretarial services and so on.
I will start by looking at the relationships between the three key provider segments: private hospitals, medical insurers and practitioners. Together, these entities act to provide the market with a product, ostensibly at the most competitive price. There is a constant tension between hospitals, insurers and doctors within a ‘zero sum game’ – each participant can increase its profit margin only by reducing remuneration for the other two. The economic power of the participants is not equal, and over the last decade has tilted strongly in favour of the insurers and the hospitals, to the disadvantage of practitioners.
Think of the system as a board game. The patient is the most important piece on the board, because the money flows to where the patient interacts with other participants. Insurers, hospitals and doctors therefore compete for patient flows, because that’s how they make their money. Patients have to navigate the board under differing circumstances, depending on whether they are self-funding or insured and, if insured, the nature and extent of their policy. I will try to explain roughly how the game works.
Doctors in private practice are almost all self-employed. They make money by providing services to patients. It used to be said that success in private practice depended on the ‘3 As’: Availability, Affability and Ability – in that order. However, it has become more complex of late. Doctors cannot just set up practice in their front room as they used to in the 1950s, because all medical services now have to be registered with the Care Quality Commission. Some doctors form groups to set up their own clinics. If successful, this can go very well and be highly lucrative, but it requires a lot of effort and a high degree of financial risk. So, the majority of private doctors work in facilities run by a relatively small number of private hospital providers.
Successful doctors work hard to burnish their reputations by displaying themselves on social media and in the press to attract more patients. Private practice is hard work, entailing substantial business costs. Secretarial costs, medical indemnity insurance cost, general office expenses, tariffs levied on billing systems for insured patients, compliance with GDPR rules, costs of appraisal, licence revalidation and room hire costs in private hospitals all mount up. Success depends not just on medical ability, but on skills in business management and, above all, tenacity. I have mentioned in previous contributions that only 20% of hospital doctors in the U.K. do any private practice. The majority of these have small part-time practices of a couple of sessions per week, while working mostly for the NHS. A small number of doctors are in full-time private practice, mostly in London and the South East where the market is. It is critical that a private sector doctor is able to maintain his or her ethical compass – to make the right medical decision for the patient, irrespective of financial considerations. There is a potential conflict of interest in favour of over-treatment as the doctor is paid a fee per episode of service. The majority of doctors handle this tension successfully – but some don’t.
Providers (HCA, Circle Health, Spire, Nuffield, etc.) entice doctors to work in their hospitals by providing them with a place to practice that’s registered with the CQC. The hospitals make money by taking a margin from the cost of diagnostic tests and scans, drugs (especially cancer drugs, where mark-ups are huge) and procedures like operations or endoscopies. Prior to the internet, hospitals left patient flow management to specialists making themselves known to local GPs, who in turn would then refer patients. With the advent of the Web, Hospital providers have started marketing services directly to patients. This gives them greater control over patient flow. The entity that controls patient flow controls an important part of the game.
The business model for private hospital chains suffers from very high fixed costs to provide beds and staff. If the hospital cannot attract a satisfactory volume of profitable patients, it can lose money. A few years ago, some providers came under strain because NHS spill-over work wasn’t profitable, the insurers were squeezing margins and the more profitable self-paying patients were a relatively small part of the mix. The pandemic has changed all that, and business is booming, especially in the self-pay sector. Recently, some private hospitals have started to employ doctors directly, usually in ‘service type’ specialties, such as radiology or anaesthesia. This is attractive to the hospital as they can pay directly employed doctors less, and they have a higher degree of control.
Hospitals used to compete with each other for high calibre doctors, but with increasing regulation it has become harder for doctors to move their practices from one place to another. Increasing regulatory requirements have tilted the balance of power very significantly in favour of the hospitals over the self-employed practitioner, such that doctors are now very reliant on hospital management. Ironically, private hospitals are facing a similar workforce problem to the NHS. As private practice becomes less remunerative and more regulated, older doctors are retiring. Younger specialists are not replacing them, because the financial rewards are much lower than they used to be, the costs of setting up a private practice are higher, and prospects much less certain than staying in the NHS. It’s entirely possible that private hospital chains may offer younger specialists guaranteed slots, rather than accommodating them as self-employed practitioners. If this came to pass, it could simultaneously drive up hospital profits, reduce the NHS workforce even further and force down the unit cost of medical time.
There are several medical insurers in the U.K. market. The largest are BUPA, AXA, Vitality, Aviva, Cigna and WPA. Insurers compete with each other to attract subscribers for health policies. There is a bewildering variety of policy offerings – so bewildering that even doctors struggle to discern what policy represents best value. In essence an insurance model is quite simple – attract lots of paying customers to spread the risk. Attract a high proportion of young and fit people who pay without claiming. Preferably acquire a big share of the corporate market with bulk purchase and relatively little administration. Set premiums that cover liabilities and leave a decent profit margin. Insurers can make more money if they extract higher premiums from the customer and pay out less to hospitals and doctors – hence the ‘zero sum game’.
Doctors wishing to see insured patients must first register with the specific insurer. Insurers direct patients needing medical attention to registered doctors via directories on their website. The patient puts in their postcode and medical condition, and the site displays the insurers’ recommended doctors. This gives the insurers considerable market power. For the last few years, insurers have been forcing newly registering doctors onto lower remuneration scales. Patients are then directed by the insurer towards doctors who cost less per treatment episode, excluding older and more expensive practitioners from the patient flow and maximising insurer profit.
There is a significant difference between health insurance and insurance for cars or for houses. House and car insurance covers events that are unlikely to happen – whereas the one thing we can all rely on is that death will eventually arrive. Before death, most of us are likely to undergo a period of illness, often prolonged and expensive. Hence as a customer gets older, health insurance premiums rocket. If a customer doesn’t make a claim, the premium will increase substantially each year. If a patient does make a claim, no matter how small, the premium will increase even more. If a customer changes insurer, the new insurer will attempt to exclude all ‘pre-existing conditions’. So older customers, most of whom have pre-existing conditions, are usually stuck with escalating costs – they either pay up, or cancel the policy and rely on the NHS.
But what of the patient? The patient is overloaded with information to process in relation to every aspect of private healthcare. In 2014, the Competition and Markets Authority conducted an investigation into private healthcare. It concluded there was inadequate information available for patients, so funded an organisation called PHIN, to collate and provide detailed information about various private doctors (activity, fee levels, etc). Needless to say, most of this information is hard to interpret and not terribly helpful. The patient needs to consider whether to self-fund for private care, or to buy an insurance policy. Then, the patient needs to figure out how to navigate the system to find the right doctor for their problem, which is not easy.
Overall, private healthcare in the U.K. is very good at providing straightforward packages of care for routine conditions in a timely manner, such as joint replacement, cataract operations and so on. It is less good at managing complex conditions needing multi-specialty input over extended periods, and totally useless at dealing with emergency situations. There are a few large private hospitals (usually in central London) that are capable of handling complicated high-risk surgery or medicine, but the vast majority of private hospitals are not able to deal with complicated cases.
Ironically, the greatest ally private medical providers have in the U.K. right now are NHS zealots. The more they resist sensible change towards a European model of regulated social healthcare insurance covering most of the population, the more likely we are to end up with a two-tier system, where private hospital chains and insurers hold most of the economic power. Corporatism and regulation have already consolidated the market to the detriment of patient choice and the self-employed medical model. The one thing the NHS nutjobs have right about the private sector is that large corporates are ruthlessly rapacious when it comes to maximising profits. The tragedy is they can’t see how they are acting as useful idiots for the private healthcare sector. Winter is coming.
The author, the Daily Sceptic‘s in-house doctor, is a former NHS consultant now in private practice.
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I understand IHDrs piece.
However, I think there is some very straight-forward management actions that can be made to improve the current “inadequate” system.
By placing proper KPIs and holding remuneration as part of the accountability, 80-90% of the problem will disappear in a 2-3 year business cycle.
Apply the same to Councils, Teachers, Police, Civil service etc…
Proper accountability (reward and punishment, equally meted-out) is the sunlight disinfectant all these organisations – and the NHS in particular need.
Maybe, but I think KPIs are tricky to set and easy to fiddle. Better to have the incentives at a structural level e.g. provide good service at a sustainable price or lose customers and go out of business.
I could think of many SMART KPIs with would modify Executive behaviour very quickly to suit the customer i.e. the those in need to medical care. These people need to know that they cannot run large Companies (Trusts) taking big salaries and always find an excuse why they cannot deliver without a bigger budget. We need to change their behaviour.
KPI 1 of 10: Reduce non-medical administrative staff by (pick a number – say 5%) across the board in the next 12 months.
Desired Outcome: How many diversity officers, Woke officers, Climate change officers survive the next 12 months when a good portion of the Execs (and his officers and line management have bonus is on the line?
I think KPIs can be made to help but would prefer to let the market do the work. Who would set the KPIs? Secretary of State for Health and his assistants? They’ve been doing such a fantastic job. And then Labour get in and re-write the KPIs or water them down and we are back to square one.
I want the state out of my life as much as possible.
Simple answer, see ‘gaming’ comment above, all of these ‘non’ jobs will be reclassified so as to escape the axe. The NHS has become particularly creative in this area for many a long year.
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There is little incentive to perform to KPI’s when your organisation seeks only to spend every penny allocated to it. There is no ethos of constant improvement in the NHS as that means fewer pennies and fewer minions in your empire. For the limited experience I have of the NHS, every KPI or attempt to have a KPI like Ambulance response times, has been fiddled.
Of course, the nuclear option would be to ‘Zero budget’ on a one or three year basis. No more of this ‘what you got last year plus index’. You start at £0 and have to justify what you get. With a body as big and complex as the NHS, I think this would be extraordinarily difficult to produce, and probably require more managers and clerical staff even than they have now.
KPI – Ambulance response times.
who was specifically held accountable and faced either financial or employment consequences? Exactly. No one. It is not a KPI – just a jargon.
Jargons become KPIs when specific people are held accountable – and no, I dont mean at the ballot box. I mean in terms reprimanding executive management for mis-management and failing to perform.
Take ambulance as an example. So the response time start, when? Supposed to be the connection time to an operator, but was fiddled to be when the vehicle was despatched. On arrival at hospital, when does the ‘seen within four hours’ start, and when does it end. Seen by who.? Ever wondered why if your plane is delayed departure, they still load, close the doors and push off 5 metres from the gate.? Its because you have ‘departed on time’, even if you sit there for another 45 minutes. These are all fluffy targets, especially when your performance is dependent on someone else’s performance, as it the case with much of the NHS. It isn’t a clearly defined hierarchy. It is a merry-go-round of opportunities to cover one’s posterior, and ensure blame cannot be attributed to one person (also why we have committees). I do get where you are coming from, and nothing would make me happier, but in my experience the KPI has to come from the corporate plan, i.e. the objectives set by the board of directors in a private company. These are disseminated to the departments, usually with hard percentages and targets of what they have to achieve, and then its up to them to formulate their plan, argue what is possible and reasonable and deliver the results. That’s one that can’t be as easily fudged or argued, but that’s not the option in this case. The NHS is highly complex and planned/managed from the top. I’d welcome some ideas, if you have them, but I doubt personally if I would take on a performance monitored position where I wasn’t in control of the mechanisms by which I was being judged.
A classic KPI from the airline world, to add to the example you gave. The plan was to improve customer service. One KPI was to decrease the time taken to get luggage into the baggage hall. When the plane landed the fittest member of the baggage team was given a small piece of luggage and he ran to the belt and deposited the case. KPI achieved! The rest of the luggage followed in the normal slow time!!
It is made worse when your organisation doesn’t have to create the money it spends, or more apprpriately, wastes. This basic commercial understanding is absent from the DNA of all state enterprise employees.
After 40+ years in sales and sales management I can guarantee you only one thing. If you set a target (a KPI in polite management speak) it will be gamed and not achive its desired outcome.
The other issue is that it is evidently possible, from the perspective of an experienced patient, for doctors to work for the NHS part time, and for another firm for the rest of it. Quite often for a firm that happens to have a private hospital physically next door. That always looked a bit odd to me, as in the industry I worked in, it was normal to to have contractual terms that did not permit one to work part time for potential competitors in the market, even if one’s employment contract was part time. It was usually OK to do voluntary unpaid work in the trade, but not to take business away from the main employer at the same time.
This is a very useful summary of UK private health care, an area that has always been a mystery to me, even though I have mostly used private services for all five of my cancer cases.
Why am I so ignorant? Because I have private medical insurance paid for by my employer, both as an employee and, for the last 25 years, as a retiree. The first mystery has always been knowing when to “go private” when my GP has flagged up a problem. Luckily I have had mostly non-doctrinaire GPs who will honestly tell me when I’m better off – or just as well off – sticking with the NHS.
Over the course of my retirement my employer has changed insurance providers and policy conditions. When I first retired I could go to any private practitioner referred by my GP, always the private insurance gatekeeper, and all costs were paid by the insurer. More recently two changes have reduced the attractiveness of the insurance:
(1) above ensures that I will always be treated by the most reasonably-priced specialist, but not necessarily the best. I suppose (2) helps to save the insurer money and is an incentive for me not to bother them with trivial medical problems.
A recent change of insurer has slightly modified (1) in that, if I really want a particular specialist, I can use him/her but must pay any difference in fees between what is charged and the insurer’s agreed rate for the procedure.
I’d welcome comments on this arrangement. It seems reasonable to me but I have no idea how it compares with what most people use in the private sector and I still feel somewhat mystified by the relationship between NHS and private care and when to use which.
Good post. I prefer a pure and direct private market. No faffing around with GPs. Pay per usage against your insurance. If people want to use socialised/communist health care go right ahead. But don’t mandate it for the rest of us.
Basic principles: Competition, Choice, Access in a market based, self correcting system. We don’t have that in the UK. It is as the author states quite a mess.
Government meddling, price setting, controls, GP gate keeper access and various regs is not a private market per se. Same with the US. The US does not have a direct private market system, but entirely a government controlled and price extension of socialised health (yes they have it called Medicare, Medicaid, worth £1 trillion a year).
France and Holland have good models that could be implemented and improved upon.
Because of the ingrained attitude of the UK health system, your basic principles will hit problems. The current private system as I see it (and have experienced once) is that it serves as an express way to treatment with the same or the majority of NHS-based medical professionals (and a nice room to recuperate in).
Why the hell should I get the permission of a NHS GP to go and have treatment of my choice if I elect to pay for it?
I am all for competition – private or state but unless we change the internal competition rules within the medical structures, nothing will change, costs will go up and/or care/care outcomes will go down.
Private healthcare won’t take off in the UK in a big way for a very simple reason: regulation.
Put yourself in the position of a private healthcare provider, be it a doctor, a private clinic or a larger private healthcare company. You see a potentially growing market driven by the disarray in the NHS, so you consider to invest in creating a new clinic, or hospital.
The problem is the lack of regulatory certainty. These kind of investments are made with a horizon of many years and require predictions on costs and revenues well into the. future. However, what is the government’s policy on private healthcare? Does it want to encourage it or discourage it? If you set up a new clinic can you be sure that this government or the next one won’t introduce legislation or regulation that will radically affect your market?
In the absence of clarity, capacity will not grow much because no one will dare invest too much in the private healthcare sector. So private healthcare will just get more expensive and worse in quality as more people make a demand on the same amount of supply.
I had a little snort at ‘affability’ being a prerequisite for private practice. One thing I detest about the NHS is the propensity of some staff to be rude and dismissive- okay, I know its certainly not all, but I feel sure I am not the only person who has been made to feel small and angry during NHS ministrations, and had their dignity compromised, with the attitude that one should just put up with such treatment and be grateful. Most of my treatment is now private, and yes, affable the practitioners certainly are.
Private practitioners – be it nurse, doctor, whatever – always introduce themselves unlike many NHS practitioners who enter a room and don’t speak beyond asking questions if you’re lucky.
Why do you or does anyone think that shifting to a European health insurance style system solves any of the problems you mentioned?
You are mixing up correlation with causation big time here.
The French or German system do not work better because of the insurance model, but inspite of it, as the added payment related bureaucracy increases overall costs by about 15% compared to a tax financed system like the NHS.
That GPs over there see patients, and that hospitals don’t have waiting lists has nothing to do with how the contributions to the system are raised and allocated, whether through taxation via NI or via insurance fees.
The German private health insurance system is also not an add-on one like Bupa etc. are in the UK, but an exclusive one: once you take out private HI, there is no way back into the public insurance system (very few exceptions, and those only up until age 55). Premiums are low when you are young, but extortionate when you are old.
About 100k people are now actually without any health insurance, as they can’t afford the private premiums anymore but have no way back into the public system.
But the medical service and providers there are actually the very same for each group, again in total contrast to the UK: any doctor or hospital treats the publicly and the privately insured patients- and needs its own separate admin for that, as the latter are just charged 2.3x to 3.5x as much. As such, the privately insured just have faster access, which upsets the former.
For decades, consultants (Professors, Chefaerzte) at the big renowned clinics (mainly university clinics) could earn 1-2 million€ p.a. by focusing on treating mainly privately insured patients, leaving treating the plebs to their assistants.
That has changed, as the hospitals are now cashing in the professors/privately insureds surcharges for themselves, which has made private clinic conglomerates like Helios, Asklepios etc. a big and profitable, industrial scale business.
The big Uni etc. aka publicly owned clinics do the same and can compete, smaller publicly owned ones are unprofitable and are being closed, leading to supply problems in many rural areas.
I repeat what might actually make a difference, besides the many necessary anyway organisational revamps: Introducing a nominal fee for each visit. It (10€/quartee) worked so well in Germany, that the same doctors who wanted to see it introduced, screamed for its abolition after a few months.
Refreshingly, the doctor who wrote an article here a few days ago came to the same conclusion.
The political class don’t have the cojones to properly reform and remodel the NHS – at best they will tinker around the edges.
Medical treatment will slowly go the way of NHS dentistry. In the ’70s hardly anyone paid for private dentistry. It started to take off in the ’80s and by the end of the ’90s there were large areas of the country (including the area of Surrey where I used to live) where there were no NHS dentists for miles around. Now, NHS dentists are as rare as hens’ teeth (unless you’re a criminal migrant).
Already people who can afford it, or have insurance, are paying for elective ops like cataracts, hip replacements etc and that will only increase as NHS provision becomes even less reliable and the waiting lists get longer.
I have Beneden Healthcare cover. A couple of months ago I needed to see a GP to get a prescription for a minor problem which MIGHT have become significantly worse if ignored. My NHS GP offered me the earliest available appointment in 6 weeks’ time. I consulted a Beneden GP over zoom the same day and he issued the prescription. It cost me £56 rather than the £12 NHS one, but tbh it was worth it.
French insurance system works fine, and nobody is excluded.
“Why the Health Service works in France”
https://edmhdotme.wordpress.com/why-the-health-service-works-in-france-11-2022/
All GPs are private/self-employed. They work under contract to the NHS not as direct employees. Not a lot of people know that.
The private medical insurers/providers operate in a highly distorted market dominated by a State non-contestable monopoly, therefore not in a competitive, free market.
For those inclined to argue and say the presence of private hospitals means there is no non-contestable monopoly…. this latter means that no enterprise can compete for your money as you are obliged to pay it to the monopolist, whether you use it or not. (Private monopolies are usually contestable – unless the Government interferes – so other enterprises can compete for consumer money. All monopolies ultimately end therefore.)
Which is why private providers are ‘less good at managing complex conditions needing multi-specialty input over extended periods, and totally useless at dealing with emergency situations’.
The market volume is not there to recoup capital outlay needed to provide complex and emergency cover, and give return to that capital, and cannot be built up, because the large majority of people having paid for NHS insurance/provision cannot afford or want to pay again.
The solution is remove that non-contestable monopoly. Let people choose whether to pay into the National Insurance scam or instead pay that money into a private insurer.
‘Ironically, the greatest ally private medical providers have in the U.K. right now are NHS zealots.’
No not really.
Actually it is market forces which eventually bring State monopolies down because without that wonderful tool of market intelligence and regulation – pricing – and without private capital and competition, they will simply cost ever more, but continually fail to supply enough to meet consumer demand. (As we – who lived through it – saw with the other State monstrosities as a result of Labour’s post-1945 nationalisation spree.)
If the UK were a free market in medical care, this would be very attractive to insurers; competition would be fierce as it is for other forms of insurance, as would competition among providers – and consumers would get a far better deal than with the ghastly, lumbering, walking-dead NHS.
Accident & Emergency cover could perhaps be part of motor or household insurance or a levy on each health policy.
But of course the NHS is a god – private is Satan. All bow low and hail the NHS.
Of course, it’s “our NHS, the envy of the world” NOT
Interesting if depressing reading (as so much is these days). However, he doesn’t mention Benenden, a kind of cooperative group with a hospital in Kent. I wonder how he views them?
In Australia most doctors work in both private and public systems.
The public system sounds similar to the NHS.
The private system has to compete with this or people drop out, therefore it works.
In general it is relatively cheap (my wife and I at age 60 pay £2500 per year between us for all hospital, dental, optometry, physio, etc) and have plenty of say in how and where we are treated.
Sorry mate, the dual system works better than any other option.
A perfect summary of the atrocious ‘health service’ in the UK, thank you. In layman’s terms “life’s a bitch and then you die”
Thankyou for this summary, very informative.