It is rare these days for the plight of the glorious and wonderful NHS to be out of the news. From omni strikes to increased waiting lists and the inaccessibility of general practitioners, the problems mount up. Barely a day goes by without some handwringing commentator expressing concern about the intensifying and unprecedented crisis or a politician claiming to have the magic formula for turning things around.
Regular readers will recall that I have an affection for numbers. Having had long exposure to delusional narratives from self-accredited experts, I find numbers provide better insights, particularly if multiple data sources can be analysed simultaneously.
It was therefore no surprise when Aviva, a major provider of private health insurance, reported a 25% increase in sales in their healthcare division, with 123,000 new customers in the first quarter of the year.
BUPA, the largest provider of private insurance in the UK also reported strong earnings growth in its last financial year.
In March, Spire Healthcare, a listed private hospital group, reported an 8.3 % increase in activity.
All of these companies made bullish statements about the strength of their markets in respect of forward guidance to investors.
Private healthcare providers are enjoying boom times because NHS England figures from May show that performance in our world beating socialist healthcare system continues to deteriorate. Fewer than 60% of patients currently meet the 18-week treatment target. Readers should bear in mind that official NHS statistics are frequently ‘managed’, so this number is almost certainly the ‘best case’ scenario.
Figures released this month by PHIN – the Private Healthcare Information Network – show an 8% year-on-year increase in private admissions, the highest since PHIN began recording the data in 2016. For readers unfamiliar with PHIN, it is a body set up after a Competition and Markets Authority investigation into private healthcare some years ago. Its data is reasonably robust as private hospitals are required to provide the information. Both privately-insured patients and self-paying customers rose in the reporting period. Interviewed by the Financial Times, PHIN CEO Ian Gargan predicted there will be more than one million private sector patients this year and he expects private medical insurance to become more popular. “In a cost of living crisis, people still are willing to pay and prioritise their health,” he said.
Hard to disagree.
Right across the landscape, private healthcare providers are developing new products aimed squarely at self-funding patients, unable to access timely and high quality treatment on the NHS. The specialist professional medical press is replete with articles advising private practitioners on how to cash in on the self-pay boom.
Readers may imagine, that, as a self-employed doctor, working entirely in the private sector, I would be quite pleased by these developments. On the contrary – I think it’s an absolute tragedy. I also think it’s going to get substantially worse with the potential to become a national disaster.
More worryingly, I can’t see how things can get better in the foreseeable future.
The proximate cause of our current predicament was the catastrophic unnecessary lockdown policy with its entirely foreseeable impact on the NHS and the wider economy. This came on top of many structural problems which had been building for years – I have previously written about the unintended consequences of changing workforce demographics, the reduction in training times and the intensity of training, as well as changes in working practices and a cultural shift in workforce attitudes.
The question now is how do we get out of this mess?
It might be instructive to compare and contrast the current situation with the last time there was a serious issue with NHS waiting times in the late 1990s. The Blair Government came to power pledging to reverse this trend (which was nowhere near as acute as our current situation). New Labour splashed huge amounts of taxpayer’s money on the NHS – much of it was misspent on ruinously expensive PFI projects or on the new contract for NHS consultants – which meant doctors got paid more but with no corresponding increase in productivity.
However, there was one intervention that did have an effect: ‘waiting list initiatives’. This was all about reducing headline waiting time numbers by paying doctors extra for operating in the evenings or at weekends on patients who were likely to breach targets. Procedures could be done either in NHS hospitals or in the private sector, the key point being that doctors were paid by the case – it wasn’t included in their NHS salary. In effect, this was performance-related pay. The money was good (being close to normal private rates) and the work plentiful. The top rate of tax was 40% with generous allowances for saving into pensions. A no-brainer for energetic young consultants with good operative skills honed by years of intense training. They paid us, we worked hard, things improved.
Unfortunately, today is a different story. After the catastrophe of lockdown, brought to you by the same healthcare experts who are still running the system, the economy is in a mess, with debt-to-GDP in excess of 100% (it was 37% in 1997), current tax rates at a 70-year high and volatile inflation.
Financial incentives don’t work nearly as well when marginal tax rates on income over £100,000 are 62% and tax thresholds are frozen with inflation at 8%. Tapered clawbacks, such as loss of child benefit, also reduce incentives to take on extra work for those on lower payscales. For the industrious, a tax rate of 45% kicks in on earnings above £125,000. Much has been written about the disincentives around pension limits – the recent abolition of this absurd tax is welcome, but may not shift the dial because Labour have pledged to reinstate it if it wins the next election.
Readers may find it hard to find sympathy for high-earning doctors – I entirely understand that. Yet the point I’m making is that incentivisation changes behaviour. If society wants stuff done, it isn’t going to happen for free. Doctors are no different from the rest of the workforce – they will not take on extra work if there is minimal financial benefit due to high tax rates. As Charlie Munger (Warren Buffet’s business partner) pithily observes: “Show me the incentive, I’ll show you the outcome.”
Here is an example of change in behaviour. During the recent Junior Doctors’ strikes, consultants were asked to take on extra shifts to ensure hospitals were safely staffed at night. Many chose not to be remunerated in extra pay, but by ‘time off in lieu’. Faced with high marginal tax rates, it’s preferable to take extra time off particularly when the gearing incentives are double time for the emergency work – because the benefit of extra holiday is that it can’t be taxed. The result is that large numbers of anaesthetists in particular have accrued vast amounts of leave owing, so there are fewer available for elective lists. Interviewed by the Telegraph recently, the outgoing president of the Royal College of Surgeons observed that there were many hospitals where surgeons were only doing one elective list a fortnight, often due to lack of available staff. Lack of staff is not solely a problem in surgery. Last week a group of cancer doctors wrote to the Health Secretary about deficiencies in the specialist oncology workforce. Despite more money being spent, NHS productivity continues to fall.
These perverse financial disincentives are only a small part of the story as to why the NHS is failing so badly. I have written previously on the impact of changing workforce demographics on productivity. Simply put, an increasingly female workforce (many of whom are second wage earners) generally prefers extra time with children to extra time with patients – and who can blame them? A disinclination to take on extra work has been noted in other sectors of the economy. When fiscal policy does not reward those who do extra, this seems entirely rational to me.
Blair, Brown and their health secretaries Milburn and Hewitt, succeeded with their healthcare plan because they inherited an economy which was in pretty decent shape. It’s telling that Starmer, Streeting and Reeves have been conspicuously quiet on the normal Labour mantra about NHS underfunding, because U.K. health spending now ranks 5th highest in the OECD, although our outcomes are among the worst. Their silence on potential solutions suggests they know how problematic the situation is – I suspect they may be quite anxious at the prospect of assuming responsibility
Irrespective of who wins the General Election in 2024, the root and branch reform needed to transition to a European-style mixed healthcare economy is not even on the agenda. In addition to a mixed economy, we also require direct linkage of compensation to productivity – which the BMA will resist tooth and nail – and some system of demand management to reduce the colossal amount of pointless NHS activity. To get such a major realignment of how we ‘do healthcare’ in the U.K. will probably require the complete collapse of the current monolithic socialist system.
I fear we are heading for precisely that – with a two-tier healthcare system emerging by default. The current data reveals that direction of travel. Those who can pay will pay and be exploited by ruthless insurance companies and corporate hospital businesses. Those who can’t afford to pay will suffer. We haven’t reached the bottom yet.
The author, the Daily Sceptic’s in-house doctor, is a former NHS consultant now in private practice.
Stop Press: Isabel Hardman has made a similar argument to the in-house doctor in the Spectator.
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