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Evolution of the NHS and Private Centres in Britain

Charles Auld

November 2005

Thank you Mr. Chairman.  Good afternoon ladies and gentlemen.  Thank you very much for inviting me to be here.  It's very nice to have come from my native Ayrshire to a part of the world where you have got the same sort of levels of rainfall that I had where I grew up.  I really must stop apologizing for it.

I was asked to look at history and trends of the National Health Service and particularly at public/private relationships and then to consider some lessons for Canada.  Well I can tell you what's happening in the UK but I really wouldn't presume in front of such an expert audience that's to be drawing out specific lessons for Canada.  You can do that much better for yourselves.  In any case, my very weak knowledge of Medicare is such that recommendations that I shall make at the end of this brief talk on what to adopt or reject will have to be really pretty generic but I am clearly happy to answer questions afterwards.

So first the history. Necessarily brief, very selective.  I take you back first, not to July 1948 when the NHS, the National Health Service was first launched but to the 21st of April 1951, less than 3 years after NHS was launched.  The scene was the Chamber of the British House of Commons.  The man addressing the House is called Aneurin Bevin, Nye Bevin.  Bevin was a Secretary State for Health.  He had nationalized the hospitals in 1948.  He had frontiered down a bitterly hostile general practitioner community and had kept the consultants on side by, his own words, stuffing their mouths with gold.  That's to say allowing favourable terms for continuing for allowing them to continue with private practice in the new National Health Service alongside their public sector practice.  That concession, by the way, paved the way for the growth of the private clinic world in the UK to a universe of around 200 hospitals privately run delivering acute elective surgery.

Anyway on the dating question Bevin is resigning his ministerial position so he can return to the backbenches to make trouble.  He's resigning because the Labour government, his Labour government which he had helped to get elected, the self-same government which 3 years ago had introduced the National Health Service to a rapturous reception by the British people, was about to betray one of the fundamental principles of the NHS which had done so much to give Labour it's landslide victory in 1945.  The Labour chancellor, faced with the costs of the Korean War which had started in June of '50 is going to charge patients for dental treatment and spectacles.  Bevin used this as a betrayal of principle.  The chancellor was enacting prudent financial management.  The battle of these conflicting views echoes down the years does it now.  It reverberates to this day in Britain, and I guess here as well.

The introduction of charges, promoted in part by massive unforeseen patient demand that had been experienced in these years, had finally put paid to the notion that, as one commentator put it, the health service would be used sparingly.  It would represent a long term economy or even possibly become a self-liquidation expenditure commitment.  Ah the innocence of the late '40's.

Well the birth of the NHS, of course it coincided with the birth if important medical and technological developments.  Advances for example in anaesthesia, in diagnostics, in anti-coagulants and anti-bacterials prompted the proliferation in medical and surgical specialties.  In short, more effective treatment, more freely available.  That had ramped patient numbers and costs.  Small wonder then that when the Conservatives picking up the baton in 1952 from a dying Labour government adopted the latter plan, adopted the Labour government's plans to further increase charges by obliging patients to pay a flat rate for prescription drugs.

So by 1952, a scant 4 years after the service had been born both political parties had resigned themselves to adopt the principle of what we could call today patient co-payment.  While, of course, continuing to trumpet that the NHS must be and always will be free at the point of delivery.  Well we British, in a very sentimental, unfocused way were very proud of our National Health Service.  I have learned of course that this is very much the case in Europe as well in Canada.  We imagined it as inspirational to systems around the world.  While being completely blind to its faults, and to the fact that it has not actually been adopted anywhere else in the world in exactly the same form.

There are some however, who take a different view of the impact of the NHS and the other social components which were to make up what is called the Welfare State created in the late '40's. Our Prime Minister vaunted his pride in achievement in setting up the NHS, and all that went with it, saying that Labour would not rest until it had built Jerusalem in England's green and pleasant land.  There was one commentator, who wrote in vivid terms, that this went straight to the heart of the paradoxical concept of a welfare system under the National Health System.  And so it was that by the time we took down the flags from the streets after victory in Europe, they had turned from the war to the future and the British and their dreams and illusions. Their flinching from reality had already written the broad scenario for Britain's post war descent.  As that descent took its course, the illusions and the dreams of 1945 were changed one by one.  The Imperial and the Commonwealth role, the world power role, British industrial genius and at last the welfare state.  "A dream turned to a dank reality of a segregated supplemented shift, unskilled, unhealthy institutionalized proletariat hanging on the nipple of state materialism." I enjoyed that too.  I just wish I had written it.  So there can be perceived from the earliest days the drivers of doubt and discontent that seemed to be unavoidable camp followers of a National Health System. On the one hand the obligation of the clinician doing the best he can for his patient; setting the duty of the treasury politician to balance his books; and the costly onward march of the technological process.  As has been seen in all western systems the concomitant excess of demand over supply, fuelled in Britain certainly by a patient population that doesn't know the cost of a prosthetic or a coronary bypass because the service is free.  As one observer put it, an expensively fatuous descriptor much beloved by politicians on the make.

There was also present at the outset a perverse factor which to be frank no one knew about in the early days.  The very organizational structure of the system.  We can't blame the founders of the NHS because they were creatures of their time and politics.  It was the development and management philosophies and organizational philosophy emerging in the '70's that were pointing the finger at the creaking inefficiency of state controlled monopoly which I think was neatly expressed in these words : "There is only one other large state owned organization which dictates the money spent on the service, which owns the facilities that deliver the service, and their locations brings and employees those charging the delivering of the service and which dictates how, when and where the vast majority of the population will receive this service".  We have just described Aeroflot, the worse performing airline in the western world.

Now whilst we can't blame the politicians and the civil servants in the '40's for setting up the NHS as they did, we certainly can blame their heirs and successors for taking 50 years to start to set it right.

It wasn't until the late '80's that the first bold moves were introduced in the form of benign competition, that seemed to engender efficiency through cost and price awareness and stimulated thinking of how to do things better.  In other words, to place results of outcomes first and then work back from that designing process to deliver those results.

So I will move us now to the late '80's and the attempt by the then conservative government to introduce managed competition to the National Health Service with the object of slowing cost growth and rewarding the efficient provider of service.  In part these words were a response to some very effective shroud waving by doctors who were generally concerned about lack of funding.  The medical community certainly didn't like the solution to the problem.  And that was so also in the lead up of the introduction of the NHS.  It wasn't the intention, it was the result of what was to become known as the internal market, that was offered by doctors and their professional trade union the British Medical Association, and by the public service trades unions.  This time it was the consultants who were in the vanguard of opposition rather than the GP's.  The philosophy was to split the purchaser from the provider of the service.  Hospitals, state owned hospitals, were established as self-government trusts offering service to health authorities that took nominal ability to buy the health care services from any provider, any best provider that is who offered best price and best value in price and quality.  At the same time general practitioners could apply to control funds also by limited service or to provide those limited services for their patients.  The first of these measures - that of hospitals competing for work - failed.  And it failed largely because the purchasing machinery was completely inadequate to the task.  The civil servants had not been educated in how to purchase.

It was in the creation of the so called GP Fund Holders that some considerable success was notched up.  Now because healthcare transactions took place at the local level on a human scale.  General practitioner prescribing care for an individual patient, whom the GP knows, knows the family, the wives or, whatever.  In other words, to have a scale that made it real.  Well the internal market lived on through the conservative government years and through their 10 years until nearly the mid '90's under constant attack from Labour, the unions, and the hospital based clinical professions.  That the concept did not collapse is explained by the fact that in the main the reforms didn't actually take effect.  Purchasers simply renewed annual contracts with the local hospitals without checking price, without competing.  They just signed the cheque and said give me another year.  During this time Labour party which had been in opposition since 1979 had been splintered by internal dispute as to its direction.  Gradually it reinvented itself with a strong focus predictably on becoming re-elected and the symbolic starting point of trying to get re-elected came when their new leader one, Tony Blair succeeded in removing Clause 4 of the Labour Party Constitution which had continued to insist, even in the 1990's that the state must control the means of production and distribution.  Removal of this clause freed labour from committing itself to rolling back the Thatcher reforms which had privatized telephones and transportation.  Its removal underpinned the Labour victory over an ineffable and exhausted conservative party in 1997.  It enabled Labour to move to political central ground and to adopt as its own policies quite a few of the policies put in place by the conservatives.  Specifically it meant the continuation of another conservative idea.  That of the private financing initiative, PFI.  The cornerstone of public/private partnership.  PFI is attractive to a British government of either persuasion.  Not least of all because of its off balance sheet financing.

Initially it concerned itself just with developing capital structure, roads, schools, hospitals and the like.  Private sector financed built the hospital.  The NHS staff simply occupied it, carried on serving in the public sector and paying rent for the next 35, 40, 50 years to the private owner, technical owner of the hospital.  The new labour government coming in in 1997 made few changes in the NHS, largely confining itself to changing the names of the existing functions, GP Fund Holder, was re-branded.  Tony Blair the Prime Minister responded by setting up advisory links inside No. 10, pushing department health officials.  It didn't work.  then in February of 2000 during a live televised discussion before an invited audience, myself included, Tony Blair was asked about using private sector hospitals to help drive down waiting lists.  His response was electric.  I have no problem with that.  Some of it is to safeguard from quality and value for money.  Out of the blue.

In August of that year, a 10 year NHS plan was launched which amongst other things indicated an intention to collaborate closely with the private and voluntary sector in NHS service delivery.  In September of that year I used a public platform to show designs for a surgical treatment centre which had built at my companies cost and risk to treat patients.  That very day I was called into the Health Department to stop discussions and in October of that year after only a month of negotiations the government formally announced that concordant with the independent health care sector and by the end of that year we had plans introduced by the Department of Health specifically designed to insert commercial sector - private sector competition into NHS surgical delivery.

I have to stop here and remind you, these are the actions of a Labour government, a government, which had now gone further down the road in modernization than any Conservative could have ever dreamt of.  Why?  Because they regarded themselves as the custodians of the National Health Service.  They had given birth to the NHS.

Blair also knew from public opinion polls that the British were very relaxed about receiving treatment in private clinics as long as the NHS paid and had satisfied itself as to the performance quality of these clinics.  What's the underlying significance of that statement?  Public attitude –I don't care where you treat me as long as you seem OK Mr. Blair or the NHS.  It's in effect pointed the way for the NHS to move away from the old Marxist style, command and control model which insists on controlling buying and supplying the services, to one where the state can gradually withdraw its involvement from provision where it had palpably failed to perform.

I would concentrate the attention of the political and administrative centre on specifying the type of service it wants, reinforce that with service frameworks, back it up with regulation of quality standards and then inspect it, very robustly.  These are all things governments should look at.  It may seem to be a radical move and strange to relate.  That arrangement has been in place in one important section that's in the NHS now for almost 25 years, very quietly, but it has been there. My own company had a division started in the '80's that was never challenged by government of either party, indeed, publicly endorsed by a left wing Secretary of State for Health.  It's a division that built its own hospitals, employed all medical staff including the consultants, and treated the patient cohort; exclusively funded by the state and a cohort that requires the therapeutic regimes of the highest order.  What does it do?  It treats patients with severe mental illness, severe learning difficulty, personality disorder, cares delivered in secure settings.  Most of the patients present with violent or challenging behaviours.  We've been doing it for 25 years, exclusively for state funded patients.  Blair and his advisors could see an example of that sector and others, the residential care sector, nursing home sector, massively penetrated by the private sector.  The surgical waiting lists reforms only added to the existing situation of marketization.  But it wasn't just about picking up the phone and calling my firm and some of the others.  The Department of Health Officials went to America, to Europe, to Canada, to South America, to South Africa rather and elsewhere to drum up interest.  They drew independent people into this new market.  So it's sad to relate the dead hand of bureaucracy has been very successful in ensuring that this hasn't gone anything like as fast as it should have done.  As one private provider said, the minutes get taken and the months roll by.  Sound familiar?  It took the department 18 months to negotiate the first service contract and now it's using an existing service unit that was there empty, ready to go.  Nevertheless, a lot of firms are now treating NHS patients and a second large wave of contracts is now in the tender process.  Government's thinking is that the independent sector is going to treat up to around 15% of elective surgery NHS patients requiring elective surgery.  A parallel system.

The objective is that by 2008, the time taken from an initial GP consultation to completed surgery will be no longer than 18 weeks.  The patient will be able to choose and book his or her hospital.  Private sector hospitals must be included in the choice available as long as their quality and safety is certified by the Health Care Commission which regulates and inspects all hospitals in the UK now.  Prices currently fixed in the series of DRG style tariffs and that's to get out of the slowing down process of trying to negotiate prices.

Underpinning all of this is one of the largest, if not the largest in the entire world, IT projects; enormous in scope because of historic investment and it's very ambitious in its implementation because of an appalling past record of NHS IT.  Well, how are things going so far with all of this?  It all sounds very good.  Well productivity is up, not by the amount the money is up.  Waiting lists have come down, notably in cardiac and in cataract. In cardiac, I have to tell you that the first inkling of getting them done was achieved by something like 75% of the reduction was achieved by the use of the private sector.  That, in my view, is really not sustainable. The NHS is sprinting, it is sprinting like a cheetah. The cheetahs are of no use at marathons and this is a marathon.  Now I said earlier that the NHS history, no doubt of that of other systems, you get this perennial conflict between clinical demands driving up costs and quantum spent.  On one hand the need for the treasury to moderate, on the other.

There has been a new spending initiative for NHS. In 2002 for the treasury came out with a long term review done interestingly, not by the Department of Health, but by Gordon Brown, he who would be the next Tony Blair.  The brief was this - to review the financial and other resources required to ensure that the NHS can provide a publicly funded comprehensive, high quality service available on the basis of clinical need and not ability to pay.  You have not heard the question that has been begged about funding, which is why he initiated it rather than anybody else.  The report offered 3 scenarios.  Brown persuaded his colleagues to adopt the scenario that is called Fleet Engaged and the spending to support this scenario in real terms is to increase by 7% per annum moving from a 7.7 GDP up to 9.4: those are the Canadians levels.  Well there is a clear condition.  Levels of public engagement in relation to their health are high.  Clearly, massive efforts are needed in the area of health education, disease prevention, occupational health activity because the Health Service doesn't provide much incentive for the individual to take charge of their health. Yet funnily enough the individual taking responsibility for his health is a key component to the NHS from the very start.  The architect of it, not Bevin, but the guy who actually wrote the plan called Beveridge back in 1942 said this ... "The community through the machinery of the state has the duty of doing those things that can only be done by the state." This does not absolve the individual of the duty and responsibility of thinking and planning for himself.  He saw state welfare as a whole, the National Health Service in particular as enabling euphemism where the citizens could access, not as a privilege but as a right, so that he could exercise his responsibilities to stand up on his own two feet.  He believed that the process of certain rights and responsibilities was what distinguished us from a totalitarian regime.

Well I think there is a link between that old 1942 philosophy and what's inherent in the spending plan although it's not happening, which is insisting on the responsible elite citizen to balance his right of access with the responsibilities by individual action to reduce demand by self-activated or state assisted health care maintenance.  You may feel, as I do, that service offered free does little to reinforce responsibility.  In fact, it probably encourages dependence and boy have we got that in Britain.  In Scotland, 50% of the potential workforce either works directly for the state or receives state employment or incapacity benefit; 50% in the largest city out there, Glasgow - used to be known as the second city of the Empire - more than 50% of households have no earned income.  It is estimated it spends more for health per capita than any other city of those countries that have a state financed health system.  Do we get results, in this city that gave the world the deep-fried Mars bar?

Well on the latest figures available Glasgow's average male life expectancy is lower than that of Bulgaria, Bosnia or Libya.  Parts of eastern Glasgow have lower life expectancy than Iran, of the WHO's estimate for Iraq.  By contrast it's merely an accident.  In other parts of Britain with low dependency on the state and low benefits, male life expectancy is 80 years compared with Glasgow's 68.7.  My contention is that no state sponsored health system in the future is going to really work without balancing the rights of citizens to get the access to free subsidized health care and at the same time what we have to do is to ensure that the citizens use these rights responsibly, by whatever means that society can find acceptable.  Try as you might you can't blame the appalling medical costs of obesity on Burger King and McDonalds.  They wouldn't be in business if customers didn't access the free choice to overindulgence or choosing not to exercise.

So I have been asked to come here today and help the deliberations following this momentous decision. I would say the first thing to do is concentrate exclusively on those elements that flow from newly confirmed rights of the citizen to improve the supply of health care. It will not produce long term benefits without a fresh look at the demand side of the equation.  Your present demand side, as in Britain, has been regulated by waiting lists.  In the long run the only workable solution and the only one that hasn't been adequately explored and tested is demand being controlled and exercised somehow by the system and not our self.  A motivated, educated, incentivized, inter responsible system is needed.  That way you wean the citizen off what I described vividly as the nipple of state materialism.  That's the first of the recommendations I would definitely make to you today.

What else? Well, when the NHS was set up, as I told you, the consultants were allowed to operate parallel with private NHS.  In short I would say if you're going to avoid the opportunities voted by the Quebec decision you have to demonstrate affordability in the private sector as well as the costs of health care overall.  All the economic interests have to be aligned, doctors, professionals, and the commercial interests of the owners of the hospital.  Everyone has got to be aligned.  If they're not you will have cost inflation.

Bureaucracy: try if you possibly can to free yourself from some of the chains that, no doubt, you have here as we have in the UK. One that may be worthwhile is get a hold of some of your business leaders to endorse well known, well respected business community leaders to reassure government that fast tracking process is not sloppy, it's not bad news, and a little bit of risk is worth it for the citizen especially if you give them better care and access.

Spend time and money talking to the public because anything that reduces waiting lists will get the public support, and reputable opinion poll data is listened to by politicians.  The Health Secretary, when he first took up the job, said he would come down like a ton of bricks on anybody in the NHS he found doing business with the private sector.  Two years later, after a series of polls that showed what the public opinion was, that's the self-same man signed on to exactly that.

Let me finish by giving you one seriously big idea.  In the history of today's British Labour government, one of the biggest contributions will be seen as the relinquishment of direct control over the Bank of England and its fraud setting interest rates.  My government has not got control over what the bank rate is going to be.  It handed it over to an independent party and it's worked.  They said it was too important to be manipulated by politicians with the short terms.  It's been fantastic.  Is the health of the nation any less important than the cost of money in the state?  After all, NHS was born out of consensus.  It wasn't a Labour government feature.  It was a coalition government creation in the dark days of the war.  It's why we have consensus in the NHS and I believe in the country at large.  So if it's too important for politics why not move it into a place where within a broad fiscal framework they get on and do the job of getting the Canadian Health Care System up and running robustly and with long term views that surpass the 5 year cycle of vote and revote.  That way you might end up by not only being one step behind but you have this great opportunity of maybe streaking ahead.  There is a need to achieve that dynamic proactive health maintenance system, and not a sickness service. One which respects right of access, but also insists on individuals exercising self responsibility.  Maybe Canada could lead the way.  Thank you for listening.