The new UK coalition government’s healthcare policy – who will gain?

Summary

The new UK coalition government is about to publish its “white paper” on policy for the NHS – which companies are well placed to be winners?

The new government favours delegating the commissioning of healthcare services in the NHS to primary care commissioners; encouraging non-NHS providers to provide services to the NHS and introducing much needed innovation and transformation.

The likely successful organisations are a small group of international and UK healthcare specialist organisations.

Analysis

On 12th May 2010 the new Conservative / Liberal Democrat coalition became the government of the United Kingdom. It’s first action was to announce £6bn of in-year cuts in public spending. In the emergency budget on the 22nd June there were further cuts in public spending but the coalition maintained its commitment to real increases in the funding for the UK’s National Health Service (the NHS at £110bn represented some 24% of central government spending in FY2009).

But it would be a mistake to think that it’s business as usual for the National Health Service. Both the Liberals and the Conservatives proposed to make radical changes to the NHS in opposition. The speeches by the new government ministers suggest that the new coalition government are going to carry out a major overhaul of the way in which the NHS is organised and NHS funds are spent.

The proposals are the latest in a long line of attempts to address the long standing problem common to all healthcare systems of information asymmetry and provider capture. The last conservative government introduced an internal healthcare market to the NHS in 1991 – the “purchaser – provider” split, where local NHS organisations purchased healthcare from NHS providers on behalf of the local population along with the development of GP fundholding, where primary care doctors (GPs) purchased healthcare on behalf of their patients.

The internal market was abolished when the labour government won power in 1997 and the pendulum swung back to greater command and control with centrally set targets and large increases in funding. When it became obvious that the increase in funding was not resulting in a similar increase in productivity the labour government reversed direction and reinvented aspects of the old internal market as “commissioning” – with primary care trusts (PCTs) commissioning healthcare on behalf of the local population and delegating some commissioning to consortia of GPs (practice based commissioning).

The new government is expected to propose two radical changes in a “white paper” policy document expected to be published next week:

  1. To set up an “NHS Board” independent of the Department of Health, and responsible for the commissioning of NHS services and improving outcomes for patients – effectively transferring accountability away from the politicians;
  2. To give the majority of commissioning budget (£80bn) to primary care commissioners (GPs) for them to commission services – choosing PCTs, local government or private companies as their advisers / back office services.

This policy change opens up opportunities in two areas for the private sector.

The first is in advising and providing back office services for primary care commissioners.
The last government set up the Framework for procuring External Support for Commissioners (FESC) but takeup by PCTs has been patchy making for a disappointing contract for the suppliers. The suppliers selected in 2007 have proven track records and are well placed to compete for this new business.

  • AXA PPP Healthcare Administration Services Limited
  • Aetna
  • BUPA Membership Commissioning Limited
  • CHKS Ltd
  • Dr Foster Limited
  • Health Dialog Services Corporation
  • Humana (NYSE:HUM)
  • KPMG LLP
  • McKesson Corporation (NYSE:MCK)
  • McKinsey & Company, Inc.
  • Navigant Consulting, Inc (NYSE:NCI)
  • Tribal Consulting Limited
  • UnitedHealth Group (NYSE:UNH)
  • WG Consulting

Their main competition will come in those geographic areas where the PCT and local government have historically worked closely together and combine to provide support to primary care commissioners.

The second is in competing with NHS providers to deliver the services commissioned by primary care commissioners.
The vast majority of NHS services are still delivered by NHS provider organisations. This is despite the last Labour government’s initiatives to bring in new non-NHS providers as a spur to competition and to provide more choice for patients; for example Independent Sector Treatment Centre (ISTC) contracts. That government wavered in its commitment to increasing non-NHS provision but the new coalition government carries different ideological baggage and will wish to actively encourage private sector innovation and the transformation of healthcare delivery.

There will be opportunities for non-NHS providers in the traditional elective surgical services and also in diagnostic services and primary/ community care. It is in this latter area that one would expect to see the greatest transfer of services from NHS providers as commissioners attempt to move treatment out of the expensive acute hospitals and into lower cost community clinics or home treatment.

The non-NHS organisations who are already delivering services in the NHS have invested in understanding how to work with commissioners and with NHS providers. Suppliers in this category include:

  • Alliance Medical Limited
  • Assura Group Limited (LON:AGR)
  • Capio
  • Care UK
  • Circle
  • General Health Group
  • Harmoni
  • Healthcare at Home
  • InterHealth Canada
  • Nuffield Health
  • Pfizer (NYSE:PFE) Health Solutions UK
  • Spire Healthcare
  • UnitedHealth Group

Although other healthcare organisations could enter this market from the USA and Europe there are cultural and commercial barriers to entry that they would have to overcome.

What is the impact of delay?
The risks to this policy, which are causing delays in publication, are:

  • the lack of financial controls – GPs would be allowed to keep surpluses, if they underspend, but the Department of Health will pick up the tab for overspends. A recipe for disaster when you consider the wide range in enthusiasm and capability of existing practice based commissioning. It is true that some GPs are interested and competent buyers of services and they will underspend; unfortunately there are other GPs who are not interested in commissioning and who are not motivated to control local healthcare spending.
  • extent of organisational restructuring – both parties committed to no significant organisational restructuring but the new policy in effect sweeps away two layers of organisation (Strategic Health Authorities and PCTs) with large job losses. Past reorganisations have consumed vast amounts of management time (as they are very significant for managers!) with no apparent impact on improving the quality of frontline services. The NHS has the odd combination of centrally negotiated employment terms and conditions with local employment contracts; this leads to staff in restructured organisations being paid generous redundancy only to be reemployed on the same or better terms by other NHS organisations with their pensions intact.

These risks are very real and will have to be addressed if the coalition government is not to have a financial crisis within the NHS in their second or third year in power.

It is likely that Andrew Lansley, the Secretary of State, will have to accept a slower implementation of policy and a more gradual transition from the current arrangements than he had planned.

The implications of this in the short term are that all providers of services, both NHS and private sector, will be squeezed because the NHS cannot make the savings it needs to by cutting out the two organisational layers. The retention of the majority of commissioning by PCTs will also support the status quo and reduce the opportunity for new entrants as providers of services to the NHS.

In the longer term the new policy is likely to deliver the expected opportunities but over an extended time period. The incumbent NHS providers will have the time to develop strategies to better compete with the private sector and this will reduce the private sector’s volume and profitability of new business.

First published in GLG News

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