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What happens if the health reforms work?

Anyone looking at the future of the government’s reforms is always interested in the question: “What happens if this doesn’t really work the way the government wants it to?”

I think a much more interesting question is: “What happens if it all works?” The ideology behind creating much stronger market-based reforms to break up a public monopoly is a coherent set of ideas and, providing attention is given to implementation, success is not out of the question.

We are coming up to an election and nearly 40 hospitals have clearly been put at risk by the market

By the winter of 2013/14, many commissioning consortia are likely to understand their business and are driving much better value for money from existing providers. They are also bringing in new providers that are not simply competing against existing providers for the same business, but have created disruptive innovations in, for example, care of long-term conditions. These will be gaining a significant share of the integrated care business as traditional providers struggle to get out of the secondary or primary care box.

The new economic regulator has made it clear that they expect a greater and greater proportion of commissioned services to be genuinely taken to market.

Tariff will have been frozen to ensure that secondary care drives down on costs. The QIPP programme will have succeeded in turning around the rise in secondary urgent care, and the long-term conditions programme will have reduced emergency hospital admissions by 20 per cent.

It’s all working and, as a result, about £5m of resources has been moved from the hospital sector. The 20 NHS trusts that have not managed to become foundations trusts are clearly not economically viable, and some have been taken over by successful trusts.

However, among the foundation trusts, there are clearly some organisations in trouble. Twenty failed to break even in 2012/13 and 20 more will fail to do so in 2013/14; they are looking to the health secretary to bail them out.

We are coming up to an election and nearly 40 hospitals have clearly been put at risk by the market. The old system had created a hospital bung fund to get through the transition period. The old primary care trusts had 2 per cent of their budget taken from them by the operating framework for 2011/12 to create this inefficient hospital fund, which helped to subsidise hospitals that would otherwise have fallen over during the transition to a market system. But, when in 2012/13 the National Commissioning Board tried to steal the same 2 per cent from commissioning consortia the following year for that inefficient hospital fund, the health secretary pointed out that this was not within the reform programme. The money goes out to the market to commission healthcare and the market decides who will thrive.

The system is working so where is the problem? It’s true that since 1975 the Conservative Party has been passionate about how markets distribute resources - how they reward success and how they punish failure - and through that how they improve efficiency. Industry after industry has got that treatment and now it is the turn of the NHS. That’s what the Conservative Party believes in.

The problem is that the Conservatives also believe in conserving communities and other parts of our way of life, including local hospitals. The 40 hospitals that these successful market-based reforms have now demonstrated are not economically viable may be a sign of the system working for one sector of the party but another is up in arms about how the market is ripping through their local hospital.

The cabinet will find it difficult to believe that this is an example of their policy working. Luckily, as we can see from the Health Bill published last week, the health secretary has not given away all of the old system. Indeed the bill proposes to give him powers over financial support for foundation trusts which his predecessors have not had. His department will own the banking function for foundation trusts and this would allow him in 2013/14 to undermine his own market reforms and create his own inefficient hospitals fund.

The market will have sent out its signals and the health secretary will use his new powers to undermine those signals that his reforms have sent out.

There are two nightmares for the government. The first they understand and are nervous about: “What happens if the reforms don’t work?” The second, to which they have given little thought, is: “What happens if they all work?”

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