Does the cost of private healthcare exceed the benefit?

In a thoughtful leader published on 26 January, Alastair Mclellan argued that a weak private sector is bad news for the NHS. He suggests the private sector serves a number of useful purposes - it can supplement NHS provision and provide extra capacity, give patients extra choice, fuel innovation, act as a high benchmark for the NHS on customer service, and provide an alternative career route for health workers.

I think he’s right about the benefits of the private sector - but we also need to think more about its costs as well in order to get a full picture. What are the costs of having a private healthcare system running alongside a public one?

I think the costs of private healthcare can be organised around three main headings: the reduction in “voice” that it results in; the opportunity cost of using NHS facilities for private work; and the cost of having to underwrite private provision.

Having a private sector healthcare system running alongside a public one means that many of those most likely to challenge and complain about poor service opt-out of public healthcare. Having a private sector means the most quality-sensitive patients ‘exit’ the NHS and go private - and then, because they perceive the NHS to be of lower quality - exercise their “voice” to further improve the service offered there. The NHS needs complainers - we need their feedback to make services better, and their loss to the private sector is a significant one.

What goes for patients also goes for staff. If staff are working for both public and private health organisations, by definition they can’t be giving their full commitment to both. And if staff have the ability to leave the NHS because they don’t like the way things are going, then their voice too is lost in the struggle to make things better.

The opportunity cost of the private sector is most visible in the case of what we used to call “pay beds”. Private beds in otherwise NHS facilities end up in with public health organisations having to spend time and effort constructing artificial barriers of care to show that private patients are getting their moneys’ worth. It also means they have to demonstrate NHS facilities aren’t being used to subsidise private care. In either case however, we do have to ask how can we justify using public facilities to treat private patients when there are still NHS patients waiting for treatment?

We are now being told by a group NHS trust chief executives that their organisations can’t survive without being allowed to do more private work. This seems odd in terms of the NHS care market? Are they really saying that you can’t break-even doing NHS treatment at NHS prices? In which case, why exactly would the private sector be interested in doing it?

Finally, there is the problem of having to underwrite private provision. Buying healthcare private is not the same (as some writers seem to think) as going to a coffee shop. Healthcare is complex, and may have long-term effects that mean we need to be able to depend upon it being there for us. Private providers may go bankrupt or choose to stop providing care. In that case, the NHS will, in the end, have to pick up the bill.

PIP is the most visible example of this, but can you imagine what will happen if the private providers of hip and knee replacements are not there in ten years’ time and patients need new care? The NHS effectively has to underwrite the possibility of private healthcare failure or exit  - which has to be a major additional cost in terms of the risk it must bear, but also in terms of the fact that, as Alastair explained, the public purse is now responsible for 25 per cent of all private sector revenues.

So yes - a strong private healthcare system does bring the NHS benefits. But I’m not sure they exceed the costs that come along with them.