HSJ’s expert briefing on NHS finances, savings and efforts to get the health service back in the black. This week by HSJ editor Alastair McLellan.

With Boris Johnson opening the floodgates on NHS funding, Labour’s attack on the government’s stewardship of the NHS during the upcoming general election is likely to focus on the question of trustworthiness. First on that charge sheet will be the claim the NHS is being both run down and privatised.

The Department of Health and Social Care’s accounts purport to show that expenditure on clinical patient services with “independent sector providers” has accounted for just over 7 per cent of its budget, and that this figure has stayed more or less constant for the last five years.

However, the left-leaning think tank Centre for Health and the Public Interest has produced an analysis which claims the figure is actually 26 per cent.

Yes – 26 per cent!

How does CHPI arrive at that figure?

First it changes the denominator. It uses the NHS England spend, rather than DHSC. It argues, reasonably, the NHS cannot spend money it does not have. This reduces the bottom of the calculation by £11bn in 2018-19.

There then follows a series of additions to the top of it.

CHPI includes the money paid to GP practices – which totalled £8.5bn last year. It acknowledges “there is a genuine debate to be had as to whether or not the provision of general practice falls within the definition of the independent sector given that they derive almost all their income from the NHS”, but still uses this spend in its calculation.

As an aside, it would be fascinating to see how an incoming Labour government might treat the “independent contractor” model of general practice. HSJ’s 2019 April Fool story about the party seeking to “nationalise” general practice was believed by some of its MPs to be real policy, and – indeed – still may be.

Wrong denominator

However, even removing GPs from the calculations, the annual spend on non-NHS bodies still stands at 18 per cent according to CHPI – a whopping £12bn more than the official figure.

The next recalculation is, like the change of denominator, an apparently reasonable one.

The NHSE figures, claims CHPI, exclude the amount spent by NHS trusts spot purchasing from private providers – one assumes to help manage demand.

This has risen steeply from £645m in 2013-14 to £1.3bn in 2018-19. Again, using the CHPI denominator, the trust spend with non-NHS providers accounts for a total of 1.2 per cent of total expenditure.

Next up – and again a reasonable punt – is adding in primary care dentistry, which is not included in the DHSC’s calculation of non-NHS spend. NHS spend on this was £2.9bn in 2018-19. CHPI’s numbers show a real terms decline over the last six years.

Also missing from the DHSC numbers is the spend on other primary care – in other words, pharmacy, optometry, and other services provided by pharmacies and eye care firms. CHPI is at pains to point out that this means payments to companies like Boots and Specsavers are not included in the DHSC figure – it does not mention that much of the spend will be with independent opticians and pharmacies.

The combined spend on pharmaceutical and ophthalmic was about £2.5bn, again accounting for a small real terms decline since 2013-14.

Wolves in sheeps’ clothing

Time for a reminder of the divergence of views between the DHSC and CHPI.

The department calculates that “independent sector” spend for 2018-19 is £9.2bn, which it divides by its total budget of £125bn, producing the claim that it accounts for 7.3 per cent of funding.

The CHPI says expenditure on the “independent sector”, excluding general practice, is £21.3bn, which it divides by the NHSE total spend of £115bn, delivering a proportion of 18.5 per cent.

The differences we are yet to examine account for around half of the gap.

The CHPI, unlike the DHSC, includes in its calculations spend on local authorities and the voluntary sector, and an additional category for “social care” (worth £831m across commissioners and providers).

CHPI justifies these moves thus:

“The voluntary sector when it comes to healthcare is [ill-defined]. Some of the major ‘private’ providers of healthcare – such as BUPA and Nuffield Health – are not-for-profit companies; in the care home sector, the not-for-profit companies often turn a relatively healthy profit. Similarly, a large number of all private hospitals are also registered as charities.

“The payments made by the NHS to local authorities… end up in the independent sector… The purpose of these payments [is to] commission nursing care and social care (known as either Funded Nursing Care or Continuing Health Care) almost all of which is provided by the independent sector.

“The independent sector provides the vast majority of social care in England and so any payments made by the NHS for social care should also be classed as expenditure on the independent sector.”

Let’s get Richard Branson

Let us examine these claims in turn. Some health and care providers are indeed registered as charities or sail under the “not for profit” banner. However, although some private healthcare providers are “not for profit”, that is not the case with most of the largest. Even many that are – such as St Andrew’s and Benenden – have a reasonable claim that their activity is not primarily focussed on delivering a surplus.

The “voluntary sector” number will also include, one assumes, significant payments made to national charities, like Macmillan, Diabetes UK and the British Heart Foundation, as well as to many smaller third sector organisations. It may also include – though this is not clear – social enterprises.

The left has always had an uneasy relationship with third sector providers, with some believing they undermine NHS provision. Those with longish memories will remember how unions pushed back at New Labour support for social enterprises and mutuals. Once again, it would be fascinating to see what approach a more avowedly socialist government might take.

The trend for increased spending through local authorities and social care has been supercharged by the rapid growth in the number of older people, as well as working-age adults with care needs. HSJ has written extensively about the rising cost of continuing care, attempts to mitigate that and the resulting action by patients and their carers to fight – often in the court – for what they deserve.

The fact that the cash ends up outside the public sector is partially the result of a trend which is decades-old – the redefinition of services previously considered healthcare as social care or personal care.

The suggestion that the NHS, in terms of hospital services is being privatised in a methodical and major way is questionable to say the least. However, even figures such as former Conservative health secretary Stephen Dorrell openly admit there has been a major shift in the payment for and, therefore, the provision of personal care through the creation of a market which can deliver NHS-funded services alongside local authority and privately paid-for care. Cuts to publicly delivered services in the recent decade now leaves many commissioners with little choice and have also forced the NHS to step in to make up the funding shortfall.

This surely is where campaigning should be focussed, but Richard Branson is always likely to prove a more attractive target than complex government regulations (which would also be very expensive to reverse).

As another aside, it would be fascinating to know how much of this spend (if any) is driven by the result of medical accidents for which the NHS has admitted blame.

The ‘truth’

So, what figure – both total and percentage – should we use for the NHS’ spend on “private healthcare” as the man or woman in the street might understand it?

For a start, it is definitely greater than the DHSC’s £9bn or 7 per cent.

Using the NHSE spend as the denominator seems fair, as does the inclusion of trust spend on independent sector providers.

This would bring the spend to £10.5bn in 2018-19 or 9 per cent of the total.

From now on HSJ will describe the NHS’ spend with private sector healthcare providers as, “at least 9 per cent of the NHS England budget”.

Looking back over the last six years, this shows a rise of £3.3bn (or 46 per cent). However, the increase in the NHS budget during this time means this accounts for an increase of just 1.5 percentage points in the proportion of NHSE spend.

Beyond that, the figure used will largely depend on what the observer classifies as “independent” or “private”, or as “healthcare”.

The motives

But perhaps the most interesting question we can explore is the motives we can detect behind the trends.

Where a direct link between the policies of the Cameron and May governments and spend can be made, the news is mainly bad for “independent contractors”.

Spend with pharmacies, eye-care providers and dentists has been subject to concerted, overt and often controversial attempts to get a better deal from contractors. As a result, combined annual spend in these areas has gone from £5.7bn to £5.4bn – a significant real terms decline.

Elsewhere spend has been driven up by long established definitions of care (which, of course, the government could have changed), demographic trends and scientific advance (outside government control) and the inability of the NHS to meet rising demand (and therefore the need to seek extra capacity from the private sector).

On the first two points – the fragility of the care market, especially post-Brexit, could plausibly see more state funding or provision in this sector regardless of the election result.

On the third point, we enter the world of conspiracy theory as set out in the recent anti-privatisation film Under the Knife, which HSJ reviewed last month.

However, with parties of all stripes now committed to increasing NHS capacity we should see that trend begin to reverse – though not for a number of years (again regardless of any election result) as building and refurbishing hospitals takes years.

Growth of private and third sector provision in community health services, mainly from 2005 to 2013, was principally a result of government policy (under both Labour and the Conservatives). This too may well be contracting under the auspices of integrating services.

The CHPI is to be congratulated on its work, which – as it states – helps create “a broader understanding of the nature of healthcare provision in England”.

The think tank concludes: “Healthcare in England is now very much less directly provided by the NHS than most people think.” This is almost inevitably correct – though a little explanation would probably have many saying, “oh yeah” and shrugging their shoulders.

However, as I hope to have shown above, the assertion that one NHS pound in every four is spent in the independent sector is one which should only be used with significant caveats and an understanding of the nuances it carries.

As the general election approaches, HSJ is not holding its breath that either side of the debate will seek light over heat.