THE SECTOR: IN PROFILE The independent sector is bigger than many imagine. Now changes are afoot that might also open the doors to European healthcare providers. Jeremy Davies reports

It can be tempting to refer to the NHS as if it were synonymous with the entire healthcare sector. But the fact is that the independent health sector, which encompasses a range of private and voluntary organisations - some run for profit, others charitable - makes a significant contribution to the overall health of the UK population.

The UK spends less on private health than any other Organisation for Economic Co-operation and Development country, apart from Belgium and Luxembourg - a steady 1 per cent of gross domestic product since 1990. But that still means around 15 per cent of our overall health spending is made up of private expenditure - a proportion that has remained steady since at least the early 1960s.

1The independent acute healthcare market is estimated to be worth around£3.2bn (see table below). On top of this, the value of the private care home market is estimated at£5.6bn, and the value of the flexible health and social care staffing market at£2.4bn - nearly£1bn of which is made up of income from NHS use of bank nurses, locums and other temporary healthcare staff.

2The NHS spent£1.25bn - 4.8 per cent of its total budget - on non-NHS treatments in 199899. This represents a rise on previous years: the equivalents for 1997-98 and 1996-97 were 4.6 per cent and 3.8 per cent respectively. The categories of treatment in which the highest proportion of NHS spending occurred outside the NHS in 1998-99 were care for patients with learning disabilities (more than£475m worth of care - around 35 per cent of total NHS spending in this category) and for patients with mental illness (more than£260m worth of care - just under 10 per cent of total NHS mental health spending).

3But it is not just through the NHS that the independent sector earns its money - indeed, the NHS represents only around 5-10 per cent of independent acute hospitals' income. The sector's biggest income stream accounting for 60-70 per cent of turnover, according to latest estimates by the Independent Healthcare Association, comes from private medical insurers.

More than 6 million people in the UK are covered by PMI policies. Association of British Insurers figures show around two-thirds of these are provided by employers, and the number of policies of this type grew by 20 per cent between 1989 and 1999.

Patients are also increasingly paying directly for their own treatment, often having covered themselves with other forms of insurance in case they fall ill. Around 6 million people are also estimated to be covered by critical illness insurance and nearly 1.5 million people have income protection policies.

So how many independent hospitals and other facilities do these income streams support? Latest figures show there are 240 independent acute hospitals in the UK, along with 202 daycare/ outpatient hospitals, and 87 psychiatric hospitals.

2That is almost a third of the number of NHS hospitals, which latest estimates by Binley's count as 1,871.

As well as hospitals, there are also 86 private patient units in NHS trusts, 170 independent screening clinics, 115 commercial pathology laboratories and 32 diagnostic imaging centres. The vast majority of care homes - around 27,000 in total - are also run by the private or voluntary sector.

2Other parts of the private sector are also involved in NHS building programmes via the private finance initiative, through which£423m of schemes had been completed and operational, and a further£2bn in the pipeline, by the end of the first five years of the Blair administration.

Through the NHS Local Improvement Finance trust (LIFT), a joint venture company run by Partnerships UK - itself a joint venture between the Treasury, the Scottish Executive and a range of private sector investors - public-private partnerships will also be extended into primary care. And a report by think-tank the Institute for Public Policy Research called on the government to lift restrictions on the inclusion of clinical and support services in PFI projects - recommending a 'best-value' approach.

4The Independent Healthcare Association estimates the independent health and social care sector employs more than 750,000 people, though nearly 90 per cent of these work in social care. Nearly 150,000 non-medical staff - nurses, healthcare assistants etc - were working in private hospitals, homes and clinics in 1999.

5According to Health Care Navigator - a helpline-based private health service - more than 15,000 of the UK's NHS consultants are engaged to some extent in private practice.

Less than 1 per cent of ordinary NHS inpatient and outpatient treatments are contracted out to the private sector, but that still translates to over£100m of business for the independent sector each year. Independent Healthcare Association executive director of public affairs Dr Tim Evans points out that the 60,000 NHS patients treated by independent acute hospitals since January represent a three-fold increase over previous years. He claims this is a result of trusts making more use of the private sector following the much-vaunted concordat between the NHS and independent sector, signed in November 2000.

'We have broken out of the terrain of the NHS just spotpurchasing procedures to overcome winter pressures.

The partnership is having an impact all year round, ' he says.

'For the first time, the NHS and independent providers are having longer-ranging conversations about what they can do to work together.'

But independent healthcare analyst William Laing stresses that a shift away from one-off waiting-list initiatives and towards long-term contracts between the NHS and private providers has yet to occur.

He explains: 'The private sector is certainly getting more work, but though longer-term contracting is much more of a reality in the NHS than ever before, There is no sign of a sea change in attitude to the way private providers are used.'

Roger Hymas, whose Health Care Navigator service proposed a web-based network to facilitate concordat agreements earlier this year, says it received a 'practically non-existent' response from both the NHS and independent providers. This failure to capitalise on potential partnerships is a result not of apathy among NHS managers, but of a poor lead from the politicians, he says.

'There hasn't been enough of a green light from Whitehall to enable the NHS to think imaginatively about the way it works with the independent sector.

'Many trusts are in a lot of debt and, without a really clear lead from the top, managers are understandably reluctant to do anything that might come back to bite them, ' he says.

A glance through official government statements on the subject suggests Mr Hymas has a point. In its response to the 2000 public expenditure questionnaire, for example, the Department of Health stated that while its priority was to modernise the NHS, the government was 'not ideologically opposed to the use of the independent sector'.

But it also made clear that ministers 'expect all appropriate local NHS services to be fully utilised before recourse to commissioning services from the private sector'.

More recently, it emerged that Downing Street is considering inviting European healthcare companies to staff and run hospital units for the NHS. Under the plans, firms based in continental Europe could be invited to run services and provide doctors and nurses on contract to the NHS, and potentially in competition with the UK's independent sector.

6The government has also announced it is scrapping regulations stopping the NHS from contracting with other EU countries for routine operations. This will allow the NHS to send patients overseas for treatments such as cataracts and hip replacements where waiting lists are long - possibly buying spare capacity in German and French hospitals. It followed a recent European Court of Justice ruling that patients within the EU can seek treatment abroad if they face undue delays at home.

Politicians, then - if not the NHS - may be thinking more radically about ways of working with private companies in the future. And not necessarily to the advantage of the UK's independent sector. . .

A public-private affair

1123 St Bartholomew's Hospital, London, the first not-for-profit, charitable hospital opens.

1780 Workers' friendly societies, providing healthcare insurance, gain momentum.

1911 National Insurance Act passed - the start of the modern welfare state.

1948 NHS formed - more than 3,000 independent hospitals, homes and clinics are nationalised.

1977 NHS hits crisis, with 10 per cent cut in overall budget. Social services secretary Barbara Castle plans to ban NHS pay beds.

1980s- Expansion in private care homes and independent 1990s sector mental health provision as NHS closes psychiatric hospitals and reduces long-stay facilities.

1991 NHS reforms create internal market, including GP fundholding, which increases NHS purchasing of private care.

1993-95 Private finance initiative becomes established for financing, building and operation of new NHS hospitals.

1997 Health secretary Frank Dobson issues guidance deterring NHS from contracting for clinical services with private sector.

2000 NHS plan promises 100 new hospitals by 2010, plus further expansion of PFI to include primary care.

2000 Health secretary Alan Milburn signs concordat with independent sector, establishing the principle that so long as treatment is provided free at the point of use, partnerships between the NHS and independent providers should be embraced.

2001 NHS Local Improvement Finance Trust (LIFT) to be established by the DoH and private sector partners to extend public-private partnerships into primary care.