Radical Makeover in UK Health

February 1, 2003

Radical Makeover in UK Health

“Hospital services that fail to attract patients in the new market-driven National Health Service, will be allowed to close. What is more, if patients fail to opt for NHS providers, we are not going to force them to choose services they don't want”

That is the message from New Labour this summer. They also intend to press ahead with the second wave of independent centres to treat 250,000 patients a year, plus other contracts for non-emergency surgery and diagnostics.

Health Secretary Patricia Hewitt advised Parliament before the summer break that the new contracts will be worth around £3 billion over the next five years, providing an extra 1.7 million operations. In all, following on from wave one, it creates a private sector market for non-emergency care worth £6 billion between now and 2010, accounting for 11 per cent of all elective operations that the NHS provides.

The treatment centre programme was established in 2002. By the end of 2005 there will be 80 treatment centres across England . From December 2008, patients in England will be offered a choice of four/five providers, as and when their GP decides treatment is necessary.

Already, waiting lists are down, productivity is up (circa 100% in the case of cataract operations), and anecdotal evidence suggests many NHS hospitals have started to respond to the challenge. All this may have been overshadowed by the fuss surrounding Live 8 and the G8 summit, but some of these changes to our health care systems are really profound.

Simple economics have driven this change. The old NHS, born in 1948, loved and revered by all the politicians and their army of civil servants, has lost much of its gloss in many quarters in recent periods. The patient (i.e. the consumer) did not like the rationing, the vested interests, the poor service, the cancelled appointments, the dirty wards, the staff attitudes and a great deal more…

But the patient/consumer did not seem to be over-enthusiastic about the “old” private sector either. Year after year premiums have risen inexorably, and those big insurance groups have seemed to be more stuck into their “prawn sandwiches and chardonnay”, than any interesting change in their product offering. It is a testimony to their ignominious performance that the number of PMI subscribers in the last 12 years or so, has been little moved despite the weak alternative.

New Labour has brought positive competition to the Health Care sector. They have not quite slain the dragon of the old – there is still a long way to go for that – but they have brought new objectives and rules to the table – value for money and real competition at a regional and national level that in due course will deliver prevention, diagnosis and treatment of specific conditions.

What the Government has taken on board is the fact that previous slow adoption of new treatment techniques and technologies has cost the NHS dear. What it now aims for, is rapid diffusion of innovation that enhances value, even if it initially raises costs.

NHS and “other” players are having to learn very fast that they have to demonstrate (and soon hard-sell the consumer as well) what are their USP's. Many will no longer simply be a “jack-of-all-trades”. A greater proportion will be focussed on specific products and the need to create new centres of excellence and expertise. But no real market will develop unless it becomes less opaque and more transparent. To achieve this, there will need to be radical improvement in collation and dissemination of risk-adjusted outcome information. Maybe the Government in this instance will not be its instigator but many of the new players will be greatly incentivised to introduce these new changes.

Will this new National Health Service cause a meltdown for the “old” private sector? There will be major changes, but unlikely a fading away – far from it. Some players already have been fast off the blocks making essential changes to their business. New players also have entered the market, not burdened by legacy systems. Nevertheless, there are a few stragglers, still caught up in their own internal conflicts and looking somewhat overwhelmed.

Simply offering the consumer a colour TV and the chance to jump the queue may have been a very good raison d'etre in the past. That will now have to change. Players will have to look to reinvest and extend their product offerings and in some instances, even consider backward integration.

The National Health Service will not be able to compete fully in all the new markets. It was never designed for cosmetic surgery and some of the new obese treatments. And it has an awful lot more to do to fully clean up its act. The headlines might suggest 6-7 per cent real increases this year through 2008, but internal inflation in the health system is much higher than the Consumer Price Index. What is more, the National Health Service like may other Government bodies, is burdened by rising pension costs for former employees as well as government redistribution policies that continue to transfer funding from London and the Home Counties (and other parts of Southern England) to its Northern heartlands. This leaves some areas in the country with very little extra funding, particularly those where the National Health Service competes most with the independent sector.

Going forward, there is going to be increasing opportunity for private equity in the sector, and joint ventures with Foundation Trusts. Harry Pitman, Chief Executive of Tribal and joint venture partner, Mercury Healthcare, recently opined that this new market could accommodate 7/8 major players. General Healthcare has given a message to the market with its GSup contract win earlier this summer, and Capio's new appointment of Tom Mann underlines their continued focus on the UK market. The recent BUPA Classics deal is most interesting, and Nations Healthcare, Netcare and Afrox/Care UK are looking to “kick on” and expand their operations. The new/changing role of doctors' chambers alters relationship paradigms and facilitates new branding opportunities.

Paul Saper, Managing Director,
LCS International Consulting Ltd,
info@lcsic.com