Problems in the NHS – Privatisation

NHS privatisation is a hugely polarizing topic, but a lot of people miss the details behind this hugely important debate. Anybody hoping to work in the NHS in the future is affected by this issue so here’s a brief look at the pros and cons of privatisation.

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NHS privatisation is a hugely polarizing topic, but a lot of people miss the details behind this hugely important debate. Anybody hoping to work in the NHS in the future is affected by this issue so here’s a brief look at the pros and cons of privatisation.

Firstly, what is privatisation? NHS services in a given region are handled by the local NHS Trust. That trust can decide how is chooses to administer certain services. Let’s take pathology services as an example. Without privatisation, all of the pathology requirements for that particular trust would be handled by an NHS department i.e. a state owned and handled service. The NHS department pays to have the contract, and is then paid for its work. Since the department does all of the work, it pretty much breaks even with basically no profit. However, an NHS trust might decide (for a number of reasons) to outsource that department. The pathology contract is subsequently made available to other private companies e.g. Virgin Health or a Bupa lab. Those companies bid for the contract, and the best candidate wins it. Then, for the duration of the contract, most NHS pathology requirements are fulfilled by that company depending on the terms of the contract. As before, the company is paid for its individual services.

So why bother offering contracts to private companies? Ostensibly it’s a cost saving/efficiency exercise. The NHS Trust may get a better deal on the market than it would internally. As the private sector is influenced by market forces, competition may result in a cheaper contract. Having a competitive market for contracts also acts as a powerful incentive to push providers for a better service. There’s a huge NHS deficit and this might be how we plug the gap. As long as the company meets NHS standards, it seems like a no brainer.

It’s not necessarily that simple, though. Accountability and priorities are a key issue here. NHS departments aren’t incentivized by profit and are held accountable to us as tax payers since they are after all state owned, whilst private companies are accountable firstly to their stake holders, and are by design profit making entities. That shift in priority is important, because that means the core priority when moving from within the NHS to private companies shifts from the patient to a shareholder. There are of course contractual restrictions in place, but that fundamental change in motivation does have implications. An example of that is the issue of cherry picking cases. Remember NHS departments take all cases. A given department may make a net loss on Procedure A, but a net gain in Procedure B. Overall, these balance out. The ‘profit’ from Procedure B pays towards Procedure A. Now, a private firm doesn’t have to take all cases. It could undertake plenty of Procedure B, but has no obligation to carry out Procedure A. So the NHS department is left with all of the net loss cases with none of the profit making cases to help it subsidise the costs. This creaming off of profitable cases arguably increases the deficit! On top of that, individual firms are free to have their own internal systems which adds to communication issues, which adds to the managerial chaos within the NHS.

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