The NHS Internal Market: A Flawed Ideology

In February 2016, NHS whistleblower Sarah Hayes revealed the chaotic state of the NHS 111 service in the South West of England. The story, picked up by the Daily Mail in a series of articles including this one , was associated with a scandal involving the death of baby William Mead in Cornwall. Hayes told of exhausted staff sleeping on the job and calls being handled by teenagers who had just finished their GCSEs with no medical training.  Understandably, defenders of the NHS were quick to criticise the newspaper’s angle of the story, claiming the unacceptable level of service to be a consequence of privatisation.  But the situation complicated by the fact that the NHS 111 service in the area in question was contracted by the local Care Commissioning Group  and being run by a public organisation, the South West Ambulance Foundation Trust (SWAFT). Rather than being a straightforward case of the dangers of external privatisation the story tells us something more general about the market model in large organisations, private as well as public.

Leaving aside the whole issue of external privatisation, we have lived with an internal NHS market in some form or another for 25 years. We have been told so often that the way to promote service innovation and drive down costs is via competition that many people accept it uncritically. But does it work?  It is interesting to start by looking at the private sector where, surprisingly, internal markets are not popular. This 2013 article by Steve Denning outlines the problems. Denning’s article is focussed on innovation rather than service provision but the principles are the same since the whole point about delivering more medical services for less cost relies on creating or adopting innovative ideas. Denning mentions the case of retailer Sears whose chairman Eddy Lampert is an enthusiastic proponent of internal business units for driving innovation. As Denning says,

An outspoken advocate of free-market economics and fan of the novelist Ayn Rand, [Lampert] created the [business unit] model because he expected the invisible hand of the market to drive better results. If the company’s leaders were told to act selfishly, he argued, they would run their divisions in a rational manner, boosting overall performance.

The consequence, however, was that business units started fighting each other, efficiency plummeted and financial results were disappointing. Just as in the NHS,  Sears had to hire and promote dozens of financial and marketing officers greatly increasing overheads. A holistic strategy for the entire organisation became impossible and customer focus was compromised, again echoing HNS experience. Incredibly, for many organisations internal markets had the effect of actually killing innovation as less successful units tried to suppress the spread of good ideas to protect themselves. Furthermore, in the internal market situation, managers started gaming the system.  Speaking of his experience in a very different organisation, the World Bank, Denning says:

A huge amount of time spent on [the Internal market] for very little gain. The negotiations were all about a few percent of activities at the margin but one hundred percent of people were involved in a massive negotiation, all aimed at protecting their own activities and work programs.

Returning the South West NHS 111 scandal, the SWAFT is actually in the process of pulling out of the Devon and Cornwall contracts this month (March 2016) citing an inappropriate business model. This is creating exactly the inefficiency highlighted by Denning where CCGs now have to spend time and effort putting in place a new contract. As This Pulse article highlights, the destabilising effect of the contract termination is significant The collapse throws extra strain on other services such as GPs and A&E departments. As Denning points out, if internal markets were a great idea then we may expect the model to be used by giant multinationals like Apple and Amazon. But they don’t.

The fragmentation of services mentioned above and consequent damage to a holistic approach can be felt at the individual patient level.  This is of great concern as the population ages with an increase in overlapping chronic illnesses. Page 13 of this Kings Fund overview quotes one reviewer of NHS services:

Recent NHS initiatives have increased the range of providers in both primary care (eg, walk-in centres) and secondary care (eg, independent-sector treatment centres). This has the potential to worsen co-ordination of care – an area in which UK performance is already poor compared with other countries. 

A 2003 study by Bristol University, however, focussed on just one feature, the death rate following heart attacks.  They discovered that the death rates in hospitals in areas of greatest competition had the higher death rates. The overall conclusion that the stiffer the competition in an area the lower the quality of care.

Whatever the political slant of the Daily Mail, the NHS 111 scandal has revealed something fundamental. Not only is the external market inappropriate for public health provision, but we should be looking closely at the whole issue of internal markets as well. Hitting targets is exactly the system gaming problem highlighted by Denning. That is not to say that budget holders are not to be held accountable for inefficiency and mismanagement but the commitment to markets methodology is ideological. It fosters a consumerist rather than a citizen-centred approach. If you provide few resources to one part of the system then they will try to squeeze as much as possible from another sector. Ultimately, if internal markets work, why doesn’t the private sector use them?

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