The illusion of choice

As the House of Lords prepares to debate the Health Care Bill, there’s an important piece in the Guardian today by John Middleton arguing powerfully that the concept of choice will make the NHS more bureaucratic, more expensive and less able to offer a comprehensive service:

Choice is an illusion created by people to sell you something. The egalitarian utopian market in which social businesses and the mightiest US private healthcare companies compete and provide health services in a mixed economy is a fallacy. Competition creates mega, monopoly suppliers. Many of the private companies are faceless, unaccountable, remote – like Southern Cross. Once in charge of a big health tender they will be very difficult to dislodge. Private companies have to grow, have shareholders to satisfy and are not immune to failure. When they fail – like Southern Cross – who picks up the pieces? However flawed our NHS and social care system, it is there and it is accountable.

Competition is the supreme example of waste in health services. Private health and health insurance systems generate enormous transaction costs. It’s an expensive process billing for health care, challenging what you are getting for your money, litigating for wound infections – and paying clever underwriters to squirm out of paying patients or hospitals. NHS management costs run at not much more than 3%, compared with nearly 20% for the US.

The very nature of private healthcare systems generating choice requires surplus capacity – empty beds – so that patients can exercise that choice. It requires the separation of “cold” from emergency work, something the NHS has not generally achieved. So it requires more investment up front to serve the fewer patients better.

But there is yet more waste: as the NHS faces draconian cuts in management costs we are urged to “market test” ever more services. Who is going to do this? Every substantial tender will require months of management time: people to write specifications for services, people to scope how big the budget should be, and how to measure the quality of the work; how to involve the public who will use the service, and how to ensure fairness and equality of access.

This process is also generating huge amounts of work for procurement accountants, lawyers and due diligence negotiators for the successful bidders and the NHS commissioners. These people, not on the employer’s books, are hidden from management costs – so don’t feature in the staffing reductions we face in NHS management. So there may be an impression of management cost reductions while transaction costs increase.

It’s a sobering dissection of the cost of the ideology of choice – and it’s worth remembering that this is about breaking up what is one of the most efficient and cost-effective healthcare systems on the planet.  But there’s nothing new in this.  As Middleton points out, it follows the example of the railways and the other privatised utilities, in which commercialisation has meant a culture in which decisions are regulated through contracts, which require an enormous amount of bureaucracy to manage and are hugely inflexible in dealing with the day-to-day realities of life.  Everyone who uses trains is familiar with the blame culture as train operators and infrastructure managers seek to pass off the responsibility on to their contractors for delays to the service.  It’s part of the failure of the Coalition vision that their rhetoric about concentrating resources on the front line so contradicts the reality of the bureaucracy needed to run a system of competing service providers.

And it’s also ironic that Cameron’s Tories get hugely exercised about the role of the EU in national decisions at the same time as opening up healthcare – which the Lisbon Treaty reserves as a matter for national governments – to EU rules on competition and procurement.

The alternative to choice is a system of universal, cost-effective excellence.  If your local school offers a high standard of education, and is part of an integrated system, why is it rational (issues of snobbery apart) to go through the agonies of the school selection process and the drudge of bussing (or more likely) driving children across town – that of course is assuming you live in a town large enough to offer a choice?  Likewise, if the NHS is offering a reliably excellent service, why go elsewhere?  And how does a layman with limited medical knowledge choose a doctor anyway.

That’s the problem with choice.  It’s not about providing better services – it’s actually a rationale for not doing so, because even as costs soar and quality declines, politicians can always fall back on the claim that people have a choice.  It’s an ideological rationalisation of the act of walking away.  And the evidence shows that it has absolutely nothing to do with improving services.


6 thoughts on “The illusion of choice

  1. Monopoly is the absence of competition.
    Underwriters assess risk and determine appropriate premium rates – they do not deal with claims.
    I am in favour of the NHS but I am also in favour of people knowing the first thing about the subject they are discussing before publishing diatribes. The Guardian’s sub-editors seem to be as incompetent as we always knew they were.

  2. I think the point of the piece is that competition for contracts leads to local monopolies. It’s certainly what has happened in the privatised railway and is quite likely to happen in a health-care system in which contracts are let to private sector providers.

    But the central point about the bureaucracy of privatisation remains. The theory is that the efficiency savings generated by the private sector’s alleged greater inherent efficiency at delivery – I say alleged because there are plenty of practical examples where delivery in the public sector is more cost-effective – will offset the greater costs of managing a service based on tendered contracts. That was the justification for rail privatisation and it simply hasn’t happened – costs have soared, standards of service have declined, and the effects have been hidden by subsidy that is now being removed, with local monopolies being allowed to impose swingeing fare rises in a market that is wholly inelastic. And the NHS reforms threaten to reproduce exactly the same conditions on a vastly larger scale.

    • Local monopolies is what you currently have prior to the introduction of competition. What the Coalition proposals will do is introduce some competition so that the price charged by the local monopoly can be compared with that proposed by a private or third sector alternative. You can only get a local private sector monopoly if one private sector company is providing a service that meets the GPs’ quality standards at a lower price than all other public and private sector providers and builds (?overnight?) the facilities in which to supply the service. Since NHS hospitals do not include the cost of capital in their calculations (and if they do in the future it will be based on historic cost ignoring inflation) any private sector provider will need to be significantly cheaper in real terms in order to compete. This will mean that fewer resources are utilised when this private provider takes over some NHS work and more resources are available to be used elsewhere in the NHS.
      Some bloggers elsewhere are panicking that a private sector company might concentrate on one or two treatments which a specialist can provide cheaper than a General Hospital. Why the panic? Adam Smith’s example of a pin factory is still valid. Otherwise why do we have separate training for dentists and veterinary surgeons rather than classing them as doctors? The *big* question is “Why has the NHS not done this for the last forty years since cars became commonplace?”
      I think that the extra bureaucracy involved in having private sector firms tendering to provide NHS services will add to the cost. As you can see I was objecting to the incompetence of Mr Middleton and The Guardian’s sub-editors, but you are pushing me to point out that if introducing competition does not generate substantial savings, the big losers will be the private sector companies and if it does the big winners will be the patients. My experience/observation of NHS bureaucracy is that it, unlike the medical staff, cares nothing whatsoever for the patient whose time and comfort is valued at zero – private sector companies, none of which is a monopoly, want to encourage patients to return or recommend them to friends. When my son was four years old I had to accompany him to hospital for a check-up and found myself in a waiting room full of heavily pregnant women, waiting for a long time – the NHS admin had required them *all* to turn up by 8.45 am so that the doctor who was working a 9 am to 1 pm shift would not have to wait for the next patient. I was outraged and even more so when my wife told me that this was normal.

      Also, the quality of rail services on *my* line has significantly improved since privatisation. I now *expect* trains to run and even to get a seat in peak hours. Trains are cleaner and most of the problems I have suffered in the past year are down to Network Rail. If trains are cancelled or unreasonably delayed I get a partial or total refund of my ticket. I have been promised, by the Chairman of the Train Operating Company, an investigation of a complaint I made about the one piece of appalling service I have suffered recently. British Rail didn’t even apologise if the train was late by more than its scheduled journey time and when a passenger was knocked down, possibly injured, by a train door BR staff did NOTHING – it was left to other passengers to pick him up and help him into the train and see him home.
      Yes, there are local monopolies and commuters are now paying a larger slice of the costs as the subsidy by taxpayers decreases – now, despite having to commute I think that latter is justified as commuters, particularly into London, are a lot better off than the average non-commuter – why should a shop-girl in Gateshead subsidise the season ticket of a stockbroker living in Haywards Heath or a Civil Servant living in Woking or an Actuary living in Sawbridgeworth?
      The NHS proposals are to get rid of local monopolies.

  3. Once a contract is given the winner has a monopoly for the duration of the contract. “Consumer” satisfaction depends on contract enforcement by the NHS administrators and consultants. Why would such enforcement produce better results than other options? In the poorly regulated market system in the USA the system as a whole is ineffective and costly, the most expensive in the world by far. Only the lack of any price control with ever rising premiums allows the system to avoid financial collapse. Eventually even in America the rising cost of the privatised system will have to be restrained by someone. Anything on the same lines in the UK is impossible with a fixed budget constraint as we have here.

  4. When I was a young engineer working for the CEGB (long since privatised) I worked with a old engineer who, like many of us, had to regularly drive from Gloucester to Knutsford along the M5/M6 to visit a contractor. In those days, the M5 between Strensham services and J4 was only two lanes. My elderly colleague (about my age now) used to lament the fact that the roads were clogged up with McVities biscuit lorries going north and Huntley and Palmers biscuit lorries going south (to name just one commodity). How much more efficient, and today we would add ‘greener’, if we had one State Biscuit Manufacturer who made and supplied locally. To an engineer, the logic of this is inescapable. How much more efficient and green to have a monolithic state run by technocrats. Who needs choice? Think of all the money wasted on advertising that we could save if there were no choice.

    And what about yoghurt? Have you seen the bewildering variety of yogurts in the modern supermarkets? Just have one standard plain yoghurt, I say. If people want fruit yoghurt, let them put a blob of jam in it.

    Nationalise the lot.

    • Have you ever worked in the Soviet Union or Eastern Europe?
      I didn’t think so.
      The distances that goods are transported by state monopolies are measured in thousands of kilometres. To the extent that it costs more (i.e. wastes more resources) to transport refined fuel to several oilfields from the refinery than it would cost to build a small refinery at each of those oilfields (an optimal location for half-a-dozen refineries would be even better). Even worse was the diamond industry where stones mined in Sakha made up nearly 20% of world production but Israel made more money from polishing them than Sakha received for mining them in, frequently, sub-zero temperatures. Up there Nicky Oppenheimer became a local hero in the ’90s, sponsoring local polishing businesses.
      I shall leave commentary on yoghourt to those who eat it frequently but I might point out that fruit and jam are not quite the same.

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