The problem of the private sector in NHS reform

Note – this is an extended version of a blog published at the Health Service Journal and available, behind their membership wall, at

This piece argues that allowing a mix of public and private provision in the NHS is a really bad idea, as it will fail to improve public healthcare, and probably even make it worse. It uses a framework from the US economist Albert Hirschman, showing that a market of public and private provision has the potential to drive out both mechanisms for improving quality (exit and voice), and suggests we need to think again about how we improve the NHS.

The logic of the NHS reforms appears to be based on driving improvements to healthcare through competition between providers, with commissioners pushing up standards by steering patients to (or perhaps choosing themselves) the best providers. Unlike the ‘internal market’ of the 1990s, the NHS will have a wide range of providers from public, private and not-for-profits competing to get care, and leading to the invisible hand of the market driving up standards.

The private sector (let’s focus on them here, but this could equally include not-for-profits) therefore act as a competitor to public provision, and provide patients with greater choice. However, this is not the only good they are regarded as providing healthcare in England – in an editorial on 26th June Alastair Mclellan also argued in the Health Service Journal that it provides extra capacity to shorten waiting lists, fuels innovation, can teach the NHS lessons about customer service, and provide an alternative career route for health workers in the UK. As such, it would seem that, in line Mclellan’s argument, the NHS benefits from a strong private sector.

I can see the strengths of this argument, but think it isn’t quite right.

The great US economist (see, I’m not always rude about economists) Albert Hirschman wrote a wonderful book called ‘Exit, Voice and Loyalty’ in the late 1960s which is primarily about how organizations recover from the quality of their services declining. The key question he goes about answering is – what kinds of mechanisms can be used to drive quality upwards? Now, the key aim of the current reforms is to improve healthcare, and so I think Hirschman’s work has some key contributions to make.

The two feedback mechanisms Hirschman explores are exit and voice (I won’t deal with loyalty here to keep things as straightforward as possible). Exit is quick, clean and simple – you go to another organization when you’re unhappy with the one you are presently using. It’s the market mechanism, and the one upon which the present reforms are based. Not happy with your GP? Choose another. Bad experience with a hospital? Go somewhere else. Choose the best provider, and with money following choices, the best providers will come through, with those not chosen losing revenue.

Voice is the means by which people make complaints, both individually and collectively, and try to achieve improvements that way. In comparison to exit it is time-consuming, messy and complicated. And, I’m afraid, the NHS has been very bad at it. Wonderful work from Judith Allsop has shown how bad the NHS has been at dealing with complaints. PALS have sometimes made some progress in representing patient voice, but are hugely variable. The NHS isn’t good at voice.

So there we go. Exit works, voice doesn’t, yes? Well, no.

Hirschman shows toxic combinations appearing where you have a mix of public and private provision, and of exit and voice mechanisms. In the case of healthcare (although Hirschman uses schools) this is because patients that choose to go private, either with their own insurance policies or money, reduce the amount of voice that is available to public organizations for driving improvements. Not only that, but those with private insurance policies will often be the most quality-sensitive, and so the ones most willing to engage and complain if they receive poor service. This means that not only does the NHS have less people willing to engage through voice mechanisms such as complaint and patient engagement to drive up care, but that those who have ‘gone private’ will give that feedback to private providers to help them get better instead.

If patients exit from public provision, therefore, it leads not only to a decline in revenue for that service, but also to a decline in feedback to help it get better. But this isn’t all.

Not only does the NHS have patients moving between the public and private sectors, but it also has staff doing the same thing. Now you can’t give 100% commitment to the NHS if you work for both public and private providers (I’m afraid that’s a truism), and so staff working in both are less likely to give the NHS feedback about how it can be made better – they’ve got an outlet for your talents which gives them less time for public healthcare.

So, in summarise so far, patients exiting from the public sector to the private sector reduce the volume of voice available to the NHS, and staff either working in both sectors, or moving from public to private provision, reduces the commitment and capacity of staff to get involved and improve the NHS.

There’s more. NHS organizations are likely to offer comprehensive care if they are hospitals, or have key roles in the local community where they are GP practices (the following may apply to community health services as well). This means it is unlikely that the governnment is going to allow them to go bust – they may be censored by Monitor (or whoever else is regulating them), or they may even have a management and ownership takeover (as per Hinchingbrooke hospital and Circle) but they won’t be allowed to fold. This means that, even if patients do exit from using their services, leading to a loss in revenue, it won’t have the desired effect and get staff to drive up standards. They will work out that they are going to get bail-outs pretty quickly.

Private organizations, in contrast, are extremely vulnerable. The private sector is already in a position where it receives 25% of its revenues from the NHS. NHS budgets are getting tighter, so the total budget for care isn’t going to get any bigger. Recessions are generally bad news for private healthcare – individual subscribers will be thinking hard whether to renew their policies, and people will think twice before stumping up from their own pockets for private treatment. There are real dangers of private providers failing.

Now governments can’t allow all the healthcare providers in a given area to fail, and faced with a choice, they are going to preserve the most important ones. If important providers can’t fold, then they are effectively immune to exit – the whole point of exit is that it is meant to give feedback through reduced revenue, and force improvements as a result. But if exit doesn’t lead to any change (other than getting shouted at by Monitor) then the whole point of trying to drive up standards using it, fails.

What this means is that a combination of public and private provision leads to both exit (patients leaving to the private sector) and voice (patietns and staff staying to try and improve things) being driven out of public provision in a healthcare marketplace. Exit won’t work because public providers will probably get bailed out. Voice will be diminished because of exit to private providers, or staff working for both sectors.

Where does this leave us? I think it leaves us with the difficult task of finding ways of reviving and improving voice as the means of improving the NHS. I think, as I’ve made clear in other postings here, that we need to have clinically-agreed targets which we hold our services to, make increased use of patient feedback which is more routinely gathered and acted upon, but perhaps most importantly, to throw out the idea that market-based reforms can work to improve services. We can improve the NHS without markets. If the logic of this piece is right, we have no choice.


4 Responses to “The problem of the private sector in NHS reform”

  1. Katie McD Says:

    Hi Ian. I’ve been enjoying your posts on NHS reform. However, I have an issue with some of the points raised here. I’m not sure about your discussion of ‘exit’ largely because the involvement of private providers will still be in the locus of the NHS system, so i’m not sure it is as simple of patients moving from ‘public’ to ‘private’. In other words, this is not the same thing as those with private health insurance. In fact, you could argue the latter in some ways is good for the NHS as it reduces the number of patients demanding services. Nor do I think that ‘voice’ is the only way of improving services – this is why despite many of the negatives of the current programme of reforms, the focus on outcomes and outcomes measurement is a good thing.

    I think we also need to recognise to preserving hospitals which provide all services is neither sustainable nor in the interests of patient care – for example, take the case of childhood cancer whether the concentration of care in specialist hospitals has significantly improved survival rates over the last 30 years. Maintaining large district hospitals and not moving care into the community will also continue to cost the NHS significantly if not addressed.

    I think the debate about the private income cap has been slightly hijacked as well – world leaders like the Royal Marsden have a significant percentage of private income and this is used to maintain / subsidise the public provision. Once again, it’s not quite as simple as public vs. private.

    My personal view is that it is good to have a mix of providers in the NHS (as you note above, this also includes charities and other not-for-profits, many of whom provide services not paid for by the NHS), though I don’t believe at all in unbridled approach to private sector involvement. I would echo HSJ’s view in that the private sector, if managed appropriately, can be used to add capacity, shorten waiting lists etc. I don’t think we benefit from implying that public sector provision is without its flaws either. One thing I will say on private sector provision is that typically the public sector has not been very good at negotiating and establishing contracts with the private sector, as perhaps evidenced by the current issues with PFI (though I don’t think that is quite that simple either).


    • Ian Greener Says:

      Thanks Kate. For me it’s about benefits and costs. The private sector may give the NHS some breathing space, but I think it’s simply bad planning to allow this to go on for long periods – the NHS should be able to meet the needs of the public.

      I also regard performance outcome measurement as being an example of voice- it requires engagement rather than exit. I haven’t made that clear here though for space reasons – I’m writing this up to go to an academic journal in longer form.

      I agree with you about preserving specialist centres – but don’t know how this happens in the present reforms as it goes directly against the graint of markets. I have no idea how a market works in cancer services – and if we are going to exclude some areas from market incentives, where do we draw the line? I think it’s not worth drawing at all.

      For me, if hospitals are getting significant private income and depend upon it for survival, then there is a funding problem. The private sector is dependent on the public purse now, and many of its providers are in considerable financial trouble – it’s in a mess in the UK and it’s not going to get better in the current financial climate. I don’t think allowing private provision in what are otherwise NHS facilities makes any sense. NHS facilities need to work on their own – and if they can’t, we need to look again at the way they are being funded.

      I would not want the private and other non-public sector to be a permanent part of the NHS – I have no problem with using it for occassional waiting list initiatives, but think that the costs of it being a permanent part outweigh the benefits. I don’t want us to be wasting time negotiating contracts, and so would be in favour of getting rid of the public/provider split entirely. PFI shows us what happens, as you say, when the public sector tries to negotiate contracts with the private.

      Thanks for your comments. Much to think about.

  2. A brief FAQ on the NHS bill « Ian Greener's Academic Blog Says:

    […] Those in favour say it asks as a spur to driving up standards and reduce waiting lists ( Those against argue that they’ve already seen private sector disasters like Southern Cross, PIP and that there are other big problems as well ( […]

  3. Katie McD Says:

    Hi Ian – thanks for your reply. I won’t respond to all the points, but one thing I do want to reply to is your point about not wanting the private / not-for-profit sector to be a permanent part of the NHS. The reality is, they already are. I will refer again to cancer services, as it’s an area I know about, but the voluntary sector is a crucial part of the NHS here – in fact, services are funded (and not always directly commissioned) by the voluntary sector and provided through the NHS. Quite simply if there wasn’t this vol sector funding, these services simply wouldn’t exist. And these are not simply ‘nice to haves’ either, i’m talking about clinical nurse specialist posts and specialist social workers, play therapists for children with cancer.

    (Incidentally on your query re. specialist hospitals, commissioning of specialised services will be the responsbility of the Board which most people agree will be a very good thing for transparency and consistency – so there you go, one good thing in the Bill! Specialist providers are what are known as ‘designated providers’ so I think there is much clearer protection against competition in these cases which would obviously not be appropriate.)

    In any rate, I look forward to reading your longer article! 🙂

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