Is Contracting Out Tantamount to Privatisation?

“Owen Smith wanted to privatise the NHS”.  Expect to hear a lot more statements like this over the coming months.  The basis for this claim as far as I could tell from the interview on the Today programme was that he had in the past supported the idea that the NHS does not provide some relatively routine surgery itself, but contracts out to private firms for common knee and hip operations.  There was no suggestion, even from Mr. Smith’s detractors that patients would have to pay for these operations, rather the money would come from the NHS.  The implicit definition of privatisation here is truly ludicrous.  The involvement of the private sector in almost anything the NHS does is being defined as privatisation.  What follows is a bit of reductio ad absurdum, but very little reductio is required before absurdum is reached.

If purchasing goods and services from private suppliers is to be thought of as privatisation of the NHS, then the NHS has always been private.  There are some things the NHS has always purchased from the market.  The scalpel used by a surgeon performing an operation was not designed and manufactured by the NHS.  The NHS did not even mine the iron ore or smelt the steel itself.  All stages of production of the scalpel from design to the extraction of the necessary raw materials were performed by the private sector.  The NHS simply purchased the scalpel in the market.

Under the definition of “privatisation” used by Mr. Smith’s detractors a truly public NHS would need to have (among other things):

• Their own iron mines to extract iron ore for which would be turned into steel in NHS steel works for making scalpels and other surgical equipment in NHS factories;
• Their own brick-making facilities to supply the bricks with which hospitals and doctors’ surgeries are built; and
• Their own power plants to produce all the electricity used in NHS hospitals and doctors’ surgeries.

Since the NHS has never had its own steel works or power plants it has always been a private sector entity.  This is clearly ludicrous.

The reason I find these cries of privatisation so disagreeable is that they are obscuring the conversation we need to have about the NHS.  The NHS is a wonderful institution.  For a nation to provide healthcare to all its residents free at the point of delivery so that everyone, rich or poor, receives the same high quality healthcare is little short of a modern day miracle.  But it also becomes exceptionally important that this medical care is provided in the most cost effective way possible.  This is obvious to anyone who understands the nature of opportunity cost.  If more money than is strictly necessary is spent on routine knee and hip operations there is less money to spend on e.g. life-saving cancer treatments.

It might be objected that there is a clear line between the frontline provision of healthcare which should be undertaken by the NHS, and the ancillary support to that frontline for which the NHS should be free to contract out.  However this would be a line that would blur quickly.  In many respects, the surgeon’s scalpel is closer to the frontline of healthcare provision than the surgeon herself.  What about pharmacy services? Must Boots be closed down? Moreover even if such a definite line could be drawn, it is unclear why everything on the frontline side of such a line should be provided by the NHS directly with no contracting out.  To insist on this with no reason would seem quite dogmatic.

The NHS needs to think about what activities it is best placed to perform itself and where it can achieve the same or even better results at a lower cost by contracting out to private providers.  The key issues in making that decision should be:

• Will contracting out actually save money?
• Are there a sufficient number of potential suppliers that there will be:

o   Competition to supply the service in the first place; and

o   Someone we can switch to if we are unhappy with the services provided by the initial contractor.

• Do we have the negotiating strength to ensure we get a good deal (clearly this is related to the point above, but there might be other issues too)?

• Is quality of service easy to measure so as to ensure providers can be held to account?

• Might any quality of service targets be subject of “gaming” by a private provider?

• Can the “soft incentives” provided within the NHS do a better job of ensuring quality than any “hard incentives” that might be offered to private providers (e.g. the NHS esprit de corps).

The list above is by no means an exhaustive list, and there may well be numerous other factors to consider.  These are just the first ones that came to mind.  We also need to bear in mind that for various services as medical technology changes and the NHS’s ability to write complex contracts and negotiating strength change, the answer to whether a service is best provided in house or contracted out may well change too over time.  This has two implications:

• To decide to contract out a service now is not necessarily to say it was wrong to provide it directly in the past.
• If it now makes sense to contract out, we need to consider whether this will remain the case in the future and whether the NHS might lose the capacity to provide these services in the future as a result of contracting out now.

I don’t yet know whether I think it would be a good idea or a bad idea for the NHS to contract out for the provision of some routine operations.  I do know the criteria I would use to judge whether it would be a good idea, I just haven’t had the time to research and judge which side of these criteria routine operations fall on.  My prior is that I would be rather sceptical as to whether sufficiently reliable performance measures could be found which would be difficult to game so that a private provider can be held to account.  But it is something I could be persuaded about.

What I do know is that this is the conversation we should be having.  I also know that this conversation is obscured by one side simply shouting that the other is seeking to privatise the NHS by stealth and the other side shouting back that they are not.  If we want to continue with an NHS that provides high quality healthcare to all British residents free at the point of delivery, then we have to make sensible informed decisions about that Health service, and what it does itself and where it contracts out.  If you want to see what the impact of sloganeering is on our capacity to make those informed decisions, just look at what happened on 23rd June.