This might hurt

The NHS is facing one of the biggest shake-ups in its history. In a time of austerity and facing a £20bn deficit, is now the right time —and are these the right remedies?
November 17, 2010
“The man with the plan”: Andrew Lansley, secretary of state for health. Will his plans turn a health organisation into a health system?

Something is going on in the NHS, and most of us do not know what it is. Until now, standing at the threshold of a four-year winter of diminished public services, we have at least been consoled by the apparent stability in our health system. In October’s spending review, the £111bn behemoth was, with education and foreign aid, one of the few corners of the budget to win a slight increase. We have also been emotionally assured by the Tories and Lib Dems that the NHS is safe in their hands. During the short life of his son, Ivan, David Cameron became better acquainted than most with the service. In the run-up to the election he promised not to stop Labour’s spending but to rationalise it and to scrap the Stalinist targets with their unintended consequences. The near-sacred status of the 62-year-old organisation was written into the coalition agreement he presented with Nick Clegg on 20th May. “The government,” they said, “believes that the NHS is an important expression of our national values.”

But the tranquility has not lasted. It turns out that health has been on the reform agenda all along. In the six months since Cameron and Clegg promised in that same coalition agreement to “stop the top-down reorganisations of the NHS,” it has been subjected to the now-familiar blend of devolution, manager-filleting and all-round radicalness that the government seems to be bringing to bear on everything. The NHS will be restructured after all, with most of its budget handed to GPs. Local authorities are taking on responsibility for public health for the first time since the 1970s. The National Institute for Health and Clinical Excellence (Nice), set up to determine which drugs were worth their cost, is being stripped of its authority. And in the midst of this, we have learned what health policy people have known for some time: that the NHS is not financially secure and will experience an estimated £20bn shortfall in the next five years. Health, it seems, has no ringfence, and rather than put the NHS to one side for now, the government has thrown it on the same baize table as everything else: the armed forces, electoral reform, large parts of the welfare system, double dip.

Yet still, somehow, this hasn’t quite registered. In part, this is because we struggle to understand the NHS. The cornerstone of the welfare state may be embedded in our way of life but it is also, in many ways, another country, with its own regions, culture and language: a netherworld of operating frameworks, block contracts, tariffs, PROMs, “never events,” CQUINs, NSFs and FESCs. We glaze over the details of this forbidding place that deals in stuff—our lives, deaths, the lumps we have not found—that we prefer not to think about.


The one man really trying to get our attention is Andrew Lansley. I met the health secretary in his large, cream-coloured office in the department of health late one afternoon in November. There was a tube strike on and through the open windows overlooking Whitehall we could hear the stamping and wheezing of overloaded buses outside. Lansley is a former civil servant who helped Norman Tebbit privatise the telecoms industry in the 1980s before leaving to become the director of the Conservative party’s research department in 1990, where his staff included a young David Cameron (as well as Steve Hilton and Ed Llewellyn, now Cameron’s director of strategy and chief of staff respectively). Tall and well set, the 54-year-old Lansley is stupendously easy in his brief. He was shadow health secretary for six years; he watched four Labour health secretaries come and go while he refined the plans he is now rolling out. During our conversation he twice referred to Aneurin Bevan, the founder of the NHS, the second time just as “Aneurin,” lingering over the three Welsh syllables. When I asked him what it felt like to have his hands on the controls at last, Lansley, whose father worked for the NHS for nearly 30 years and whose first wife was a doctor, said: “It feels like the sort of thing that you come into politics to do.”

This is Lansley’s moment. A great deal of the current feeling of upheaval in the NHS is down to him, and it is deliberate. Just 60 days after the initial coalition agreement was signed, he published the white paper that plans to overhaul the service and will form the basis of a health bill that he wants to introduce before Christmas. With the exception of one big concession to the Lib Dems—the greater role for local authorities—Lansley’s proposals are a familiar mixture of what he has liked in the past 20 years’-worth of NHS reforms, and the rather sweeping elimination of everything else.

All of which makes it odd that his intentions were not better broadcast. Lansley’s aides insist that major reform was writ large in both Tory and Lib Dem manifestos, which promised to cut administration costs in the NHS by a third and a half respectively—impossible without reorganisation—while the pledge in the coalition agreement about stopping top-down reorganisations seems to have crept in by mistake. One of his advisers described it to me as “a bizarre addition”—especially as civil servants had been working on the Lansley plan in the run up to the election—and Lansley himself says of his white paper: “It’s a reorganisation, of course it is.”

The result is that, since July, and in a crescendo of confusion that will build through the winter, even people who understand Lansley’s reforms are unsure whether they are a logical progression of things that have been tried before, or a gigantic departure. Radical or not, the two big ideas that leapt from his white paper were a massive transfer of financial power to GPs, and the creation of a genuine market of public, private and voluntary sector organisations to compete for their business. The concepts are not new, but neither have been tried on anything resembling the proposed scale.


Giving money to GPs to buy services for their patients, for instance, dates from the late 1980s, when the Tories set about building the NHS’s internal market. The logic then, as now, was that as the clinicians closest to their patients on a regular basis, GPs were best qualified to understand their needs and to shop around for diagnostic tests and minor surgery on their behalf. What’s more, as GPs are the “gatekeepers” of the system and can run up huge costs on their patients’ behalf, there is good reason to make them responsible for NHS budgets. Also, because British GPs have always been independent contractors with small businesses of their own—typical GPs surgeries turn over between £1m and £2m a year—they tend to be intolerant of poor providers, and harry and peck at the service’s more lumbering parts to drive inefficiencies out of the system.

In the 1990s, “GP fundholding” was only ever a sideshow compared to the overall Thatcherite project of cleaving the NHS into a purchasing side (made up of health authorities) and a providing side (made up of hospitals): the split endures to this day. But fundholding wasn’t trivial either. By 1997, more than 3,000 GPs surgeries, all volunteers, were using small discretionary budgets to chivvy local hospitals to perform quicker blood tests and to cut their waiting times. But the experiment did not last long, or go far enough, for a consensus to emerge on whether fundholding was good for patients. In the mid-1990s, it fell out of favour, accused of instigating “a two-tier NHS” in which fundholder patients were skipping queues and being better looked after than others. Labour abolished it.

The intuitive appeal, however, never faded. Devolving power from the centre, and (in name) to doctors became part of Labour’s melange of reforms from 2000, and GPs were also involved. In the great upswell of spending—from £37bn in 1997 to £111bn last year—NHS purchasing became a dark business known in the trade as “commissioning” (see “Follow the Money,” facing page). In 2004, GPs were invited to take part in this process in a scheme called “practice-based commissioning”—a not particularly happy programme that in many parts of the country only revealed the differences between the NHS’s clinicians and its administrators—but it was at least comprehensive. As of this summer, 92 per cent of GP practices were involved in helping their local primary care trusts (PCTs) decide how to spend their budgets.

Lansley’s enthusiasm for bringing family doctors into the counting rooms of the NHS is only new in that it is total. Under Labour, he said, piecemeal attempts to give GPs control over budgets were well-intentioned, but strangled by bureaucrats. So out they go: from April 2013, the entire purchasing architecture of the NHS, which currently handles about 80 per cent of its budget and costs about 13 per cent to run, will be scrapped. Thousands of NHS managers—almost £2bn worth—will be fired and, with the exception of some new powers for local authorities, all commissioning will be done by the nation’s 33,000 GPs. “You have to decide whether you are decentralising or not,” Lansley told me. “You can’t have both. Power is a zero-sum game.”

Over the next few years, then, Lansley imagines that a new landscape of GPs consortia will emerge to handle the bulk of NHS purchasing. Deliberately, he has not said how big he wants them to be or how they should be organised. They could be any host of things: private companies, social enterprises, or just old-fashioned GP practices that outsource everything to consultants such as KPMG or McKinsey. (Early signs, however, are that many will end up looking a lot like the PCTs they are to replace—several have already formed along the exact boundaries of their PCT and are expected to hire NHS managers to carry on doing what they have always done.) Lansley says he is not bothered either way—the transfer of authority is what counts—but not surprisingly, there are lots of people, GPs among them, who question if this is what family doctors want and are equipped to do. “It’s like telling a newsagent to run Tesco,” the former chief executive of one PCT told me. “They’re different jobs. I’m not saying a newsagent couldn’t run Tesco, but how do you find the right ones?”

The second big idea in Lansley’s white paper—creating a genuine market of public and privately-run organisations to compete for NHS work—has had much less attention than the rise of the GP. Again the idea is not new: since 2003 private clinics have been allowed to bid in the NHS for routine surgical work, such as cataract operations and hip replacements. And it is no longer particularly controversial: the three main parties called for the expansion of private sector involvement in the NHS in their election manifestos. But Lansley’s overhaul could end up having a larger impact on how we, as patients, experience healthcare in this country. Currently, the proportion of NHS procedures carried out by the private sector is tiny—between 1 and 3 per cent—whereas Lansley wants to extend the concept of “any willing provider” (under which private and public hospitals bid to carry out NHS work at NHS prices) to a majority of NHS services by 2014.

To make it happen, all NHS hospitals will become autonomous from government, like the current foundation trusts which account for just under half of the 300 or so hospital trusts in England. They will then compete on a level playing field with for-profit competitors. Unlike today’s laboriously administered network of partly-autonomous, mostly state-run hospitals, Lansley’s NHS will be more like an umbrella, in which two regulators, one for quality, and one for competition, oversee a virtuous competition for the nation’s healthcare. Adrian Fawcett, the chief executive of General Healthcare Group, the largest private healthcare company in Britain, told me the endgame in this is the NHS moving away from “being an organisation to being a system.”


Taken as a whole, does this signal a fundamental change to the NHS as we know it? Lansley says his two big ideas are, as concepts, well-worn. They have just not been tried in large format, and without any of the surrounding administration from Whitehall. “It’s a bit like looking at a load of building blocks—until you put them together you haven’t built a house.” In truth, almost all of the doctors, lobbyists, NHS managers and private healthcare experts that I spoke to could see both the roots of and the sense in what Lansley is trying to do. If they disagreed, it was mostly about technicalities (albeit some considerable ones), rather than what policy people like to call “the direction of travel.” But what did astonish almost everyone I spoke to was the timing—that Lansley is trying to do this now.

The NHS’s plate is already full. Last year, David Nicholson, its chief executive, announced that the service will have to save between £15 and £20bn over the next four years—the same period that Lansley wants to see it restructured. Nicholson’s estimate was based on the scenario of NHS funding levelling off while it was still trying to complete a series of major clinical initiatives, known as “national service frameworks,” which attempt to standardise how types of care, such as mental health, are delivered. The rest of the shortfall will be caused by new technology, rising drug prices and “demand drivers,” also known as old people. The chancellor, George Osborne, confirmed the scale of the savings during the October spending review, when he announced the NHS would get a 0.1 per cent spending increase each year for the next four years, while at the same time contributing £1bn to social care from its budget. (To put that in context, the average NHS funding increase has been 3.8 per cent per year for the last 60 years, and it has never fallen two years consecutively.)

In NHS-land, numbers can lose their meaning, but finding £5bn a year in savings just to keep the service going is a big deal. Across the country, most PCTs—before Lansley even announced their abolition—had made plans to cut management costs by 40 per cent; in London, by 54 per cent. This autumn, signs of strain have appeared as redundancies are made and services cancelled. Around a third of PCTs are in deficit—deficits that GPs consortia have no intention of inheriting—and hospital trusts have been suspending IVF treatment, cancelling elective surgery and bumping up car park prices. In a letter to NHS managers in London in October, Ruth Carnall, who runs the capital’s strategic health authority that oversees its 31 PCTs, sounded the alarm. She pointed to the creeping rise of hospital infection rates and slippage over the four-hour waiting time target in accident and emergency wards as the funding squeeze hits the city. “There is a real risk,” she wrote, “that the NHS in London will fail to effectively manage winter pressures.”

This is the NHS that Lansley is trying to remake and, unsurprisingly, it is resistant. The history of past reorganisations has not been kind, and many of those who are now being asked to deliver both the reforms and efficiency savings are unlikely to have jobs at the end of them. “In asking that of a highly stressed part of the system, you are risking things going quite badly wrong,” warns David Stout, who represents PCTs at the NHS Confederation, a trade body for NHS organisations. Chris Ham, former head of strategy at the department of health, who now runs the King’s Fund think tank, expressed similar concerns. “It’s a big ask, isn’t it?” he asked wryly, before suggesting that Lansley—who he calls “a man with a plan”—move at a slower pace. “We could get to where the government wants to get through evolution, rather than revolution.”

This maddens Lansley. “When would they propose to do it then?” he asks. Rather than distracting the NHS from its vast task of finding savings, his reforms are part of that process, he claims, and doing things incompletely in the past has been the cause of enormous waste and duplication. His aides dismiss an estimate, based on past reorganisations, that implementing the white paper will cost £2-3bn. Instead, they focus on the management costs that they expect to strip out: a total of £1.9bn by 2015. “You might say that is only 10 per cent of the savings needed,” Lansley said. “But it’s quite a lot.”

The possibility of Lansley’s reforms destabilising the NHS is also a huge risk. The reforms only come into effect once the efficiency drive is over; but no one is sure whether they belong here and now.

When I spoke to Stephen Dorrell, the former Conservative health secretary and now chair of the parliamentary health committee, he was adamant about which one comes first. While stressing his support for Lansley’s white paper, he said: “That is about what is going to happen in two or three years’ time, and I don’t think people are focusing enough on what’s going to happen this winter, and next.” Lansley insists that his reform agenda has the full support of Cameron and Clegg—highlighting the speed of his white paper as proof—but there are mutterings, in the treasury and elsewhere, that he and his team are taking an almighty technocrat’s gamble with one of the government’s most delicate assets. “They are very pleased with their plan,” a consultant who has worked with the department of health under the new administration told me. “They are very confident that it will work. But they have got the strange confidence of the 300 at Thermopylae. No one else thinks they are going to win.”


So who can make Lansley’s reforms work? One damp lunchtime I went to Yaxley, a village outside Peterborough, to meet Richard Withers, who leads Borderline Commissioning, one of the first new GPs consortia. Withers, who spoke to me between appointments, had grey stubble and rolled-up sleeves. In many ways, he and his group are clichés of the kind of activist GPs likely to jump at the opportunities in the white paper. Situated annoyingly in the borderlands of Cambridge and Peterborough’s PCTs and not served well by either (hence the name), Withers remembered the days of GP fundholding fondly, as a time when he and his colleagues shook up local hospitals by setting up their own blood laboratory and hiring minibuses to send their patients elsewhere. “We had great fun doing it,” he said. “We’ve always been quite happy to send Victor Meldrew-type letters to the hospital saying ‘Why don’t you get yourself sorted?’”

As Withers talked, it was hard not to get excited about what he and his consortia might do. A total of ten practices are planning to join, giving them a combined responsibility for 100,000 patients and enough bargaining power to demand changes in the way their local hospitals operate—and demand they will. From their years attending ineffectual meetings at PCTs, and listening to the stories of their patients as they experience the rest of the health system, GPs are ideally placed to end some of the madder practices and perverse incentives in the NHS. Take the case of a sickly child brought to hospital by an anxious parent. GPs receive an annual budget of between £50-£70 a patient. The cost of an average A&E attendance is around £100. If, as commonly happens, the child is taken to another ward to be assessed, that can rise to around £500. If they spend the night, the bill to the PCT quickly reaches £2,000. Not surprisingly, PCTs have spent the last ten years trying to keep people out of A&E, while hospitals—although they deny it—have obeyed the incentive to do the opposite. The result: annual admittances to A&E have increased by about 50 per cent, or 6m, since 2001.

This kind of thing drives Withers crazy, both from the perspective of the patient—“It’s an absolutely awful experience for the parents and the children”—and the waste. And it’s striking how much of what could be better about the NHS involves eliminating needless hospital treatment. In its analysis of how the service should find its £20bn in savings, the King’s Fund found that the better management of leg ulcers alone could save just over £1bn, reducing drug errors a further £750m a year. There is every reason to believe that consortia like Withers’s will help find ways to keep patients out of hospital, either by paying specialists to come to their surgeries, or by encouraging the further growth of clinics (along the lines of polyclinics in London) that can do minor surgery and diagnostic tests in more economical ways. Even more localised and attentive services, which focus on preventative and self-care, are also going to be the only way that Britain has a chance of withstanding the rising costs linked to obesity and an ageing population. Care for England’s 15m (yes!) people with chronic conditions, ranging from hypertension to Alzheimer’s, already consumes around a third of the NHS budget. On Withers’s desk was a leaflet revealing that the costs and use of diabetes drugs have increased by 42 per cent in Britain in the past five years.

But beneath his enthusiasm, even Withers could not conceal some anxieties about Lansley’s reforms. So much, he explained, is yet to be worked out. “They are in a rush,” he said. “A mega rush.” The first question that most GPs have is about the management fee, rumoured to be around £10 per patient, that they will be given for their extra purchasing responsibilities. But the list goes on: what happens if a consortium goes bust? Or runs out of money before the end of the year? What about pensions? What about insurance? How about conflicts of interest? (Around one in four GPs currently works for a nearby private health provider, which means they could end up commissioning care from themselves.) Without Nice, are consortia supposed to negotiate directly with drug companies? How much, exactly, of the old work that PCTs used to do will GPs be responsible for? What is the nature of their new relationship with local authorities? “We’ve always felt ourselves to be advocates for the patients,” Withers said, but in the end there will only be so much that GPs can take. “There may come a point [when] we will be handing the keys back and saying we will not be doing this. We can’t do it. And then what are you going to do?”

This level of uncertainty in how the new NHS will take shape alarms Lansley’s critics, but enthuses his supporters. Early one morning, I spoke to Ali Parsa, a former Goldman Sachs banker who now runs Circle, a private healthcare company with a hospital in Bath and two treatment centres with NHS contracts in the Midlands. Parsa made a convincing case for the creative destruction that the new GPs consortia and a truly open market in the NHS would bring. “We used to spend 3 per cent of our GDP on healthcare in the 1980s,” said Parsa, “6 per cent in the 1990s, 9 per cent now and on our way to 12 per cent. That is fundamentally unsustainable.” From Parsa’s point of view, by creating hundreds of new purchasing organisations and genuinely lowering the barriers to entry on the provider side of the NHS, Lansley will allow in a publicly funded flood of innovation comparable with the revolutions in the retail industry in the 1960s, banking in the 1980s and IT in the 1990s. His only fear was that the government might lose its nerve at the crucial moment. “The system is broken, you know,” he said, “and if you want to fundamentally re-evaluate the system, you need to break some eggs.”

And what about us, the people, the patients? The structural details of the NHS are not easy to discern, and neither are the billions poured into it, but Lansley is determined to change it for our benefit, and to make us notice. “What’s the point of being here if you can’t actually make a big difference?” He asked from his armchair above Whitehall.

In the end I went to Sheffield for a second opinion. LINks (Local Involvement Networks) are the NHS’s local patient bodies. Like the rest of the service, they have been re-organised and renamed over time. They used to be community health councils, then patient forums, then LINks and now, under Lansley’s reforms, they are about to become health watches. I met Mike Smith, the chair of Sheffield’s LINk, who has been through all the iterations since joining the NHS in the 1970s and, with the equanimity of a veteran, he said there was plenty to look forward to in Lansley’s new architecture. But, along with everyone else, he was trying to understand exactly what it might look like, and was not sure how much he recognised any more. “The health service is a cherished, national institution,” he told me, “and if you keep chipping and chipping away at it… what are you going to end with?” I asked Smith if he thought we would survive. “Oh I think we will survive,” he said. “I just hope the NHS survives.”

In this, Smith has outlined both Lansley’s task, and his gamble. The man who has been waiting for this moment for so long must now explain what the NHS is going to be once he has finished with it. A healthcare organisation? A system? A market? And then he, and the government, and the rest of us, must hope that at this time, when anaesthesia seems in short supply, we make it through the operation.


Around 80 per cent of the NHS budget in England is distributed by 152 primary care trusts, whose work is overseen by eight regional strategic health authorities. So the vast majority of NHS “commissioning”—a term that covers purchasing of drugs, operations, even buildings and the design of local health systems—is done by PCTs, which range in size from 300,000 to 1.2m patients, have hundreds of administrative staff each, and typically handle budgets of around £500m a year.

CURRENT SYSTEM If Mrs Smith has a sore knee, she will go to her local GP practice, which is funded by an annual grant per patient, with rewards for improving its services such as staying open late. Her GP might recommend an ultrasound scan at the local hospital, which will either be run by an NHS trust or a foundation trust (the latter are autonomous and can set their own budgets). The scan, which might cost £60, is paid for under a contract that the hospital has with the PCT. These contracts vary, but in recent years have become more complex, with fees paid for specific services, a system known as “payment by results” that now covers around 25 per cent of NHS procedures. If Mrs Smith ends up needing a knee operation, she will be offered a choice of up to four local providers, one of which will end up billing her PCT for the £5,000-£6,000 procedure.

NEW SYSTEM All the administration currently performed by the PCT will be done by Mrs Smith’s GP practice, which will be a member of a local consortium. The consortium will receive a “management fee” per patient from a new national commissioning board to cover its costs, and could well have a budget as large, or even larger, than a current PCT. It will be free to commission Mrs Smith’s scan, knee operation and subsequent physiotherapy from “any willing provider”: any healthcare organisation, public or private, that is licensed by the Care Quality Commission. Mrs Smith could end up having the scan performed by a diagnostic centre run by a charity closer to her home, and have her operation at her local hospital which, like all NHS hospitals, will have become a foundation trust and be run on more businesslike lines. Prices for the procedures will be a mixture of national “tariffs,” set by Monitor, the NHS’s economic regulator, and negotiated locally.