Labour Affairs Magazine

THE ‘NEW LABOUR’ PLOT AGAINST THE NHS Part two:

BEFORE NEW LABOUR – THE NATIONAL HEALTH SERVICE AND THE “INTERNAL MARKET”

by Peter Brooke

My previous article, based on the book NHS for sale by Colin Leys and Stewart Player, was an attempt to understand how, under New Labour, market principles were insinuated into the National Health  Service. But before going any further along this line something should perhaps be said about what the NHS was prior to this process beginning. In what follows I am drawing on three chapters (2-4) of Stephen Harrison’s book National Health Service Management in the 1980s as reproduced on the website of the Socialist Health Association.

FIRST PRINCIPLES

Chapter 2 provides an ‘Overview, 1948-82’.

The basic principle of the NHS was of course the provision of a free service which would be paid for out of general taxation. To quote Julian Tudor Hart (A New Path Entirely – how NHS Wales could lead the world, paper presented to a Bevan Commission seminar, 2012),

‘Nye Bevan seldom let principles get in the way of a better life, either for his fellow citizens or for himself … [His strategy was] to end trade in healthcare as a profitable commodity, and develop an organised gift economy, paid for by everyone according to their wealth and given to everyone according to their need. Sickness was a matter of chance so in a just society, costs of care should be borne by everyone, sick or well.’

The 1948 NHS had a ‘tripartite’ structure – primary care, community services and hospital centres.

‘In the case of primary care, General Medical Practitioners (GPs), General Dental Practitioners, Pharmacists, and Opticians were self-employed practitioners whose contracts were administered by Executive Councils upon which the four professions were themselves heavily represented. This arrangement differed little from that made following Lloyd George’s National Insurance Act of 1911. The staff of the Executive Council, whose role was to maintain GPs’ lists of patients and to receive practitioners’ claims for payment, was headed by an Administrator with managerial control only over the staff, not the practitioners.’

Community services were provided by County Councils and County Borough Councils which ‘lost their former duties and rights to provide hospital services, remaining responsible for preventive services, maternal and child welfare, health visiting, home nursing, ambulances, and the school medical service. Such local authorities appointed a health committee of councillors, to whom the Medical Officer of Health (MOH) was responsible for the above services.’ Julian Tudor Hart (who was introduced in the previous article), regretted  that these services had been left with local government: ‘This separated preventive from treatment services, which progress in medical science had been bringing together.’

As for hospitals:

‘Hospital authorities constituted the third part of the structure. Great Britain was divided into nineteen (later twenty) Regions, each containing a medical school and each controlled by a Regional Hospital Board (RHB) responsible to the Minister of Health. Groups of hospitals (occasionally single large hospitals) within each Region were presided over by Hospital Management Committees (HMCs) or Boards of Governors in Scotland. Groups of English hospitals with medical undergraduate teaching functions were run by Boards of Governors, who, unlike HMCs, were responsible not to the RHB but directly to the Minister of Health. The membership of Boards and Committees was part-time, honorary, and appointed rather than elected: doctors were heavily represented. Boards and Committees employed a chief administrative officer (often known as the Group Secretary), and individual hospitals were normally managed on a day to day basis by a triumvirate consisting of Hospital Secretary, Matron, and Medical Superintendent or medical administrator.’

The perceived problem with this was the power and independence of the doctors, one of the conditions for getting the support, or acquiescence, of the BMA, but also a deeply held belief that ‘it was neither appropriate not practicable to seek managerial control over doctors … the 1944 Coalition government White Paper on a National Health Service stated that “whatever the organisation, the doctors taking part must remain free to direct their clinical knowledge and personal skill for the benefit of their patients in the way in which they feel to be best.”‘ And this view was not challenged by Bevan.

As a result there was very little co-ordination between the different responsible bodies and very little scope for overall planning. Harrison calls the administrators in the system ‘diplomats’, primarily concerned with smoothing relations between the professionals, and comments (quoting a report he himself had written in 1979): ‘In the context of diplomacy there is rarely a meaningful overall objective; more often there is a set of partially, or sometimes completely, contradictory objectives held by groups or individuals.’

In 1974 there was a reorganisation begun by the Conservative government but continued by Labour when the existing Regional Boards were reorganised, or renamed ‘Regional Health Authorities’ which then supervised 90 Area Health Authorities, which in turn supervised 2,015 District Health Authorities (reduced by 1979 to 199). At the same time the ‘Executive Committees’ responsible for primary care (GPs, dentists, opticians, pharmacists) were replaced by ‘Family Practitioner Committees’, appointed, not elected, by various concerned bodies including the Area Health Authority and the Local Authority. Harrison comments that:

‘In hospital medicine too, doctors were not challenged by the formal organisation, which … remained collegial in character throughout the period under examination. The clearest manifestation of this was the creation in 1974 of consensus teams: a means of providing the formal right of veto to a group which possessed it in practice anyway. Although the post-1974 Health Authorities had a smaller medical membership than their predecessors, this was more than compensated by the formal involvement of doctors elsewhere in the management structure. It is significant that consultant contracts of employment remained at RHA  [Regional Health Authority] level, (except in the case of Authorities responsible for undergraduate medical education), and that no attempt to introduce American models of hospital management by clinical ‘chiefs of service’ was made. Indeed, hospital beds were allocated to individual hospital consultants in a form of quasi-ownership, giving the individual virtually unilateral control over their use and utilisation. Moreover, the right to engage in private practice, a major source of uncertainty for managers, was retained, and indeed was enhanced in 1980 (when it was extended to include consultants who were full time employees of the NHS – PB).

A MANAGERIAL REVOLUTION

This apparently rather laid back ‘consensus’ system was challenged in 1983 by the ‘Griffiths Report’, commissioned by the Thatcher Government. The Griffiths Report is often presented as the beginnings of the process by which the NHS adopted a business model but it seems clear that the existing model was far from perfect and that in particular it was weak where a Socialist would want it to be strong – in planning. The chapters I am using from Harrison’s book are available on the website of the Socialist Health Association yet he does not address the issue raised by Julian Tudor Hart – the problem of the ‘inverse care law’: ‘The availability of good medical care tends to vary inversely with the need for it in the population served.’ (In fairness it should be said that Harrison is mainly concerned with hospitals, Tudor Hart, here at least, with GP practises).

Tudor Hart was writing in 1971 after over twenty years of the NHS. He continues: ‘the general conclusion must be that those most able to choose where they will work tend to go to middle class areas and that the areas with highest mortality and morbidity tend to get those doctors who are least able to choose where they will work … Of 169 new general practitioners who entered practice in under-doctored areas between October 1968 and October 1969, 164 came from abroad … The process of redistribution of GPs ceased by 1956 and by 1961 had gone into reverse; between 1961 and 1967 the proportion of people in England and Wales in under-doctored areas rose from 17% to 34%.’

These of course were not the terms in which the problem was understood by the Thatcher government. They were concerned mainly with the need to cut public expenditure. The freedom of doctors was a freedom to spend, with policy makers and administrators having little powers of resistance, or to evaluate or monitor the effectiveness of the profession. It was a system based on trust. In 1982, however, Norman Fowler, as Secretary of State for Social Services

‘announced arrangements to “improve accountability” in the NHS. There were two elements to these arrangements: a review process and a set of performance indicators. The review process was intended to secure greater adherence to national policies and priorities than had previously been the case: “Each year Ministers will lead a Departmental review of the long-term plans, objectives and effectiveness of each Region with the Chairmen of the Regional Authorities and Chief Regional Officers. The aims of the new system will be to ensure that each Region is using the resources allocated to it in accordance with the Government’s policies – for example giving priority to services for the elderly, the handicapped and the mentally ill – and also to establish agreement … on the progress and development which the Regions will aim to achieve in the ensuing year …”

‘Unlike earlier attempts to use comparative data, the new indicators were … to be compulsory.’

Later in the year he announced

‘the experimental use of private firms of accountants to audit the accounts of health authorities …

‘On 7 October 1982 it was announced that a firm of chartered accountants were to study the possibility of cash-limiting Family Practitioner Committee budgets [the Family Practitioner Committees administered the distribution of government funds to GPs in any given area – PB]. On 19 January 1983 central control of NHS manpower numbers was announced and on 4 February came the first public suggestion that the Government was seriously considering restrictions on doctors’ rights to prescribe; in November 1984 the withdrawal occurred from NHS prescriptions of a range of proprietary drugs which had been previously freely available. On 8 September 1983, health authorities were instructed to engage in competitive tendering for laundry, domestic, and catering services.’

This last has been widely blamed for a decline in the quality of these services, including ‘the spread of “superbugs” being attributable to the cleaners no longer forming part of integrated care teams on wards.’ (Jessica Ormerod: Legislation, Privatisation and the NHS, https://www.sochealth.co.uk/2018/06/13/34928/)

THE GRIFFITHS REPORT

But the most radical move came with the announcement in February 1983 of an Inquiry Team: ‘to examine the ways in which resources are used and controlled inside the health service, so as to secure the best value for money and the best possible services for the patient; ‘to identify what further management issues need pursuing for these important purposes.’

According to Harrison this had not been the original intention of the inquiry which was to deal with ‘manpower’. The change in terms of reference had been imposed by Roy Griffiths (soon to become Sir Roy Griffiths) as a condition of accepting the chairmanship:

‘Griffiths’ objections, which were to the terms of reference proposed, were twofold. Firstly, being aware of the political saliency of the NHS ‘manpower’ issue, he did not wish to be cast in the role of ‘hatchet man’, cutting NHS staff, especially in what was almost certain to be an election year. Secondly, he took the view that the terms of reference were too restricted; logically enough, his perspective was that to inquire into the ‘manpower’ of an overstaffed organisation was to confine inquiry to a second order problem. Rather, the first order problem was ‘a management problem, or general problem’. Hence, only if the proposed terms of reference for the inquiry were modified to include this wider concern would Mr Griffiths accept.’

Griffiths was deputy to Sir John Sainsbury, who had recommended him as a major architect of the Sainsbury supermarket chain’s success.

‘The first meeting of the inquiry team was over dinner at Sainsbury’s. Early in the discussion, one member of the team described his view of the task before them simply as “gauleiter versus consensus”. Asked if a gauleiter model would mean that doctors had to be in charge, another member replied, “If so then we should all go home now”.’

Harrison summarises the report’s findings as follows:

‘Firstly, the team were concerned that individual overall management accountability could not be located: “it appears to us that consensus management can lead to ‘lowest common denominator decisions’ and to long delays in the management process. The absolute need to get agreement overshadows the substance of the decision required. In short, if Florence Nightingale were carrying her lamp through the corridors of the NHS today, she would almost certainly be searching for the people in charge.” …

‘The second aspect of the team’s diagnosis was that ‘the machinery of implementation is generally weak’: “there is no driving force seeking and accepting direct and personal responsibility for developing management plans, securing their implementation and monitoring actual achievements …. certain major initiatives are difficult to implement [and] above all lack of a general management process means that it is extremely difficult to achieve change. [A] more thrusting and committed style of management is implicit in all our recommendations.”

‘Thirdly, the inquiry team drew attention to lack of an orientation towards performance in the Service: “it lacks any real continuous evaluation of its performance. Rarely are precise management objectives set; there is little measurement of health output; clinical evaluation of particular practices is by no means common and economic evaluation of these practices is extremely rare.”

‘Finally, the team identified a lack of concern with the views of consumers of health services: “Nor can the NHS display a ready assessment of the effectiveness with which it is meeting the needs and expectations of the people it serves. Whether the NHS is meeting the needs of the patient, and the community, and can prove that it is doing so, is open to question.”‘

The core of the recommendations was that the previous ‘consensus teams’ (who might or might not reach a consensus) should be replaced at all levels by general managers (who might or might not be qualified clinicians – generally speaking, in the event, they weren’t) who should have full responsibility over the management function.

THE IMMEDIATE EFFECT

Harrison finishes by suggesting that actually Griffiths’ reforms had little immediate effect. Discussing a survey conducted in two different District Health Authorities (one in London and one in the North) he says: ‘Few of the respondents in either district held the view that, in general terms, the introduction of general management had led to any substantial shift in the balance of influence between managers and doctors.’ To quote another source: ‘“The NHS has such a strong culture, and a range of subcultures, and I think Griffiths probably underestimated that. I worked with two general managers who had come in from the private sector, one from Unilever and one from Metal Box, and they both left after about a year and a half because they couldn’t cope with the clinicians, particularly medics, not doing what they said they would.”‘ Mike Cooke, in 2014 chief executive of Nottinghamshire Healthcare Trust, quoted in Claire Read: The Future of NHS Leadership: unpicking Griffiths’ complex legacy, https://www.hsj.co.uk/future-of-nhs-leadership/the-future-of-nhs-leadership-unpicking-griffiths-complex-legacy/5072855.article).

Since the main concern was cost cutting, it certainly didn’t work to the benefit of patients. Harrison quotes one Ward Sister in the Northern District Health Authority: ‘A patient is the last person that managers can think about. My ward was temporarily closed to save money and the nurses felt so guilty and aimless that they had to be counselled by the hospital chaplain.’ Or a consultant surgeon in London: ‘Our unit managers can’t worry about patients. All they can do is balance the books.’

So budgeting was the major area in which here was an immediate effect:

‘doctors were increasingly aware that managers would detect “creeping developments”: changes in clinical practice – whether in terms of ‘hardware’ such as more expensive prostheses, or practices such as admission policies – which had financial consequences for the organisation visible to managers only in retrospect. Doctors’ perceptions of managers’ concerns in this area, combined with slowly improved information and budgeting systems, led many to be more circumspect than before and to consult managers in advance of changing practice. It was no longer easy to obtain even relatively small amounts of money by informal means, even though consultants in Northern District Health Authority retained the right of direct access to the District General Manager:

‘I can’t take the administrator out for a beer and get a new cystoscope anymore (Consultant Neurologist, Northern DHA).’

But probably the most important consequence of the Griffiths reform was that doctors no longer possessed sovereignty within the NHS. As Harrison points out, doctors enjoyed a high level of public support and respect, while administrators and managers – ‘bureaucrats’ – were regarded with disdain (and this was of course part of the Thatcher ideology). Fowler had been reluctant and slow to announce the transfer of power to general management as Government policy. So even if the effects were not felt immediately it was a shift in culture that prepared the way for the next major development, the introduction, under Kenneth Clarke as Secretary of State for Health (1988-90.) The Department of Health was newly separated from Social Security) of the ‘producer-purchaser split’ – the introduction into the NHS of a fake ‘internal market.’

MORE ‘BUREAUCRACY’

Here I’m relying on the House of Commons Briefing Paper (cbp 05607, 23rd September 2016) NHS Commissioning before April 2013 by David Turner and Thomas Powell.

They begin with an account of NHS financing from the early days:

‘Contractual terms for independent practitioners were determined nationally, but their contracts were with Executive Councils (ECs), local NHS bodies which were directly answerable to the Minister of Health …  they received set fees according to the number of registered patients for whom care was to be delivered … The fact that funding for primary care services was open-ended (being driven entirely by levels of demand from patients) proved to be a major source of NHS cost inflation. This was particularly so in respect of the budget for drugs prescribed by GPs, especially as the “pharmaceutical revolution” which gathered pace in the 1950s saw the introduction of a wide range of new (and effective) drugs.’

With regard to hospitals:

‘Many of the hospitals taken over by the NHS were small “cottage hospitals”, run by GPs in smaller towns and rural areas. At first, capital expenditure was negligible, with services being provided in the (often already very aged) estate to which the NHS had become heir in 1948.

‘The 1962 Hospital Plan envisaged District General Hospital (DGHs), housing a range of specialisms, as the mainstay of a comprehensive national network of modern hospitals, fully integrated with the other parts of the NHS …

‘At first, hospitals submitted claims for funding and were paid on a basis that has been described as “what you got last year, plus an allowance for growth, plus an allowance for scandals” [sic – PB] (with new facilities funded according to average costs) …

‘Financial planning and control in the NHS (in relation to those services with fixed budgets, i.e. hospital and LHA services) initially took place in the context of the “estimates” system. Under this arrangement, government departments were required to submit annual estimates of their likely cash expenditure in the coming financial year, which were then voted on by Parliament.

 ‘From 1961, spending plans were required to cover a five-year period. And they were expressed in constant price terms – meaning that, in the event of price inflation and/or pay increases, additional cash would be made available so that the planned volume of expenditure could still be delivered.’

We have seen something of the reforms introduced to the system in 1974 and 1984.

‘In 1990 the constitutions of both District Health Authorities and Regional Health Authorities were changed significantly. They now had substantially fewer members and the principle was introduced of “executive” (i.e. senior staff) and “non-executive” (i.e. lay) members sitting together. The Authorities came thereby to resemble (in this respect at least) the Boards of commercial companies. There was no longer, as there had been, a “separation of powers” between professional managers (the “executive”) and a lay Board (the “legislature”) which made policy and held the managers to account.

‘In RHAs non-executive members were appointed by the Secretary of State. In DHAs the Chairman was appointed by the Secretary of State and other non-executive members by the RHA. There was now no provision for the involvement of local authorities or the representatives of healthcare professions, NHS staff and trade unions in RHAs and DHAs.’

[…]

‘A new GP contract, introduced in 1990, placed fresh demands on General Medical Services, with payment being more related to performance in meeting targets. At the same time, the budget for GP practice staff and premises was made cash-limited (the first application of cash limits to any part of the primary care budget).

‘Following the introduction of the contract, it became increasingly common for GPs to join practices on a salaried basis rather than as partners. ‘

The Briefing Paper covers fields I haven’t been discussing such as dental services and opticians. We may note in passing that the days of entitlement to free spectacles ended in 1988.

THE PURCHASER/PROVIDER SPLIT

The paper then goes on to discuss the ‘internal market’ and the purchaser/provider split:

‘Hospital and Community Health Services providers, which had previously all been run by DHAs as Directly Managed Units/District Managed Units (DMUs), became (progressively, in a series of “waves” of applications, over several years) separate organisations, called NHS Trusts.

‘Different Trusts were established to provide acute hospital, ambulance, mental health and community services. Each Trust had its own management and “sold” its services to NHS “purchasers” as part of an “internal market” …

‘Trusts were not accountable to their local District Health Authorities; they were accountable (through the Regional HAs) to the Secretary of State, but not in respect of detailed operational matters.

‘The role of purchaser in this system fell to some GPs, and to DHAs and FHSAs [Family Health Services Authorities, which, in 1990, replaced the old Family Practitioner Committees], as well as RHAs in some respects’ …

‘Under a scheme called GP Fundholding, volunteer GPs (in successive waves of development) were given cash budgets with which to buy a range of elective inpatient (admitted patient) treatments, as well as all outpatient hospital visits, for the patients on their lists.

‘In addition, Fundholders were responsible for buying outpatient diagnostic tests, drugs prescribed by their practices (effectively placing a cash limit on the previously open-ended, demand-led GP prescribing budget), and (from 1993) community health services and outpatient mental health services. Fundholding practices also effectively controlled budgets for ancillary practice staff, since, unlike non-Fundholding practices, they were not required to seek approval when they employed staff.

‘Fundholding thus added financial responsibility to the GP gatekeeper role [The GPs were ‘gatekeepers’ of the hospitals since patients were normally only admitted on their recommendation – PB]. Fundholders were incentivised in this by being able to retain any surpluses they generated, to use in their practices (to the benefit of patients) as they saw fit [i.e. they were discourage from recommending hospital treatment since it cost them money – PB].

‘Over several years, substantial numbers of GP practices volunteered to become Fundholders, either singly or in groups. Fundholding practices (which apparently tended to be in rural and suburban areas) eventually covered over half the population. ‘

The reason for acceptance of the fundholding scheme lies partly in a re-organisation of the administrative structure that took place in 1996. Regional Health Authorities were abolished and replaced by regional offices of the NHS Executive, now the central management of the NHS. The District Health Authorities were replaced by Health Authorities, whose non-executive members were appointed by the Secretary of State.

‘Purchasers (Fundholders and District Health Authorities/Health Authorities) entered into (primarily bulk-purchase) contracts with Hospital and Community Health Services providers – although the contracts were not enforceable by law, being only internal NHS Service Level Agreements. These arrangements were drawn up locally, there being no standard national contract. The lack of a national pricing system meant that providers were, in theory at least, able to compete with each other on price.

‘In the original model of the NHS, where there were no such contracts, clinicians had been entirely free to refer patients wherever they thought fit … It had been an important founding principle of the NHS that patients should be able to access care anywhere in the service, as appropriate, untrammelled by the artificial boundaries which had existed between different healthcare providers in the “patchwork” pre-NHS system.

‘The need for contracts with providers led some GPs to conclude that, in order fully to retain their clinical freedom of referral, they must become Fundholders. If they did not do so, they would be bound by whatever contractual arrangements their local DHA/HA saw fit to make. ‘

But there was a continued strong opposition in principle to fundholding and the  ‘commercial opportunities and financial incentives’ it brought. It was ‘abolished in 1999 by the then Labour government. The purchaser/provider split, though, remained … in a modified form. It was now described as a split between the planning and provision of care; and the purchasing aspect of the purchaser/provider split was increasingly referred to as “commissioning”.’

Which brings us back to the New Labour policies outlined in the first article and in NHS for sale. This fake internal market, with the people who had previously simply administered funds made available from central government now pretending to be buyers and sellers of services, and therefore to a limited extent having to think in market terms, might ring a bell. That is if any of my readers happen to be familiar with the BICO pamphlet Marxism and Market Socialism. For is this not what was done in the Soviet Union and Eastern Europe in the sixties under the influence of ‘revisionist’ economists such as Oskar Lange and Ota Sik? Kenneth Clarke, incidentally, who introduced the system, claims that he was simply trying to avoid worse, since Margaret Thatcher was keen to introduce a US style health insurance system:

‘The best jobs he ever had, he says, were as health secretary and chancellor – “both fascinating stuff” where he had a long stint that gave him the chance to “deliver my own agenda”. His first challenge at health was heading off Thatcher, who “wanted to go to the American system”, he reveals. “I had ferocious rows with her about it. She wanted compulsory insurance, with the state paying the premiums for the less well-off. I thought that was a disaster. The American system is hopeless … dreadful.”

‘He prevailed on her to take a different route by introducing more competition into the NHS. It became known – in a phrase he didn’t like – as “the internal market”. Ever since then, successive governments have pushed in broadly the same direction.’  (Andrew Rawnsley interview with Kenneth Clarke, Observer, 19th July, 2014)