The Adam Smith Institute explains how CCGs can be used to privatise the NHS

The Adam Smith Institute explains how CCGs can be used to privatise the NHS
13 November 2013

Introduction
The Health and Social Care Act 2012 was passed to allow the completion through passive market processes of the gradual privatisation of the NHS conceived during the 1980s and quietly put in place, piece by piece, by each successive government administration since.
That plan was designed in the mid-1980s by the team of Oliver Letwin and John Redwood, at the time the Director of Rothschild’s International Privatisation Unit. The Adam Smith Institute (ASI) was commissioned in 1988 to write the plan up for the public, though, oddly, this set of documents seems to have been largely overlooked by academics who have studied changes to the NHS in recent years.
The main report, “The Health of Nations” setting out the NHS privatisation plan concludes with its vision of the new system. We are now almost there, having already reached the penultimate stage which is to generate the final transition to the 21st Century NHS. The report closes with the following explanations:
We could meet the health needs of everyone without the need for the government itself to provide health services through the NHS, simply by requiring that all individuals have medical insurance cover for a range of services that are deemed to be the acceptable minimum standard of health care. Of course, those who wished to have a superior standard of service could take out a more extensive policy: there would be no objection to individuals insuring themselves for additional or more costly services, as long as the basic requirements were met.
Although people are obliged to have a minimum level of medical insurance cover, they can shop around between insurers and decide which provides the best value for their premium money. Because there is competition, they can decide which insurer’s particular package of services is most suited to their individual needs, instead of having to accept the standard service provided by the NHS. In addition, they can spend more on their health care, if they judge it worthwhile, than is presently spent on their behalf by the government, so new resources will be brought into the health care system.
Each individual would receive from the state a health voucher, equivalent in value to the average per caput sum that is presently spent on providing health care. The voucher can be used towards the purchase of private health insurance or exchanged for treatment within the public sector health system.
The actual provision of health care services in such a system of universal private medical insurance would be undertaken by private sector doctors and hospitals, and the nationalized health sector in the shape of the National Health Service would lose its reason for existence.

Two much more recent predictions from informed sources on the future of the NHS confirm this understanding. One is an update from the man who designed the plan and who is now overseeing it:
“Mr Letwin met a gathering of construction industry representatives in his constituency of Dorset West on 14 May [2004]. During the meeting he urged the group of around six local businessmen to work together to win contracts for a new PFI hospital to be built in Dorchester.
Mr Letwin then astonished his audience, however, by saying that within five years of a Conservative election victory “the NHS will not exist anymore”, according to one of those who were present.”
The Shadow Chancellor said that the health service would instead be a “funding stream handing out money to pay people where they want to go for their healthcare”, according to a member of the audience.
Oliver Letwin, Conservative MP, 2004 Dr Letwin is currently Minister of State for Policy, and has been in charge of overseeing the work of the Secretary of State for Health since the 2010 election.

Another NHS privatiser, former NHS Commissioning Director Mark Britnell, explained the same thing to potential investors in a privatised NHS in 2010:
“In future, the NHS will be a state insurance provider not a state deliverer”
Mark Britnell, NHS Director-General for Commissioning and System Management, July 2007–Sept 2009, Head of Healthcare, Europe & UK for management consultancy firm KPMG since 2009

It has been hard for many people inside and outside the NHS to make sense of the continual reforms which the NHS has suffered over the last quarter-century: the changes seem to fragment the system and introduce a number of new elements, such as the purchaser-provider split, Foundation Hospitals, Clinical Commissioning Groups (CCGs) and Personal Health Budgets (PHBs) but for many the changes do not cohere into a rearranged system whose functioning they can easily grasp. The 2010 White Paper which should have provided a unifying narrative for the Coalition’s changes was effusive but unspecific , and other documentation contains much promotion of “choice” and “competition” as key future drivers of the new NHS, but very little concrete detail of how the Brave New NHS would work at structural and transactional levels.
However, Sections 4-6 of the Adam Smith Institute’s 1988 report “The Health of Nations” contain a clear description of the various elements of the New Labour and Coalition reforms to the NHS, in which they relate these as components of a different health financing system, one based on a reorganisation to an insurance-based healthcare system which is a hybrid of the current mainly privatised US system and the partially privatised German system.

Method
The following table is a contextual analysis of this document which sets out a means to gradually transform the NHS that Mrs Thatcher inherited to the vision explained by Mr Britnell and Dr Letwin.
The right hand column consists solely of direct quotes from the document: there is no paraphrasing or interpretation in this column. In preparing this table, the recommendations were copied verbatim from the relevant three chapters of this report, the marketing content removed, and the quotes and topics collated in a logical order.
The left hand column contains notes on the subsequent implementation where this has already occurred. The analysis is arranged approximately chronologically by implementation element, so table presents the rationales for the reforms as they were implemented, not as they are explained in the source document.

Results
Phase of privatisation The NHS implementation The Health of Nations
Phase I
1988-1997

Thatcher & Major Abolition of District Health Authorities Chapter 4
…a better candidate for abolition or reform, however, would be the tier of District Health Authorities

Rental of retail and advertising space on NHS hospital sites (e.g. Guy’s) Chapter 4
Some managers recognize that restaurants and shops selling flowers, stationery, and other items might wish to rent retail space in hospital waiting rooms, or advertise within the hospital.

Outsourcing of NHS ancillary services to the private sector
through contracts concluded under competitive tendering Chapter 4
The management of the hotel and general functions of many hospitals could be contracted out quite simply. And restricting the changes to these supporting functions will generate less worry and opposition from the public and the medical profession…

The management of certain ancillary services, such as porters, receptionists, and technical workers, could be provided under contract, and companies such as Service system (which manages 1000 hospitals in the United States and 50 in Japan among others) have already started to bid for such work.

The NHS internal market, and the purchaser-provider split
Chapter 4
The internal market
There must be more of an internal market within the NHS — that those units and districts with excess capacity or with some particular expertise should be more able to market their services to others who need them.

Phase II
2000-2010

Blair & Brown “Payment by Results”

Foundation Trust Hospitals

HRG diagnosis-related groups system Chapter 4
With a direct charging mechanism,

with hospitals as cost centres, and

with the use of management budgeting techniques by which each service provided by a hospital can be properly costed,

such an internal market could be vibrant.
Use of private sector hospitals to clear NHS waiting lists for elective surgeries Chapter 4
The public-private partnership
The political and management reforms which would make NHS better able to compete and co-operate with each other would leave them in a position to be better able to compete and operate with the private and voluntary sectors.
Private hospitals, undertaking 400,000 operations per year, have a number of special strengths: they are particularly experienced at hip replacements, for example, because many older people who have saved to make their retirement comfortable happily spend the money on going private rather than waiting for two years or more in the public sector. Buying in such operations from the private sector — with NHS patients going to private hospitals for their treatment, but continuing to receive it free of charge — could be a cost effective way of clearing the waiting lists.

Private Finance Initiative (PFI) Chapter 4
The private sector may also be able to help in terms of raising capital for new facilities…. Sale and leaseback arrangements might well be a good way of raising capital for the public hospital…. Contracts with private consortia to design, build, and operate complete hospital units on behalf of the Service would seem to be a logical extension of present practices.

The privatisation of residential care homes Chapter 4
….contracting out certain forms of care, such as long-stay care, which the private and charitable sectors might be better able to provide anyway.

Phase III
2010 to date

Cameron National Commissioning Board Chapter 4
At national level, it might be better to run the NHS through a board which, like other nationalized industries, does not include the direct involvement of government ministers and does not allow their day-to-day involvement in the running of the industry, but is ultimately responsible to them.

National Commissioning Board & Monitor: control and licensing of CCGs Chapter 6
A ministerial body will license each HMU and specify the standards which they are required to attain. It will also have the responsibility of ensuring that the levels of service reach those required. It will publish the criteria and compare the performance of HMUs across the country. If the HMUs make use of sub-contractors for certain aspects of health care, these, too, will be required to attain what are deemed to be the appropriate standards.

NHS Executive branch offices (mid-1990s), NCB branch structure
Commissioning Support Organisations Chapter 4
If the Regional Health Authorities are to be retained at all, which is a matter of debate, they could exist as branch offices of such a quasi-independent national board. Alternatively, their staffing levels could be reduced and their operations could be made more flexible by the greater use of contracting rather than in-house expertise.

2012 Outsourcing of Hinchingbrooke Hospital to be run by a consortium of investors headed by a former banker Chapter 4
Perhaps one of the most exciting new ideas, however, is the concept of management by contract, which works well abroad and is just now being tried out within the NHS. …the entire management of a hospital can be contracted out… contracts can be of any duration, though five years is a workable minimum…

It is the managers who are under contract, rather than the front-end service workers. The skills needed to run each function come not from in-house managers but from outside experts, hired under a contract of finite duration. They must achieve whatever targets are negotiated and agreed at the beginning of the contract, or risk losing their work to a competitor.
2012-2013 Outsourcing of South-East London & Northwest Healthcare Trust hospitals Chapter 4
Contracting out the management of an entire hospital, including the medical services, could lead to greater opposition, but on, the other hand it might be seen as a lifeline to units that are threatened with closure
Outsourcing to “Social Enterprises”, in fact private sector companies employing former NHS staff Chapter 4
….the existing management team
turning itself into a private company or cooperative
Choose and Book (“AQP”) with CCGs funded by PHBs (“vouchers”) Chapter 5
…patients are given a wider choice about the NHS doctor and hospital they want to treat them, and the average per caput health expenditure represented in the voucher actually follows them when they choose… those doctors and hospitals which are popular with patients will be taking in more vouchers and thus getting a larger share of the government’s health budget.
Introduction to CCGs (Clinical Commissioning Groups) funded by individual budget allocations.
The CCGs use the individual budget allocations to contract with GPs of CCG member practices & purchase hospital and other secondary care through competitive tendering or through Choose and Book (“AQP”)

The insurance risks for CCGs are highlighted

Patient choice will not extend to consultation over exchanging universal tax-funded NHS coverage for an insurance-based healthcare Chapter 5
HMOs offer a complete health care delivery service to groups of individuals in return for a fixed and prepaid annual premium. A group, such as a group of employees contracted into the HMO by a company, pays a premium on joining the scheme, and for that the HMO guarantees to provide each member with all the GP and hospital care that may be needed in each case. The scheme managers will in turn contract with the doctors and hospitals they need in order to provide this whole-care service.

The HMO principle in the state sector …we might break down the NHS delivery system in a particular city or area, transforming it into a series of competing whole-care delivery plans on the HMO model, whose budgets were allocated on a per-patient basis rather than from a DH grant, and who contracted with their own doctors and bought in the necessary hospital treatment from the private or public sectors.

Some group – managers or doctors – have to accept the risk that they can deliver a complete health care service within the per caput budget.

… it would be a case of compulsorily transferring patients from the existing structure into the new plans.

Phase IV
2012-2015
Cameron More on CCGs (=HMUs=state sector HMOs)

Abolition of SHA & PCT management superstructure
CCGs as statutory health insurance schemes (HMOs)

Individual budget allocations as the basis of calculation of the funding allocated to CCGs

Performance management of GPs and hospitals by CCG boards
Chapter 6
In place of the Regional Health Authorities and the District Health Authorities there should be management bodies which have every incentive to spend resources in ways which are cost effective and attractive to patients. These bodies should be funded from taxation and should have the responsibility of providing a full health care service for patients. They should distribute resources to general practitioners at the primary level, and to hospitals and consultants at the top. They will be able to take part in building and supplying equipment. They will be, in effect, Health Management units (HMUs). The HMUs will be licensed non-profit bodies responsible for the total health care of the patients registered with their doctors.

The public sector HMUs, taking responsibility for total health care of NHS patients, are not too far removed in structure from private insurance and management bodies. The funds for premiums are publicly provided, but the same competition and incentives operate, and the same choices are made available.

The HMUs … will have to provide total health care on the basis of an average annual allocation per patient.
They will have the incentive to make sure they get value for money from the GPs who subscribe to them, and for the hospital and consultancy work they obtain for their patients.
Situation of GPs once CCGs are authorised

Irremovable structural conflicts of interest between patient needs and CCG solvency

Abolition of GPs’ Minimum Practice Income Guarantee announced October 2012
This explains the insistence that CCGs must have no geographical boundaries

Individual budget allocations as transferable between CCGs at option of GPs or patients
The new NHS structure will thus have general practitioners with whom patients enrol, very much as at present. A key difference is’ that the GPs in the NHS will have to enrol with a Health Management Unit. The general practitioners, by joining an HMU, take their patients with them. When the doctor recommends the patient to see a consultant or to undergo hospital treatment or tests, it is the HMU which will select the appropriate sources of treatment and pay for it. The payment and monitoring of their GPs will be part of the task of HMUs, and will be performed in ways which ensure value for money. Cost details of GP work will be compared, and action taken where necessary to improve efficiency.

…. the less they pay for each service, the more services they ‘will be able to offer to patients and the more attractive will be the rewards they can offer to personnel.

The HMU will pay them on the basis of work done, with a scale of fees for various aspects of their work. They will be paid for each consultation and each course of treatment. Very much as dentists are paid at present for NHS work, the GPs will be paid for the work that they do.

The proportion of remuneration ‘which derives simply from having patients on their books will disappear, leaving payment only by results.
Patients will be able to stay with their present GP, or change to another one. In changing, they can select a doctor who subscribes to a different Health Management Unit, and thus change their HMU by changing their General Practitioner. The GPs themselves will be able to choose between different HMUs, taking their patients with them unless the latter decide to change doctors. The HMUs will be able to choose between different hospitals and courses of treatment.

Patients and their GPs will have the choice to move to an HMU whose services are more attractive, and will take with them the state’s allocation per patient.
HMUs will be required to accept patients who register with their doctors, without any selection permitted other than on the basis of optimum size of the HMU. Even here, where patients are refused because an HMU is at its optimum, waiting lists will have to be established with new patients admitted in order of application as places become available.
CCGs as a vehicle for increasing uptake of private sector hospital care and other commercial services

Structural conflicts of interest being created to facilitate profit-making from the NHS. Chapter 6
In some areas it is quite possible that HMUs will send their patients to the private sector for some categories of service and treatment. Where private clinics offer better value than state hospitals, there will be every incentive for them to do so. What certain hospitals do in particularly effective ways they will be able to sell widely, leading to the expansion of what each does well. The result will be for a new partnership of private and public medicine, with the services of each available to NHS patients on the basis of their comparative efficiency.

GPs acting singly or in groups will have the incentive to add facilities, perhaps leased from their HMUs, in order to compete with the cost of more expensive hospital services. Some of the work which now has to be done in hospitals will move out to smaller and lower cost treatment centres, some in the surgeries of doctors.
CCG funding
Individual budget allocations calculated with demographic weighting
Chapter 6
Financing the HMUs
The basis of funding will be the annual health allocation for each patient registered through their GP with an HMU. The problem of starting a new system such as Health Maintenance Organizations is largely avoided by keeping patients with their present GP. The resources go to the HMU selected by the doctor, although the ultimate choice lies with the patient, who can change HMO by going to a doctor registered with another one. The resources are thus directed to the HMOs which are most favoured by doctors and patients.

The size of the average health allocation will be set each year, and there will be pressures to keep up with an advancing standard of living.
There will be the option available to vary the health allocation for each patient according to the local health costs. Geography will play a part, but so will the age pattern of the population. It may be desirable to vary the allocation by category of patient, on the grounds that older patients are more expensive to care for.
Personal health budget (partial roll-out now commencing) and CCG funding allocations calculated for individuals which the individuals can transfer from public to private sector providers (from CCGs to insurance companies selling NHS top-up insurance)
Chapter 5
Each individual would receive from the state a health voucher, equivalent in value to the average per caput sum that is presently spent on providing health care. The voucher can be used towards the purchase of private health insurance or exchanged for treatment within the public sector health system. Through this mechanism, the state honours its assumed obligation to ensure that everyone has access to health services.

Those who opt into private insurance can use the voucher to pay their premiums, and the insurance companies then collect the cash value of the voucher from the government. …. people who decide that health care is particularly important to them are free to add to the amount covered by the voucher and thus purchase more expensive forms of insurance, perhaps covering more unlikely risks or providing superior standards of comfort or convenience.

The voucher does not force people into private insurance, although it certainly makes the option of going private instantly available to everyone. Those who want to use the state service will continue to receive it, their voucher being their ticket to free treatment just as their national insurance number is at the moment.
CCGs as transitional structures leading to unification of the NHS with the private healthcare industry

CCGs as insurance mechanisms Chapter 6
In place of the rigid demarcation between a public health service which does what it can on a take-it-or-leave-it basis, and a private system for the rich which offers choice and competition, the distinction between the two is blurred. They begin to overlap, each on the territory of the other.

The public sector HMUs, taking responsibility for total health care of NHS patients, are not too far removed in structure from private insurance and management bodies. The funds for premiums are publicly provided, but the same competition and incentives operate, and the same choices are made available.

This convergence is one of the most attractive features of the change which HMUs will bring. The HMU principle lays the groundwork and the basis for further changes at a later stage.

Phase V
Here are the “new resources” to be brought into the UK healthcare as cited in the 2010 White Paper: payments to insurance companies from private individuals, as in the USA.

Individual budget allocations will be transferable “vouchers” which can be allocated directly to patients as PHBs, spent on a pooled basis through CCGs or (potentially) transferred to supplement a purchased insurance policy. Such “top-up” policies are already being marketed intensively as the insurance industry prepares for this as-yet-unannounced change. Chapter 5
Universal Private Insurance
We could meet the health needs of everyone without the need for the government itself to provide health services through the NHS, simply by requiring that all individuals have medical insurance cover for a range of services that are deemed to be the acceptable minimum standard of health care. Of course, those who wished to have a superior standard of service could take out a more extensive policy: there would be no objection to individuals insuring themselves for additional or more costly services, as long as the basic requirements were met.

Although people are obliged to have a minimum level of medical insurance cover, they can shop around between insurers and decide which provides the best value for their premium money. Because there is competition, they can decide which insurer’s particular package of services is most suited to their individual needs, instead of having to accept the standard service provided by the NHS. In addition, they can spend more on their health care, if they judge it worthwhile, than is presently spent on their behalf by the government, so new resources will be brought into the health care system.

Each individual would receive from the state a health voucher, equivalent in value to the average per caput sum that is presently spent on providing health care. The voucher can be used towards the purchase of private health insurance or exchanged for treatment within the public sector health system.

The actual provision of health care services in such a system of universal private medical insurance would be undertaken by private sector doctors and hospitals, and the nationalized health sector in the shape of the National Health Service would lose its reason for existence.

Conclusion
The 2010-2011 narrative that CCGs were Lansley’s invention is untrue. According to Madsen Pirie and Eamonn Butler, CCGs, then named HMOs were designed back in the 1980s, by John Redwood while seconded from NM Rothschilds Merchant Bank’s International Privatisation Unit to Keith Joseph’s Centre for Policy Studies. The marketing narrative for these is presented above.
The purpose of converting the 1970s public sector NHS to an NHS with an internal market, then an NHS which can outsource to the private sector, then to an NHS in which services are arranged through competing CCGs (aka HMUs) is clearly set out by ASI in this report, as a means to the conversion of the NHS into a US-style healthcare system run by the insurance industry.