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Public Ethos, Private Delivery

by David G. Green
From the Observer Comment Extra, 24 February 2002.

Click here for the Observer NHS Debate

The Government is rigidly opposed to any change in the way we finance health care. We will have no ‘American-style’ system here, Mr Blair declared in a major speech on Friday. But, off-camera, radical changes in the method of delivering care are being contemplated.

Secretary of State for Health, Alan Milburn, has been advocating the de-politicisation of hospitals. In public, he insists that it is not privatisation, but in off-the-record meetings he has been saying that he is not worried whether policy wonks categorise hospitals as ‘public sector’ or ‘private sector’. The real challenge is to preserve an ethos of public service. Even on public occasions (such as his speech to the New Health Network in January) he admits that the search is on for a ‘middle ground between state-run public and shareholder-led private structures’.

For too long the debate has been dominated by a false polarisation between ‘public’ and ‘private’. There are many ways of fostering a public service ethos in the private sector and, at last, the debate is no longer about whether or not to depoliticise, but about which non-government structures work best. Mr Milburn specifically mentioned mutuals and non-profit companies as forms of private activity now considered palatable by Labour.

One idea under active consideration is for 3-star hospital trusts to become independent, non- profit organisations or foundation hospitals. According to government insiders, this idea is certain to be implemented and all that remains is to tie up the legal and administrative detail. In Mr Milburn’s view, some primary care trusts may also be given ‘foundation’ status.

The politics of separating the ‘ethos of public service’ from ‘ownership by the public sector’ are on a par with abolishing Clause 4. But Mr Blair’s attack on trade-union wreckers laid the groundwork. Moreover, there are many on the Left who will welcome an open debate about the role of non-profit organisations and mutuals. They have grown tired of being treated like heretics for contemplating the possibility that bureaucratic centralism may not be the best way to create a genuine sense of social solidarity. And their morale has been boosted by regular contact (a side- effect of EU membership) with parties of the centre left in Europe who don’t bat an eyelid at Mr Milburn’s plans.

How could these ideas be put into practice? Once the Blair reforms are implemented, there will be 28 strategic health authorities in England supervising a larger number of primary care trusts (PCTs). The trusts are to be the main buyers of services from hospitals, which will be subject to a regime of inspections and monitoring by central government. How could this system be made more responsive to consumers?

A new mutualism

One possibility would be to convert PCTs to mutual organisations owned by their members. At the minimum this would require direct representation of patients on the controlling body of the PCT, but it would be better to go a step further to create real ownership by giving members personal control of the financial allocation PCTs receive from the Treasury for each patient. Better still, members should be allowed to take this amount with them to another PCT to give trusts an incentive to improve.

Mr Milburn has said that he wants the NHS to be ‘consumer-led’ and such a change would go some way towards empowering patients, but PCTs would still have cash-limited budgets set by central government. To overcome this problem, people need to be free to add to the funding available to their PCT, but how can such freedom be made compatible with social solidarity?

One method would be to let PCTs establish separate mutual funds for service development. Members could pay into the fund just as they pay into any savings account. Interest would be free of tax and payable so long as the capital were tied up for long enough to allow its use for investment in health facilities, perhaps until retirement age. Once the members reached the age of 65 the capital could be withdrawn or left to gather further interest. Each year huge amounts are invested in pensions and, if the tax regime for mutual health funds were the same as it is for pensions, it is possible that many people would be willing to invest in mutual health funds as a way of combining provision for retirement with support for the NHS. As the years passed and members grew older, money would start to be withdrawn from the mutual funds, but in the short run there will be a major growth in funding for the development of health care services. If we are to catch up with other European countries we need just such an immediate boost in funding.

An arrangement based on mutually-owned PCTs would be voluntary and potentially create a sense of genuine social solidarity always promised by the NHS but never achieved.

Foundation hospitals

What about foundation hospitals? There is now a cross-spectrum consensus in favour of establishing self-governing hospitals and the Government is likely to create 2 or 3 independent hospitals within the next year or two. Enthusiasm has diminished for a regime based on daily circulars from Whitehall and the enforcement of compliance by ticking boxes. But despite the feeling among Whitehall insiders that all that remains is to iron out the details, there is a lot at stake. In one corner are the champions of a ‘consumer led’ NHS, who argue that hospitals should have a mutual structure to give patients direct representation. In the other corner are the great and the good from the royal colleges and the wider medical profession who expect to dominate foundation hospital boards and run services as they think fit.

The difficulty for advocates of a mutual structure is that there are no large-scale working examples to point to, but several structures are already available for non-profit organisations: charities, institutions founded by royal charter and public benefit corporations.

Historically many hospitals were charities run by trustees. All assets must be used exclusively for charitable purposes and any change of aims requires the permission of the Charity Commission. Unlike mutual organisations, there is no possibility of privatising the assets.

Before nationalisation, many hospitals were also founded by royal charter. Like universities, changes to the royal charter cannot be made without the approval of the Privy Council. Similarly, the assets cannot be privatised and so, if you leave the hospital some money in your will, you can be sure it will not end up in somebody’s pocket.

There has been recent interest in creating a new structure, called a public interest company, an idea that draws partly on the American tradition of ‘public benefit corporations’. The Public Management Foundation produced a report in June 2001 setting out the case for PICs. One of its authors, Paul Corrigan, subsequently became Mr Milburn’s special adviser. Like a charity, it will be unable to alter its objects without permission from an independent regulator, but it will not have the tax breaks enjoyed by charities. It will be able to make trading surpluses, but they will have to be ploughed back for the benefit of the public, not distributed to shareholders. Similarly, assets will have to be used in perpetuity for the benefit of the public.

In choosing the best method of hospital governance the odds are stacked against mutual structures, and the best protection for consumers lies, not in patient representation on the board, but in the freedom to go to a competitor when dissatisfied. However, the locality-based primary care trust, whose task is to get the best deal for patients from independent hospitals, is tailor-made for mutual ownership and control.

Under Mr Milburn’s guidance, Labour is inching towards a more sustainable health policy. It’s true that discussion of alternatives to tax funding still produces intellectual paralysis, but the debate about the supply side is generating some new ideas that will create a blend of consumer empowerment and social solidarity that social-democratic Europe has taken for granted for decades.


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