Health Affairs, 23, no. 3 (2004): 37-44 doi: 10.1377/hlthaff.23.3.37 © 2004 by Project HOPE	New Online   Pay Cuts For Medicare Docs   Access To Care Woes   Public Coverage More Efficient   Empowering Consumers

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Costs & Competition

Reform Strategies For The English NHS

Abstract

 
With large funding increases planned for the next five years, England’s National Health Service (NHS) has embarked on an ambitious program of system reform. This paper considers the main reform strategies now being deployed and assesses three potentially competing assumptions underpinning them. The first implies that improvement mainly requires a sufficient supply of health professionals, properly supported. The second advocates more hierarchical control to offset self-interested provider behavior, and the third stresses the role of local incentives and accountability. How these reforms play out over the next five years will determine the future shape of English health care.

It was against this backdrop that the Blair Government, elected in 1997, decided that if the NHS as a funding system was to survive, the funding quantum would have to increase dramatically. Otherwise, the gap between system performance and public expectation would widen, the middle classes would progressively buy their way out, and the NHS would spiral down to become a residualist safety net.

Scarcity Gives Way To Munificence

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U.K. taxes therefore went up in April 2003 to finance increased NHS spending, averaging 7.4 percent a year in real terms for the next five years.⁵ This 43 percent real-terms increase will raise total U.K. health spending from 6.8 percent of gross domestic product (GDP) in 1997 to an estimated 9.4 percent in 2007–08—toward the upper end of current European levels.

It has refuted the claim that the NHS cannot survive because of taxpayers’ innate resistance to funding it properly. But the stakes are high. If the extra investment fails to deliver more consumer-responsive health care, the British people will probably conclude that it is the NHS model itself that is the problem, rather than just underfunding or political stewardship. However, although these NHS funding increases apply across the United Kingdom, decisions on how best to organize the health care delivery system are now devolved to England, Wales, Scotland, and Northern Ireland.

Policymakers’ attention has accordingly switched from financing to supply-side questions: how best to expand output, improve quality, and increase responsiveness, while avoiding cost inflation. The emerging response in England takes the form of twelve overlapping strategies considered below.

One-Dimensional Reform: Support For Providers

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The first set of strategies reflects a view that health professionals want to, and generally will, "do the right thing" if properly funded and accorded freedom from external interference. This policy orientation characterizes the relationship between the British state and medical profession for most of the postwar period—with the medical profession taking responsibility for the quality and allocation of publicly funded care, in return for professional autonomy and the absence of intrusive state regulation.⁶

Strategy 1: increasing the supply of health professionals. Physician supply is being boosted by a 55 percent increase in medical school intake, pay incentives, flexible return-to-work schemes for doctors with young children, and international recruitment.⁷ Similar approaches have expanded NHS nurse numbers by more than 50,000 since 1997.

Strategy 2: modernizing infrastructure. Public hospitals are being rebuilt on "private finance initiative" contracts in which the private sector designs, builds, finances, and operates them. Over the next three years £2.3 billion is being spent so that electronic health records covering all fifty million people in England are rolled out alongside electronic prescribing and scheduling. The aim is to improve quality of care (for example, by reducing medication errors and lost medical records and providing online decision support); improve patients’ experiences (by reducing delays and giving patients a choice of providers and certainty of appointment scheduling); and boost efficiency (by better use of staff time, reduced duplication of tests, and active case management). Contracts to 2013 are now being awarded to international information technology consortia using a national procurement process, to ensure that the whole country is networked while harnessing the NHS’s purchasing muscle.⁸

Strategy 3: supported learning and improvement. The main NHS mechanism for building on health professionals’ desire to improve services is the NHS Modernisation Agency, which is responsible for horizontal spread of reengineering and service redesign techniques at a cost of £220 million a year.⁹ Programs include cancer, cardiac, and primary care and elective surgery, and they draw on the optimistic insight that someone somewhere is probably already delivering the high performance desired for the system as a whole. It is complemented by the NHS’s own corporate university, NHSU, which will provide lifelong learning opportunities for health staff, and a National Patient Safety Agency, which runs a national reporting system for adverse events.¹⁰

Two-Dimensional Reform: Hierarchical Challenge

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Given the NHS’s long-standing parsimony, these three strategies to build capacity and capability are obviously needed. Yet health care providers, as well as being altruistic and principled can also occasionally be inefficient, variable in quality, self-interested, and unresponsive to patients’ preferences.¹¹ These truths were underlined in England by events at Bristol Royal Infirmary, where cardiac surgeons negligently operated beyond their competence and children died as a result.¹² The resulting scandal had a double ideological impact: as a testament to the putative failings of local provider competition as the sole driver of improvement, and as a warning about the dangers of leaving doctors entirely free to set and enforce their own standards.

The resulting public clamor for change armed the incoming Labour government with a mandate to act as a proxy for the consumer using four powerful new hierarchical levers mostly absent from the previous Conservative government’s 1991 health reforms.

Strategy 4: national standards and targets. Until very recently the NHS benefit package was simply the sum of the individual decisions made by clinicians and local health authorities. The Bristol backlash, worries about "postcode" (similar to the U.S. ZIP codes) variations in care, the need to defuse controversy over rationing, and a desire to improve the cost-effectiveness of drug prescribing all joined forces to change that hands-off approach. "National service frameworks" now specify standards for key conditions such as heart disease and diabetes. A health technology appraisal agency, the National Institute for Clinical Excellence (NICE), now issues binding recommendations on services to be funded by local NHS bodies.¹³ And, more controversially, the government promulgates detailed targets for health system improvement.¹⁴ These include (1) cutting cancer death rates by 20 percent in people younger than age seventy-five by 2010; (2) cutting heart disease death rates by 40 percent in people younger than age seventy-five by 2010; (3) reducing death rates from suicide and undetermined injury by 20 percent by 2010; (4) reducing inequalities in health by 10 percent, measured by infant mortality and life expectancy at birth, by 2010; (5) reducing the under-age-eighteen conception rate by 50 percent by 2010; (6) guaranteeing access to primary care physicians for routine care within two working days by 2004; (7) completing treatment (or admitting to hospital) all accident and emergency cases within four hours (while cutting the proportion waiting more than an hour) by 2004; (8) cutting the maximum wait for all NHS-funded surgery to twelve weeks by 2008; (9) improving patients’ experiences, as measured by national patient surveys; and (10) improving the value for money of NHS care by at least 2 percent per year.

Strategy 5: inspection and regulation. For the first time, doctors are subject to mandatory relicensing every five years, and a National Clinical Assessment Authority now assesses NHS doctors whose performance gives cause for concern. NHS hospitals are now subject to independent inspection, and what began as a developmental approach to scrutinizing providers’ quality assurance systems is now evolving into inspection against externally specified standards.¹⁵

Strategy 6: published performance information. The coverage of clinical indicators published by the Department of Health has increased.¹⁶ It also now funds a provider-specific annual survey of 60,000–100,000 NHS patients.¹⁷ On the basis of these and related data, the independent health care inspectorate awards each NHS provider an annual "star rating" of zero to three stars.¹⁸ This has proved to be a high-octane mechanism for altering providers’ behavior (linked to Strategy 7), but controversy has surrounded indicator selection, the extent to which ratings should reflect absolute or relative performance, and the degree to which they should measure managerial or patient-relevant domains.

Strategy 7: direct intervention. Under the "earned autonomy" system, providers that score well on the star ratings gain small financial bonuses but win much greater operational freedom, and now the ability to apply to become an independent not-for-profit "NHS foundation trust" (see Strategy 12 below). At the other end of the spectrum, providers that score zero stars are placed on "special measures," and if progress is not soon forthcoming, their management is replaced.

However, concern has been expressed about the consequences of relying too heavily on these top-down mechanisms, and for this reason a third set of strategies is now also being pursued.

Three-Dimensional Reform: Localist Challenge

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The localist challenge assumes that countervailing pressure on providers is indeed necessary but that it should wherever possible come not from line management, regulators, or government but instead from market incentives or local democratic accountability.¹⁹

Strategy 8: active purchasing. The 1991 NHS "internal market" reforms introduced a split between NHS purchasers and providers that has persisted. Government now devolves 75 percent of NHS funding directly to some 300 local NHS Primary Care Trusts (PCTs), which are capitated single payers. But unlike passive French or German social insurers, PCTs are intended to be active purchasers of care for their geographical populations—single payer meets managed care. British general practitioners (GPs) have long had defined patient lists—a feature of U.K. health care that has made it comparatively straightforward to allocate them the capitated budgets that are central to the managed care concept. Indeed, pilot programs are now testing the partnering of U.S. managed care plans with PCTs to improve their chronic disease management processes. PCTs’ budgets give them the ability to decide where the "make in house" versus "buy externally" boundary should lie for some diagnostics, minor surgery, and chronic disease care—thereby challenging local hospitals through vertical substitution.

Strategy 9: patient choice. Patient choice within the NHS has traditionally been limited, even compared with other high-equity health care systems.²⁰ Rather than choice of PCT purchasers (given concerns about enrollee churning, cost shifting, and efficiency losses from risk selection), the emphasis is on choice of providers. Once a PCT has determined that a patient is eligible for NHS-funded care, current policy is moving toward offering patients a choice of any provider who will take the new NHS tariff rate—be they public, private, or not-for-profit.

Strategy 10: aligned provider incentives. The NHS is on a five-year transition to a modified diagnosis-related group (DRG)–type, activity-based hospital payment system.²¹ By 2008 this national tariff system will provide sharper incentives for organizations while constraining hospitals’ pricing power and underpinning patient choice and more diverse supply. In addition, local governments’ social service departments are being cross-charged for the inpatient cost of elderly patients awaiting hospital discharge. Pay reform is introducing new incentives for individual clinicians. GPs’ new contracts will allow them to earn around a third more, linked to markers of quality.²² Hospital consultants’ new contracts remain largely time-based but with greater reward linked to work intensity or duration. For nurses, therapists, and the rest of the health workforce, national job evaluation coupled with local job design is intended to break down outmoded interprofessional role demarcations.

Strategy 11: new entrants and plural supply. For most of the postwar period, the two principal levers open to central government to influence NHS performance have been control of funding and ownership of the hospital delivery system. (Most GP premises have been owned by GPs themselves.) Although external inspection and regulation of providers began as a tool of centralization, it has turned out to be a precondition for a more plural ownership structure. Government is now stimulating a more mixed economy on the supply side, to expand capacity, enhance contestability, and offer choice. Freestanding surgical centers run by international private operators under contract to the NHS are a first step.²³ Private diagnostics and primary care "out-of-hours" services are next.

Strategy 12: local democratic accountability. For services with inherently low measurability and low contestability, choice and quasi-markets are unlikely to be adequate drivers of improvement. In these cases, recent NHS policy has begun to emphasize the importance of local accountability to citizens and communities, in place of top-down control.

In particular, as "foundation" trusts, public hospitals will in the future no longer be principally accountable upward to the Department of Health but, instead, outward to their local community through a board of governors elected by staff, recent patients, and local residents. This model is a hybrid of two main hospital accountability arrangements seen in continental Europe—namely, local, not-for-profit foundations (such as the Netherlands and Belgium) and elected local health boards (seen in several Scandinavian countries). Oversight of foundation trusts’ corporate governance and operating license will not rest with the Department of Health but with an independent regulator. This draws on one of the lessons of the NHS internal market— that in the absence of a legally binding lock on provider independence, central government tends to get drawn back into the direct management of NHS hospitals down the ownership line. Just as important, it legally underpins the "hard" budget discipline that patient choice and the new tariff system are intended to introduce, preventing hospitals passing on income losses or cost inflation to their local PCTs, either formally in prices or informally via deficits that local purchasers in practice have had to underwrite.

The Search For ‘Constructive Discomfort’

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The past five years have arguably seen three tectonic shifts in the postwar health policy settlement: an end to the bipartisan political consensus on the role of tax funding; a new bipartisan consensus on the value of a more mixed supply side; and increased challenge to the medical profession’s power. In part this is because of an increasing appreciation of the fact that health care improvement requires a source of tension to overcome the inertia inherent in all human systems.²⁴ The past five years have seen England searching for the optimal policy mix to generate that constructive discomfort. In doing so, it has entered a relatively pragmatic phase compared with its more traditional "path dependency."²⁵

On one reading, the NHS has been progressing from the first to the second and now to the third set of reform strategies discussed above. In reality, although the emphasis has been shifting over time, strategies associated with all three dimensions are running in parallel.

Information asymmetries between health professionals versus patients and employers mean that there is little alternative but to embrace professional "conscience," not just contract and regulatory oversight. And, as professional autonomy is associated with a well-motivated workforce, it probably also affects the quality of interpersonal communication between clinician and patient, and thus the quality of care.²⁶

However, important critiques of the notion of clinical freedom have arisen as a result of the increasingly team-based nature of clinical care, the greater capital intensity of services, the costlier nature of health care and the attendant demands for accountability from payers, the availability of information showing wide variations in clinical quality and practice, evidence that professionals and institutions are sometimes organized for their own convenience without regard to patients’ preferences, and consequent pressure from consumer organizations. Top-down challenge is therefore likely to have an ongoing place in the English health reform pantheon. But considerable controversy surrounds the selection of targets and the associated intervention regime. The risk of relying principally on hierarchical strategies is that they centralize blame, undermine intrinsic motivation, and produce a compliance culture in which only what gets measured gets done.

For these reasons, local incentives and accountabilities are again likely to be emphasized in the NHS. Under this decentralizing rubric, it is still, however, too early to say where the precise balance will be struck between strategies based on choice and competition on the one hand, and local "voice" and democratization on the other. In part this will vary by health care segment: While the former approach may, for example, predominate in elective surgery or diagnostics, the latter may be more suited to emergency care or some psychiatric services.

In any event, the history of NHS reform since 1991 has shown that a unidimensional reform model (be it cooperation, competition, or command and control) will not be sufficient to generate high performance in a sector as complex and varied as health care. Instead, a three-dimensional model is emerging, which corresponds to the triangular relationship between the British state, the medical profession, and the public. The task is therefore to ensure that this mixed model is internally coherent and the individual policy instruments appropriately balanced. The result will be that, at least on the supply side, the era of English "exceptionalism" in health care is over.

Editor's Notes

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Simon Stevens (sstevens{at}no10.x.gsi.gov.uk) is the British prime minister’s health policy adviser. He was appointed to this post by Tony Blair in 2001, having previously served four years at the U.K. Department of Health as the policy adviser to the past two health secretaries. A graduate of Oxford and Strathclyde Universities, Stevens was a Harkness Fellow in Health Policy at Columbia University and the New York City Health Department in 1994–1995.

An earlier version of this paper was presented at the Commonwealth Fund 2003 International Symposium on Health Care Policy, "Hospitals and Health Care Delivery Systems: Spotlight on Innovation," 22–24 October 2003, in Washington, D.C. The author thanks three anonymous reviewers for their comments.

NOTES

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1. Organization for Economic Cooperation and Development, OECD Health Data 2003, 2d ed. (Paris: OECD, 2003).
2. Ibid.
3. Ibid.
4. L. Siciliani and J. Hurst, "Explaining Waiting Times Variations for Elective Surgery across OECD Countries," OECD Health Working Paper no. 7, 7 October 2003, www.oecd.org/dataoecd/31/10/17256025.pdf (8 March 2004).
5. D. Wanless, Securing Our Future Health: Taking a Long-Term View, Final Report (London: Her Majesty’s Treasury, 2002).
6. R. Klein, "Why Britain Is Reorganizing Its National Health Service—Yet Again," Health Affairs 17, no. 4 (1998): 111–125.[Medline]For a statement of the traditional orthodoxy, see A. Bevan, in Public Health 60 (1946–47): 5–6.[CrossRef]
7. Department of Health, "Human Resources and Training," 2004, www.dh.gov.uk/PolicyAndGuidance/HumanResourcesAndTraining/fs/en (8 March 2004).
8. Department of Health, "National IT Programme," 3 February 2004, www.dh.gov.uk/PolicyAndGuidance/InformationTechnology/NationalITProgramme/fs/en (8 March 2004).
9. For more information, see the NHS Modernisation Agency Web site, www.modern.nhs.uk.
10. For more information, see these organizations’ Web sites: NHSU, www.nhsu.org.uk; and NHS National Patient Safety Agency, www.npsa.nhs.uk.
11. J. Le Grand, Motivation, Agency, and Public Policy (Oxford: Oxford University Press, 2003).
12. I. Kennedy, Learning from Bristol: The Report of the Public Inquiry into Children’s Heart Surgery at the Bristol Royal Infirmary 1984–1995 (London: Stationery Office, 2001).
13. More information is available on the National Institute for Clinical Excellence Web site, www.nice.org.uk.
14. Department of Health, The NHS Plan (London: Stationery Office, 2000).
15. More information is available on the Commission for Health Improvement Web site, www.chi.nhs.uk and www.chai.org.uk.
16. Department of Health, "Performance Data," March 2004, www.performance.doh.gov.uk (11 March 2004).
17. Department of Health, "National Survey of NHS Patients," 2004, www.dh.gov.uk/PublicationsAndStatistics/PublishedSurvey/NationalSurveyOfNHSPatients/fs/en (11 March 2004).
18. NHS, "Performance," www.nhs.uk/Root/StarRatings/Explained.asp (9 February 2004).
19. Department of Health, Delivering the NHS Plan (London: Stationery Office, 2002).
20. E. van Doorslaer et al., "Equity in the Delivery of Healthcare in Europe and the U.S.," Journal of Health Economics 19, no. 5 (2000): 553–583.[CrossRef][ISI][Medline]
21. Department of Health, "Payment by Results," 6 February 2004, www.dh.gov.uk/PolicyAndGuidance/OrganisationPolicy/FinanceAndPlanning/NHSFinancialReforms/fs/en (8 March 2004).
22. Department of Health, "General Medical Services (GMS) Contract," 2004, www.dh.gov.uk/PolicyAndGuidance/HumanResourcesAndTraining/ModernisingPay/GPContracts/fs/en (11 March 2004).
23. Department of Health, "Independent Sector Treatment Centre Procurement," 2 February 2004, www.dh.gov.uk/PolicyAndGuidance/OrganisationPolicy/SecondaryCare/DiagnosisTreatmentCentres/Diagnosis TreatmentCentresArticle/fs/en?CONTENT_ID=4062248&chk=1SuXE1 (11 March 2004).
24. D.M. Berwick, "Public Performance Reports and the Will for Change," Journal of the American Medical Association 288, no. 12 (2002): 1523–1524.[Free Full Text]
25. C.H. Tuohy, Accidental Logics: The Dynamics of Change in the Health Care Arena in the United States, Britain, and Canada (New York: Oxford University Press, 1999).
26. J.W. Kenagy, D.M. Berwick, and M.F. Shore, "Service Quality in Health Care," Journal of the American Medical Association 281, no. 7 (1999): 661–665.[Abstract/Free Full Text]

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