NHS contracts and private sector

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By Knowledge Hub

In 2007, the proportion of private hospitals’ revenue from NHS referrals was under 10% when the Labour government gave people the right to choose to be treated in a private hospital and be paid for by the state. The purpose of policy change was to improve patient care. As a result of the surge in public-private partnership arrangements, the private operators now earn approximately 25% of their income from NHS, an increase from £700m to £3.1bn. In 2016/17, the private sector won 70% of NHS England contracts.

Separately, under PFI deals, private companies construct buildings, which are then leased to the public sector, with the companies also providing maintenance and support services. Companies profit from “unitary charges, ” comprising loan repayments and service fees. In 2015, annual charges were £1.9bn, and the PFI companies earned pre-tax profits of £183m.   Over the last 6 years, the total pre-tax profits of private businesses under NHS contracts were over £800m. After the significant failure of PFI, a new framework under PFI 2.0 is deployed.

Things are beginning to change as a wave of scandals dented the private sector’s reputation. One of the rationales for privatisation has been that the private sector is more efficient in running services. This has become a myth as several corporations have withdrawn from large contracts or terminated them due to severe problems. For example,

·     In 2012, Circle took over operational control of Hitchingbrooke Health Care NHS Trust – the first entire NHS hospital to be run by a private company. However, two years into its 10-year contract, after a £5 million loss and a highly critical report by the Care Quality Commission, Circle gave up its contract, citing rising demands and cuts in NHS funding.

·     In 2013, Serco ended its contract to provide out-of-hours GP care in Cornwall after staff falsified data about its performance.

·     In 2015, Cambridgeshire and Peterborough CCG eventually awarded UnitingCare an £800 million contract for older people’s services after a tendering process costing over £1 million. Eight months into the contract, UnitingCare withdrew, stating that it was not financially viable.

·     In 2016, the outsourcing giant Capita was awarded a £330 million, seven-year contract to run primary care support services. Its bid included cutting support staff from 1,314 to 314, reducing the service cost by 69% (saving £60 million). This and other high-risk strategies led to widespread failures, such as severe problems with patient record transfers, medical and other supplies shortages, delayed payments, loss of earnings and chaos for many GPs, dentists, opticians and pharmacists.

Patient safety is a rising concern. In 2018, the National Audit Office’s report on the Capita contract identified failings in understanding primary care support services well enough to set contract targets, timely agreement of fundamental principles, and failings potentially putting patients at risk. The British Medical Association has called for bringing primary care support services back in-house.

NHS hospitals are now beginning to act more like businesses; instead of letting the private hospitals pick easy cases, they are bringing them back in-house. The private healthcare market in the UK is dominated by Spire, BMI, HCA, Nuffield, Ramsay, Care UK, The London Clinic, Aspen, Circle and BUPA Cromwell. The operators relying heavily on NHS contracts are beginning to suffer income contraction. For example,

·     BMI Healthcare, Britain’s most prominent private hospital provider, cited a 4.4 per cent decline in the NHS caseload

·     Ramsay Healthcare, UK revenues fell 4.8 per cent

·     Spire Hospitals, revenues from the NHS declined by 1.9 per cent

It is important for private hospitals and contractors to examine their current policies and procedures to ensure the highest level of patient safety, clinical effectiveness, and patient experience. On the other hand, the NHS contracting procedure needs to improve, with a strong focus on risks and rewards, value for money, history of bidders, commercial negotiations, and, last but not least, regular quality and performance reviews.

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