THIS MIGHT HURT A LITTLE...

The images of people queuing round the block for an NHS dentist a couple of years ago could be seen again before too long - this time for GP surgeries. The very multinational companies which Michael Moore described cashing in on people's ill health in Sicko are making in-roads into the UK healthcare market.

HERE COME THE SICKO SURGERIES

Last week, Camden Primary Care Trust announced that it had awarded a contract to manage three large GP practices in central London, covering nearly 5,000 patients, to UnitedHealth, an American company with links to the Republican Party and a history of high-profile fraud cases. This week, the Camden New Journal learned that UnitedHealth were successful largely because of low unit costs, not proven quality of service. It is anticipated that UnitedHealth will manage the practices at a loss, enhance their client base, then combine them to form "super-practices". Unless the public fights back, it seems inevitable that UnitedHealthcare will achieve a monopoly for healthcare provision in Camden.

How has it come to this? How have the principles of the welfare state fallen victim to the market? How has the NHS been so systematically sold off to the private sector? There are two reasons: (1) the inherent contradiction of a welfare state within a capitalist economy and (2) the neoliberal policies pursued by British governments since the early 1980s. It is also worth noting that the very criticisms which the right-wing press level at the NHS - inefficiency, bureaucracy, poor health and safety, insensitivity - are a direct result of right-wing politics.

INTRODUCTION

Despite the commitment to free, universal healthcare "from cradle to grave" laid down by the architects of the NHS, doctors and policy-makers have always had to muddle through an imperfect system. The vision of nationalising every tier of healthcare in the aftermath of the Second World War proved impossibly ambitious. Many consultants demanded the retention of private practice alongside their NHS activities, and there has always been private practice within the NHS. GPs, dentists and opticians have worked as (state-funded) small businesses, and community health, preventative services, child health and public health remained the responsibility of Local Authorities. There has always been a distinction between healthcare, which is free, and personal "social" care, which is means-tested. But despite a rather messy mixed economy, the postwar consensus of the welfare state remained until 1979, when Margaret Thatcher became Prime Minister.

ENTER THATCHER

Thatcher and her American counterpart, Ronald Reagan, had been elected in the wake of a classic crisis period in the capitalist cycle. The politics of the early 1980s challenged the welfare state consensus by proposing free-market, monetarist adjustments which would rectify spiralling inflation, and stabilise the economy. The Griffiths Report of 1983 proposed that the only way to run the NHS was via private sector-style management and outsourcing of non-core activity. Soon after Thatcher's landslide re-election, a layer of senior, non-clinical management was applied to the NHS, so that between 1986 and 1995, the proportion of NHS spend consumed by administration rose from 5% to 12%.

Around the same time, NHS hospitals were required to find ongoing efficiency savings of 3% per year, which in practice meant cuts to staff and services. Between 1980 and 1993, almost all non-clinical services were outsourced. Routine eye examinations became chargeable in 1989, resulting in a 67% drop in uptake. Dentists had always been "independent contractors," but from the late 80s onwards the government capped public spending until dentists decided that going private was the only way to be profitable - by 1999, more than half of all dentistry was paid for by patients, and now only basic dentistry is free. Thatcher's approach to transferring long-term care out of the NHS was even more cavalier. Her government provided Social Security funding to long-term care placements on the condition that they were placed privately. A private care home industry was quickly born, and accounted for 69% of all placements by 2003.

THE INTERNAL MARKET

Towards the end of her premiership, Thatcher disdained the advice of healthcare experts by proposing that the NHS be opened up to the market. The US healthcare industry was in the doldrums and needed a European market to tap into. The Conservative goverments of both Thatcher and Major were only too happy to oblige, and the notorious "internal market" was created.

The internal market split the NHS down the middle. On the one side was its purchasing arm (health authorities and some fundholding GPs), and on the other was its provider arm (hospitals, community services and other GPs). Although the effects of marketisation had been completely unresearched, the vision of the internal market was to embed the General Management doctrine and make the NHS more efficient. It encouraged hospitals to compete against each other to provide services, but in reality it was a false market - after all, while an unprofitable private business will go under, every town needs a hospital. Failing hospitals were bailed out, and by 1996-7 one third of hospitals were failing to meet financial targets and waiting-lists for "elective" (non-critical) treatments had gone up.

The internal market also pushed administrative costs up further. Because provider bodies were now commissioning services from a number of providers, complex invoicing, contracting and pricing arrangements had to be designed and maintained. The introduction of contracting in hospitals nearly doubled admin costs, and NHS funding became increasingly diverted from services into bureaucracy. The market also quickly became led by providers, many of whom decided to provide only services which were profitable. For the first time in the NHS's history, services were now planned according to financial pragmatism, not local need.

LABOUR COMES TO POWER...

In 1997, Labour came to power with a commitment to abolish the internal market, which they had criticised sharply when in opposition. But when Frank Dobson was selected as Labour's doomed candidate for the Mayoralty of London in 1999, the Blairite moderniser Alan Milburn took over as Health Secretary. Milburn was an ardent free marketeer who advocated for greater private sector involvement in the NHS. It was under his tenure that the mechanisms for the Private Finance Initiative (PFI) were set up.

THE PFI (PRIVATE FINANCE INITIATIVE)

Among the many follies of Labour's health policy, PFI is perhaps the greatest. It had been conceived during the Major years, when the building industry, which had close ties to the Tory government, was in recession. But Labour had links to the private sector too, and quickly became as enthusiastic about PFI as the Conservatives. When he resigned as Secretary of State in 2003, Milburn took up a post as advisor to Bridgepoint Capital, a private equity investor responsible for financing private companies entering the healthcare market (he now advises Pepsi). Before she became an MP in 1997, one of Milburn's successors, Patricia Hewitt, had been director of research at Arthur Anderson. She was involved in setting up several lucrative PFI contracts with them as Minister.

It is clear, then, that one of the catalysts for PFI was the career development of Labour Ministers. But what were the wider reasons for the policy? And how has it failed so dismally?

In short, PFI is symptomatic of the Government's dogmatic passion for opening up the welfare state to the market, whatever the financial and service costs. The rhetoric of reform has been centred on the idea that the state is inherently inefficient, and can only be reinvigorated by the leanness of the private sector.

PFI encourages the private sector to invest capital funding into rebuilding the NHS's infrastructure, which had been chronically under-funded for years. It works by consortia of private-sector operators and builders raising money on behalf of the NHS to build and run buildings (e.g. hospitals). The public-sector must pay back the money (including interest and shareholder profits) from its patient care budget.

However, private sector borrowing rates are far higher than for the public sector ; the consortium must raise profits and pay shareholder dividends over very long contract periods (often well over 15 years) ; and the service costs which the public sector body must pay back include bureaucracy incurred by complex contracting and funding arrangement. The Government's wild exaggerations of public sector inefficiency came back to bite them as the PFI scheme went hugely over-budget.

Costs spiralled out of control - the Dartford and Gravesham PFI hospital cost £94m to build, but service costs and fees increased the cost by a further £21m. But, having embarked on a spree of capital projects funded by PFI all over the country, the government couldn't very well bail all these overspending hospitals out. The increased costs were thus paid for by cuts in beds, salaries and staff (the average for the first wave of PFI hospitals was a 30% cut in beds and a 25% cut in nursing salaries).

The PFI hospital-building programme was paid for by cuts in services and clinical budgets. Yet, Labour would not back down. Despite every possible indication that their policy was a dud which would cause a long-term financial migraine for the NHS, they doggedly went ahead with new PFI schemes. Partly this was to prepare British companies for global competition, partly due to the inability of the government to perceive the failures of marketisation.

CONCLUSION

I said at the beginning of this post that the Right criticises the NHS for the very structural flaws implemented by governments which they supported. In a way, however, they are right. An increase in public spending has not, on the whole, led to improvements in the NHS. One could go further - high public spending probably does suggest inefficiency. Yet the highest proportion of GDP spent on healthcare is in countries with no state healthcare system.

In the last 50 years, per capita spending in the US has been three times higher than in the UK, yet the US has always had a lower life expectancy and a higher infant mortality rate. NHS spending rocketed in the 1970s, and has on averaged doubled every ten years since. But is there a correlation with quality and outcomes? On the contrary - health inequalities have barely shifted, people are living much longer but not much healthier, and the NHS is slowly (or not so slowly) been eroded by market forces. Such wanton spending increases might be better explained by the "Stalinesque" inefficiencies* of the free market, a path down which the NHS has been inexorably led, and from which only real democracy (as opposed to centralised reform) can save it.

Sign up to the "Keep our NHS public" campaign here. Find out more by reading Allyson Pollock's NHS PLC. Protest against the selling off of your NHS wherever you can.

* the description of the NHS used by the Adam Smith Institute, which wished to privatise it altogether.