Is a two-tier healthcare system inevitable in the UK?
The current strain faced by the NHS has led many to speculate about the emergence of a two-tier and privatised healthcare system in the UK. In this post David Rowland, Director of CHPI argues this outcome is not inevitable, due to limits to the growth of the private sector and is ultimately contingent on policy decisions and the ongoing support for for-profit healthcare by the UK government. This post was also published on the London School of Economics’ blog in December 2022.
The NHS faces significant pressure due to a combination of a decade of under-funding, inflation and the Covid pandemic, which has led to more and more people paying to access healthcare from for-profit companies.
For some, this rapid growth in out-of-pocket payments suggests the UK is moving to a two-tier healthcare system. A system where those with money to pay for care can access it faster than those who are forced to wait for treatment on the NHS. And a situation that runs contrary to the founding principles of the NHS, whereby access to healthcare is supposed to be determined by need, rather than ability to pay.
The growth in for-profit healthcare in the UK
In some treatment areas, the growth of for-profit healthcare provision in the UK has been startling. In 2021, partly because of the restrictions imposed on the NHS due to Covid, the for-profit sector delivered more hip and knee operations than the NHS for the first time in its history.
In addition, between 2016 and 2022 the percentage of NHS funded cataract surgery provided by for-profit providers grew from 11% to 46% making the for-profit sector now the dominant provider of this form of treatment in the UK.
Whilst the bread and butter of the for-profit healthcare sector has been these two forms of elective care, in London the biggest earner for private hospitals is now cancer care.
Government support for the for-profit healthcare sector in the UK
The mainly overseas owned for-profit healthcare sector has achieved this position in the UK healthcare system because of government policy; over the past two decades the state has provided subsidies and guaranteed taxpayer revenues to underpin their expansion.
These subsidies have come in the following forms. First, to underwrite the investments of multi-national healthcare companies in building healthcare facilities, the Labour government during the 2000s, provided a direct subsidy estimated at around £350 million.
Second, by opening up the NHS market for elective operations to for-profit companies various governments have provided them with a relatively risk free income stream at prices which enable them to generate a generous profit margin. Taxpayer funds now account for between a third and three-quarters of the income of the largest for-profit companies in the UK.
Finally, because for-profit companies do not employ the medical consultants who carry out the treatment, but instead contract them out on a freelance basis, they are able to benefit at no cost from the training and development of this expert workforce.
Given that it costs around £0.5m to train a doctor to the level of a consultant and that there are an estimated 17,500 NHS consultants working privately in the UK, this means that overseas investors are given access free of charge to a highly trained, expert workforce worth £8.5 billion.
A bet against the NHS
In addition to reducing the financial risk of investing in private healthcare facilities, government cuts to the NHS budgets have also encouraged the for-profit sector to wager a bet that the NHS will not be able to meet the healthcare needs of a growing and aging population.
As JP Morgan noted in 2017 “continued structural pressure on the NHS will increasingly necessitate the use of the most efficient providers and is likely to lead to more outsourcing to the private sector. If not, we still believe the private sector will benefit as individuals are increasingly forced to dip into their own pockets to fund their care”.
The value of this bet can be quantified by the investment by overseas owned companies in new private healthcare facilities. We estimate that between 2014 and 2022 around £2 billion has been invested in newly opened facilities, investment that is on top of ongoing costs. In contrast, the NHS’s investment in new hospitals has been just £761 million since 2014, £322m of which was for one hospital.
Limitations on the growth of the for-profit sector
Whilst the for-profit healthcare sector is able to exploit the managed decline of the NHS, there are constraints on its ability to supplant or replace the NHS.
The growth in out-of-pocket payments for healthcare since the pandemic is remarkable, but it is unclear if it is sustainable. It is likely that some of the recent purchases of elective health care have come from the build-up of cash savings during lockdown. The squeeze on disposable incomes due to energy cost increases and mortgage rises will also slow this growth.
Similarly, the cheap credit options offered to private patients to encourage them to pay out of pocket are likely to dry up as result of increased borrowing rates. The take-up of private health insurance has also stalled for several years due to its increased cost relative to average incomes.
The second constraint are workforce shortages, a problem which is limiting the ability of healthcare systems the world over to meet population need. Workforce shortages in the UK are particularly acute amongst consultant level doctors that are critical for the delivery of the types of healthcare provided by the for-profit sector.
The problem for the for-profit sector is that it does not have any control over how these scarce workforce resources are allocated. In most cases the medical consultants who deliver care in for-profit sector do so on a freelance basis. Their NHS employers can limit how much time they commit to working in the for-profit sector.
In recent years, several for-profit companies have tried to pull medical consultants away from their NHS work by offering them lucrative share ownership schemes and in some cases offering them well remunerated employment contracts. But, unless the consultant workforce is untethered from the NHS – likely hugely controversial and detrimental to their long-term training and development – this employment arrangement limits how big the for-profit sector can grow.
Although a two tier system may benefit a very small proportion of it ultimately undermines one of the key solidaristic principles of the post-war welfare settlement.
And to reiterate, the growth of a two-tier system has not happened overnight, nor has the for-profit sector magicked into existence the infrastructure to provide an alternative to NHS care. Nor is a two-tier system inevitable due to market forces. It is in fact the product of government policy over the past two decades and any government can, if they choose, reverse this trend by sustained investment in the NHS and the removal of subsidies which promote the growth of for-profit provision in the
