Monday, November 25, 2013

Correspondence with the NHS Trust Development Authority

I have had a reply to these questions that I sent to the Trust Development Authority, the body that will take the final decision on Weston's fate. 

I asked: 
– how can it be more efficient in cash terms for a private contractor to provide a product for the NHS, given the following circumstances:
· The administrative work associated with granting the franchise?
· The fact that a private corporation’s primary responsibility is to make sure that their shareholders get a bigger dividend each year?
· The fact that generous salaries and bonuses must be paid to the directors of the private company?
· The fact that the company is very likely to pay large fees to tax accountants in order to minimize the amount of tax that they will pay in the UK?

The flow of money in the classical NHS model is simple. Money goes from taxpayer to the Treasury to NHS patient services.

The flow of money in the case of a franchise to a private health corporation is from Taxpayer to Treasury to CCG to private corporation, some of which goes to patient services, and some to the corporation's shareholders as dividends and to bonuses, some of which will flow onwards to tax accountants and tax havens.

There is therefore a net outflow of money in the case of private corporations which does not exist in the NHS model.

As a supplementary question, is there any objective evidence that franchising is more efficient than the public service model. For instance in rail services franchising is there any evidence of increased efficiency?

The TDA answer:

Dear Dr Lawson 

Thank you for your correspondence of 17 October 2013 which has been forwarded 
to me from North Somerset Clinical Commissioning Group (CCG) for response. 

You will be aware that, like many other small hospitals, Weston Area Health NHS 
Trust has faced, and continues to fact a number of challenges to ensuring that 
services provided are financially and clinically sustainable. Over the last few years 
Weston has explored all the options to meet these challenges, ranging from 
achieving elite Foundation Trust status to developing an integrated care Trust. None 
of these options could be made to work. The do nothing option is likely to require a 
circa £80 million subsidy over the next five years and this position is clearly not 
sustainable or affordable to the local health economy. This work has, 
understandably, taken considerable administrative and clinical time and effort. 

Starting in October 2012 the Trust and local stakeholders conducted a further option 
appraisal. In March 2013 the Strategic Health Authority together with the Trust 
concluded that after having exhausted all the other possible options, the best 
solution to reduce the need for future financial support was to run a competition to 
find an innovative partner to improve the quality and safety of services and to help 
run services more sustainably. This decision now frees the Trust managers and 
clinicians to focus during the transaction and transition period on the delivery of high 
quality services. 

The procurement process being undertaken is intended to get the best local solution 
for local people. This is why both the NHS and the Independent Sector will be asked 
for their best ideas to run sustainable services. If the project is given authority to 
proceed, the NHS is expected to put forward proposals to acquire the Trust and the 
Independent Sector to manage the hospital and run services. This process will allow 
us to test any proposed franchise model against other models such as an NHS 
acquisition to ensure that the right solution for the Trust and for the patients that it 
serves is identified. 

In the event that the preferred solution is a franchise, it is important to note that any 
Independent Sector provider will not own the hospital. There would be no change of 
ownership or transfer of assets and staff out of the public sector. All staff and assets 
would remain within the NHS. 

Any potential partner would not be able to make a profit at the expense of NHS 
patients. In a franchise arrangement, any franchisee would only be paid as the Trust 
is currently paid for services ie at NHS prices. National and local service quality 
standards currently required of services would continue to be demanded and 
monitored by the CCG and NHS TDA as is currently the case. It is therefore for any 
potential franchise bidder to determine how, through the introduction of innovation in 
service delivery, they will meet any shareholder requirements whilst ensuring that 
service targets and standards and patient and staff safety are maintained to the 
required standards. Any franchise arrangement will make clear that a franchisee will 
only be paid if the contract is delivered; unlike the current Independent Sector 
Treatment Centre arrangements, the contract would give no guarantee of funding. 

Clearly, the same standards and requirement to deliver to contract would be placed 
on any NHS acquirer should this be the preferred solution. Clear failure regime 
arrangements would be put in place to ensure that if any potential partner is not 
delivering, there would be safeguards to ensure that patients do not suffer and to 
ensure the continuance of essential services. 

Any Independent sector organisation will only pay tax on any surplus they deliver. It 
is recognised that for any organisation, NHS or Independent Sector, the ability to 
generate a surplus will require significant innovation and service delivery 
transformation and will be incredibly difficult to achieve in the current fiscal 

With regard to your final point, there is evidence that franchising is more efficient 
than the public service model both in the NHS and in rail services. 

Hinchingbrooke represented the first franchise arrangement in the NHS. The 
Hinchingbrooke process suggested that without the procurement process the local 
NHS would have needed an £80 million subsidy or services would have had to close 
Whilst it is clear that lessons can be learned from both the transaction process and 
the contractual arrangements established, and that the financial position is taking 
longer to improve than would have been hoped for, is clear that financial 
improvements will take place over the course of the franchise agreement and that 
significant improvements in clinical quality have been achieved. 

There is also research evidence that franchising in the rail services is more efficient 
than a public service model. 

The important point to emphasise however is that by exploring both an acquisition 
and franchise model, we can consider the skill, creativity and the flexibility of other 
organisations to innovate, meet patient expectations and keep costs down and so 
ensure that we find the right partner organisation to manage the services at Weston 
Area Health NHS Trust. 

I hope that this answers the questions that you have raised. 

Yours sincerely 

Director of Delivery and Development South 

My answer today:
Monday, November 25, 2013

Dear Dr Dunn

Thank you for your letter of 15th November. Your letter raises a number of interesting questions, but in this letter I will focus on your belief that “franchising is more efficient than the public service model … in the NHS”.

Efficiency is a term that needs close definition. For instance, Weston General Hospital provides training for medical students and nurses. If this provision is deleted from any emerging contract with a private company, the costs will not be comparable. 

You offer the Hinchingbrooke franchise as evidence of increased efficiency. It is doubtful that a robust claim of success can be made 21 months into a 10 year contract. While it is true that welcome improvements have been made in A&E waiting times and orthopaedic inpatient times, and consultants have been prevailed upon to start their day on time, there have also been costs and failures. You accept that the financial situation has taken longer to settle than was hoped for, since Circle had to apply for a £4.1 million capital loan a few months in to the contract. It is noteworthy that the House of Commons Public Accounts Committee described Circle’s savings plan as ‘over ambitious’ and ‘unachievable’. It seems that Circle’s plan is to make savings by reducing staff, but this runs counter to the Government’s recent plan to make hospitals publish ward staff numbers in order to correct under-staffing. Of particular concern is the news that cleaning staff numbers have been cut.

Another cost is seen in terms of lower staff morale which is appearing at Hinchingbrooke.

Also the patient satisfaction ratings for Hinchingbrooke fell each month from May to October 2012.

It seems that the financial contract will be different in the case of a public or a private provider. My understanding is that it is still the case that if a public provider has a surplus at the end of a financial year, that surplus is lost, and may even result in less funding next year. I have witnessed rushed, unnecessary and ill-considered purchasing actions taking place as a result of this policy. In the case of a private contractor, from what you have written, they will be able to retain some of the surplus as profit, and plough the rest back in to the organisation. If I am not misinformed, then is it not the case that we are comparing apples and oranges, and that the private companies benefit from a more efficient funding model?

Therefore, the Hinchingbrooke case cannot be put forward as evidence that private provision is more efficient than public provision.

On the other hand, your belief is contradicted by Pritchard C, Wallace MS. Comparing the USA, UK and 17 Western countries' efficiency and effectiveness in reducing mortality. JRSM Short Rep 2011;2:60. They found by comparing GDP expenditure with mortality rate outcomes 1979-2005 that “the USA healthcare system was one of the least cost-effective in reducing mortality rates whereas the UK was one of the most cost-effective over the period”.

Unless you have further evidence, it is clear that that privately funded health services are less efficient than the NHS, and therefore it is in the interests of the population served by Weston General Hospital that the partnering organisation to be chosen should be one of the NHS Trusts who are interested.


Richard Lawson


[to be continued...]

[Health Service Journal briefing on Hinchingbrooke]

No comments: