Comment

13.02.17

Outsourcing will not be the panacea for the NHS funding crisis

Source: NHE Jan/Feb 17

Vivek Kotecha from the Centre for Health and the Public Interest (CHPI) considers the argument for and against greater outsourcing in the NHS.

In England, a recent addition to the list of Christmas traditions (mulled wine, Christmas pudding, carols and crackers) seems to be an annual NHS winter crisis. The fear is that that what was once only a winter crisis is at risk of becoming a year-round fixture, exacerbated by the £22bn shortfall between NHS funding and the cost of meeting healthcare needs by 2020. 

To address these concerns, England has been split into 44 geographical ‘footprints’ and in each one a team drawn from hospital trusts, CCGs and local councils, assisted by staff from NHS England’s regional teams and planning consultants from the private sector, have published sustainability and transformation plans (STPs). These aim to set out how they will provide healthcare until 2020-21 whilst contributing their share of the spending cuts needed to meet the £22bn shortfall. The scale of the cost savings needed has necessitated ambitious proposals and rethinks of how healthcare is provided. 

One option that will be considered to cut costs further is the contracting out of NHS services to independent providers, the voluntary sector and local authorities. This seems likely because the use of outsourcing has steadily grown over recent years and many of the services that could be outsourced are non-tariff, i.e. there is no fixed price per treatment and so bidders can compete on price. In 2015-16, £12.2bn was spent on non-NHS providers (10.7% of the Department of Health’s expenditure limit), up from £4.4bn in 2005-06 (5.8% of the expenditure limit). The use of non-NHS providers has been growing since the 1990s, but the question is: does the NHS have the capability to effectively outsource services without compromising on quality? 

Outsourcing is not the same as privatisation 

It is important to note that outsourcing is not the same as privatisation. Privatisation is usually a complete and permanent transfer of the governance, control, and operating risk of an asset or service to a private provider, whilst outsourcing usually involves transferring responsibility for managing an asset (but not ownership of it), or providing a service to a private provider for a finite contractual period. 

The arguments for outsourcing rest on the different incentives that operate in the private and public sectors. Studies by economists have found that outsourcing does generally lead to cost savings (estimates range from 6-20%), but these are of similar magnitude regardless of whether a private or public body wins the contract. This suggests that private firms aren’t necessarily more efficient than public bodies, which raises the question: how are these savings achieved? 

One hypothesis is that quality of service is reduced in order to cut costs. There is evidence of this taking place and it is most common in contracts of services where quality is a subjective judgement and performance hard to monitor. For example, what counts as a high standard of cleanliness varies from one person to another. A recent study has found that outsourced cleaning services are associated with lower costs but a higher incidence of MRSA. This is an example of how savings made must be weighed against any impact on quality and safety. 

Another hypothesis suggests that cost savings are achieved at the expense of workers’ pay and conditions. There is mixed evidence, but even if actual pay rates don’t drop, work intensity does increase and the likelihood of industrial accidents or repetitive strain injury – and injuries to patients or users of social care – goes up too. 

For the NHS these are important considerations as healthcare is a service industry, and if quality is compromised directly or indirectly through overworked staff, the risk of harm to patients increases. The aim of outsourcing may be cost minimisation but not at the expense of service quality. So what are the characteristics of a successfully outsourced contract? 

Outsourcing works best when contracts can be complete, i.e. when they account in advance for different future scenarios such as higher than expected demand; when they can clearly allocate risk between the contracting parties; and when they have goals that are realistic to monitor and enforce. A good example of an easy to outsource service is refuse collection. Generally, they are complete (most scenarios can be predicted, such as more homes to collect from, or adverse weather), risk can be easily shared (the collector is responsible for collecting the refuse), and it is easy to monitor (residents can see if their refuse is not being collected). 

In healthcare it is a lot harder to meet these conditions. More complex tasks (such as providing GP services or community care) are now being outsourced. Quality is often hard to measure and enforce for these services. Analysis by the CHPI has shown that contracting out by NHS bodies is often not effective because they lack the expertise to negotiate terms, don’t have the capacity to monitor performance, and are often reluctant to punish failure due to a dependence on the provider because of a lack of alternatives. Worse yet, they might create incentives for providers of outsourced services to engage in fraudulent behaviour. 

One example is Serco’s out-of-hours GP contract in Cornwall, where performance targets were falsified and the service was short-staffed. Performance was not scrutinised and when concerns were raised no fines were made by the NHS body for fear of making the service worse. 

As 2017 progresses and STPs look to make up for the £22bn funding shortfall the temptation to outsource more services will grow. However, the increasing complexity and need for quality in the services not yet outsourced, along with the lack of monitoring capacity in CCGs and hospital trusts, makes the benefits of outsourcing less likely to materialise.

FOR MORE INFORMATION

W: https://chpi.org.uk

Comments

There are no comments. Why not be the first?

Add your comment

national health executive tv

more videos >

latest healthcare news

NHS England commits £30m to join up HR and staff rostering systems

09/09/2020NHS England commits £30m to join up HR and staff rostering systems

As NHS England looks to support new ways of working, it has launched a £30m contract tender for HR and staff rostering systems, seeking sup... more >
Gender equality in NHS leadership requires further progress

09/09/2020Gender equality in NHS leadership requires further progress

New research carried out by the University of Exeter, on behalf of NHS Confederation, has shown that more progress is still needed to achieve gen... more >
NHS Trust set for big savings in shift to digital patient letters

09/09/2020NHS Trust set for big savings in shift to digital patient letters

Up and down the country, NHS trusts are finding new and innovative ways to leverage the power of digital technologies. In Bradford, paper appoint... more >

the scalpel's daily blog

Covid-19 can signal a new deal with the public on health

28/08/2020Covid-19 can signal a new deal with the public on health

Danny Mortimer, Chief Executive, NHS Employers & Deputy Chief Executive, NHS Confederation The common enemy of coronavirus united the public side by side with the NHS in a way that many had not seen in their lifetimes and for others evoked war-time memories. It was an image of defiance personified by the unforgettable NHS fundraising efforts of Captain Sir Tom Moore, resonating in the supportive applause during the we... more >
read more blog posts from 'the scalpel' >

interviews

Matt Hancock says GP recruitment is on the rise to support ‘bedrock of the NHS’

24/10/2019Matt Hancock says GP recruitment is on the rise to support ‘bedrock of the NHS’

Today, speaking at the Royal College of General Practitioners (RCGP) annual conference, Matt Hancock highlighted what he believes to be the three... more >
NHS dreams come true for Teesside domestic

17/09/2019NHS dreams come true for Teesside domestic

Over 20 years ago, a Teesside hospital cleaner put down her mop and took steps towards her midwifery dreams. Lisa Payne has been delivering ... more >
How can winter pressures be dealt with? Introduce a National Social Care Service, RCP president suggests

24/10/2018How can winter pressures be dealt with? Introduce a National Social Care Service, RCP president suggests

A dedicated national social care service could be a potential solution to surging demand burdening acute health providers over the winter months,... more >
RCP president on new Liverpool college building: ‘This will be a hub for clinicians in the north’

24/10/2018RCP president on new Liverpool college building: ‘This will be a hub for clinicians in the north’

The president of the Royal College of Physicians (RCP) has told NHE that the college’s new headquarters based in Liverpool will become a hu... more >

last word

Haseeb Ahmad: ‘We all have a role to play in getting innovations quicker’

Haseeb Ahmad: ‘We all have a role to play in getting innovations quicker’

Haseeb Ahmad, president of the Association of the British Pharmaceutical Industry (ABPI), sits down with National Health Executive as part of our Last Word Q&A series. Would you talk us th... more > more last word articles >

editor's comment

26/06/2020Adapting and Innovating

Matt Roberts, National Health Executive Editorial Lead. NHE May/June 2020 Edition We’ve been through so much as a health sector and a society in recent months with coronavirus and nothing can take away from the loss and difficulties that we’ve faced but it vital we also don’t disregard the amazing efforts we’v... read more >

health service focus

‘We are the NHS’: NHS England publish newest People Plan

30/07/2020‘We are the NHS’: NHS England publish newest People Plan

NHS England has published its People Plan for... more >
How NHS Property Services adapted to a new way of working

01/07/2020How NHS Property Services adapted to a new way of working

From May/June 2020 edition Trish Stephen... more >