The NHS internal market was established by the
National Health Service and Community Care Act 1990
The National Health Service and Community Care Act 1990 (c 19) introduced an internal market into the supply of healthcare in the United Kingdom, making the state an 'enabler' rather than a supplier of health and social care provision.Health and S ...
, to separate the roles of purchasers and providers within the
National Health Service
The National Health Service (NHS) is the umbrella term for the publicly funded healthcare systems of the United Kingdom (UK). Since 1948, they have been funded out of general taxation. There are three systems which are referred to using the " ...
in the United Kingdom. Previously, healthcare was provided by
regional health authorities which were given a budget to run hospitals and community health services (but not
general practice
General practice is the name given in various nations, such as the United Kingdom, India, Australia, New Zealand and South Africa to the services provided by general practitioners. In some nations, such as the US, similar services may be describe ...
) in their area. The
Health and Social Care Act 2012
The Health and Social Care Act 2012c 7 is an act of the Parliament of the United Kingdom. It provided for the most extensive reorganisation of the structure of the National Health Service in England to date.''BMJ'', 2011; 342:d408Dr Lansley's Mon ...
was intended to open up the internal market to external competition. The 2019
NHS Long Term Plan
The NHS Long Term Plan, also known as the NHS 10-Year Plan is a document published by NHS England on 7 January 2019, which sets out its priorities for healthcare over the next 10 years and shows how the NHS funding settlement will be used. It was p ...
called for the establishment of
integrated care system
In England, an integrated care system (ICS) is a statutory partnership of organisations who plan, buy, and provide health and care services in their geographical area. The organisations involved include the NHS, local authorities, voluntary and cha ...
s across England by 2021, effectively ending the internal market.
Establishment
Although the
Thatcher government was slow to reform the
NHS
The National Health Service (NHS) is the umbrella term for the publicly funded healthcare systems of the United Kingdom (UK). Since 1948, they have been funded out of general taxation. There are three systems which are referred to using the " ...
, following the 1983 Griffiths report,
from 1988 it began to apply the principles of
New Public Management
New Public Management (NPM) is an approach to running public service organizations that is used in government and public service institutions and agencies, at both sub-national and national levels. The term was first introduced by academics in the ...
vigorously across the welfare state. The plan was to decentralize decision making and introduce competition, with the state becoming a purchaser, rather than a provider, of welfare services.
The setting up of the market required the establishment of a system of
Payment by Results Payment by Results (PbR) is a type of public policy instrument whereby payments are contingent on the independent verification of results. It is being actively promoted by a number of governments for more effective implementation of domestic policy. ...
and the formulation of a national NHS Tariff to complement the funding formula devised by the
Resource Allocation Working Party. The Tariff includes a weighting system, the market forces factor, which pays providers in high-cost areas – principally in London – enhanced fees. In 2019 it was decided to reduce the London weighting.
The internal market initially established
NHS trust
An NHS trust is an organisational unit within the National Health Services of England and Wales, generally serving either a geographical area or a specialised function (such as an ambulance service). In any particular location there may be several ...
s, in five annual waves, as separate bodies, splitting purchasers from providers. Until they became trusts the providing organisations were called directly managed units. The trusts had boards with non-executives, analogous to company boards, and business people were encouraged to serve on the boards. The Act also established
GP Fundholding GP Fundholding was created in 1991 as part of the quasi-market created in the National Health Service
The National Health Service (NHS) is the umbrella term for the publicly funded healthcare systems of the United Kingdom (UK). Since 1948, t ...
, a scheme whereby individual GP practices could take over the management of hospital services for their patients. Fundholding was abolished by the Labour Government in 1997/8. The Labour Party had campaigned against the internal market, but did not abolish it, though
Tony Blair
Sir Anthony Charles Lynton Blair (born 6 May 1953) is a British former politician who served as Prime Minister of the United Kingdom from 1997 to 2007 and Leader of the Labour Party from 1994 to 2007. He previously served as Leader of th ...
told the Labour Party conference in 1999 that the dreaded Tory internal market was finally banished for good. It introduced primary care groups, which were soon converted into
primary care trust
Primary care trusts (PCTs) were part of the National Health Service in England from 2001 to 2013. PCTs were largely administrative bodies, responsible for commissioning primary, community and secondary health services from providers. Until 31 May ...
s—"thereby universalising fundholding while repudiating the concept."
Julian Le Grand
Sir Julian Ernest Michael Le Grand, FBA (born 29 May 1945) is a British academic specialising in public policy. He is the Richard Titmuss Professor of Social Policy at the London School of Economics (LSE) and was a senior policy advisor to former ...
was one of the chief proponents of quasi-markets influencing the
Blair governments.
The fundamental concept was that patients would choose between different providers, money would follow the patients and so the best hospitals (there was never any choice of community health services) would prosper. It was never explained what would happen to the less successful institutions. As
Kenneth Arrow
Kenneth Joseph Arrow (23 August 1921 – 21 February 2017) was an American economist, mathematician, writer, and political theorist. He was the joint winner of the Nobel Memorial Prize in Economic Sciences with John Hicks in 1972.
In economics ...
explained in his famous 1963 paper, Uncertainty and the Welfare Economics of Medical Care "A competitive healthcare market is grounded in the expectation that some hospitals or surgeries will go bust". No hospitals did go bust, and only a minority of patients, mainly those needing
elective surgery
Elective surgery or elective procedure (from the la, eligere, meaning to choose) is surgery that is scheduled in advance because it does not involve a medical emergency. Semi-elective surgery is a surgery that must be done to preserve the patien ...
, were in a position to exercise choice between providers. Furthermore, as Arrow explained, "In practice, the theoretical advantages of choice are outweighed by the fact that people don't do a good job of making these choices in a competitive environment—it's almost impossible."
In lieu of commercial failure, health and social care service regulators were established, first the
Commission for Health Improvement
The Commission for Health Improvement (CHI) was a non-departmental public body sponsored by the Department of Health of the United Kingdom from 2001 until 2004, when its functions were subsumed by the Healthcare Commission.
CHI was established by ...
, which was replaced by the
Healthcare Commission
The Healthcare Commission was a non-departmental public body sponsored by the Department of Health of the United Kingdom. It was set up to promote and drive improvement in the quality of health care and public health in England and Wales. It aimed ...
and then the
Care Quality Commission
The Care Quality Commission (CQC) is an executive non-departmental public body of the Department of Health and Social Care of the United Kingdom. It was established in 2009 to regulate and inspect health and social care services in England.
I ...
.
Cost
Opponents of the internal market have regularly claimed that the introduction of the internal market increased NHS administration costs from 5% to 14% of total expenditure. As a report from
York University
York University (french: Université York), also known as YorkU or simply YU, is a public university, public research university in Toronto, Ontario, Canada. It is Canada's fourth-largest university, and it has approximately 55,700 students, 7,0 ...
pointed out "There are no agreed definitions of 'administration' and 'management' in health care between (and sometimes even within) countries' health care systems." Nor is it clear which administrative functions are attributable to the market. Administrative costs in the NHS were generally thought to be lower than in other systems as there were no systems for billing patients, and indeed until the advent of the internal market there was little discussion of the costs of treatments. The number and cost of managers, administrative and clerical staff certainly increased significantly between 1988 and 1992, but
Full Fact
Full Fact is a British charity, based in London, which checks and corrects facts reported in the news as well as claims which circulate on social media.
History and structure
Full Fact was founded in 2009 by businessman Michael Samuel, the c ...
concluded that "No-one knows the exact cost or benefit of the NHS internal market in England".
Reform
The reforms introduced in 2017 by
Simon Stevens are regarded as the official abandonment of the policy of competition in the English NHS, the establishment of
integrated care system
In England, an integrated care system (ICS) is a statutory partnership of organisations who plan, buy, and provide health and care services in their geographical area. The organisations involved include the NHS, local authorities, voluntary and cha ...
s effectively ending the purchaser-provider split, although there has not yet been any legislative acknowledgment of the change in policy. In February 2019,
NHS England
NHS England, officially the NHS Commissioning Board, is an executive non-departmental public body of the Department of Health and Social Care. It oversees the budget, planning, delivery and day-to-day operation of the commissioning side of the ...
called for the repeal of the regulations made under section 75 of the
Health and Social Care Act 2012
The Health and Social Care Act 2012c 7 is an act of the Parliament of the United Kingdom. It provided for the most extensive reorganisation of the structure of the National Health Service in England to date.''BMJ'', 2011; 342:d408Dr Lansley's Mon ...
which require competitive tendering.
From March 2019, with the effective merger of
NHS Improvement
NHS Improvement (NHSI) was a non-departmental body in England, responsible for overseeing the National Health Service's foundation trusts and NHS trusts, as well as independent providers that provide NHS-funded care. It supported providers to ...
and
NHS England
NHS England, officially the NHS Commissioning Board, is an executive non-departmental public body of the Department of Health and Social Care. It oversees the budget, planning, delivery and day-to-day operation of the commissioning side of the ...
, there was no longer any real purchaser/provider split at a national level.
The move away from
Payment by Results Payment by Results (PbR) is a type of public policy instrument whereby payments are contingent on the independent verification of results. It is being actively promoted by a number of governments for more effective implementation of domestic policy. ...
, which started in 2019, further undermines the principles of the internal market, as it is intended to reduce incentives for increases in hospital activity.
Karen James, chief executive of
Tameside and Glossop Integrated Care NHS Foundation Trust
Tameside and Glossop Integrated Care NHS Foundation Trust is an integrated foundation Trust that operates from Tameside General Hospital situated in Ashton-under-Lyne. It serves the surrounding area of Tameside in Greater Manchester, and the to ...
, said in July 2020 that the NHS should aim to permanently scrap activity-based payment tariffs for acute care because block contracts – in which trusts are paid a set level of income – had encouraged "the right behaviours" in Greater Manchester during the
COVID-19 pandemic in England.
In the financial allocations to local systems covering the second half of 2020–21, incentives and penalties depend solely on system-level performance, not performance of individual organisations.
The
Department of Health and Social Care
The Department of Health and Social Care (DHSC) is a department of His Majesty's Government responsible for government policy on health and adult social care matters in England, along with a few elements of the same matters which are not otherwis ...
launched a consultation on a proposed new 'provider selection regime' in 2022. This is to take effect with the passing of the
Health and Care Bill 2021
The Health and Care Act is an Act of the Parliament of the United Kingdom, which is intended to dismantle many of the structures established by the Health and Social Care Act 2012. Many of the proposals were drafted under the leadership of Sim ...
. NHS commissioners will no longer be automatically obliged to put clinical services out to tender.
References
{{NHS England
National Health Service