Foundation hospitals: a step towards privatising the NHS

The outcome of the recent debate in the House of Commons on foundation hospitals was a foregone conclusion: a smaller than expected number of Labour MPs salved their consciences by voting against it, whilst the Labour government took a further step towards opening up the NHS to private healthcare providers.

Previous issues of FRFI (eg FRFI 161, ‘Privatisation accelerates’) have argued that Labour’s commitment to continued privatisation is to enable the creation of British multinational service providers which are of sufficient size to compete on the world market. Its enthusiasm for privatisation has made it a keen supporter for the General Agreement on Trade in Services. This will open up any government-provided service, including health, to privatisation. British private healthcare providers such as BUPA are minnows compared to US counterparts: they have to grow substantially if they are to become a force in the world market. The creation of foundation hospitals will enable this to happen.

Foundation hospitals cannot be considered separately from other changes which form part of the government’s 10-year NHS Plan.

One little-heralded development is the implementation of a new system of paying for hospital services. At the moment, Primary Care Trusts (PCTs) pay NHS hospital and mental health trusts a block sum which is basically a fixed amount independent of cost or volume of patient throughput. Under the new system, a national tariff will be set for almost all non-emergency procedures which can be allocated to a Health Resource Group. The tariff will be weighted to promote ‘efficiency’ – the use of daycase surgery is an example. Hospitals will then charge according to this tariff. If they carry out more activity, they will get extra income which they can retain; if they under-achieve, they will lose income. They will be able to charge social services for any delays in discharging patients because of shortage of residential placements. This will enable ‘money to follow the patient’ – but within it are the seeds of privatisation. This will become more evident as the tariffs are refined to adjust for patient risk. Hospitals will be able to model services not on what the local population needs, but on what will maximise income. Their aim will be to minimise risk by selecting low-risk patients, and by transferring as much risk to patients and their GPs as possible. Commissioners will agree on the need to transfer risk to patients, but will be driven by cost containment rather than income maximisation. It is the patient who will suffer in this system, particularly those with chronic and/or multiple conditions – mainly the elderly.

This sets the scene for foundation hospitals. To date privatisation has been achieved through the contracting out of ancillary services and, more recently, the Private Finance Initiative which added new hospital building to the private domain. This has allowed companies such as Jarvis, Siemens, Carillon and Rentokil to start fleecing the NHS: PFI schemes on average require a 30% bed loss to become affordable. Under the new legislation, NHS hospital trusts can apply to become foundation hospitals. They will be able to raise money on the open market subject to limits set by a regulator. Crucially they will be able to sub-contract clinical services to private providers. The legislation also allows any private sector body to become a foundation trust and run NHS services: the Department of Health is lining up companies such as BUPA and the US firm Kaiser Permanante to run ‘failing’ hospitals.

In promoting foundation hospitals, Health Secretary Alan Milburn stressed that the bill would address the question of universal access and equity. In fact the prime duty of foundation hospitals will be to function ‘efficiently, effectively and economically’. The fact that the legislation gives foundation hospitals unlimited powers to enter into joint ventures with the private sector whether to raise money or provide clinical services means that services will fall outside any local control or public accountability. The scene is being set for a US model of healthcare funding and provision, and the principal characteristic of US healthcare is its utter lack of equity or universality.

Readers who want to know more about the privatisation of the NHS should read an excellent paper by Allyson Pollock, Foundation hospitals and the NHS Plan, from which this article is drawn. It can be found at

Robert Clough

FRFI 173 June / July 2003


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