Editorial Tuesday 4 February 2014: Why privatising the NHS would be A Very Bad Idea

The Twittering Classes were fascinated to notice that NHS England's outgoing chief executive, Comrade Sir David Nicholson had joined the micro-blogging service.

The Comrade-In-Chief revealed that he is taking part in a Cambridge University Union debate on the motion that 'This House believes that the NHS should be privatised', which you will be unsurprised to hear he is opposing.

The 2012 Health and Social Care Act is not, despite some of its critics' analyses, the privatisation of the NHS. Rather, it is (as I pointed out in The Simon Burns Song) the disestablishment of the NHS, which is quite a different thing - remember Nigel Lawson's line on the NHS as national religion.

The details of this separation of the NHS church from the state has bypassed most of the apolitical general public. However, the heated if not always enlightening debate over the NHS reforms have left the public aware that the Coalition has 'done something' to the NHS - if not clearly aware what that something is. This holds big political risks for the Coalition - but I digress.

So why would privatising the NHS - a policy that was once upon a time (back in 1994) the view of Roy Lilley - be A Very Bad Idea indeed?

1. Because healthcare is not an industry like every other
This seems an obvious point, but needs making. No other public service that we will probably all use in future involves such uncertainty and risk of harm.

We can mostly survive an education of erratic quality, pockets of corrupt policing or poorly-run local government without the probability of direct personal harm. The same is not true of healthcare.

As well as being high-risk, modern healthcare is often high-complexity and high-cost. Investments in capital and in training to have the necessary facilities and workforce are significant, with implications for entering and exiting the market. Healthcare delivery also tends to remain labour-intensive, as Baumol's cost disease reminds us.

Nor is there a good read-across to healthcare from other industries, in that for an individual, having more healthcare does not necessarily equate to better health. Consuming a great deal of healthcare is not a marker of good health, nor of success. Indeed, much of healthcare may be better understood as what marketing folk refer to as a 'distressed purchase'.

And given the longstanding, generally-accepted figure that one in ten healthcare encounters sees the patient harmed (and recent work by the Health Foundation suggests it may be still higher), we should be mindful that while some harm will be trivial, some will not.

The asymmetries of information facing users of healthcare are also significant. Even the (largely mythical) sharp-elbowed middle-classes may well struggle when facing health outcome data, funnel plots, confidence intervals, regression to the mean and the  understanding that correlation may not equal causation. A conversation with one of the country's best-known health economists remains fresh in my mind, who told me that he wouldn't easily be able to use published data on hip replacements to reliably help him choose.

(Not to mention the pharmaceutical industry's poor record on being open about all clinical trials to enable clinicians (let alone patients) to make informed decisions.)

So no perfect information for the consumers, which is one of the founding tenets of the market faithful ...

Nor is healthcare necessarily a fungible and choice-compatible good in a way that would allow for the other key driver of market mechanics: that of customer choice.

Fungibility involves the meaningful difference between comparable options, where a unit of one kind is as useful as a unit of another: petrol is a good example.

So a phone call on a mobile network is a highly fungible good, and it is possible for competing providers to offer comparable and compatible services, between which customers can differentiate by price, or brand, or signal strength.

Other former public sector monopolies are less fungible and choice-friendly: for most commuting journeys into a major connurbation, no realistic alternative to train travel exists. And no meaningful choice between domestic providers of mains water or indeed sewage services is realistically possible.

There is a deep irony for the market faithful, in that at the point of greatest need of healthcare - a serious accident or emergency - the aspiring consumer is least capable of making a choice. Thanks to Spurs fan Dr Andrew Deaner, Fabrice Muamba's ambulance famously drove him past the nearest hospital to get to a specialist unit: a choice which almost certainly saved his life and in which Muamba had no part.

2. Because the NHS is a system of universal coverage
The motion proposes to privatise the NHS, rather than to abolish it. Yet if that is the goal, it will have to remain a system of universal coverage. And that means that privatisation will not work, because investors are not stupid enough to want to take on an uncapped risk pool.

The people in the greatest need of healthcare are the poorest, as Julian Tudor Hart's Inverse Care Law reminds us. More to the point, in Tudor Hart's own phrase, "the availability of good medical care tends to vary inversely with the need for the population served".

The defining feature of the poor is that they don't have very much money. This is why health insurers throughout the world have had to be firmly regulated and generously subsidised by national governments so that they will cover this population. Such behaviour distorts the key market dynamic of risk transfer.

Indeed, insurers tend to make significant efforts to refuse to cover those at highest risk of sickness (cherry-picking), as the exclusions in private medical insurance policies show. Insurers do not want to deal with really sick patients, because they are expensive and full cost recovery may not be possible.

Nor is there significant evidence that privatised healthcare systems are better at reducing quality and outcome variation or constraining cost rises, as this WHO review found.

3. Because the public don't want it
Opinion polling repeatedly reveals that the NHS is consistently ranked high in the list of reasons to be proud to be British. And even despite years of public discussion of the funding pressures on the NHS, research by Ipsos MORI for the Foundation Trust Network published last October found overwhelming public support for more funding.