Can ritzy reforms save the NHS?

The NHS is 60 years old, and it's slated for a ritzy relaunch. But are more reforms really necessary, and with billions poured into the health service, where has all the money gone?

The NHS turns 60 tomorrow. And what better way to celebrate than with a ritzy relaunch? Earlier this week, Prime Minister Gordon Brown described a new report by junior health minister and surgeon Lord Darzi as "a once-in-a-generation opportunity" to reform the health service for the 21st century.

But you could be forgiven for asking why it needs to be reformed at all. After all, by the end of last year, Mr Brown and the Labour party had spent a total of £269bn more on the NHS than if spending levels been frozen at 1997 levels, says David Craig in his book


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. So what have we got to show for it? Not as much as we might have hoped, sadly. The problem, according to Craig, is that rather a lot of that money has gone on bureaucracy (the number of managers in the NHS has doubled, even though the overall head count has risen by 20%) and higher wages, rather than improving the service.

For example, the King's Fund health think-tank reckons that about 40% of the extra £4.5bn spent in the NHS in 2006/07 went on pay rises. As chief economist Professor John Appleby put it at the time: with consultant and nurse pay rates already near the top of the international league table, this "raises questions about value for money".

Fewer beds, dirtier hospitals

The Government will point to falling waiting lists and improving hospital deficits as signs of progress. But the one area that would concern most of us how many people are killed by the NHS remains worryingly high. The NHS itself reckons that around 34,000 people died unnecessarily in 2007, with another 25,000 permanently disabled. A substantial chunk of this is down to one of the biggest concerns of the moment hospital-acquired infections.

According to Craig, we have around 300,000 cases of hospital-acquired infection a year, "about 50 times higher than some other European countries". The two most prominent infections are MRSA and Clostridium difficile, which between them were linked to around 8,000 deaths last year, reports The Daily Telegraph.

Hospital cleaning or a lack of it is partly to blame, as outsourcing and extra layers of management ensure that no one takes responsibility for keeping wards spick and span. But what the Government is less keen to admit to is the fact that, as Roger Goss of Patient Concern told the BBC, a major cause of infection is "over-use of hospital beds and the lack of spare capacity to isolate infected patients". This is because, despite all the extra funding and increased demand since 1997, there are now fewer beds just over 167,000 compared with nearly 200,000 a decade ago.

Now, having fewer beds isn't bad in itself in 1948 the NHS had around 460,000 beds, but people had to stay in hospital for far longer. However, combine that 16% cut in bed space since 1997 with added pressure on hospitals to meet targets for waiting times, and it's perhaps no surprise that hygiene suffers in the scramble to rotate beds as quickly as possible. Whatever other new initiatives are planned for the future of the NHS, more beds aren't among them. That means we'll be relying more and more on anti-infection companies to clean up the wards, rather than the more basic methods that might have prevented the drastic spread of such illnesses in the first place. We look at some firms set to profit in 'How to invest in the NHS spruce-up'.

Demand for private care will rise

At least cleaning up wards is a specific problem that should be possible to solve. But there's a deeper problem with the NHS, one it shares with every other medical system around the world. When it was established in 1948, under Health Minister Aneurin Bevan, the NHS was founded in the belief that healthcare demand would fall. It seems naive now, but as one surgeon of the time, Iain MacLaren, told The Guardian: "I believed that as time went on, the need for the NHS would fade away as we all became healthier. That was a basic error. The demands on the service have increased exponentially."

As people live longer and get healthier, we need even more care to keep us healthy (think anti-cancer drugs, joint replacements, and other ways to tackle the ailments of age). And as technology develops, there are ever newer, more expensive treatments available. That's good news, but as Daniel Finkelstein points out in The Times, the expense means that "many of these drugs will not be available on the NHS". Yet, as oncologist Professor Karol Sikora says: "Denying the existence of innovative drugs is no longer acceptable in a democracy where patients can have access to all the information."

So the reality is that regardless of how the NHS is structured and funded, there will be more and more people who find they either want to, or have to, step outside the system to get the treatment they need. In the longer run, this could be good news for insurers, but meanwhile, some of the companies best placed to benefit are those offering high-quality treatment abroad in low-cost countries. We look at some examples in 'Fleeing the NHS and how to profit from the exodus'.

Is there a problem to fix?

by Emily Hohler

Lord Darzi's report on reforming the NHS is the culmination of a 12-month process that has considered the views of 60,000 people and 2,000 medical experts. And there is "much to applaud" in the proposals, says the Daily Mail "if anything comes of them". Nobody will argue, for instance, with the need for the National Institute for Health and Clinical Excellence (NICE) to speed up its drug appraisals from two and a half years to six months, and to end the postcode lottery under which treatments are available to some patients but not others.

The proposal to shift minor surgery operation out of hospitals and into 150 new 'GP-led health centres' or 'polyclinics' also makes sense, says The Independent, and the sentiments expressed about the need to widen patients' choice and build a more personalised NHS are "fine" ones (patients' own assessments of the quality of care and compassion they receive will now have a direct impact on hospital and GP budgets).

But how will these proposals be paid for? asks David Rose in The Times. NHS budgets which have tripled over the past decade to £100bn a year have effectively been frozen until 2011, yet the review pledges to give patients any approved medication on the basis of clinical need rather than cost. This risks creating an "almost limitless drugs bill", particularly since drugs will only get more complex and more costly. To deliver world-class care, the NHS will have to address the funding problem: for a start co-payments should be allowed for 'top-up' treatments.

But the NHS cannot "truly modernise itself until it allows the thoroughgoing deregulation of healthcare supply". The NHS requires a complete "transformation", not this "bureaucratic tinkering", agreed The Independent. It is "imperative" that something is done to break the "stifling hold of Whitehall over the major delivery mechanisms of healthcare".

Rubbish, says Polly Toynbee in The Guardian. Increased local council control creates the postcode lottery that patients so hate. "There is no crisis that needs these violent remedies No deficit but a surplus, no winter ward closures, no annual crises". Best of all, avoidable death rates show a 21% improvement, far more than any other EU country. NHS founder, Nye Bevan said: 'We shall never have all we need. Expectations will always exceed capacity. The service must be always changing, growing and improving it must always be inadequate.' "Absolutely right on every count."

That may be so. But it would help if the Government actually admitted that there are limits to social provision, says Daniel Finkelstein in The Times. Rather than an NHS constitution that tells us about all the rights "it suggests it is providing you, but that in truth you do not have and will never have" such as comprehensive access to even the most expensive new treatments we need one that "tells you all the things you don't have a right to and the NHS refuses to promise you. Now that would be a constitution worth having."

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.