This article was updated on 1 March 2021.
What’s the issue?
The involvement of the private sector in the NHS is a hotly contested topic. Private companies have always played a role in the NHS, but critics claim that their involvement has increased and is evidence of a privatisation of care that is undermining the service’s core values.
How much does the NHS spend on the private sector?
It is difficult to determine how much the NHS spends each year on the private sector. This is because central bodies do not hold detailed information on individual contracts with service providers, especially where these contracts may cover small amounts of activity and spending. Information on private sector spending is available from the annual accounts of the Department of Health and Social Care but also requires judgement and interpretation.
In 2019/20 NHS commissioners spent £9.7 billion on services delivered by the private sector (also called ‘independent sector providers’). This is more than the £9.2 billion spent in 2018/19, but due to inflation and growth in the Department of Health and Social Care budget, the share of their total revenue budget that was spent on private providers remained relatively stable at 7.2 per cent1.
The Department of Health and Social Care accounts also record how much the NHS spends on services provided by the voluntary and not-for-profit sectors and local authorities. If spending on these services was added to the spending on independent sector providers, this would total £14.4 billion in 2019/20. This amount was 10.8 per cent of total revenue spending by the Department and is similar to the levels in previous years.
The Department of Health and Social Care’s accounts also show that NHS providers spent £1.5 billion2 on services from non-NHS organisations in 2019/20. Data from NHS Improvement shows that NHS providers spent £271 million on outsourcing services to other providers, including the private sector, in 2018/19 – up from £221 million in 2017/18. This includes outsourcing elective hospital treatment in order to deliver waiting times targets.
If spending on primary care services – including GPs, pharmacy, optical and dental services – is included, some have estimated that approximately 25 per cent of NHS spending goes on the private sector.
In 2020, the Department of Health and Social Care and the NHS entered into new contractual arrangements with the independent hospital sector because of the Covid-19 pandemic. These arrangements provided access to additional beds, staff and equipment to treat patients during the peak of the pandemic, and to support efforts to reduce how long people wait for routine care. These arrangements initially involved block purchasing of capacity in these hospitals, though different arrangements have operated in later phases of the pandemic. The National Audit Office is currently examining the value for money of these arrangements. Because of the timing of these arrangements, their costs are not substantially reflected in the 2019/20 Department of Health and Social Care accounts.
What’s behind this?
Private provision of health care services has always been controversial, even though some services, such as dentistry, optical care and pharmacy, have been provided by the private sector for decades and most GP practices are private partnerships.
The extent of private sector-commissioned services varies between different areas of care. For example, evidence suggests that spending on private providers increased more quickly in community services and mental health than in other services. This may be, for example, because of contracts being more frequently retendered in these services and because more non-NHS providers are operating in these service areas.
Spending on non-NHS providers is not a new development. Both the Blair and Brown governments used private providers to increase patient choice and competition as part of their reform programme, and additional capacity provided by the private sector played a role in improving patients’ access to hospital treatment. The NHS and the private sector have also established partnerships for the delivery of clinical services such as radiology and pathology and non-clinical services such as car parking and management of buildings and the estate.
The Health and Social Care Act 2012 extended market-based approaches, emphasising a diverse provider market, competition and patient choice as ways of improving health care. There is evidence that this led to a large number of contracts being awarded to private providers, but it did not result in a significant increase in spending on the private sector. This was in part because these contracts tended to be smaller than those awarded to NHS providers.
But in the past five years there have been some controversial exceptions to these small-scale contracts. These included tenders for a £1.2 billion contract to deliver end-of-life and cancer care in Staffordshire and a £800 million contract to deliver services for older people in Cambridgeshire and Peterborough. In both cases it was expected that consortia including private providers would bid for these contracts. But in both cases, after widespread criticism, lengthy delays and problems with designing the contracts, the tenders were dropped.
Hinchingbrooke Hospital is another controversial example. The hospital was franchised to a private sector operator, Circle, in a process initiated in 2009. In January 2015, Circle announced that it would hand management of Hinchingbrooke back to the NHS as a result of financial pressures and having been put into special measures as a result of significant failures of care. Further management franchises seem unlikely because of policy changes and the financial challenges facing the NHS that may make these contracts less attractive to the private sector.
More recently, in 2018, the Secretary of State for Health and Social Care has said that there is no intention to award new contracts being developed for integrated care providers to private health care providers.
The King’s Fund view
Identifying NHS spending on the private sector is not straightforward. Detailed data on individual contracts is not available, and judgements must be made on what is included as spending on the private sector. For example, if spending on GP services and voluntary sector organisations delivering health care services were included, the total spending on the private sector would be higher than the figures contained in the Department of Health and Social Care accounts.
Following the Health and Social Care Act 2012, the number of contracts awarded to private providers increased, though there was not a significant increase in the share of spending on private providers – even if a very broad definition of private care spending is used.
In many cases the use of private providers to treat NHS patients reflects operational challenges within NHS providers and is a continuation of longstanding practices. Provided that patients receive care that it is timely and free at the point of use, our view is that the provider of a service is less important than the quality and efficiency of the care they deliver. The NHS can also benefit from partnerships and joint ventures with the private sector to deliver some clinical and non-clinical services.
Overall, there is no evidence of a significant increase in spending on private providers or widespread privatisation of services in recent years.