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We need to unleash health markets

There is a real opportunity in the 21st century to transform the NHS from a public sector problem to an enormous private sector opportunity.

Total public and private spending on health in the UK reached 9.7 per cent of GDP in 2017. The Office for Budget Responsibility (OBR) projects that NHS expenditure will rise from 7.3 per cent to 12.6 per cent of GDP over the next 50 years. At the present time this is seen as a big problem because of the implied increase in taxation or decrease in public expenditure elsewhere, to finance it. But we’re missing a trick here. This the moment to turn a problem into an opportunity.

The combination of a technological revolution (such as the application of artificial intelligence in diagnostics and genome mapping) and an ageing population, means that private health spending will be one of the fastest growing sectors in the economy in the 21st century. The trick will be in using this to turn the public sector problem into a private sector opportunity.

Of course, in the UK, mentioning the words health and private in the same sentence is a blasphemy against the NHS religion, but the US actually signals a way forward here. Total public and private sector spending on health in the US reached 17.2 per cent of GDP in 2017. This immediately raises the shackles of those who see the US system as absurdly expensive and all about money and profits. Yes, the US is more expensive than it needs to be - the competitive incentive mechanisms need to be made more not less competitive. But the big revelation to many people is the sheer size of the public sector in the US – and before the Obama changes. Around half of US health spending is in the public sector. As a share of GDP, the public sector in the US is bigger than the public sector in the UK, and a huge swathe of OECD countries including Australia, Canada and Switzerland. Indeed, the size of the public sector in the US is only slightly smaller than it is in France or Germany. If you look at beds per 1000 population in the US, the total of 2.4 is divided between 1.7 non-profit, 0.3 profit and 0.4 public sector. Non-profit and the public sector have a very big share of funding and delivery in the US. OECD figures show that in per capita terms US health spending rose above $10,000 (adjusted for differences in price levels) in 2017. In the UK the comparable per capita figure is just under $4,500 (£3,400). Imagine giving everybody in the UK that money to pay for their health insurance.

And what about the purported big state health sectors in France or Germany? 40 per cent of hospital beds in France are in the private sector, and 45 per cent of German hospitals are in the profit or non-profit private sector. Herein lies the opportunity. The lesson from the US and the UK is that the public sector is already spending so much money (funding), granting freedom of choice to patients as consumers (increasing competition in delivery) would not be too expensive. The lesson from many EU economies is the contrast between funding and delivery.

This is the Government’s big mistake. If you’re going to promise shed loads of cash, put a price on it in terms of radical reform. Maybe the Government should set out another option with even more money, but with truly radical reforms and a genuine market in delivery as the price? This could unleash a revolution in innovation, with new delivery models and technologies. The first human genome mapping took $2.7 billion and 15 years to achieve. A decade ago it still cost $10 million to sequence. Now the cost is under $1,000. Genuine competition could mean health spending gets less not more expensive. But stick with the current structures and the OBR’s estimates may prove too low not too high. We’re at a fork in the road. We need to unleash health markets.