Daily Comment / Health

The 2008-09 NHS revenue settlement is £93bn. A Panorama documentary back in July asked the question ‘how much is spent on private sector providers?’. The answer was not conclusive but the sentiment was that increasingly larger sums were being spent on private sector provision.

We like a challenge, so we set out to answer the question and concluded that it’s somewhere between 2% and 6%. Read on for the full analysis (link to web site article). Our view is that it’s closer to 2%, but we employed two approaches to ensure a fair appraisal:

1. Top down method based on PCT accounts
2. Bottom up method based on private healthcare provider accounts

PCTs responsible for 80% of NHS spend

PCTs are responsible for commissioning 80% of the NHS budget including paying GPs and hospitals for their activities. This is the part of the budget referred to in the Panorama programme.

Aside from PCTs, there are centrally managed budgets that cover 15% of the total settlement. We note within this some big areas of (non healthcare) spend in 2008-09:

• £1.2bn on the Connecting for Helath IT programme
• £0.8bn on Arms Length Bodies such as the Healthcare Commission

Spend analysis, Method 1: Top down

Most PCTs publish accounts with segmentation of their operating costs including how much of those are related to the “purchase of healthcare from non-NHS bodies”. We took a sample of 10 PCTs and determined that the proportion of their revenue resource limit for 2006-07, accounted for by purchase of healthcare from non-NHS bodies was between 5 - 9% (the average was 7%).

The PCT revenue resource limit for 2006-07 was £64bn across 152 PCTs. This suggests that PCTs purchased between £3bn - £6bn worth of healthcare from non-NHS bodies (or £4.5bn if you take the mean).

Total NHS spend for that year was £80bn, so top-down, the answer to our question is that private healthcare providers accounted for around 6% of the total.

Spend analysis, Method 2: Bottom up

A simple bottom up analysis of spend reveals the following categories and amounts:

• Acute hospitals – there are 160 private hospitals operated by BMI, Nuffield Health and the like. Collective turnover is around £2.5bn and on average 10% of their revenues are from the NHS i.e. £250m. This comes in the form of work contracted by NHS acute trust to achieve 18 week targets, patient choice or other spot contracts for acute and diagnostic services
• ISTCs – there are 28 acute ISTCs and 3 diagnostics ISTCs. All of their revenue is NHS-funded and total turnover is around £150m
• GP practices – Panorama discovered that there were around 60 privately-run practices and with an average GP turnover of £1.5m this gives £90m
• Mental health – Laing & Buisson estimate that £630m of mental health services were bought from the private sector
• Nursing homes – similarly, Laing & Buisson estimate that £500m of nursing home care services for the elderly bought from the private sector

Sources: Credo estimates, 2005-6 company accounts, Laing & Buisson 2005, Panorama

Adding all this up and allowing for some inflationary growth, this comes to £1.7bn or 2% of the £80bn NHS spend in 2006-07.

Spend on private providers has increased

There is no consistent public source to track expenditure over time. There is some DH analysis that aggregates NHS and PCT trust accounts from 1999 to 2003. This includes the line item “purchase of healthcare from non-NHS bodies”. Over the period 1999-2003 the figure remained pretty constant at 3%. From our sample of 10 PCT accounts with the same line item – see Method 1 – this has risen to an average of 6%.

If this is representative then healthcare expenditure on the private sector has doubled since 2003. However, unless Choice takes off, expenditure through ISTCs and hospitals is likely to flatten or even decline. Spending on GP surgeries is likely to grow but it’s a small amount. Mental health and residential care has been largely outsourced for a long period of time and the share provided by private organisations is unlikely to grow.