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The NHS and Finite Public Funds: the Case for Charging

More people are living longer and many need more care as they age; new drugs offer breakthrough treatments but they are often prohibitively expensive. Public demand on the National Health Service will always outstrip the capacity of finite public resources to meet them. That presents a challenge for Governments when the economy is strong. But in a downturn, that challenge can quickly become a crisis. Is our NHS really free at the point of need; if it is, can we afford it to remain so? What can we learn from other national health services? Should we lower our expectations of the NHS or find new ways of paying for the services we demand?

The Social Market Foundation and the NHS Confederation debate the case for selective health service charging as a means of managing demand and maintaining quality in the NHS.

David Furness

Social Market Foundation

David is Head of Strategic Development at SMF with an interest in policy areas including transport, public service reform and regulation. His work on health policy has included a number of research reports, such as Local control and local variation in the NHS: what do the public think? and From feast to famine: reforming the NHS for an age of austerity, and featured widely in the press and media. Prior to joining SMF he worked for Standard Life Healthcare, one of the UK’s leading private health providers

The Social Market Foundation is a leading UK think tank, developing innovative ideas across a broad range of economic and social policy. It champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach. Its work is characterised by the belief that governments have an important role to play in correcting market failures and setting the framework within which markets can operate in a way that benefits individuals and society as a whole.

SMF is politically independent and works with all of the UK’s main political parties.

Joe Farrington-Douglas

NHS Confederation

Joe Farrington-Douglas is a senior policy manager for the NHS Confederation, specialising in acute hospital issues and leading edge policy, including the NHS policy salon series for policy makers, researchers and service leaders. Joe previously worked as a senior research fellow at the Institute for Public Policy Research, leading a range of projects including those on private spending on healthcare, hospital reconfiguration, patient choice and youth offending. He also worked for the Cabinet Office on regulatory reform.

The NHS Confederation is an independent membership body representing over 95 per cent of NHS organisations and a growing number of independent healthcare providers.

The Confederation uses its expertise and harnesses the knowledge and experience of its members to help inform the development of healthcare policy in order that that new and existing initiatives lead to real improvements in the system and genuine advancements in patient care.

It also provides a source of fresh thinking and helps to shape the healthcare debate.

Proposition

Charges in the NHS – dealing with the crisis

The public finances are in crisis. And despite the gloomy prognostications of media commentators, most people are simply unaware of the scale of the problem. An Ipsos MORI poll showed than only 24% believe that there must be public spending cuts to deal with the national debt. This means that politicians are in double jeopardy. Tough choices must be made to deal with the deficit, but the voting public may not support radical action. This is particularly true of the NHS. Often described as Britain’s national religion, the health service has a unique place in our political, cultural and economic life. But despite our attachment to a service that has saved and improved millions of lives since 1948 it is time to consider radical measures to ensure its continued survival.

Politicians of all parties have been at pains to emphasise that, despite the record budget deficit, the NHS will be immune from the pain to come. This is simply wrong. The first objection is that to maintain spending increases on the NHS would require large cuts in other departmental spending – perhaps in the range of 8-16% – over the six years from 2011-2017. Why should commitments for the NHS be valued more highly than those for schools, policing and sundry other public spending priorities? The idea that the NHS will survive the next years unscathed has been described by the respected research institute the King’s Fund as a “false prospectus” with “dangerous implication[s]“.

We need to acknowledge that efficiency savings will not be enough to mitigate the impact of the downturn. The NHS has shown itself to be ineffective at improving efficiency: according to the Office for National Statistics, NHS productivity has fallen in recent years despite increased funding. Instead attention should be turned to the inexorable rise in demand for health services that, if left unchecked, will seriously threaten the sustainability of the NHS model.

The NHS must manage demand for its services. This does not mean denying treatment to the sick but making sure that people only receive the services they actually need. Overall health spending can only be controlled if there is a check on the number of people accessing and using health services. But demand management in the NHS is a shambles. A recent Audit Commission report found that “…PCTs made little or no inroad in 2008-09 to transferring care from hospital or in dampening demand”. New policies are needed to reduce overall demand for NHS services.

Managing demand does not penalise people in ill health. The available evidence suggests that use of healthcare is not automatically connected to improved health. Some healthcare interventions are not effective and others may not be necessary. So reducing people’s inappropriate use of healthcare may well be a desirable objective in saving money for the NHS. The most straightforward way of achieving this would be to introduce charges aimed at changing individual behaviour.

A small charge of £20 for an initial visit to a GP should be introduced to encourage individuals to question their use of healthcare and supplement the NHS’s attempt to improve efficiency. Under this system no-one would pay more than once for the same condition and any referral for further treatment or diagnosis would not be subject to a charge. A charge of £20 would simply be a behavioural ‘nudge’ – but not enough to stop people from seeking emergency treatment or care for those conditions that do not resolve themselves. This is the only type of charge that is both fair and would actually make a difference to demand for the NHS. Charging people for missed appointments takes no account of their income levels; charging for so-called self inflicted illnesses raises highly complex ethical issues; neither would have any effect on how people use services.

Charging should be introduced on the basis of ability to pay, with people on low incomes entirely exempt. But, the two thirds of us above the family tax credit threshold should no longer count on completely free access to care.

This does not pose a threat to NHS values which are based on fair access to treatment, especially since charges are already levied on prescriptions and dental treatment. Many health systems that achieve equitable health outcomes charge patients – it is the UK that is in the unique and undesirable position of aiming for totally ‘free’ but increasingly unsustainable care. Germany has recently introduced physician charges in an attempt to drive down demand for care – policies such as these are in the mainstream across Europe.

It is only in the UK that charging and demand management are a political taboo. This is no longer an option. The crisis in public finances means that in the future the NHS must change or die. Efficiency savings will not be enough to deal with a multi-billion pound shortfall in health spending. Demand management tools must also be used. And, if the NHS itself is bad at demand management, patients must be shown a price signal that helps to limit their use of healthcare. GP charges for wealthier patients offer a route map to a sustainable future no longer based on an outmoded political consensus.

The question for us is: do we continue to enjoy equal shares in a declining health service or find new ways to afford a first rate, modern NHS?

Proposition

Charges in the NHS – a costly distraction?

The NHS Confederation, representing most NHS organisations, has called the impending financial squeeze on resources the greatest ever challenge for NHS leaders. In order to maintain quality improvements and meet rising needs, the NHS in England will have to find savings of between £15 billion and £20 billion in the next three years. This challenge is unprecedented and requires new thinking and radical solutions.

If now is the time to challenge fundamental assumptions, it is right that we re-examine such questions as the right to healthcare free at the point of need. But while we should closely examine whether the introduction of charging would be either desirable or effective in meeting the funding challenge, we should also remember that the NHS was a political creation and stirs passions and loyalty that go beyond questions of efficiency.

It was founded on a set of interlocking principles, namely that relief from sickness and injury is a basic human need and that in a dignified, compassionate society we do not wish to deny care to our fellow citizens; that it is immoral to base access to care on ability to pay; and that for these reasons medical care – or freedom from sickness and the fear of financial catastrophe due to ill health – is a ‘right’.

Moreover, in the context of current debates about the importance of social solidarity, it is persuasively argued that sharing the same rights, with the rich alongside the poor in their time of need, embeds cohesion and national identity in an otherwise fragmented society. More instrumentally, political scientists claim that maintaining elements of universalism, like free healthcare, is necessary to ensure that more affluent classes remain committed to funding welfare for the poor and do not break away from common public services only to starve them of resources.

These are strong reasons why the principle of healthcare free at the point of need should be defended – and an indication of the political controversy that would surround any change.

However, we also know that healthcare is not really free, and has to be funded ultimately by the populations who use it. The UK has a relatively low private share of health spending compared to other OECD countries. Even so, though we have relatively few charges, in 2002-03 the NHS charged patients £1.5bn for prescriptions and dental treatment. But the fact that the principle of ‘free’ access to healthcare is already in breach is not an argument to go further.

There are libraries of literature debating the question of how to finance healthcare. All economists would agree, however, that individual self-funding is a relatively inefficient way of designing a health system. First, individual healthcare needs are relatively unpredictable particularly in the short term but also over the life cycle and, second, healthcare costs can be catastrophic if borne by an individual.

Healthcare financing that relies on individual payments is unlikely to meet health needs; nor will it provide a framework for planning or collective bargaining. The most efficient way of funding healthcare is therefore through a form of insurance – such as the NHS.

Therefore if we are seeking ways of raising additional revenue to meet a gap in healthcare resources, reducing the element of insurance and increasing individual charges would not be the most efficient method. The extra funds required would be more efficiently raised through collective insurance contributions, namely tax and national insurance. Indeed, as other costs, such as food and clothing, have reduced in recent decades, rising healthcare spending has been affordable to the taxpayer even if it is a source of concern to those measuring the “size of the state” as a percent of GDP spent collectively.

In a time of recession, economists might warn that tax rises to fund rising health costs could slow recovery by extracting resources from the private economy and reducing work incentives. But would increasing NHS charges have the same, greater or less effect on the economy? A GP consultation charge would displace other productive spending in the wider economy. In terms of controlling taxation, it would be a hollow victory: increased charges would certainly be perceived as a stealth tax on the sick.

There is another reason why the NHS does not routinely charge for care which has a basis both in principle and economic rationality: we already know from the experience of the NHS’s limited levying of charges for prescriptions and dentistry that putting people off seeking healthcare can have deleterious effects both on their health and the eventual cost of their treatment. Already, despite the lack of charges in the UK health system, we score poorly on outcomes for some conditions amenable to healthcare, including many cancers where early identification is key to successful treatment. Introducing charges could only exacerbate the problem.

In all the circumstances, it is difficult to see how charging for healthcare could pass either an ethical or an economic test.

Response

In objecting on moral grounds to healthcare charges we are in danger of letting the best become the enemy of the good. Of course it is desirable that everyone should have healthcare provided free at the point of use. But in defending this principle to the hilt, advocates of a largely free system are in danger of undermining the ability of the NHS to provide high quality care in the long term.

I would rather see richer patients charged a small fee for initial access to a GP than have the NHS return to the days of long waiting lists, crumbling hospital buildings and uneven quality of services.

This charge would not be about raising revenue for the health service. I do not want to see a greater proportion of private money in the UK’s overall spend on healthcare. I absolutely agree with the NHS Confederation that the most efficient way of raising money for health services is by sharing risk through collective contributions. A small fee, capped at around £100 per year, would be aimed at changing behaviour not raising money – preventing the ‘worried well’ from using valuable shared resources, and reducing the number of referrals into expensive secondary care.

There is no reason that a system, properly targeted at high earners, should result in people failing to get the healthcare they need. I believe that a price signal to say “the NHS is under pressure and we all need to use it as sparingly as possible” would be an effective way of engaging the public in what is a necessary discussion – how to curb the inexorable and increasingly unaffordable growth in demand for health services.

The NHS Confederation sets up an unnecessary dichotomy between ‘free’ and ‘paid for’ healthcare, even while acknowledging that private spending on prescriptions, dental and optical services is, if not popular, at least widely accepted. That some charges are already part of the mainstream in the NHS suggests that extending them should not be dismissed out of hand. Nobody would in an ideal world suggest charging people to visit the GP. But, in the most challenging time for healthcare since the establishment of the NHS, what is the alternative? Let us not reduce our opportunity for action by defending a principle of free care that cannot and should not survive this crisis.

Response

As David argues, charges already play a role in the NHS, and in other health systems where equity is valued including social democratic countries like Sweden. Individual contributions can certainly help to correct problems associated with insurance-based collective funding. In particular, the problem of ‘moral hazard’ (individuals consuming more healthcare than they need because it is free) creates an argument for some costs to be borne by the individual in certain circumstances. Combating unnecessary use is the official rationale for charging as it currently exists in the NHS; prescription charges were first introduced in 1952 (and reintroduced after an attempt to abolish them between 1965 and 1968) to stem the rising drugs bill due. It is also the basis for SMF’s proposals.

But in order to maintain the balance between combating excessive demand for healthcare and ensuring access to necessary treatment, charges should meet the following criteria:

  • there is clear evidence that unjustified demand is a significant problem
  • charges can effectively temper such demand, target the specific problem and do not just shift demand across the system
  • they should not risk deterring legitimate demand, particularly for the poor
  • they can be collected efficiently and do not increase transaction costs
  • they should not be seen as a way of raising funding.

Are these criteria met by the SMF proposal? The extent of an ‘excessive demand’ problem – for example, people booking GP appointments when they are well – is not well demonstrated and has not been quantified. There is some evidence that people with minor ailments use GPs when a visit to a pharmacist might be appropriate. However these patients are often those who are older, poor or chronically ill and visit the GP to obtain a free prescription rather than paying in the pharmacy. They would not be subject to a means-tested charge so their behaviour would not change and therefore no saving would be made.

Proponents of a charge still need to demonstrate the significance of a middle class ‘frivolous use’ problem in the first place. They would also need to demonstrate that a proposed charge would be effective. If our hypothetical hypochondriacs have taken time off work or care (and negotiated complex GP appointments systems), they have already faced some costs. To what extent would a charge make a significant difference to their behaviour?

Conclusion

Joe’s opposition to charging is based on some powerful arguments. Charging is indeed a blunt instrument. Even if targeted at wealthier people there is a risk that the threshold for the proposed charge might be set at the wrong level with negative consequences for health and ultimately perhaps higher costs for the NHS.

And yet…given that public funds, in times of boom as well as bust, will always lag behind the cost of demand, charging must become part of the debate about the future of healthcare. Joe has rightly confined his criticisms to the empirical realm, arguing about the possibility of damaging overall health or the potential for transaction costs to outweigh any gain in efficiency. However, for many advocates of a ‘free’ NHS the issue is purely ideological: any suggestion of charging for care is immediately shouted down. But it is this lack of both imagination and realism in the face of acute economic challenges which is the greatest threat to the long term health of the NHS. The most passionate defenders of a ‘free’ health service should recognise that user charges are a mainstream policy option for governments including those of Sweden and Germany which hardly represent the lunatic fringe.

The debate about charging must be based purely on the merits of the arguments, not a mistaken understanding of the NHS. Those who talk about the principle of ‘free care’ should acknowledge that Beveridge argued for a health system that would provide a basic minimum with individuals free to ‘top up’ as they wished. Charging for dental and optical services were adopted in the early 1950s by a Labour government as a purely pragmatic response to pressure on government finances. Why did charging disappear from our political debate?

Demand in the NHS is elastic: use of healthcare goes up and down depending on its price – just as with any other good. And the evidence also suggests that for the majority of people, use of healthcare can be reduced without detriment to their health. It is for these reasons that charging to limit demand so that precious resources can be spent where they are most needed must be considered for the NHS.

Charging is not perfect. And there are undoubtedly those who would lose out under such a system. But the alternative is for the NHS to return to the bad old days of poor quality care in a public sector starved of resources. The years ahead will be tough, and we must look again at policy options that at first sight may seem unpalatable. It’s time to put NHS charging onto the political agenda.

Conclusion

We both agree that in the current climate old ways of thinking should be challenged. However, we equally need to avoid the lure of simplistic solutions that could distract from the real challenge of improving efficiency. Privatising hospitals, sacking managers and reorganising the bureaucracy can be such traps. Similarly, the idea of charging patients, whilst eye-catching, would not be the solution that it appears.

There are good reasons – in principle, theory and practice – why provision free at the point of need should be retained. There are also significant problems with the proposals for charging which would lead to unintended consequences for health and efficiency.

A particular hazard might be not that unnecessary demand is tempered or self care encouraged but that primary care needs are diverted to the hospital emergency department where costs are much greater and increased busy-ness reduces care resources for those in much greater need. More seriously from a public health perspective charging is likely to put off valuable precautionary appointments and, as discussed, lead to poorer health and costlier treatment down the line. Rather than tempering demand and saving money, it could end up costing more.

We must ask whether rising public expectations are sustainable and David is right to call for demand management to be a priority for the NHS in the downturn. However, GP demand from the wealthy worried well is not the problem we face, and the small amounts saved – given that GP salaries are a fixed cost – are dwarfed by the total efficiency challenge.

Most healthcare costs are incurred by the treatment of legitimately sick people, particularly in the hospital sector where a quarter of costs are spent in the last year of life. Whilst GP consultations have been static, hospital emergency attendances have gone up by over a third in the last decade, which is much more worrying for both quality and efficiency.

Tackling harmful habits so people stay healthy, helping people manage chronic conditions so they don’t end up in hospital and improving palliative care so people can choose to die at home could all manage demand whilst improving healthcare experience. We should be looking at these options and spending political capital on closing surplus wards. Arguing for new charges in the current climate would secure controversy but not savings. Moreover, it would distract politicians, policymakers and leaders from the real challenge that we face.

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