Many people fear the Coalitions reforms will lead to a fragmented, two tier service in which good treatment will increasingly need to be bought at point of use – or via private insurance - leaving only a hollowed out, core NHS service for those who can’t afford to pay. The government of course insists this will not happen. But as so often with these health reforms, changes to the limits on income from private patients suggest otherwise.

The last Labour government introduced a new concept in the NHS: Foundation Trusts (FTs). The idea was that FTs would be run as not-for-profit businesses, state owned but autonomous from the government. The original intention was that all acute hospital NHS Trusts and mental health NHS Trusts were to become FTs, but the strict financial criteria proved difficult and so by 2010 less than half of NHS Trusts had become FTs.

The legislation that created Foundation Trusts was controversial. To prevent a backbench rebellion, the Blair government included some restrictions, including the so-called ‘Private Patient Income cap’ (PPI). The PPI cap was a rather blunt tool, it was calculated as the proportion of all patient income that came from private patients in the financial year 2002/03. There are no private patient restrictions on NHS Trusts: an NHS Trust can increase its private patient income as much as it likes, the only issue for such a trust is that it cannot become an FT if it exceeds its PPI cap.

A few Foundation Trusts have very large private patient incomes: in 2011 The Royal Marsden had income of £51 million (22.6% of patient income), Royal Brompton and Harefield had £29 million (10.9%) and Great Ormond Street had £28 million (9.7%) from private patients. Some FTs, like The Christie in Manchester, have joint ventures with private companies to provide private services. However, at the moment, most FTs and NHS Trusts have very little private income: the average private income for an FT is less than 2%.

At the 2010 election the Conservatives said they were enthusiastic about FTs and wanted them to be more business-like. The Coalition’s bitterly fought Health and Social Care Act 2012 (HSCA) even has a specific “autonomy” section which effectively says that the government should take a hand’s off approach to NHS hospitals. The HSCA says that the status of “NHS Trust” will be abolished in 2014, so every NHS Trust has to become an FT. Since the passage of the Act last year it has become apparent that some 60 NHS Trusts will not make this deadline, so the government has extended the deadline to 2016 and trusts who do not achieve this will either close or be franchised to a private company like Circle Holdings (as in the case of Hinchingbrooke NHS Trust).

The Health and Social Care Act 2012 also abolished the PPI cap, but amendments were made to the Act to say that the majority of the income of an FT must be from the NHS. This is often quoted as saying that a trust can have 49% private patients. It is not this simple because “non-NHS income” includes things like car parking charges, or inpatient charges for TVs, or work that an FT does for local authorities. However, it certainly allows FTs to treat far more private patients and is a worrying sign of the Coalition’s intentions for the NHS.

Every Foundation Trust must produce an Annual Report and Accounts outlining its previous year’s performances, and a Forward Plan listing its strategy for the following three years. These documents are available via Monitor’s website. I have read through these documents for all the FTs that existed in June 2012 and collated the results (available at this website). Many FTs treat some private patients, but 58 of the 144 FTs said in their Forward Plans that they intended to treat more private patients. As of 2012, 43 FTs had a private patient unit – separate units within a hospital which only admit fee-paying patients – and the 2012 Forward Plans indicate that 12 more trusts say that they intend to create one. Again, the direction of travel seems clear.

It is common for politicians to say that income from private patients subsidise NHS care, but there is no evidence that this is the case. It is important to note that trusts only have to list their income from treating private patients and not the profit, so potentially a trust could be losing money on private patients if it costs more to treat them than the patients paid. Often it is the opposite way around: private patients are given privileged access to expensive NHS facilities. For example, in 2011 the government approved the spending of £250 million of public money on two Proton Beam Therapy Units, one at The Christie, and the other at University College London Hospital. The government says that two units would only just have the capacity to treat all NHS patients who would need this expensive treatment and there is no spare capacity. However, The Christie are now building a private patient unit attached to this facility. This is an NHS facility, with only the capacity for NHS patients, yet somehow this trust will make the extra capacity to treat private patients and this could affect NHS patients’ access to treatment.

The abolition of the private patient income cap under the Health and Social Care Act 2012 has had a significant effect. There will be more private patients treated in NHS hospitals and the number of private patient units will increase. NHS hospitals are under financial pressure from the demand to make “efficiency savings” while the government is making cuts to their income (shown in Figure 3, on this Kings Fund paper); inevitably this will affect NHS care. Yet private patients who can afford insurance or self-pay can jump the queue for NHS expertise and facilities. This means a two-tiered NHS service; for campaigners, medical professionals and the public this was a key plank of opposition to the 2012 reforms. By squeezing NHS funds while making explicit provisions for large increases in patients going private, the true nature of the government’s health reforms are made quite clear.