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"The biggest denationalisation of health services ever announced by a health minister"

More hospitals - potentially all of them - will be run outside the NHS as so-called "mutuals", the government announced this week. Nine have already set out down this path but who really benefits from "mutualisation"?

John Lewis - often held up as an example of 'mutualism' 

The 1946 NHS Act transferred all voluntary, charity and municipal hospitals to the NHS. This was the nationalisation of hospitals. The British state finanically underwrote these hospitals, investing billions since in their rebuilding and extension, and giving us  guaranteed continuity of service.  As Nye Bevan said, the pre-war “patch-quilt of local paternalisms” with mutuals and friendly societies contributing to a "chaos of little or big projects" could not fulfil the NHS founding principles of providing a comprehensive and universal health service. The social solidarity that underpins the NHS is the fact that we – all of us – own the NHS and its hospitals.

But now, more hospitals will be run “outside of the NHS” by “mutuals”, Cabinet Office minister Francis Maude told the Telegraph this week. He did not “see a line” he wasn’t prepared to cross, in terms of how many hospitals might  be allowed to transfer out of the NHS.

Assisted by health minister Norman Lamb and Kings Fund chief Chris Ham, Maude has already been quietly purusing this agenda - what one expert health commentator recently called “the biggest denationalisation of health services ever suggested by a health minister.”

In July this year Norman Lamb and Francis Maude wrote to the chief executives of NHS Trusts and Foundation Trusts (FTs) asking them to consider joining the “Mutuals in Health” programme and offering a share of £1m for ten “pathfinder” trusts to investigate becoming mutuals.

It was a policy that appeared to have been killed off back in 2011. The 2010 Coalition NHS White Paper announced the Conservative intention to end the concept of publiclly owned hospitals, suggesting that “As all NHS trusts become foundation trusts, staff will have an opportunity to transform their organisations into employee-led social enterprises that they themselves control.”

The government said that this would create the “largest social enterprise sector in the world” (ignoring the fact that half the hospitals in the US are  ‘nonprofit, the US term for a social enterprise).

But in 2011, the government was forced to drop this aspect of their controversial NHS plans, admitting that those who responded to its White Paper consultation were “generally not supportive” of turning hospitals into social enterprises, also known as  mutuals. It said it had “concluded that staff-only membership would not be compatible with the foundation trust model” that the government supported.

But now, the recently announced list of ‘pathfinder trusts’ to explore mutual status, includes seven FTs.

Mutualism

Prof Chris Ham of the Kings Fund provides the veneer of academic support for the idea. He suggests in a report commissioned by Lamb  that NHS organisations could become not-for-profit organisations with property owned by the public, or in some other way asset locked.

Clearly, NHS hospitals are already not-for-profit with the assets owned by the public. Ham provides no evidence of any benefits mutuals will provide, or how they will solve the problems the NHS faces.

Ham asserts that the “mutualism” process is “bottom up organisational change” even though the 6 weeks that Trusts had to apply for the pathfinder programme gave no time for, and did not require, staff or public consultation, let alone approval. Previous attempts at taking health services out of the NHS as ‘mutuals’have been rejected by staff and public - when they’ve had a say.

Ham says that trusts that leave the NHS and become mutuals would be:

“staff-owned and led organisations, through legal forms such as a community interest company or community benefit society… “ where staff  “typically own a nominal ownership stake, such as a £1 share, and have a strong governance role, including rights to appoint a proportion of the non-executives, to determine board members’ pay, and to dismiss the Chair or CEO if a significant majority vote in favour.”

But Foundation Trust governors already have these governance powers  (except executive director pay) and he gives no reason why mutuals are “better” than Foundation Trusts.

In an FT more than half of governors must be elected by the public and/or patients and at least three must be elected by staff.

Ham’s suggestion removes the public and patients entirely from the governance of FTs. The Care Quality Commissions rejected this proposal in 2010 , saying such “staff-only models without patient and public involvement could be at odds with public accountability”.

While Ham shroud-waves throughout his report about the dangers of Mid Staffs it was clear that it was the public, not the staff, who “blew the whistle” on poor care there. It seems bizarre, and perhaps sinister, that Ham chooses to exclude the public and patients from the governance of his mutuals.

What are mutuals, anyway?

There is no existing clear definition of a mutual. Ham’s report flits around making all kinds of claims for them, whilst making no solid attempt at defining them. Norman Lamb, the Care Minister, is rather coy in defining “mutualism” too, merely saying “Fundamentally I believe in diversity, I don’t believe in there being a single model”.

But in the announcement of the successful Pathfinder Trusts, Lamb makes the startling statement that in his opinion:

“becoming a mutual could be an “alternative to privatisation” for trusts”.

Startling because - as HSJ add innocently - up to now there have been “no suggestion that trusts could or should be privatised” by any government minister.

Lamb has let the cat out of the bag. There is a very real intent to privatise hospitals - and mutuals are to be presented as an alternative to it.

Lamb’s puppet master, Francis Maude, well known for his missionary fever to denationalise public services as “mutuals”, is more honest about what they are.

 “mutualisation is a form of privatisation”

This is strikingly accurate. A mutual is a private company because it is not owned by the public. Creating a mutual from a public sector organisation is taking a public service and moving it into the private sector, which is the definition of privatisation.

Is it fair to see mutuals as merely a politically expedient form of privatisation?

Perhaps it is, given Maude’s admission, given experience to date - and given the  remarkable lack of detail about any other aspect of what a mutual would actually look like in practice.

Mutuals could include the assets (ie buildings) or just the services. The value of the hospital buildings, divided up between staff, is more than many of their annual salaries, so its hard to see how any but the best paid could afford to buy a share. Perhaps the government intends to retain ownership of the property and other assets, perhaps through a government owned company like NHS Property Services Ltd? One of the mistakes of PFI is exactly this separation of the facilities and clinical care: a PFI hospital is owned and operated by a private company with no input from the clinical staff. 

Other questions remain moot, too. Their shares could be tradeable - or not. If tradeable, it’s not a mutual in the commonly understood sense, but outright privatisation. But if they arenot tradeable, they have no value. The lesson from the demutualisation of building societies is that people prefer cash that they can spend rather than shares. Ham’s idea of a token payment of £1 is just that, a token. It gives employees no greater feeling of ownership.

And mutuals could - are commonly understood to be - a profit share, where the annual surplus is shared in some way between staff.

But in healthcare, this is highly contentious. Any “profit” is money that has not been spent on patients - should it be spent on bonuses for staff, rather than reserved for treating patients in future?

Two of the trusts applying for pathfinder status make vast surpluses: Moorfields and Norfolk & Norwich. Last year Moorfields (a world famous specialist eye hospital) made a financial surplus of £11m. Moorfields also made 12% of its income (£21m out of £174m) from private patients.

In 2010 the chief executive of Moorfields justified its private patient income thus:

“Without profits [from private patients] our ability to invest in our clinical services would be seriously constrained ....”

If the whole point of a mutual is to “profit share” amongst (particularly the better paid) employees will the NHS services that depend on being subsidised by those profits, survive?

Ham says, however:

“Staff in mutuals delivering NHS services tend not to hold a substantive financial stake in their organisation or necessarily receive a share of profits”

Which makes you wonder what makes them a mutual?

The last moot point is that so-called mutuals   could allow for considerable private investment - or not. The hints are there - the announcement of the pathfinders says they will explore “hurdles” to mutualisation including “access to capital”, HSJ reports .

Mutual Joint Ventures

Francis Maude talks about mutuals and “mutual joint ventures” fairly interchangeably. He defines mutual joint ventures as “A co-owned joint venture to deliver public services, bringing together public service employees and private sector partners, may harness the best of both worlds in a new form of partnership.”

The first such joint venture was created in 2012, when the government transferred the Civil Service pension scheme to a company called MyCSP. The government called it a “mutual” after giving employees 25% of the shares, keeping 35% and selling the remaining 40% to a private company, Equiniti. But in October this year, the government decided to sell 11% of the total company from its share to Equiniti, conveniently pushing their holdings up to 51% of the company and majority ownership. Maude still calls it a mutual, though.  Mutual Failures

A similar trick has been played by Circle Holdings. Circle run the first NHS hospital to be franchised out. Maude calls it a “mutual”, because the original “Partnership” structure gave consultants and GPs just under 50% of the “Partnership”. Recent restructuring of the company (“Project Reset”) mean that now “staff” only own 25%. Ultimate control, however, always resided with an offshore Holding Company majority owned by private equity firms.  

In spite of claims in the right wing Press, Circle is not a successful company. In 2012 Circle had to beg its shareholders for £46m of cash, on threat of insolvency. It got the money - but it’s still struggling to balance the books - and delivering poor service to boot, even as it’s held up as an exemplar of a health ‘mutual’.

The Cabinet Office pages present mutuals as a panacea,  But in truth they are private companies and are subject to all the pressures and failings that are found in private companies.

Cornwall has been a testbed of privatisation. The failings of Serco as their out-of-hours provider are well known. But less well known is that the community services provider is a so-called mutual, and it is failing too:

“In Cornwall, Peninsula Community Health, a non-profit staff operated company that runs 14 community hospitals, is seeking a rescue through merger with Cornwall Partnership Foundation Trust.”

The social enterprise cannot balance their books. They reported a deficit of £328k this year. The local Lib Dem MP, Andrew George, said “the best outcome would be putting the whole community health sector back in public hands”.

Then there’s Central Surrey Health (CSH), regarded as one of the “successes” of mutuals and social enterprises. It had a fundamental weakness: its reliance on an assumption that its NHS origins meant it would still get NHS contracts. This assumption came crashing down when it lost a £500m contract to Virgin. CSH is reported to have failed in its tender because it could not provide a £10m bond as surety; the company was just too small to have access to such capital.

The Pathfinder Trusts

The trusts interested in becoming mutuals, as recently announced by HSJ, are:

        Cheshire and Wirral Partnership Foundation Trust

        Liverpool Heart and Chest Hospital Foundation Trust

        Moorfields Eye Hospital Foundation Trust

        Norfolk and Norwich University Hospitals Foundation Trust

        Norfolk and Suffolk Foundation Trust

        Oxleas Foundation Trust

        Surrey and Sussex Healthcare Trust

        Tameside Hospital Foundation Trust

        University Hospitals of Leicester Trust

Given past failures of the ‘mutual’ model, what exactly are the criteria along which this ragbag of Trusts have been selected as possibly making a success of it?Strong commitment to public and staff engagement and accountability?

Not really.

The Oxleas mental health trust - which has been thinking about the mutual path for a while and was  cited in Ham’s Kings Fund report on the subject - recently closed down two units without consulting patients relatives adequately. One of the units was re-opened when patients and relatives complained.

In Norfolk and Suffolk, the redesign of mental health services in the area has spurred on the campaign “Norfolk and Suffolk Mental Health Crisis”, supported by 2,100 people.

When these trusts leave the NHS to become mutuals they will find it far easier to close facilities because it will no longer be accountable to the public.

High quality performance delivery?

Not really.

The latest A&E wait time figures show that Surrey and Sussex missed the four hour waiting target  for A&E, with only 94.6% of A&E patients being seen in under four hours. They are under “unprecedented pressure”, say recent press reports.

Norfolk and Norwich is worse, with only 87.3% of patients in its type 1 A&E waiting less than four hours. It is also performing badly in other areas, with a rise in cancelled operations. And at UHL only 80.6% of A&E patients wait less than four hours.

Tameside’s A&E was the only one of the acute Pathfinders to (just) achieve the four hour A&E waiting time target in the latest figures.

But only at the expense of quality. In a 2014 survey of A&Es quality across the country, conducted by the quality regulator the CQC there were two Pathfinder trusts at the bottom of the list: Tameside, tenth from the bottom) and UHL at the bottom. None of the pathfinders came in the top ten. In fact they all scored either average or worse than average on all the key questions asked by the CQC, with the exception of Moorfields which scored ‘better than average’ on just two criteria, “patient understanding and involvement” and “emotional support”.

Can hospitals failing so badly survive on their own as a separate company? One has to wonder if the management would be far better to concentrate on running their hospital well, than pursuing a departure out of the NHS.

Perhaps, strong financial performance is the critera?

Not really.

Four of the trusts are in financially dire straits - Norfolk & Suffolk and Surrey & Sussex Mental Health Trusts, Tameside Foundation Trust, and University Hospitals Leicester all have unsustainable debts. They are among the large number of trusts currently relying on central government bailouts totalling £630m this year.

University Hospitals Leicester (UHL) for example has a debt of £40m and an annual deficit of £17m this year.

Surrey and Sussex has been reliant on regular government bailouts since 2006, when the government loaned it £56m of public money, with further payouts since. The trust admits it has serious liquidity problems (that is, not much cash in the bank to pay for day-to-day costs) and is one of a dozen trusts in England with finances this bad.

Norfolk and Suffolk is currently being investigated by the financial and competition regulator Monitor because it is forecast to end the financial year with a £2.3m deficit. Earlier this year social workers at the Trust wrote to Lamb (whose constituency is nearby) warning that “a lack of inpatient beds for patients meant they could ‘no longer operate on a legal basis’”.

As denationalised mutuals outside the NHS, commissioned but not owned by the government, the government will have no responsibility to keep these bailouts going. Indeed, to underwrite mutuals in this way would be state aid to a private company contrary to EU regulations.

So who will make up the shortfall if the hospital makes a loss? Its employees?

At a time when we know that the NHS will be underfunded for at least the next five years it is unlikely that given the choice, any employee will want to take on risks like this.

Even Trusts in surplus - like Norfolk and Norwich, which has an unusally monopolistic grip on its catchment area - have risks staff are unlikely to want to take on. Last year it made a £5m surplus.  Clearly this £5m is mutualisable, but would the employees also want to mutualised the £1.1bn PFI debt?

A Spectator report into mutualising local authority services quoted a management consultant as saying “We found they only really worked if the local authority continued to provide financial and capacity support and occasionally assets, which defeats the object.”

Hidden agendas?

Is mutualism merely an opportunity for the government to wash its hands of trusts whose quality and finances are failing? Perhaps into the grip of predatory asset stripping investors posing as white knights?

Or perhaps for profitable bits of those trusts to wash their hands of the rest of their trust?

Several of the pathfinder trusts - including 3 out of the 4 with the most perilous finances - float the possibility of mutualising only ‘parts of’ their services. Cardiology seems a particular favourite.

This is in line with Ham’s suggestion that:

“A variation would be to enable the establishment of an employee owned and led mutual for a particular group of services or as a joint venture bringing together services from different organisations to develop more integrated care.”

For example, Ham would be in favour of the cardiac ward in a hospital being run by a “mutual” of cardiologists, profit sharing the surplus. At an operational level this would hinder nurses widening their experience since to move to another ward they will have to apply for another job with another company.

But more fundamentally, it’s wrong. Some specialities like orthopaedics generate surpluses which are used to subsidise other services, like paediatrics, that are run at a loss. So “mutualising” an orthopaedic ward will result in the paediatric ward closing.

Do staff want mutuals?

It’s perhaps not surprising that the Mutuals in Health programme has not required Pathfinder applicants to seek staff support - only senior executive buy-in. Previous attempts have shown little staff support.

A Spectator article quoted a management consultant on mutuals delivering local authority services explained why:

“The nature of most public sector workers is a desire for stability, limited risk, and work/life balance; so their desire to do what’s required to make a mutual work is fairly limited, given that it doesn’t really increase your earnings. We found the drive was always from the top, and staff appetite was low, which isn’t really how it should work.”

Ham goes to great lengths to try and convince us that it is better for employees t work for a mutual.

But it’s hard to see the benefit for nurses and low paid NHS staff. They’re still in a hierarchy…

When their services are transferred to new ‘mutual’ providers, they are done so under Transfer of Undertakings (Protection of Employment) law (TUPE), which offer little real protection for terms and conditions.

And the time limited nature of the ‘provider contract’ (usually three years) means they could soon face further transfer on the whim of the CCG - perhaps to a more corporate provider such as Virgin.

Public sector mutuals can only generate small surpluses and the various forms of profit share used (usually based on a proportion of salary) benefit management and high paid clinicians more than the majority of fairly low paid staff. One has to question whether the interest from some managers to turn their hospitals into mutuals are more about their pay packet than their patients.

The mutual offers no protection for the nurse’s job, nor guarantees that the nurse will always “benefit” from the mutualism. In short, mutualism is a sham. It means very little, and worse, it puts a friendly face on privatisation.

Conclusions

We have yet to see whether the so-called pathfinders will become “mutuals” and if they do, what model they will choose.

It is likely that two or three of the mental health providers (Cheshire and Wirral, Norfolk and Suffolk, or Oxleas) will become mutuals because mental health provision is the classic “Cinderella service”, overlooked by most. Something like 30% of mental health is already delivered by the private sector, proving that NHS services can be privatised without the public noticing.  Though the current mental health crisis caused by shortage of available mental health beds calls into question whether further privatisation, and the further cost-cutting and lack of control and accountability that entails, is really the solution Norman Lamb should be considering.

Moorfields is “perfect” in every way: it has no performance issues, no great financial liabilities and it generates an annual surplus. Further, it is one of the most privatised NHS trusts anyway, since 12% of its income comes from private patients. It would give Lamb-Ham-Maude a perfect poster child trust to “prove” that mutuals are a “good thing”. The problem is that Moorfields is a specialist trust and is extremely unusual, so it would be dishonest of any politician to use them as an example.

The acute trusts are a different matter. The government would be extremely stupid to mutualise acute trusts. This is friendly advice to them: acute trusts have A&Es and do not have an ability to “choose” patients. They are very sensitive to conditions out of their control: outbreaks of norovirus, flu, and bad weather. This means they can be thrown unexpectedly into financial crisis. No community can withstand a failure of its acute trust, and for that reason, acute trusts have to be underwritten by the government, which means they cannot be mutuals. If Lamb-Ham-Maude attempt a way of public underwriting acute mutuals then it would inevitably fall foul of EU state aid rules.

The Tories and Liberal democrats want NHS hospitals to leave the NHS whether you believe Lambs description as mutualism being “an alternative to privatisation” or Maude’s “mutualism is a form of privatisation”. However, we have heard nothing from the Labour party. Is the Labour party, the founders of the nationalised NHS, in favour of hospitals leaving the NHS? In a speech for the Labour National Policy Forum in 2010 Ed Miliband said:

“What are the solutions for the future that I am interested in? I am interested in mutual solutions to some of the issues we face in our public services. To community ownership of our public services. To public services where people don’t feel, both users and those working in them, like cogs in the machine which to [sic] often they do. And also we have to be the people who stand up for local democracy and local control over public services as well.”

This sounds remarkably like the statements made by Lamb. A lot has happened since then and it may be that Ed has now realised that public ownership is important to public service delivery. If that is the case then it would be good for him to say this, and pledge to reverse any mutualising of NHS hospitals that has happened under the current government.

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