1. © Institute for Fiscal Studies and Nuffield Trust, 2013
May 2013
Public payment and private provision
the changing landscape of health care in the 2000s
Sandeepa Arora and Anita Charlesworth, Nuffield
Trust; Elaine Kelly and George Stoye, Institute for
Fiscal Studies
Understanding competition and choice in the NHS

2. © Institute for Fiscal Studies and Nuffield Trust, 2013
Public payment and private provision
• Examine relationship between public and private sectors in
both delivery and funding of health care in 2000s.
• Two key messages from aggregate data:
1. Differences in the growth rates of spending:
• Public health spending rose faster rate during 2000s than in
previous 25 years; growth of private spending slowed, and fell
after 2007.
2. Increasing share of NHS-funded treatment provided by non-NHS
providers.
• Look at a specific example of hip and knee replacements to
explore these changes in more detail

3. © Institute for Fiscal Studies and Nuffield Trust, 2013
The changing growth rates of UK public and private
healthcare spending 1960-2011
-2
-1
0
1
2
3
4
5
6
7
8
1960-1975 1976-1996 1997-2007 2008-2011
Averageannualrealgrowthinhealth
spending(%)
Public
Private
Notes: OECD Health Data 2012

4. © Institute for Fiscal Studies and Nuffield Trust, 2013
NHS spending with non-NHS providers
• A series of reforms opened up some NHS-funded care to non-
NHS providers.
• Independent Sector Treatment Centres (ISTC) (2002, 2006)
• Any Qualified Provider (2008)
• Patient choice (2006, 2008)
• Between 2006/07 and 2011/12:
• Total public health spending increased by 15% in real terms to around
£120bn.
• Spending with non-NHS providers increased by 60% to £8.7bn.

5. © Institute for Fiscal Studies and Nuffield Trust, 2013
PCT secondary care spending with non-NHS providers
Notes: PCT Accounts data 2006/7 and 2011/12.
0
0.5
1
1.5
2
2.5
2006/7 2011/12 2006/7 2011/12 2006/7 2011/12 2006/7 2011/12
General and Acute Community Health Mental illness Learning Difficulties
PCTspendingonnon-NHSproviders
(£bn,2011/12prices)

6. © Institute for Fiscal Studies and Nuffield Trust, 2013
Distribution of PCT spending between non-NHS providers
Notes: PCT Accounts data 2006/7 and 2011/12.
0
0.5
1
1.5
2
2.5
2006/7 2011/12 2006/7 2011/12 2006/7 2011/12 2006/7 2011/12
General and Acute Community Health Mental illness Learning Difficulties
PCTspendingonnon-NHSproviders
(£bn,2011/12prices)
Other (inc LA)
Voluntary
Independent Sector Provider (ISTC +
other private)

7. © Institute for Fiscal Studies and Nuffield Trust, 2013
What have we learnt from aggregate data?
• Growth rate of public health spending increased after 1997, as
a result of deliberate policy choices.
• Private spending growth slowed 1997-2007. Spending and
private medical insurance (PMI) enrolment fell during the
recession.
• As NHS spending rose, so did the level and share of PCT
expenditure channelled to non-NHS providers.
• Non-NHS providers deliver a small fraction of NHS-funded
secondary care, but share has risen by a third between
2006/07 and 2011/12, from 9% to 12%.
• The largest growth was in spending on what the PCT
accounts term “Independent Sector Providers”.

8. © Institute for Fiscal Studies and Nuffield Trust, 2013
Hip and knee replacements: a case study
• Some interesting indicative evidence from aggregate data.
• Now look at specific case-study where:
• NHS and Independent providers deliver both NHS and privately
funded care.
• Data are available for privately-funded activity: particularly
important when assessing substitution between NHS and
privately-funded care.

9. © Institute for Fiscal Studies and Nuffield Trust, 2013
NHS-funded knee and hip replacements (2003/04 – 2011/12)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
NumberofNHS-funded
procedures
Knee replacements (ISP)
Knee replacements (NHS)
Hip replacements (ISP)
Hip replacements (NHS)
2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Notes: Authors’ calculations using HES data.
• NHS-funded knee and hip replacements increased by 52% and 45%,
respectively, between 2003/4 and 2011/12.

10. © Institute for Fiscal Studies and Nuffield Trust, 2013
Change in NHS-funded hip and knee replacements
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Absolutechangesince2003/04
Hip replacements (NHS)
Hip replacements (ISP)
Knee replacements (NHS)
Knee replacements (ISP
Notes: Authors’ calculations using HES data.
• ISPs account for more than half the increase in NHS-funded hip
and knee replacements after 2003/04

11. © Institute for Fiscal Studies and Nuffield Trust, 2013
What explains the increase in NHS-funded activity?
Possible drivers of increased activity:
1. Demographic Change
2. New procedures
3. Substitution from privately-funded to NHS-funded procedures

12. © Institute for Fiscal Studies and Nuffield Trust, 2013
What explains the increase in NHS-funded activity?
Possible drivers of increased activity:
1. Demographic Change
• Explains 1/5 of the increase for hip replacements
• Explains 1/6 of the rise for knee replacements
2. New procedures
3. Substitution from privately-funded to NHS-funded procedures

13. © Institute for Fiscal Studies and Nuffield Trust, 2013
What explains the increase in NHS-funded activity?
Possible drivers of increased activity:
1. Demographic Change
2. New procedures
• Future work will:
• Examine how the characteristics of patients have changed over
time, and across provider and funding types.
• Assess the implications for patient outcomes.
3. Substitution from privately-funded to NHS-funded procedures

14. © Institute for Fiscal Studies and Nuffield Trust, 2013
What explains the increase in NHS-funded activity?
Possible drivers of increased activity:
1. Demographic Change
2. New procedures
3. Substitution from privately-funded to NHS-funded procedures
• Compare:
• Hospital level data on all hip and knee replacements (in England
and Wales) in the National Joint Registry (NJR)
• Patient level data on NHS-funded hip and knee replacements in
England from Hospital Episode Statistics (HES)

15. © Institute for Fiscal Studies and Nuffield Trust, 2013
Three-year aggregates of hip and knee replacements recorded in
the NJR and HES
Notes: NJR Annual Accounts and authors’ calculations using HES data
310,000
330,000
350,000
370,000
390,000
410,000
430,000
450,000
470,000
490,000
510,000
530,000
2004/05-
2006/07
2005/06-
2007/08
2006/07-
2008/09
2007/08-
2009/10
2008/09-
2010/11
2009/10-
2011/12
Numberofkneeandhipimplantssoldor
proceduresreported
NJR levies
HES operations

16. © Institute for Fiscal Studies and Nuffield Trust, 2013
Evidence of substitution from the privately-funded to NHS-
funded sector
• Analysis by provider shows falls in privately-funded
procedures for:
• NHS providers
• Independent private hospitals
• Private providers that treat both privately and NHS-funded patients.
• For patients: implies substitution from privately-funded to
NHS-funded care.
• For private health care companies: indicates growth in NHS
income has compensated for falls in private patient income.
• Further growth in ISPs may be limited by both NHS demand
and independent sector capacity

17. © Institute for Fiscal Studies and Nuffield Trust, 2013
Conclusions
1. Large increases in public healthcare expenditure and activity
after 1997, as a result of deliberate policy decisions.
2. A rapid rise in the share of secondary care delivered by non-
NHS providers, but NHS providers still predominant.
3. Evidence of patients substituting from privately funded to
NHS-funded care, particularly after 2007.
• Health and Social Care Act opens up new areas of NHS care
to non-NHS providers. Experience of previous reforms
suggests:
• The share of services delivered by non-NHS providers will increase, but
• That share will remain small – NHS will continue to provide the vast
majority of care.

18. © Institute for Fiscal Studies and Nuffield Trust, 2013
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© Institute for Fiscal Studies and Nuffield Trust, 2013
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