GP commissioning: how some GPs could make a shed load of money

by Andy Howell

Do general practitioners (GPs) stand to make enormous profits on the back of the government’s GP commissioning reforms? Government ministers have responded to such suggestions aggressively, arguing that recent stories to this effect are simply the result of scaremongering of behalf of their political opponents.

However, talk to almost anyone involved in running local health services and they will tell you that it is inevitable that there will be huge profits to be made by GPs through commissioning, and they are not happy about it.

But if there are huge profits to be had, then how are they to be made and where will we have to look to find them? Will the opening up of GP services to profit-based ventures change the nature of our NHS forever?

It is not difficult to find experts in public sector organisation and finance who will tell you how they expect the new commissioning service to develop. Here is one such scenario that maps out what we might be letting ourselves in for.

Initially, I thought it might be difficult to monitor profits and to understand exactly how they were being made. After all, GP practices are not limited companies and as such they do not produce public accounts. But the experts tell me that it is not in established GP practices that money is to be made.

The new profits will come through newly commissioned services which, as limited companies, can be developed in very different ways to traditional GP practices. The key to understanding how the money may be made involves appreciating that local GPS will be able to be both commissioners of local services and providers of local services at the same time. There is no rigid separation of purchaser and provider here.

Let us consider two GPs who work on the same patch. Let’s call them Fred and Sally.

Fred and Sally, along with colleagues, set out to provide a specialist service locally. The service may already be provided within the PCT system or it may be one that is determined by the new priorities of local GP commissioners (who, of course, include Fred and Sally).

A company is established to provide the service and Fred, Sally and colleagues are directors. The other directors may be drawn solely from the NHS but they might also include private sector partners who are bought on board to offer particular skills and experiences or even capital for investment in the new service.

The moment that Fred and Sally’s company wins a commission, then the shares of the company have a value. The company may only have a contract to deliver their services for a short period, say five years. But the share value of a company is not just based on the five-year contract; it is based on the long-term chances of retaining that value of that contract over time. Financial markets take a look at the company’s operation and make a judgment about the quality of its work and the chances of it retaining the contract over time. In essence, the value of the shares of the company are based on a risk assessment of the potential value of the contract over the long term. This is how markets work and it means that the values of Fred and Sally’s shares are reflecting more than an initial contract period.

So, from day one the shares of Fred and Sally have value. My friendly expert — who has been looking at this system — tells me that it is not unreasonable to expect that the value of one of these shares in a sensibly fixed service would not fall much below one million pounds. He tells me that the models currently anticipated by the financial services sector are of this magnitude.

Fred and Sally will stand to make a return from the annual profits of the company but their real gains will be made through the realisation of their equity in the company. The value of their equity in effect represents the long-term securitisation of the budgets of the NHS commissioning agency.

Now suppose that Fred and Sally are in their fifties. They are thinking of early retirement and so consider cashing in their equity stake, which — as we have seen — has significant value from the outset. This is where things really get interesting.

Anyone wanting to buy the shares of Fred and Sally will have to meet their market value, which, in our case, is worth a million pounds each. Fred and Sally are both GPs, but any young GPs wanting to take on their shareholding will have to meet the full market value. I think we can assume that there will be very few young GPs able to easily raise a million pounds to buy out either Fred or Sally. But the company’s long term value and operating profits will be prized by the private sector; and it is they that will be on hand to buy Fred and Sally out of their successful medical service company.

Fred and Sally will, of course, be very happy with their investment return and they will be able to plan their early retirement with confidence. But over time — as more and more of the initial shareholders sell to release the value of their equity — we will see the ownership of these provider companies transfer to the private health care sector. Most likely the second-generation owners of these companies will be multi-national, private sector, public service providers.

As ownership moves to the private sector it is not difficult to see how things will shape up. GPs and other medics working in the sector will increasingly be salaried workers and not shareholders. Private sector owners will seek to maximise contract value relying on the centralisation of back-office functions that might sit on the other side of the world. Their contracts may continue to provide local services, but they will make a smaller and smaller contribution to the local economy. Policies and procedures will be influenced less by local needs than by desire to standardise across the company group.

One day we will wake up to find that our health services have travelled the same path as the privatised utilities such as water and electricity and the “new” utilities that were created such as the cable TV franchises.

There will be many — including right wing politicians — who will see such a move as representing real progress, with markets driving greater efficiency within the health service. Adverse critics, on the other hand, will see these developments as a type of service-based PFI contract in which the service providers gain the upper hand over local commissioners and local communities.

Over the medium-term, we will have seen a significant transfer of health service work into the private sector. Pulling the service back into public ownership would effectively mean the re-privatisation of the health service – an option that would not only be very expensive, but may well fall foul of EU procurement policy.

This government has been clever in the tactics it has developed and deployed. It has used its newly found commitment to the NHS as a way of demonstrating to the public how the nasty Tories are a thing of the past. The Tory-Lib Dem government has set out to create a clinician-led series of reforms aimed at wooing GPs, telling them that it will free them from the bureaucratic shackles of health service administrators and politicians.

But, in developing these new GP-led and commissioned services, they have also provided a powerful financial incentive for GPs to ditch traditional service and to throw in their lot with the private sector.

Labour will have to work quickly and imaginatively to develop not only a critique of this new system, but to articulate the principles on which a fair NHS should be built. Which brings us back to PFI. Many on the left took a very pragmatic view of the use of PFI to build new hospitals, new schools and other public infrastructure. PFI was a no-brainer and a risk worth taking. To paraphrase John Prescott, did it matter that PFI was a buy now pay later scheme if it gave us the modern facilities that were urgently needed?

Ten years on — and in a very different financial climate — local authorities and health authorities find that their PFI contracts are effectively out of reach and out of influence, meaning that publicly and locally retained services have to take a higher than fair share of public expenditure cuts. Paradoxically, the government has recognized this and has declared its intention to wrestle back financial savings from their private sector partners. But such savings — rather like the restraint in banker bonuses — will rely on voluntary contributions that will most likely end up being pretty modest.

Progressives want to see the retention and development of public services based on locally identified need that are delivered by those whose motives are based on pubic service rather than profit. Developments such as those described here will make it increasingly difficult to make local choices to meet local needs. Patients and communities will have to take what is on offer rather than be able to influence that which they want.

Labour will need to campaign against these changes by articulating the dangers of a privately owned NHS. We will not only have to develop an alternative vision for health-based public services, but new models of financing them. It is quite a task. But none of us should be complacent about the real effects that the Tory-Lib Dem changes will have on all of us.

Andy Howell is an organisation consultant and former deputy leader of Birmingham city council.

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