Lets Rethink HealthCare: Why Competition would Never work.

STRUCTURE, ECONOMICS AND INCENTIVES

In Part I we saw how the internal market emerged.

Part II explains why it never achieved what its architects intended.

The answer lies not in ideology, but in economics and structure.

1. Competition Requires Mobility and Choice — The NHS Has Neither

In normal markets:

• customers can switch suppliers
• suppliers compete for customers

In the NHS:

• patients do not choose their nearest A&E
• maternity units are regionally fixed
• cancer centres and trauma units must serve defined geographies
• specialist hospitals cannot be duplicated for competition’s sake
• GPs cannot redirect patients to distant providers for contractual reasons
• Trusts cannot enter or exit the system freely

In short:

The NHS was asked to perform as a market while physically unable to behave like one.

This wasn’t a failure of effort — it was a failure of design.

2. GP Fundholding: Commissioners Without the Machinery of the State

Under the internal market, GPs became purchasers.

But GPs are not government bodies — they are private partnerships.

This meant billions of pounds of public money were handed to organisations that:

• are privately owned
• vary widely in managerial capacity
• lack economies of scale
• cannot deliver consistent strategic commissioning
• face no collective accountability structure

The internal market privatised commissioning without naming it as such.

If a GP practice went bankrupt — and some did — that was not an NHS failure.
It was the failure of a small business entrusted with public budgets.

This mismatch between public objectives and private organisational form created systemic incoherence from day one.

3. Market Testing: The Myth of Outsourcing Efficiency

Market testing assumed outsourcing would generate savings.

Reality was more nuanced:

A well-managed in-house service is often cheaper

because it isn’t burdened by:

• profit extraction
• dividends
• financing costs
• shareholder returns
• commercial overhead

In Birmingham, most non-clinical services won their market tests.
Those that didn’t failed due to specific operational issues, not ideological shortcomings.

The theory that private provision is inherently more efficient was simply wrong.

4. The Cost of Structural Churn

The Health Committee estimated that internal-market bureaucracies pushed NHS administrative and transaction costs up to 12–14% of spending — roughly double the pre-market level.

Across 30 years, this represents tens of billions of pounds diverted to:

• reorganisations
• mergers
• contract-writing
• procurement layers
• billing systems
• consultancy
• commissioning
• oversight bodies
• governance duplication

The NHS did not suffer from “too little reform.”
It suffered from too much structural reform and too little operational improvement.

5. So Why Did the Model Persist?

Because the NHS didn’t collapse.
It muddled through.
Staff bridged the conceptual gap between theory and reality.

But there is another reason:
the UK’s First Past the Post (FPTP) electoral system.

In countries with proportional representation:

• major reforms require cross-party consensus
• coalitions prevent dramatic pendulum swings
• once implemented, reforms are harder to unwind
• stability is valued because it is politically necessary

In the UK under FPTP:

• a government can radically redesign the NHS with 40% of the vote
• no consensus is needed
• every incoming government seeks its own signature reform
• each reform lasts only until the next reshuffle
• continuity is a casualty of political cycle time

This is why the NHS has been reorganised more than almost any system in the developed world.

6. The Lesson of Part II

The internal market wasn’t undone by incompetence or bad faith.

It was undone by economic principles that were never compatible with NHS reality, and a political structure that incentivised frequent, dramatic redesigns rather than stable, long-term improvement.

Which leads us to the final question:

If the NHS internal market could never work as designed, what does work?

That’s the subject of Part III.

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