Squaring the circle

The Chris Cook Economics 3.0 column

One of the hot topics in the US at the moment is Health Reform, since it is widely recognised that the US system is dysfunctional. While the US debate concerns the possibility of a move towards a “Public Option”, in the UK the continuing debate between Tories and New Labour has been not whether we should move even further away from public to private provision of health services, but merely the appropriate mechanism for it to do so.

Whether my payment is via a tax, an insurance premium, a levy, a provision, or an invoice in respect of my healthcare is irrelevant. What I am interested in is that as much of my payment as possible is spent on the people who provide care and on the resources and infrastructure they need. Moreover, I believe that one of the defining characteristics of a civilised society is that a decent standard of healthcare should be available to all, irrespective of whether they can afford to pay for it.

In the UK costs of health provision are apparently of the order of 8% of GDP while in the US these costs are 16% of GDP. Both systems are pretty much captured by self-perpetuating and empire building layers of management, bureaucracy and IT related waste which are characteristic of most large organisations.

But the principal reasons for the higher costs in the US are the inefficient payments to unproductive shareholders of “For Profit” providers; for a higher level of corporate management excess; huge litigation costs, and related costs of “defensive medicine”; and the costs of the administration of dealing with and repudiating as many insurance claims as possible. To illustrate what is possible, the costs of the Singaporean system are around 4% of GDP.

A Partnership Approach
Anyone who has read my posts will know that I believe that a cooperative of cooperatives (or partnership of partnerships) may well be an optimal enterprise model. I have therefore been extremely interested to read about the rapid progress of Circle Healthcare in building new state-of-the-art health facilities in the UK. It is worth reproducing in full how their Partnership Structure words.

How the Partnership Structure Works
Being a partner means you share in the ownership of Circle, with shareholder voting rights to help direct the company.

* 49.9% of Circle is owned by Circle Partnership Ltd, which is owned by everyone who works in clinical services, directly or indirectly and at every level.

* 50.1% is owned by Circle International plc. This is the investment vehicle that blue chip City institutional investors have subscribed to for shares by providing the capital for Circle. They ensure that any refinancing is achieved without diluting partners’ 49.9% ownership.

The investment needed to buy land and build hospitals, clinics and invest in infrastructure is raised by Health Properties Ltd, a separate business. Every year from 2003-2013, ten million shares will be available for allocation to partners until 100 million shares have been issued.

Consultant Partners
Consultant partners commit to bringing a percentage of their private practice to their Circle hospital, once it has been opened, for an initial period of two years. They contribute to the planning and design of the hospital to reflect the procedures and equipment that they and their team require. Consultant partners without significant private practice are also welcomed by Circle, and receive shares for contributions to developing and delivering services, clinical governance and further partnership development.

General Practitioner Partners
All GP partners are allocated 300 shares in return for a commitment to Circle. If you join as part of a local group, Circle allocates shares to members as agreed by the group. Salaried GPs and practice managers are also eligible.

This structure has been extremely attractive to consultants and GPs alike, to the extent that over 1,100 consultants have become members. They are committed not just to using the facilities currently being built, but to working with the designers and architects to create hospitals which are relevant to 21st Century, rather than Victorian era, medicine. The first of a series of these “Open Source” hospitals is about to open in Bath.

How accessible these facilities will be to the average patient – rather than the well-heeled – remains to be seen, but the notoriously intractable, un-biddable and conservative constituency of hospital consultants seems to be thoroughly won over by the participative and un-bureaucratic modus operandi of this partnership approach.

My interest is of course in the legal and financial structure they use, which is not a million miles away from the “co-ownership” I advocate.

By way of improvement, I would aim firstly to reduce the property development costs and risks by bringing in contractors and equity financiers as revenue sharing stakeholders. This methodology would also improve upon the costly and conflicted existing LIFT property funding initiatives currently in use by the NHS.

Secondly, I would dispense with much of the cost of long term debt funding in respect of the completed properties by “unitising” the revenues from the use of the hospital to give rise to a new form of partnership-based equity.

There is no reason why the self-organising Circle Healthcare approach to health provision could not be taken up by NHS staff more generally, facilitated by bodies such as the Royal College of Nursing and health unions. They could do so in partnership with teams of management, rather than in conflict with top-down direction by politicians of unaccountable quasi-public sector management on the one hand, or cost-cutting generators of shareholder value on the other.

Moreover, the involvement of advisory boards including patients – who are far more aware of their condition than the professionals give them credit for – would also enable the provision of facilities which are both clinically effective and people-centred in their design. Doctor does not always know best.

Health Pools
The outcome could be of a network of neighbourhood, area and regional Health Pools which self-organise within partnership framework agreements. Payments into the Pool – and the name is immaterial – would be allocated as agreed between stakeholders, with part being allocated for the use of hospitals and other infrastructure.

Long term quasi-equity funding for these capital assets would come from risk averse investors. Possibly a good place to start would be for Child Trust Funds to be invested in health and education property, rather than receiving a negligible return on bank deposits, or being gambled away in the stock markets.

Outcome
The creation of what would be a decentralised and networked NHS Partnership framework could strip out unnecessary rent-seekers, whether financial, professional or managerial, and align the interests of all stakeholders to a common purpose – the National Health.