The quite appalling level of private contracts in the NHS

We’re told that there’s some terrible amount of privatisation of the National Health Service going on. We agree:

Private firms have been handed almost £15bn in NHS contracts over the past five years, figures show.

The value of contracts given to non-NHS providers, mainly profit-driven firms but also including some social enterprises, has soared by 89% since 2015, from £1.9bn to £3.6bn a year.

Around about and roughly enough the NHS costs £150 billion a year. Thus some 2% of the service is currently being outsourced. We agree that’s appalling, entirely terrible. It should be much, much, more than that.

It is of course Ronald Coase who provides us with the basis here. Why should some things be done within the one organisation, on a command and control basis, others be done using a nexus of contracts with independent market actors? The answer is, well, it depends. There are costs either side, benefits either side and what is the optimal balance depends upon, well, it depends, upon the specifics of what is under discussion.

It also depends upon the state of technology at any one time. The major cost to the outsourcing is what are called “transaction costs”, the price of organising those independents into working with the core organisation. The major technology of the past 30 years has been the internet, the very thing which massively reduces transaction costs. To pluck just one near random example out of the air the reading of, diagnosis from, radiology can now be done online from India. Something not even feasible back then, let alone efficient or optimal.

That change in technology, that lowering of transactions costs, means that rather more should be outsourced these days. Given the resistance of any large organisation to, umm, organisational change we would all expect the NHS to be lagging behind such opportunities to increase efficiency. We don’t just expect it of course, we here insist upon it. 2% of everything is far too small an amount to be outsourcing.

Actually, when we come to think about it, we’d insist that more than the marginal 2% of absolutely anything should newly be outsourced given that technological change. Our own outsourcing of part of our blog to Portugal as an example….