1. NHS-funded hip replacements increased by 40% between 2003-2011, with the independent sector providing 62% of the additional procedures. 2. Growth was faster when an independent sector provider was located nearer to the patient than the nearest NHS provider. 3. Some patients who previously would have paid privately switched to NHS-funded care at independent sector providers, resulting in some deadweight loss to taxpayers.

1. Jon Sussex
Nuffield Trust and IFS seminar
13th September 2013
Discussion of Kelly & Stoye “More hips
please. Independent sector provision and
the growth in NHS-funded elective care”

2. Discussion of Kelly and Stoye
13/09/2013 2
5 results
1. NHS-funded hip replacements per year
up 40% (= +20,000) 2003/04-2010/11
2. Independent sector 62% of the extra
3. Growth faster when new ISP nearer than
any NHS provider of hips
4. Substitution of NHS-funded hips for 1/3-
2/3 privately-funded hips at AQPs
5. Small crowding-out of NHS Trusts by
ISTCs (not significant by AQPs)

3. Discussion of Kelly and Stoye
13/09/2013 3
3 main issues
Distinguish between effects of:
A. Increased capacity
B. ‘Choice’ and provider (quality)
competition
C. Private ownership of providers


X

4. Discussion of Kelly and Stoye
13/09/2013 4
A. Capacity
• DH set out to increase capacity and activity and
succeeded because:
• Premium prices (≥+11%) to cover set-up
costs/risks and elective-only (=> lower cost)
ensured new provider interest
• Initial ban on poaching NHS clinical staff, so no
crowding-out NHS capacity
• Initially no private hospital companies already
operating in the UK were awarded ISTC contracts,
so no crowding-out private capacity
• ISTC take or pay contracts meant zero marginal
cost to PCT per patient at ISTC
• Plenty of unmet demand and ISTCs aimed at it

5. Discussion of Kelly and Stoye
13/09/2013 5
Deadweight loss
• 1/3-2/3 of ‘private payers’ switched to
NHS funded care
• => deadweight loss to the taxpayer:
>4,000 out of 20,000 extra capacity
• In addition to possible (in-)equity
impacts that are mentioned
• [Not sure supply effect vs demand effect
distinction is helpful]

6. Discussion of Kelly and Stoye
13/09/2013 6
B. ‘Choice’ and competition
• Confirms distance important for choice
• ‘Choice’ of private pay vs NHS funded
already existed
• Cannot tell from the study, but ‘choice’
of NHS funded provider might have
increased deadweight loss by increasing
willingness to opt for NHS-funded care
• Study does not investigate impact on
provider quality

7. Discussion of Kelly and Stoye
13/09/2013 7
C. Private ownership
• Study says nothing about impact of
ownership
[Would impact of increased capacity
have been the same if all providers had
been NHS owned/nationalised?]

8. Discussion of Kelly and Stoye
13/09/2013 8
Other questions
• What happened to ISTC activity when
first round contracts expired?
• What happened to NHS Trusts
subcontracting to other providers (and
does HES data reflect this)?
• NHS hospital site vs Trust HQ location?
• ISP hospital site vs company HQ location?