THE BIZARRE tale of Ipswich Hospital NHS Trust, which has been penalised for treating its patients too quickly, shows just how hard it is for managers to manage in Labour’s idiosyncratic pseudo-markets.

The situation arose – pay attention here – because of conflicting objectives for ‘purchasers’ and ‘providers’ in the healthcare system. Ipswich General Hospital (the provider) has done particularly well at clearing its backlog of patients waiting for non-emergency operations. As a result it finds itself able to deal with new patients almost immediately – something for the NHS to be proud of, and good news for patients.

Not for East Suffolk Primary Care Trusts, however, the purchaser of hospital treatments in the area, which to ‘manage demand’ (stay within its budget for the year) introduced a minimum waiting time of 122 days to space them out. When Ipswich breached the minimum, doing more operations more quickly than had been contracted for, the PCT simply refused to pay, citing the 122-day rule. As a result, the hospital’s reward for giving patients priority is a pounds 2.5m hole in its finances and a good going-over by Richmond House, the NHS headquarters.

In the looking-glass world of NHS accounting, public-sector actors get all the disadvantages of the market and none of the benefits. In a real market, Ipswich’s behaviour would be entirely rational. Most of its considerable costs being fixed or near fixed, the marginal cost of an extra operation is small doing more is one of the few ways it has of increasing income. Leaving expensive operating theatres and consultants idle is as daft as it is offensive to patients suffering from conditions that could be treated. What’s more, in a real market, Ipswich’s success in cutting waiting times would attract more patients, thereby reducing unit costs and benefiting both it and the system as a whole.

Unfortunately, simplistic NHS accounting rules give PCTs no similar incentive to treat patients quickly. They are like an insurance company boosting this year’s profits by postponing carrying out repairs on a legitimate claim until the following year. In the case of human repairs, though, delay can substantially increase overall costs as the patient’s condition deteriorates, making costlier treatment necessary, while lengthier absence from work is a loss to the economy. And we haven’t even mentioned the human costs. Managing patients for the benefit of the finances is bleakly absurd.

There is another interesting casualty of the Ipswich story. From the patient’s point of view, minimum waiting times – which are likely to crop up all over the system according to the NHS Confederation, representing trusts – make a mockery of the government’s much-vaunted notion of choice. For patient and GP, speed is a reason for choosing one hospital over another: but if the system makes them all the same – if Ipswich can’t exceed its quota, no matter how good it is – then how are patients to choose? Removing choice, which was supposed to provide an incentive for hospitals to improve as well as a benefit to patients, at a stroke takes away a central plank of the government’s reforms.

In fact, even if it were allowed, the benefits of choice are overstated. In health, every patient has to be treated somewhere, and in practice it is impossible to expand or contract capacity overnight. So ‘choice’ simply redistributes patients between existing establishments – only now the onus is on the individual to compete with other individuals to get the best deal, instead of on the system to provide it. Choice of this kind is inadequate compensation for a dysfunctional system, an abdication of management responsibility to improve it.

At the same time, even if choice doesn’t and can’t work, it still costs. As GP Margaret McCartney points out in her FT column, in the age of ‘choose and book’ for hospital appointments, trusts are beginning to compete for attention through advertising. Instead of jointly building a powerful NHS brand – free access to high-quality, evidence-based medicine, everywhere – hospitals are using precious resources rebranding themselves with marketing slogans. In this simulacrum of choice, competition is exercised through the expensive and wasteful medium of advertising to state what ought to be blindingly obvious.

Under many circumstances, choice and competitive markets are powerful mechanisms to drive innovation and reallocate resources from less productive to more productive producers. However, given the requirement for equity and the inflexibility of capacity – even with the touring specialist treatment units – there are strong grounds for thinking that healthcare is not one of them.

What is certain is that installing a phony market and then preventing the participants from acting on its incentives is perverse and pointless, the worst of all worlds. Its costs – deciphering the rules, writing contracts and now competitive marketing – are eating up the benefits. It’s not the patients in the NHS who are sick: it’s the system.

The Observer, 13 August 2006