Professor Allyson Pollock:

The Institute of Medicine report sets this out very well. The first issue is the huge transaction costs. Administration, billing, invoicing and the administrative costs of the market are, we know from the US studies, anything from 30% to 50% of the US dollar. That is very high indeed. In the UK, in the publicly administered services the transaction costs because of administration were only 6%. They were 5% if one looks at the first 40 years of the total budget, which is very low indeed. When we move to the internal market, with trusts and internal billing and invoicing, we move to 12%. It is very likely now, because we have compulsory contracting, that we are moving to the 20% or 30%. It is very likely because we now have teams of lawyers, accountants, management consultants on both sides - the trusts and the companies. Every time one has gone out to tender, there are six or seven bidders and all the process which that involves. That is the first big reason. It is the type of market which is very much more expensive than a public administration.

The second reason of course is the profit motive, which is hidden in all sorts of ways. One has profits but one also has to do marketing. If it is a commercial company it has to sell its goods so it will spend a lot on marketing and public relations. There are other costs. Given that there is risk selection and risk avoidance, one has to put in very expensive systems in order to select carefully the patients who will be treated, the more profitable patients and the healthier patients. Protocols would have to be developed and there would have to be risk management systems so that the costs are off-loaded when those patients get too expensive.

That in turn generates a new system of costs for the rump public sector that is left behind, which is inevitably the service that picks things up. In the UK, when things go wrong in our private treatment centres for elective surgery, and one needs to go back into intensive care, the first place one goes is back to the NHS. One always goes back there. Whether it is for outpatient or intensive care treatment, it is the NHS that picks up the pieces. Of course, the other thing is because the private sector is into risk avoidance, we will not get the same levels of primary prevention.

I noticed that in some of the evidence given to the health select committee Kaiser Permanente was cited. I will happily send the committee a paper we published more than ten years ago looking at the claims of Kaiser Permanente around its prevention and rehabilitation. Kaiser Permanente is a health maintenance organisation, HMO, in the US. It is highly selective in the patients it recruits to the insurance system and the patients it treats. It does not have a universal service obligation which means it selects out the more profitable patients, that is, those who can pay their health insurance, and the more profitable services. There is a huge mythology around Kaiser Permanente and I am happy to send the committee our published paper, which refutes and rebuts it.