support various activities which cross the boundary between the service sector ..... Traction pic (BET), held over 60% of NHS private domestic service contracts.
Environment and Planning A, 1991, volume 23, pages 853-867
The internationalisation and commercialisation of health care in Britain J Mohan Department of Geography, Queen Mary and Westfield College, University of London, Mile End Road, London E1 4NS, England Received 19 October 1989; in revised form 26 June 1990
Abstract. The spatial impacts of the processes of internationalisation and commercialisation on the health sector in Britain are considered. It is argued that the key influence on the strategies of multinational corporations in the health sector is state policies regarding the provision of health care and the organisation of support, or 'ancillary', services. Multinational involvement in the acute hospital sector and in the provision of ancillary services is discussed, and attempts are made to relate this to wider processes and patterns of uneven development in the United Kingdom. It is argued that, despite the high profile of multinationals, their actual impact is still relatively limited, but in the long term the qualitative effects on the way health care is delivered will be of greater significance. Introduction Spending on health care occupies a large proportion—usually around .7% -8%—of the gross national product of most advanced capitalist societies. In Britain some £21 billion was spent on the National Health Service (NHS) in 1989/90 (CSO, 1989, table 7.37). Despite expenditure on this scale, the health care economy is a relatively neglected topic in geography and in urban and regional research. One reason for this, in Britain at any rate, may be that the bulk of public (NHS) expenditure (some 70%) is spent locally, in the form of wages and salaries; another reason may be that, as a service which (until recently) has been almost exclusively financed and provided publicly, patterns of expenditure and employment bear a close relationship to population distribution and to social need rather than following the dictates of market forces. However, spending on private acute health care is now over £700 million per annum (CSO, 1989), a further £1 billion, it is estimated, is spent on private nursing homes and residential facilities, and around 30% of the NHS budget is paid to suppliers of goods and services. These substantial sums support various activities which cross the boundary between the service sector and manufacturing, and which employ people in a wide range of occupations. On most definitions, private health care would be regarded as a consumer service, whereas the private provision of ancillary services would probably be classed as a producer service, because it does not involve direct consumption. In manufacturing, the medical equipment and pharmaceuticals industries are often seen as high-technology sectors, at the leading edge of research and development, but, as in any 'high-tech' sector, there are also many employees in these industries who carry out purely routine activities. A complete analysis of the health sector would therefore have to include a range of activities in both manufacturing and services, but in this paper I concentrate on services. I do so partly because of two imbalances in urban and regional studies: the concentration on male-employing manufacturing industry (Sayer, 1985), and the focus on 'producer' services at the expense of consumer services (Damesick, 1986). I also follow Allen (1988a; 1988b) in recognising that services are indeed 'produced' and that questions of ownership and control, and of the social relations under
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which service production takes place, are important. I focus on two key developments: the processes of commercialisation and internationalisation in the British health sector. Commercialism in health care was almost unknown in Britain, even before the NHS was set up. Private health services were provided on a voluntary subscription or charitable basis. With the establishment of the NHS, doctors retained the right to practice privately, but private medical care was provided by non-profit-distributing agencies, such as the British United Provident Association (BUPA) and their offshoot, the Nuffield Nursing Homes Trust. For thirty years the private sector remained small, with very little commercial involvement apart from occasional hospital takeovers by US corporations. The same was true of ancillary services: private contractors had made little headway in bidding for NHS contracts. All this changed in 1976. The then Labour government were committed to the separation of private practice from the NHS. However, there was concern that they should not abolish private health care altogether, for, as several members of the Cabinet pointed out, this could mean that "we should lose a lot of revenue from rich overseas patients" (Castle, 1980, page 704), patients attracted to Britain by the specialised medical expertise available. The government introduced legislation which was intended to phase out paybeds from NHS hospitals and to regulate the development of new private facilities outside the NHS. At the same time, somewhat ironically, the Labour government's National Enterprise Board established United Medical Enterprises (UME), through a merger between two smaller companies. UME was to operate as a hospital developer and supplier primarily in the Middle East, exploiting the United Kingdom's competitive advantage in health care provision and management derived from the experience of the Department of Health and Social Security. However, UME was not permitted to enter the British market, though following the 1979 election this restriction was relaxed (Griffith et al, 1987, page 97). The organisations best placed to invest in new hospitals were therefore US-based multinationals, whose access to capital meant they could easily finance hospital acquisition and construction; the nonprofit hospital sector in Britain, by contrast, lacked access to the necessary finance. The election of the Conservative government in 1979 led to some relaxation of restrictions on the commercial health sector, although for some critics that government did relatively little positively to encourage commercial health care (see Mohan, 1986a). The introduction of commercialism in the provision of ancillary services can also be dated to the mid-1970s, but for different reasons. The growth of trade unions in the public service sector had been rapid [paralleling the rapid growth of public employment in the postwar years (Mohan, 1988a; Parry, 1985)] and it was perhaps inevitable that they would flex their industrial muscle at some point. There were several opportunities to do so in the early 1970s as Labour and Conservative governments both restricted growth in the incomes of such workers. Industrial action began in 1973 (Widgery, 1976) and continued through the term of office of the 1974-79 Labour government, culminating in the 1978-79 'winter of discontent' and in subsequent action during 1982. Conservative interest in commercial provision of ancillary services undoubtedly dated from this time and stemmed from a desire to loosen what was seen as the grip of trade unions on the public sector (Ascher, 1987), as well as the (apparently) successful experience of contracting-out of ancillary services in some Conservative local authorities. Commercialisation has been accompanied by internationalisation: a growing involvement of transnational organisations in the production and delivery of health care and its associated 'ancillary' services. Allen (1988b, page 128) points out that the "relative profitability of manufacturing has declined and service delivery has
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therefore provided an alternative source of investment for multinational (and international) companies". Hence a number of large-scale corporations have emerged, enterprises which can "redefine commitments and objectives in response to the changing opportunities presented by the globalisation of the economy" (Knox and Agnew, 1989, page 341). In the health sector, the main source of these 'changing opportunities' is state policies regarding the regulation and provision of welfare. I argue here that internationalisation in the British health sector can be satisfactorily accounted for only in terms of state policies which have opened up greater space for the commercial sector in Britain, and which have done so to a greater extent than elsewhere in, say, Europe (see the discussion of investment strategies by US hospital chains in section 2, below). In addition, state policies elsewhere have forced multinational organisations to seek new investment opportunities; this was especially so in the USA where federal restrictions on health care expenditures were.one reason behind decisions to invest in various European states in the 1980s. Thus, where Bradbury (1985) identifies three factors which have made possible the internationalisation of capital (improved transport technology, technical change in production processes, and global reserves of labour), a fourthstate policies—is of special relevance here. In addition, the investment strategies of multinational health care corporations are themselves linked to the global circuit of capital, which creates concentrations of high-wage populations in 'core' regions of the world-economy and also in specific cities; such populations either have the incomes to sustain consumption of services such as private health care, or have such services purchased for them by employers seeking to attract and retain scarce staff in competitive labour markets (see Lee, 1989; Mohan and Lee, 1989). In this paper I therefore emphasise changing state policies and the responses to those changes by transnational organisations, in terms of investments in Britain. The impact of multinational investments and control can be evaluated in terms of market share, location, and their effects on the character of health care delivery. This process of internationalisation is not a one-way street; UME (see above) developed numerous hospitals in the Middle East, and BUPA have recently expanded into Spain. Internationalisation is also important in the context of the international migration of skilled medical personnel. One reason why US health care corporations first invested in Britain was to recruit staff for their Middle East hospitals, and there are now regular recruitment drives, by US, Australian, and Middle East hospitals, to attract British staff. This is occurring at the same time as British health authorities are increasingly turning to migrant nurses, for instance from Ireland and the Philippines, to meet staff shortages. This international division of labour in the health sector is not dealt with further, however [but see Findlay (1988) on international migration of skilled labour]. There are three sections in the paper. In the first, the involvement of multinationals in the provision of private acute medical care is examined, with particular reference to investment strategies. Second, the actual and likely future impact of multinationals on the provision of ancillary services is analysed. In a concluding section, I evaluate the impact on these sectors and consider the prospects for future multinational involvement and for analyses of the service sector. A US invasion? Multinational provision of health services Representatives of the private health sector frequently claim that the growth of private health care is independent of developments in the NHS and instead reflects the free play of market forces: individuals express preferences in disposing of their income. Individual choice has been important but this is partly because of people's perceptions of the state of the NHS, which is a government responsibility. As argued
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above, however, the recent growth in private health care has much to do with the intended and unintended consequences of government policies, notably the pay beds legislation and restrictive incomes policies (these policies led many companies to offer fringe benefits such as health insurance) of the 197.4-79 Labour government, as well as the consistent encouragement, albeit without many material concessions, of the Conservative governments. Recent investments by multinational hospital chains have to be seen against this background and in the context of the internationalisation of the activities of several US corporations, such as American Medical International (AMI), Humana Corporation, and Hospital Corporation of American (HCA). These had developed in the USA in the 1960s, and had steadily expanded to achieve a substantial market share in many states. HCA, for example, own over 360 hospitals with a particularly strong presence in the southern states (those with limited restrictions on commercial health care organisations) of the USA. However, the opportunities for further domestic expansion were relatively limited as problems of cost containment and hospital overcapacity beset the US health care system from the early 1970s (Goldsmith, 1981). Subsequently the introduction of strict cost-containment methods by the federal government led to tougher competition and contributed to overcapacity. For the corporations, one solution was to develop the international dimension of their activities. They began by taking on the management of hospital systems (for example, HCA have management contracts in Brazil and Saudi Arabia), paralleling some of their early stages of domestic growth. They then sought opportunities for foreign investment. The perception of the NHS as a system in 'crisis' was influential here: opportunities for expansion were "brightest in countries with ailing health care systems, such as England" (Federation of US Investor-Owned Hospitals, 1983, quoted in Griffith et al, 1987, page 45). The US corporations had established a base in the United Kingdom in the early 1970s. HCA had set up a recruiting office in London, to recruit staff for Middle East hospitals in 1970, and by the mid-1970s AMI had bought the Harley Street Clinic and the Princess Grace Hospital, then as now private hospitals with a worldwide reputation. The opportunity for multinational involvement was thus created by the US corporations' perception of the problems of the NHS. A contingent factor was the absence of serious competition from indigenous commercial organisations. In the mid-1970s private health care in Britain was fragmented, typically being characterised by small (one-hospital or two-hospital) organisations, with hospitals being run at best on a cost-covering or charitable basis. Even Nuffield Hospitals, the largest British organisation with thirty hospitals, was a nonprofit body, with prices held low and any surpluses reinvested in new hospitals. A more aggressive pricing and marketing strategy might have put Nuffield Hospitals in a much stronger position to repel the "American invasion" (see Griffith et al, 1987, pages 95-96). Nor was any coherent strategy developed for new private hospital development. No stable cartels have formed and only in 1986 was a single representative organisation established for hospitals in the independent sector. The absence of serious domestic competition thus made the penetration of multinational capital fairly straightforward, but, even so, some multinationals have consolidated their position further by a marketing strategy aimed at the luxury end of the market, providing high-technology, luxury hospitals. This is especially true of AMI but it also applies to Humana and to various hospitals (for example, those of the Devonshire Hospitals group) developed with Middle Eastern backing. Typically, foreign-owned hospitals have been large—around 100-150 beds in the case of AMI, whereas the average size of private acute hospitals is around 5 0 - 6 0 beds— and have concentrated on high-technology medicine and surgery. This is a segment
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of the market in which indigenous firms have been reluctant to compete, because of the scale of investments, and therefore risk, involved. British financial institutions were until recently reluctant to back private health care because of the attendant political uncertainties, whereas the US corporations, with access to Wall Street, have had an enormous financial advantage. In terms of locational strategies, the largest multinational investments (those by AMI plus some Middle Eastern organisations) have been concentrated in London and also in major regional cities such as Leeds, Manchester, Glasgow, and Birmingham. In addition, corporations such as HCA pursued a more decentralised strategy; by the time HCA entered the British market the major cities were in effect saturated and so they bought up numerous smaller units, with the exception of their development of a 100-bed hospital in Southampton. The Southampton hospital illustrates the relationship between wider processes of uneven development operating in the economy as a whole and the investment strategies of these corporations, for a key influence on HCAs decision to invest in Southampton was the presence in the area of multinationals [mainly in oil-related industry and high technology (Mason et al, 1989)] with large company-paid private health insurance schemes. Likewise the population with private health insurance is heavily concentrated in those areas of the country commonly assumed to have multinational involvement in high-technology industry, with associated low levels of unionisation and high levels of company-paid benefits (subsidised mortgages; private health insurance; company cars) (see OPCS, 1989, table 7.14). The distribution of multinational^ owned hospitals during 1988 is shown in figure 1; note the concentration of facilities in London and the relative lack of such investments elsewhere. Despite reports of overcapacity in London, which have been circulating since the mid-1980s, multinationals have still invested substantial sums there, indicating the extent to which they target the luxury end of the market; for instance, three new hospitals opened in London during 1986. This latter point indicates the continued confidence of multinationals, and shows the success of their marketing strategies in targeting the luxury end of the market for, within a month of the opening of the Kuwaiti-financed London Bridge Hospital (in 1986), a smaller, older private hospital in London (the Nightingale BUPA hospital) shut because of low occupancy rates. This is symptomatic of a wider restructuring of private health care. Commercial hospitals accounted for 55% of all beds in private hospitals in 1988, compared with 29% in 1979 (AIH, 1988). Within this overall commercialisation, US-owned corporations were particularly active in acquiring British-owned hospitals and 22% of all private hospital beds were US-owned in 1988 (prior to the disposal of some hospitals owned by HCA and AMI). There are also indications of a shakeout of hospital capacity, with thirty-four hospitals closing between 1979 and 1987, most of these being charitable, religious, or single-hospital organisations (AIH, 1988). In addition to this restructuring of the commercial health sector, multinationals have also led a limited degree of diversification. AMI moved into small-scale niches such as private psychiatry, a head injuries treatment centre, and the treatment of drug addiction, partly in response to the reduced profitability of the acute hospital sector. There have also been reports of multinationals actively seeking much greater collaboration with the NHS, seeking partnerships in jointly financed capital developments (for example, AMI's efforts to develop a private hospital within the grounds of Addenbrooke's Hospital, Cambridge) or investigating the scope for private management of NHS private wings. The prospect of private management of a district health authority (DHA) no longer seems far-fetched. Following the NHS White Paper (DoH, 1989a) the private sector's hand has been
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