The Healthcare Nudge Tax – Hubert Huzzah

Mary Seacole was a British-Jamaican business woman and nurse who set up the British Hotel in the Crimea during the Crimean War. Not as well known as Florence Nightingale, she essentially spent all of her fortune tending to the British Wounded. She was Florence Nightingale’s copay. There are a wide range of reasons why Seacole ended up going from successful Businesswoman to Poverty but the cost of nursing care was a significant contributor.

The National Health Service (Co-funding and Co-Payment) Bill 2017-2019 is seen, on the Left, as introducing something new to the National Health Service: co-funding and co-payment. This is untrue: whenever someone pays for spectacles, dental treatment or a visit to the chiropodist, that falls, broadly into co-funding-co-payment. There is no need to legislate for these things. What the Bill is seeking to create is something a lot more than simple co-payment.

Seacole paid for treatment and facilities for British Soldiers in Crimea. She lacked the social connections in Britain to do anything other than pay the full economic costs for her efforts. The important point is that Seacole was co-funding and co-paying the Healthcare provisions of Florence Nightingale. Lacking the connections of Nightingale, Seacole was obliged to pay in full, up front, the market price of nursing care. Unlike Nightingale, Seacole was not economically supported in delivering nursing care. When the Crimean War ended, Seacole came to Britain and was both well known and sympathetically received but poor. Her fortunes were only really restored by patronage and public subscriptions to her.

Sir Christopher Robert “Chopper” Chope OBE son of a Judge, pioneered the sale of Council Houses – with such aggression he became known as Chopper. As Chairman of Conservative Way Forward he has been vocal in promoting the extremes of Thatcherism even to the detriment of his own Party. As a Private Landlord, in 2014, Chope filibustered a Liberal Democrat bill, with cross party support, seeking to make revenge evictions an offence. Again, in 2015, he filibustered a private member’s bill seeking to restrict car parking charges on Carers at hospitals. His vision is resolutely Thatcherite: he steered the Poll Tax through Parliament; and, his chosen tool is the Private Members Bill. Which helped to ensure the Referendum on European Membership took place. What he does not like he talks into the ground.

Which all begs the question of why a Thatcherite former vice-chairman of the Tory Party would be presenting a bill for co-payment and co-funding since the NHS already operates a co-payment system. Indeed, why would a Member of Parliament waste time on something that already happens when there are so many other issues demanding attention. Across Europe there are a variety of ways in which Healthcare is funded. All involve some degree of co-payment.

1. No co-payments: The Netherlands and Malta.

2. Flat-rate co-payments: Austria, Italy.

3. Implied ceiling flat rate co-payment (prepayment certificate): UK.

4. Percentage rates co-payment: Belgium, France, Greece, Estonia, Latvia, Lithuania, Poland, Portugal, Slovakia, Slovenia and Spain.

5. Percentage rate co-payment with annual ceiling: Finland.

6. Uniform percentage co-payment: Cyprus, Germany, Norway.

7. Co-insurance, with percentage decreasing with accumulated expenditure over a given period and with a ceiling: Denmark and Sweden.

8. Deductible co-payment: Ireland, Sweden.

9. Many countries have explicit exemptions for certain products, as well as for some patient and socio-economic groups.

The only places with zero co-payments are the Netherlands and Malta. Co-payment is the usual European model. Co-payment intrinsically limits the amount paid and allows for exemption. Even in Belgium, France, and so on, the percentage co-payment is open to reduction by negotiation, prepayment or even poverty. Importantly, co-payment takes place at the point of delivery. There is always a way to avoid the refusal of treatment with co-payment. The Economists explanation of co-payment is that it provides an entry cost into the Healthcare Market for the Healthcare recipient which avoids moral hazard. Moral hazard occurs when someone increases their exposure to risk when insured because they are insured. It is the accusation placed against the Banks in 2007. When there were claims Banks were ‘too big to fail’, the claims of moral hazard disappeared. Moral hazard only applies if you are, economically, small, according to policy makers. Fundamentally, co-payments across Europe have been about ensuring equity that is fairness not avoiding moral hazard.

Co-payment as a mechanism for ensuring fairness have always been viewed with suspicion by health economists because co-payment leads to value based pricing of healthcare. Value Based Pricing is distinct from Cost Based Pricing in placing a price onto goods or services based on the value to the purchaser not the cost to the provider. Cost Based Pricing determines how much the time and materials a service or goods cost, a profit margin is applied and the buyer charged.

Buyers of Cost Based Pricing products can always push prices down towards cost. The slogan Think like a patient, act like a taxpayer is being repeated, mantra-like, by close friend of Boris Johnson and former president of United Health Group Inc. – an American commercial health company – as the head of NHS England. It is intended to justify the moving of 36 treatments out of the NHS into a purely co-funded basis. Unlike co-payment, co-funding is never waived. Co-funding ensures that there is a fundamental shift in the relationship between Doctor and Patient.

Since 1948, the NHS has operated on the basis that a Doctor makes a decision about the treatment for a Patient and the Patient receives that treatment from the NHS. The decision involves no third parties. Under a co-funding healthcare model – the decisions about the value of the therapy are made by the Third Party Payee. That Third Party Payee both determines the pricing and the availability based on assessments of value. The Third Party explicitly shapes prescribing decisions through various guidelines and incentives. This is the general system that operates in the US where people think like a patient and act like a premium payer – because the tax paid is a premium paid to an Insurer. The difference between the experience of Florence Nightingale and Mary Seacole is the difference between co-payment and co-funding.

Florence Nightingale could decide on any treatment she wished to give to the Troops. When she did so, she could appeal to sponsors and donors to pay for those treatments. Mary Seacole recommended the treatments that she was experienced with which were particularly around communicable diseases such as cholera. Unless she could find an approving donor, she was obliged to pay out of her own funds. Lack of social connections and her acceptance of the need for Soldiers to have a social existence kept donations at a distance.

Both Nightingale and Seacole were operating on a cost based pricing model and the outcome for both were, economically, different. Both Nightingale and Seacole were accepting payments from those they treated but Seacole would waive fees for those who could not pay or if it served the health of others around that person for them to be treated. She was forced into co-funding of treatments because failing to treat cholera simply because someone cannot pay promotes the spread of cholera. It was that utilitarian compassion that made Seacole a national hero. It was also the success of her approach – that of broadly socialised medicine – that helped to galvanise the Far Right of the Conservative Party into demanding Seacole was removed from the national curriculum and to rabid opposition to her statue being erected as a memorial on NHS Property.

Legitimately, there are those who point out that the Tories are racists who have a problem with Black People from the Caribbean in the Health Service. That point is hugely important but ignores that Seacole was obliged to be a completely commercial healthcare provider which bankrupted her. The fundamental problem was not simplistically racism but that private healthcare simply fails to work. Which illustrates the kind of smokescreen that the Tories adopt: nudging people into an argument about one thing when the real issue is elsewhere: talk about racism and lose the NHS or talk about the NHS and suffer racism.

There is no mistake in saying that the Cosmopolitan nature of British society outside Whitehall and the Establishment is what created the NHS, and that Mary Seacole was an important step along the path to the 1948 Act; but, that distracts from what the National Health Service (Co-funding and Co-Payment) Bill 2017-2019 sets out to achieve.

Mary Seacole illustrated what happens when co-payment and co-funding coexist: someone goes bust. Co-payments are limited and, despite being almost universal in their enforcement, can be waived. Poor people should not die because they are not poor. Introducing co-funding ends the capacity to waive a co-payment. Co-payment is a gateway to full co-funding. Co-payment establishes a threshold price and the result is a shift from Cost Based Pricing to Value Based Pricing. Healthcare co-payment, connected to co-funding, nudges policy from Cost Based Healthcare to Value Based Healthcare by claiming that a Value Based Price should be “largely consistent with the values and preferences of the vast majority of the insured population”.

Value Based Pricing sets a prices according to the value of a product or service to the Payer rather than according to the cost of the product to the Seller. There needs to be no connection to cost based prices or even historical prices. The aim is simply to increase profitability without a need to increase sales volumes. Which is essential in commercial healthcare where successful treatment reduces the need for treatment and failed treatment removes customers from the market.

Value Based Pricing principally works in to the benefit of the Seller. It relies on the perceptions of the Buyer which leads right back to Nudge Theory. For Value Based Pricing the single most valuable emotion is not desire but fear. Realistically, it is Fear Based Pricing that relies on the Buyer being in fear of not obtaining the product. Co-payments create low level fear yet co-funding not only creates low level fear in the short term but reinforces that fear in the longer term. Which creates the environment for perpetual nudge. Value Based Pricing leads to such things as Surge Pricing as operated by Gig Economy Apps such as Uber. Surge Pricing raises price when there is higher demand because there is higher fear of not being able to obtain the service. For the Health Service that kind of Surge Pricing would be apparent around “flu season” or communicable disease outbreaks.

Value Based Pricing is not only about maximising profit but also acknowledge to be associated with high levels of fraud. Co-funding creates a purely Value Based Pricing market place, meaning that co-payments are, at best, a loss leader. With the current Co-payment system in place, it would be possible for a Pharmacist to look at a prescription and tell the Patient that a cheaper over the counter alternative exists. The same would be possible with a General Practitioner: it would be possible for a General Practitioner to recommend a box of generic paracetamol at twenty pence instead of a prescription at three pounds eighty.

Under a system where Co-funding and Co-payment are both present, it is normal for both General Practitioners and Pharmacists to be contractually unable to give any pricing advice whatsoever. Indeed, the American Medical Association, found that 28% of prescriptions for generic drugs included an element of overpayment and 6% of branded drugs included an element of overpayment. The prescription has become, for a good many Americans a nudge into purchasing. The General Practitioners and Pharmacists have terms and conditions dictated by a third party: which is the outcome of marketplace healthcare.

Overpayment at the point of dispensing is counted as healthcare fraud. The FBI estimates that Health Care Fraud costs American tax payers $80Bn/y. Of this amount $2.5Bn was recovered through the False Claims Act in the Financial year 2009-2010 at the cost of paying out $0.3Bn to whistle-blowers. Prescription fraud is not the only source of fraud. Wherever there is a mixture of co-payment and co-funding, there is an elevated level of fraud. This includes Billing for services not rendered, overcharging services and items through computer coding, duplicate charges for items, unbundling treatment packages and charging for individual items, excessive and unnecessary services as well as bribes and falsified medical records.

In fact, where there is fraud in any Healthcare System there is a reduction in life expectancy for Healthcare users. This is particularly evident where medical records are falsified for any reason. The single biggest source of fraudulent activity is around Third Parties being involved in the Patient-Doctor relationship.

The annual cost of Fit To Work assessments, in general, was expected to rise to £579m in 2016-17, it did so. Part of that rise was due to Atos walking away from a contract as Third Party to the Doctor Patient relationship for sick and disabled people. Each employment and support allowance (ESA) test had a price hike from £115 to £190 in order to continue doing them. This was hailed as being contracting out of public services when, in fact, it was the invention of a whole new service, already carried out by General Practitioners, in order to create a Third Party to the relationship between Doctors and Patients. The track record of that relationship has been abysmal – the majority of decisions based on the Third Party are overturned by an appeals process. The important thing is not to be distracted by the large, growing, literature and documentation of rising death rates, suicides and failed decisions but to focus on the entire Work Capability Assessment (WCA) being a government contract with Key Performance Indicators (KPI) that drive organisational behaviours.

By walking away from the contract, Atos demonstrated that the DWP were locked into a Value Based Pricing contract and so the 65% price hike from £115 to £190 is perfectly understandable. The simple reason that the Government paid up was that the assessment price was a co-funding arrangement.

The National Health Service (Co-funding and Co-Payment) Bill 2017-2019 sets out to achieve the institutionalisation of co-payment and co-funding into the NHS. Currently Co-payment exists but there is no lever to be pulled that can nudge Patients into behaving as Consumers. In articles about the frequency and magnitude of co-payments exceeding prescription costs, there is frequently expressed the concern that Consumers are prevented from knowing the full nature of the relationship between themselves and the Third Party. For example, Pharmacists and General Practitioners can be placed into a non disclosure relationship with the Third Party where they cannot be told of a better and cheaper treatment. Because the Third Party manages the relationship between Doctor and Patient. Surveys among US Independent Pharmacies indicate that, despite denials, this is common practice. Which makes perfect sense in an economy that is being pushed into Value Based Pricing even if it is reprehensible behaviour.

The promotion of Value Based Pricing into UK Healthcare is not simply about making a profit. It also seeks to promote behaviour change. To change the behaviour of all NHS Patients into being NHS Customers. Without institutionalised co-funding and co-payment as paired policies, turning Patients into Customers becomes an uphill struggle. Christopher Chope navigated the Poll Tax through the Commons, changing a property based taxation into a person based taxation. It turned out badly, yet neither he nor his opposition dwell upon the fundamental change of relationship between Electorate and Local Authorities that it created. The National Health Service (Co-funding and Co-Payment) Bill 2017-2019 has a far bigger impact.

Martin Shkreli, infamous for hiking the price of Tiopronin (trade name Thiola) from $1.30 to $30, caused outrage demonstrates the power of Value Based Pricing. In 2015, in Shkreli’s company acquired Daraprim: an out of patent drug with no generic version available. The price of a dose of the drug in the U.S. market increased from US$13.50 to US$750 per pill. In interviews, Shkreli explained that co-payments would be lower for patients as the new owner of the drug ensured many patients would get the drug at no cost, through a free drug program, and that it sold half of its drugs for one dollar. Which were all technically correct statements.

What they actually revealed was how dysfunctional co-payment becomes in the presence of co-funding. Co-funding introduces the Third Party to the Doctor Patient relationship. Which is already understood to be dysfunctional from the outcomes at the DWP. Importantly co-funding introduces a Choice Architecture into healthcare which makes future healthcare subject to the Libertarian Paternalism of Nudge.

Value Based Pricing is generally acknowledged to lack intellectual honesty. In reality it is a matter of charging what you can get away with not what the product or service costs. Organisations who deliver a product on a Value Based Pricing basis often push Cost Based Pricing onto their supply chain resulting in inflation of profits. In a commercial environment this is poor treatment but in a Healthcare environment it unsustainable poor treatment that kills the customer base as well as the supplier base.

Combined with co-funding, it locks new market entrants out and so ends the possibility of the NHS reducing costs. In that sense, locking co-payment and co-funding together is little more than an invitation to fraud. While Value Based Pricing is controlled by, for example, the National Institute Of Clinical Excellence (NICE), the advocacy is in favour of the Electorate. NICE might well make unpopular decisions but the are decisions that are rational and internationally respected. Passing Value Based Pricing decisions to a Third Party – as happened at the DWP – changes the advocacy to be for the owners of the treatment.

The National Health Service (Co-funding and Co-Payment) Bill 2017-2019 sets out in a deceptively simple amendment to Section 1 followed by an equally simple looking amendment to section 12E of the National Health Service Act 2006. The overall impact is to change the relationship between the NHS and the Patient:

the making and recovery of charges is expressly provided for by or under any enactment, whenever passed”

Allows the Government to introduce charging by Statutory Instrument. A process that takes a week or so. This would allow for charges to be put in places for any treatment, drug, appliance or activity of the NHS by placing a document with the preamble: “In exercise of the powers conferred on me by The National Health Service (Co-funding and Co-Payment) Bill 2018, I hereby make the following Order:” At which point any charge can be placed into effect. The Statutory Instrument simply needs to remain unchallenged for 40 days and it becomes Law. The last occasion that the House of Commons annulled a Statutory Instrument was in 1979. So, whenever a Statutory Instrument is passed into law, NHS Charges to the Patient could be changed. Which simply means that all that is required is an active Lobbying Group and any NHS Tariff could be amended or even new ones created.

Which is not simply about nudging people to eat less sugar or cease smoking. It is about nudging Legislators to slavishly implement Value Based Pricing decisions of a wide range of goods, products, services, treatments and activities of the NHS. While this seems localised to the UK, the truth is the pricing of Drugs and Treatments in the NHS affects purchasing decisions in 40% of the World’s Health Services. Value Based Pricing in a global market is easier if your product is being sold at a premium in an influential local market. The creation of an institutional nudge has immense, global, commercial value. Lobbying in the UK would avoid scrutiny in, for example, the US but the outcome would be the same: Value Based Prices could rise in America. By nudging Legislator rather than end Customer, the cost of nudging is significantly reduced and the impact is far greater. Not only is the nudge guaranteed to work but it has the force of law to prevent it being dismantled.

The NHS has one of the price drug regimes in the World. Co-payment already exists and needs no legislation to be introduced: it is as simple as asking a General Practitioner to prescribe and asking the price. The National Health Service (Co-funding and Co-Payment) Bill 2017-2019 is not about kite flying or testing the waters or increasing choice for patients but about ensuring that Lobbyists are the Third Party getting between Doctors and Patients not only in the UK but right across the World.

What The National Health Service (Co-funding and Co-Payment) Bill 2017-2019 will promise is more choice and better, cheaper care. The experience in the US where co-payment and co-funding is in place is that Health Tourism increases – people find it cheaper to travel to Canada to get a prescription filled – and fraud rises; but, much more importantly, Healthcare ceases to be about health and becomes a significant way for Third Party Investors to manage social behaviour. The biggest Nudge possible: locking everybody into your marketing plans.

In the same way as Martin Shkreli could claim a price rise was a price fall on the basis of complex Value Based Pricing calculations that are commercial secrets, The National Health Service (Co-funding and Co-Payment) Bill 2017-2019 makes commercial secrets obligatory through Statutory Instruments, which not only ensures the NHS is privatised but that the Privatised NHS promotes healthcare cost rises across the planet.

It has been suggested that The National Health Service (Co-funding and Co-Payment) Bill 2017-2019 should be filibustered into oblivion. That would not end the drive toward Privatisation. It would also not prevent the Bill from being presented again in a similar but different form. This is the experience of the Poll Tax: it was never popular but it was navigated towards legislation by careful use of procedure. Similarly the progress of the European Referendum was navigated by the careful use of Private Members’ Bills. The National Health Service (Co-funding and Co-Payment) Bill 2017-2019 is simply another example of the well tried technique of Thatcherite MPs. This time it embeds nudge into a central Institution of Society: the NHS. The Bill should be utterly repudiated and, along with it, the underlying presumption that the entire population can be nudged and deceived and their health manipulated for profit.

Article by Hubert Huzzah

Picture: Statue of Mary Seacole (Grounds of Saint Thomas’s Hospital London). Martin Jennings 2016.



Private bill to introduce further charges to patients for healthcare services is due for second reading today



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4 thoughts on “The Healthcare Nudge Tax – Hubert Huzzah

  1. Chope is a corrupt and dishonest individual who had no qualms in claiming public money for the repair of furniture at his house. I would like to see the radical, left-leaning political parties of Christchurch come together with one candidate at the next election with a view to ridding Parliament of this nasty character.

    Liked by 1 person

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