Grocers are bad for health: Tim Kelsey diagnoses secrecy, bad management and political patronage in the NHS

BEFORE attacking foreigners for their allegedly corrupt practices, Michael Portillo might have taken a look at matters closer to home - at our own public services, and the National Health Service in particular.

The reputation of the NHS for sound ethical management has been hurt by a clutch of scandals over the past year and a recent report by the House of Commons Public Accounts Committee which warned that a corrupting culture threatened the integrity of the public service. One of the reasons it gave was the number of private sector managers without public sector experience who have been drafted in to run the NHS.

Introducing the free market into the NHS is not necessarily a bad thing; most private companies are run with integrity. Nor can the ethics of the public servant always be trusted: before the free market started to blow away some cobwebs, the NHS was largely a creature of self-interested professional cliques: hospitals were often run in the interests of consultants.

Its new problem stems from the way in which the culture of the free market has been grafted on to the public service. The NHS is developing into an institution run more like a traditional family business than a modern public corporation. Its management culture may not actually invite corruption, but it does not inhibit it. The atmosphere is close-knit, defensive, secretive, and it does not filter out characteristics of free-market management that are inappropriate in a public service.

All the examples of mismanagement in the PAC report occurred because there were no effective checks on the free-market enthusiasm of the NHS's new managers. As reforms continue, this cultural change is likely to become more pervasive. In April eight of the 14 regional health authorities in England and Wales will be abolished. In two years' time they will all be scrapped. With their demise, the architecture of the new NHS becomes clearer: it has the structure and character of a large traditionally managed grocery chain.

In the NHS, like the large family company, the appointment of board directors to trusts and health authorities will be in the gift of the owner or chairman - the Secretary of State for Health. Regional health authorities used to have some locally elected members, but it is no longer compulsory to include anyone who might disagree with government policy.

This management structure is quite different from that of a public company, whose board may include representatives of different large investors (who can be sacked by shareholders). For a start, it expects and rewards subservience. This was well illustrated by the recent fiasco at the Greater Glasgow Health Board, the biggest health authority in Britain, when the Scottish Office appointed a new chairman to the board. There was some evidence that the general manager was not pursuing the reform policy, even that he was mounting a rearguard action against it. The Scottish Office wanted him out, but sacking him would have caused embarrassment and involved a large sum in severance pay. The chairman, however, decided to sack the general manager outright. He was punished by being sacked himself.

So two senior managers lost their jobs for disagreeing with the strategy of their employer, and the health service suffered another public relations setback. The irony was that the general manager, Laurence Peterken, had been appointed precisely because he was a free-marketeer, a businessman. But the man went 'native', started to doubt the relevance of the government's reforms and refused to encourage them, recognising perhaps the difficulties of applying private practice wholesale to public service.

The family business culture prevailing in the NHS is mostly hidden from public view. The suspicion flourishes that it is a vehicle of political patronage. There are some Tory loyalists in high-profile jobs, but the full extent of patronage remains unknown and the Government has refused to set up a register that would provide details of political involvement of health board members.

This business culture is also profoundly intolerant of criticism. Scandals at West Midlands and Wessex regional health authorities resulted in no disciplinary action against any of those said to have been involved. One of the chief architects of the computer project at Wessex, which cost the taxpayer pounds 63m, was given a six-figure pay- off and remains a consultant to the NHS. The Wessex chairman, Sir Robin Buchanan, was promoted to head the NHS Supplies Authority, with an annual budget of pounds 4bn. He had been a leading light in the Tory party in Bath. The supplies authority is itself the subject of an inquiry by the auditor-general into the award of a contract for bedpans.

It is a culture loath to expose itself to scrutiny, crying 'commercial confidentiality'. The Wessex scandal would not have come fully to light unless two confidential reports by the District Auditor had been leaked to the Independent and Computer Weekly. Wessex denies a cover-up, but that is the aftertaste.

And, as a style of business, it seems stuck in the groove of the late Eighties: the emphasis is on perks, salary differentials and public relations. Last year pay increases for senior managers averaged 9 per cent, at a time when most professional staff in the NHS faced a pay freeze. In 1992, the cost of car purchases in the NHS rose 33 per cent to pounds 70m. Most shocking was the pounds 200,000 spent by the supplies authority on printing new letterheads and designing a new logo.

All this contrasts with developments in the private sector itself. After all the frauds of the Eighties - Guinness, Maxwell, Barlow Clowes - new policing bodies were set up, including the Serious Fraud Office, and the Financial Services Act came into force. In the health service nothing has happened. The Audit Commission and the PAC are the only policemen, and neither has executive powers to punish or change.

The accountability of the NHS to its consumers - the patients - has declined. The powers of the Community Health Councils have been reduced: they can no longer, by right, attend closed sessions of authority board meetings. Despite the Government's protestations to the contrary, whistleblowers remain in danger for speaking out.

So can you run the NHS like a grocery? Some say yes: the model of a local family business is a good one, in keeping with the priorities of the new managers, who see themselves as part of a community, providing a service. Others disagree: the idea of competition, they say, is inappropriate for a public service, especially this one. Encouraging competition in this supermarket- style capitalism has another possible side effect: hospital managers may become reluctant to admit error or mismanagement, fearing that bad publicity will have an adverse effect on business.

But the real problem with running the NHS like a grocery is that it does not guarantee excellence in ethics. The new business managers are out to prove their commercial skills. There will be corner-cutting, and there is impatience. One of the key faults at Wessex was that the authority and its chairman did not care to listen to those who said the computer scheme was unworkable. They wanted quick, politically impressive solutions. We - and the Public Accounts Committee - are right to be worried.

(Photograph omitted)