Executive Summary

The UK healthcare market is a complicated mixture of services, providers, purchasers and suppliers. Total expenditure on healthcare services and supplies was estimated to be £54.3bn in 1996, an increase of 2.8% on 1995.

The market is dominated by an enormous public sector in the form of the National Health Service (NHS), which constitutes 74.4% of the total healthcare service and supply market. It commands tremendous public affection and loyalty, providing a comprehensive national service based on need rather than the ability to pay.

The private healthcare market is substantially smaller than the public market, with a 22% share. Other market sectors include self medication or over-the-counter (OTC) pharmaceuticals, with 2.4% of the total market, followed by complementary medicine with 1% and the niche services of palliative care with a mere 0.2%.

In the market for healthcare supplies, prescribed pharmaceuticals constitute the largest share of expenditure at £5.51bn (73.1%), with expenditure on medical equipment and consumables at £2.03bn (26.9%).

Expenditure on healthcare has been increasing rapidly over the last 2 decades. Total government spending on health was estimated to be £40.7bn in 1995/1996, but nevertheless, funding appears to be insufficient to meet the increasing needs of a population that is ageing and a healthcare system that is continually developing more and better treatment and care in response to higher public expectation.

The previous Government introduced a series of measures in an attempt to rationalise and curb expenditure and improve cost effectiveness by introducing an internal market and reorganising the service into purchasers and providers. The new Labour Government intends to abolish the internal market, but maintain the purchaser/provider split, and it is currently comprehensively reviewing all aspects of the public system. The decision of Scotland to opt for devolution and a Parliament with tax-raising powers is likely to have a tremendous impact on the system.

The Government has reformed the Private Finance Initiative (PFI) approval system in order to streamline and speed up approval of projects. Most large capital building programmes for the NHS will be done in partnership with the private sector.

Regardless of all these reforms and reviews, the situation remains extremely difficult in the NHS, with many trusts in debt, waiting lists up and significant rationing of services may become necessary in spite of the extra cash injection from the Government. Key Note estimates that government expenditure on health will rise to £48.5bn by 2000/2001.

Within the NHS, most expenditure is in Hospital and Community Health Services (HCHS), which rose to £29.83bn in 1996, and it is in this area that problems are most acute. Hospitals are becoming more efficient and treating more patients in less time, levels of day surgery have increased dramatically and record numbers of outpatients are being seen. However, waiting lists are increasing, as are the number of cancelled operations and there are bed shortages, particularly in the London area. Key Note estimates that expenditure will rise to £35.14bn in the year 2001.

Family Health Services have also come under increasing pressures in their delivery of primary care, with expenditure estimated to have risen to £10.55bn in 1996. The bill for prescribed pharmaceuticals is rising and fewer patients than ever are paying prescription charges. The Government has attempted to curb this by introducing selected lists of drugs, encouraging cheaper generic prescribing and facilitating the delisting of drugs. Dental and ophthalmic services have been largely privatised. In spite of these measures, Key Note estimates that expenditure will rise to £12.26bn by the year 2001.

The market for self medication is increasingly fuelled by the combination of a greater range of delisted drugs, high prescription charges and the increasing willingness of people to accept responsibility for their own health. Expenditure was estimated to be £1.29bn in 1996 and Key Note projects that this will rise to £1.61bn by the year 2001.

The private sector has also been undergoing an extremely difficult time. The general state of the economy and stasis in the private medical insurance market has restricted growth, and the residential and nursing home sector has been severely affected by the initiatives of community care and local authority spending cuts. The boundaries between the private and public sectors are becoming increasingly obscured, with both sectors developing facilities in partnership and contracting out services to each other. The private health sector is increasingly complementing the public in many areas, particularly in services unavailable or restricted in the NHS, long-term care and psychiatric services, but it has been severely affected by the NHS competing directly in the private acute care sector. Expenditure on private healthcare services was estimated to be £11.98bn in 1996 and Key Note estimates that this will rise to £14.66bn by the year 2001.

Increasing awareness and expectations of healthcare are fuelling growth in the market for complementary medicine, although this is restricted by the high cost of some treatment and its lack of availability on the NHS and limited access to certain treatments geographically. The market was estimated to be worth £555m in 1996 and is predicted to rise to £700m in 2001, in spite of increasing scrutiny and regulation by the authorities.

In general, it can be observed that in spite of severe problems in funding for many areas, the absolute need for healthcare, together with the ageing population, will ensure the comprehensive, evolving, if rationalised, delivery of healthcare to a public that has increasingly high expectations. Key Note estimates that the total expenditure on healthcare services and supplies will reach £64.51bn by the year 2001.

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