John Spiers: We are arguing about the wrong NHS solutions

The Prime Minister and Mr Milburn have faced a considerable rebellion on foundation hospitals. As the smoke clears we should remind ourselves why this debate has come about. It is due to Mr Milburn's attempt to improve NHS performance through a new focus on consumer choice, linking new money to managerial change and individual preferences. And to look again at why the poor continue to do least well from the NHS.

Mr Milburn is the most creative Secretary of State for Health in modern times. He has insisted on a policy of re-focusing the NHS on the patient, so that it is accountable to the individual. And truly to deliver what people thought the NHS would originally achieve: reliable access for all to good quality care, free at the point of delivery, irrespective of class, income, gender, or age. But are foundation hospitals the way to do this?

Foundation hospitals have been offered as a means to empower the local community, to call managements to account, to encourage participation of patients in decision-making "as citizens" and to get them more involved in the system.

However, we should not let the vociferous opposition to foundation hospitals from "old Labour" mislead us into thinking that the idea in its present form is more radical than it actually is. For the proposal still focuses policy on provision rather than on purchasing power, either by the informed individual or the co-operative, mutual purchasing organisation. Yet it is who buys what, from whom, and on whose behalf, which provides the greatest incentives for user-focused services and proper individual choice.

Self-responsibility is at the root of best care, and good health. Yet the proposal offers no individual economic empowerment. And it does not address the need to encourage more self-responsibility by both patients and staff.

From the viewpoint of consumer empowerment, the policy offers everything but what you really want, which is control over a personal fund to buy guaranteed individual care when and where you want it, and from whom. The key distinction here is that there is a major difference between being able to discipline a system by occasional voting or consultation, and being able to secure real personal choice for care services which are necessarily individual, intimate, and timely.

Indeed, what is needed instead is policy that offers devices which stress to providers the necessity of designing services round the individual patient's choice – if you don't do it, your revenues dry up. We need policies that unleash innovation, entrepreneurship and rewards for good service.

Instead of achieving these essentials, I suggest that foundation hospitals will do more to dramatise and reveal the contradictions in the system. Notably, that you cannot make a state monopoly consumer-led unless you give the consumers the actual individual economic powers. A shift of papers from Whitehall control to local government in-trays will be a geographical rather than cultural shift.

The political lessons are significant, too. First, if you are going to have a big fight, have it about the real things that matter. The Conservative internal market showed that a half-way reform is worse than none. For this did not empower consumers, give sufficient incentives to providers, or change staff attitudes. It gave markets a bad name, mobilised opposition to real reforms, and did not work.

The second key lesson is that if Mr Milburn wants consumer choice, he must rely on direct financial incentives. The Conservative attempt to run a quasi-market revealed the contradiction between a bureaucratic approach to the allocation of resources and a market-led one. The conflict could not be reconciled, and so – in the interests of political security – NHS Trusts were denied the fundamental freedoms to manage, and purchasers the powers to contract for quality. Service users had no economic power and no individual freedom to migrate to a preferred provider.

As the foundation hospital policy stands, it remains difficult to see what it means to say that people will own a local hospital, or share power with managers. It is difficult to see how consumers can persuade them to allow this (whatever it might mean). And it is hard to see what the incentives would be for managers to do so.

To achieve Mr Milburn' s stated hopes, it is essential that all hospitals and all care providers should have to earn their revenues from the ultimate consumer of their services. Direct incentives are necessary to bring abstractions down to earth.

This does not mean privatisation. Instead, it means one people in one market for one service, as the optical revolution in the high street has shown. Here it is the work of markets, not their absence, that has empowered the poor as well as the middle class. The benefits, of course, bring further quandaries: government will have to allow losers to shrink as they lose public support, not bail them out with extra contractual payments. For this destroys the incentive to be a winner. And it is to winners that consumers will want to take their NHS funds when they have the choice to do so.

The author's book 'Patients, Power, and Responsibility' will be published by Radcliffe Medical Press/IEA in June