Discredited credit ratings agencies in NHS could pose conflict of interest

Published on Thursday, 19 January 2012 11:22
Posted by Scott Buckler

New research from the think tank IPPR reveals that the Government is planning to use credit rating agencies like Standard & Poor’s, Moody’s and Fitch to assess public and private providers of NHS services

IPPR warns of a potential conflict of interest and highlights the poor track record that credit rating agencies have in identifying risk, having rated Lehman Brothers as investment-worthy on the morning of its collapse.

IPPR Associate Fellow, Joe Farrington-Douglas, said:

“Government and regulators should be looking at how to embed responsibility and ethics in healthcare organisations, rather than importing the institutions and values that were implicated in the greatest market failure for 80 years.

“One of the government’s main arguments for its current reforms to the NHS is that they are necessary to meet the economic challenges which stem from the financial crash of 2008. But by directly drawing on the failed models and institutions of pre-2008 economics the reforms fail to learn from recent history. They even bring into NHS regulation the same credit rating agencies that were implicated in the sub-prime bubble, collateralised debt obligations and the collapse of Lehman Brothers, with potentially serious consequences for our health system.

“In recent policy papers from Monitor – the body that will be overseeing the new NHS market place.  They reveal how deeply the pre-2008 mind-set is likely to permeate the new system. Monitor’s latest proposal draws directly on the institutions of the failed financial markets. Repeating the strategy of US financial regulators, Monitor proposes to outsource the financial oversight of public and private providers of NHS services to the credit rating agencies – Standard & Poor’s, Moody’s and Fitch. In the market mind-set this is a pragmatic approach to preventing Southern Cross style failures of local healthcare services. But by approaching all market failings as technical regulatory issues rather than a more fundamental problem of values and ethics, the reforms entrench the mistakes of past decades rather than learn and renew.

“Credit rating agencies do not have a health, let alone an NHS, perspective and are by definition interested solely in financial bottom lines. They are not equipped to ask any questions about the ethics or compassion of health care providers or to review whether the central purpose of the health service -  to deliver good quality health care to those in need – is being delivered. Credit rating agencies will boil down these issues into a three letter assessment of how good a prospect they believe a providers is for a profit-seeking private investor.

“The more hard-headed concern about bringing in credit rating agencies is that they have a poor track record in identifying risk, having rated Lehman Brothers as investment-worthy on the morning of its collapse. The consultation document implies that providers will have to pay one of the agencies in return for a rating. If so there is a conflict of interest with providers having an incentive to select the agency that gives them the lightest touch and best rating, perhaps allowing them to hide the risks of splitting operations from property, as happened in the broken Southern Cross model.”


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