Andrew Lansley's health and social care bill has just been voted through to the next stage in the Lords. But no one apart from the health secretary himself seems to be entirely sure what effect tthis shakeup will have. Even other Tory MPs, such as the former health secretary Stephen Dorrell, have expressed reservations at the extent of this expensive top-down reorganisation. So what does the bill entail?

Competition's the word

A brief look at the health and social care bill shows one thing: Lansley believes that private enterprise and competition, now often referred to by that Blair-era euphemism "choice", are the future of the NHS. Under a previous round of changes introduced by Tony Blair's government, we have begun to see the beginnings of a healthcare market. The NHS is now divided in two, one half composed of healthcare commissioners, and one half providers. Some prices are set on a national tariff (60% of services offered are supposed to compete on quality, rather than price), so no provider can offer commissioners a cheaper hip replacement, only that they can do it faster or to a higher standard.

Under the shakeup, all state hospitals have to become foundation trusts. The foundation programme, begun in 2002, forces NHS hospitals to act like private organisations, competing for business and able to go bankrupt if they don't get it. The trusts then compete with each other and with well-resourced private companies to offer their services to the healthcare commissioners, or buyers.

How will the system work?

One scenario could see private companies using their considerable financial muscle gained from operating in places like the US to get potential users to choose their services over those provided by a foundation trust – maybe the private company sets up a clinic closer to where potential patients live, or maybe its clinic just has nicer carpets than the hospital. If the foundation trusts don't get enough business they become insolvent. Their options are then to merge with another trust or get taken over by a private company. If no one comes forward, they close.

In order for the market system to function, hospitals will need to operate on a "payment by results" (PBR) system – already implemented by the Blair government to allow private companies to offer elective surgeries, such as hip and knee replacements.

To allow all providers, private and state, to compete with each other in all areas, PBR will be rolled out to cover every episode of care available, including hard-to-quantify areas like psychiatry. Each treatment is priced at a different level, so to survive, providers seem likely to choose to offer treatments that can be carried out quickly and for the maximum return. If they are profit-making private companies, they will be under even more pressure to produce high returns. Corners will have to be cut somewhere.

What about consortiums?

On the commissioning side, Strategic Health Authorities and Primary Care Trusts (PCTs), who currently buy healthcare, will be replaced by clinician (largely GP) commissioning consortiums. But smaller consortiums may struggle if they have to fund an unexpected increase in healthcare requirements in their "constituency", leaving them either to offload patients with high care costs to larger consortiums (if the larger consortiums are willing and able), reduce care for all of their patients to cover their budget demand, or go bankrupt and hope a new consortium steps in to pick up their patients. Competition won't just be between providers. Unlike PCTs, consortiums have no fixed geographical area, so we could see "competitive commissioning" between the consortiums themselves, setting up surgeries on rival consortiums' turf to lure away patients, or being taken over by wealthier competitors.

It is still unclear how conflicts of interest will be effectively policed and prevented – for example, from a consortium choosing to buy services from a provider because its members have a financial stake in it and so want it to make a bigger profit. To complicate things further, a consortium could decide to make money by buying services from itself, perhaps offering surgeries in the same building as its GPs work.

This all sounds awfully complex

Managing the system of competitive commissioners and providers will add layers of bureaucracy and expense to a health service that was making progress in becoming more efficient by becoming more integrated. This is, after all, what happened after the break-up and privatisation of British Rail. There is also the possibility that many GPs will prefer to concentrate on what they trained to be: clinicians, rather than getting involved in the process of attempting to choose the best deal from a multitude of providers. In this case, their commissioning duties would seem likely to be passed to a private company that may also be a healthcare provider, raising the conflict of interest issue again.

Whether the bill passes or not, from next April it is a certainty that we will see companies competing to offer services. And there's the rub. The bill only greases the wheels. Private sector involvement can be massively increased whether the bill passes or not. The NHS in England is no longer one integrated service. How that affects healthcare remains to be seen.