Governments faced with rising costs and growing demand are constantly searching for methods of delivering higher productivity in health care, or put more simply, ways of getting higher quality without increasing expenditure. One currently favoured mechanism is to encourage competition between the suppliers of care. But will this work? The appeal is simple – competition works in the rest of the economy therefore it should work in health care.
Unfortunately for politicians, the simple appeal does not necessarily translate across sectors of the economy. There is, in fact, no strong theoretical support for competition in healthcare leading to better outcomes: the predictions of economic theory on this issue are quite ambiguous (1). However, under certain condition, theory models do support competition: this is when prices are fixed by government and hospitals compete in terms of quality.
Testing this theory is often difficult, because competition in health care markets is endogenous to quality. The presence of a high quality hospital may mean that competitors stay out of its market. Or hospitals which are cutting edge tend to be located in urban areas and also attract sicker patients. In both of these situations it will appear that competition is associated with lower quality. Dealing with this statistically is not easy without some kind of natural experiment, as case mix is very difficult to measure precisely.
The English National Health Service (NHS) is subject to frequent policy change as politicians use health care as part of their drive to win supporters. The last Labour administration introduced competition between health care providers as part of its drive to increase productivity in health care. In 2006 the government mandated that all patients must be offered the choice of five, and by 2008 any, hospital in the NHS for their treatment. In addition, the prices that hospitals could charge were fixed by the government in a ‘yardstick competition’ type regime.
This policy change provided a natural experiment that researchers could exploit. Hospitals compete in geographical markets because patients prefer to be treated, inter alia, closer to home. Hospitals thus vary in the extent to which they face competitive forces simply because of geography. Exploiting this fact allowed researchers to look at outcomes pre- and post- the competition policy across different markets.
The research looked at all admissions to hospitals in the NHS – around 13 million admissions – pre- and post-policy. It found that hospitals located in areas where patients have had more choice since the NHS reforms had higher clinical quality – as measured by lower death rates following admissions – and shorter lengths of stay than hospitals located in less competitive areas. What’s more, the hospitals in competitive markets did this without increasing total operating costs or shedding staff. These findings suggest that the policy of choice and competition in health care can have benefits – quality in English hospitals in areas in which more competition is possible has risen without a commensurate increase in costs (2).
One reason that the policy may be having this impact is the fact that prices are externally fixed. Research for the UK showed that when competition was introduced in the early 1990s in a regime that allowed hospitals to negotiate prices as well as quality there was a fall in clinical quality in more competitive areas. Waiting lists, however, declined for these hospitals. This is supported by economic intuition. Where quality is hard to observe, the elasticity of demand will be low. Waiting lists on the other hand are easy to observe. Buyers of health care will therefore have a greater elasticity of demand with respect to the latter than the former and so suppliers will tend to compete on the latter and on price, whilst shaving the less well observed clinical aspects of quality (3).
These results suggest that the details of the policy matter. Competition under fixed prices appears to have beneficial results whilst competition where hospitals bargain over price and quality do not. This in turn has policy implications for governments who are keen on market forces in health care. If competition is to work, price regulation has to be retained. A free-for-all in prices would mean a return to the “internal market” of the 1990s, a regime in which hospitals competed vigorously on waiting times and ignored aspects of quality that are more difficult to measure. In addition, the tendency of the UK government to merge failing hospitals needs to be looked at carefully. Mergers are popular with finance ministries in NHS type systems because they remove what is often seen as ‘excess capacity’. However, while there are gains from removing poor managers when a hospital fails (4), removing capacity by merger will limit the extent of competition and may stifle the impetus given by competitive forces to improve outcomes for patients.
- Gaynor, Martin. 2006. “Competition and Quality in Health Care Markets.” Foundations and Trends in Microeconomics, 2(6): 441-508.
- Gaynor, Martin, Moreno-Serra, Rodrigo and Propper, Carol. 2010. Death by Market Power: Reform, Competition and Patient Outcomes in the National Health Service. NBER w16164.
- Propper, Carol, Simon Burgess, and Denise Gossage. 2008. “Competition and Quality: Evidence from the NHS Internal Market 1991-9.” The Economic Journal, 118(525): 138-170.
- Bloom, Nicolas, Propper, Carol, Seiler, Stephan and Van Reenen, John. 2010. The impact of competition on management quality: evidence from public hospitals. NBER w16032.
Much of the media comment on today’s National Audit Office’s (NAO) report on academies has rightly focussed on issues of governance and financial management. In this post, we dig a little deeper into some of the other claims in the report. We are less optimistic than the NAO – less optimistic that the academy programme has had a direct impact on the improvement of deprived and very poorly performing schools; and less optimistic that these schools are no longer avoided by the middle class.
Are academies outperforming comparator schools?
One key issue is whether academies are outperforming other comparator schools. This question – and the possible answers – illustrates the fundamental problem in policy evaluation. It is never possible to truly observe what would have happened in the absence of the policy. In this case, if a school became an academy it is simply not possible to know for sure what would have happened to it if it had remained as a community school. So researchers have to make assumptions to produce estimates of the effect of the policy. One way is to look at what happened to close comparator schools and to assume that something similar would have happened to the academy: for obvious reasons, this is called matching.
The NAO analyse the GCSE results for the 62 academies that have at least two years of post-opening exam results available. They do this by matching the academies to a set of non-academy schools that have a similar demographic profile in their pupil intake. If we take the widely used indicator of the proportion of pupils gaining five or more A*-C grades at GCSE (including English and maths) academies do indeed appear to have achieved slightly higher growth in this headline statistic than matched non-academies; this is clear in Figure 8, page 19 of the main report.
This analysis answers one specific question – have the results of these schools grown more or less quickly than schools with similar levels of deprivation. This is clearly an interesting question, but it may not be the right question. We need to remember that the original intention of the academy programme was to act as a tool to turn around failing schools. So the early academies were necessarily very poorly performing schools. The right question to ask is whether becoming an academy as part of this programme helped this growth: whether, to use the technical language, there was a causal impact of academy status on exam grades.
The issue is that the schools chosen to become academies early on were very poorly performing schools. For many such schools, the only way to go is up. In other words, a lot of the poorest performing schools would have improved anyway, regardless of academy status. We can see that easily in Figure 1. This shows the improvement in GCSE performance from 2002 to 2009 of schools in the lowest 5% of the ability intake (and by extension, the most deprived schools) and excludes all academies. This Figure suggests that “reversion to the mean” is an important component of the recovery of all poorly performing schools, and we should be cautious in assigning all of that recovery to the academy programme.
NAO show that, having underperformed similarly deprived schools in the early years of data, by 2009 they have indeed caught up and are no different in their performance on the metric of five or more A* to C grades, including English and maths. However, it is worth noting that academies are outperforming schools with a similar demographic profile on the old-style measure of the proportion of pupils achieving five or more A* to C grades, excluding English and maths. This suggests academies have been focusing on non-core subjects and NAO note that they are making greater use of vocational qualifications to boost their results than other schools. Michael Gove should therefore bear in mind that downgrading the equivalencies of vocational subjects might substantially change the perceived success of the academies programme.
Are academies becoming less deprived? And is this good or bad?
The second important point made in the report is that the academies programme is becoming substantially less deprived over time. Almost all of this change in the overall average is because succeeding generations of academies have been less deprived, rather than any individual cohort of academies filling up with less deprived children.
But we would go a little further than this. Much of the small decline in the percentage of free school meals eligible (FSM) students within a cohort of academies will be accounted for by the general growth in the economy over that period. The percentage of FSM students was declining in all schools over this time, so nothing special was happening in academies.
In order to shed a little more light on this, we look at another indicator of school composition: we use some of our own schools data on the proportion of pupils who scored in the bottom quartile in the Key Stage two tests at the end of primary school. This is not susceptible to the economic cycle. In the average secondary school, 25% of pupils will have scored in the bottom quartile but academies are more deprived than the typical school so this figure is usually much higher.
Figure 2 shows that the proportion of low ability pupils in year 7 (age 11) cohorts has indeed fallen from a very high figure of 43% in 2002/3 to 34% in 2009/10 – this is the red line. However, any particular cohort of Academies does not appear to follow a pattern of increasing or decreasing ability profile of pupil intakes. For example, the first 2002/3 cohort had 43% low ability pupils in its first year versus 45% in the latest available year of data. Only the 2006/7 and 2007/8 cohorts appear to have improved their ability profile slightly, but both are still substantially more deprived than the typical school.
One perspective on the (un)changing demographic profile of academies is that this is a success: these well-resourced and high-profile schools have not been colonised and taken over by the middle class, elbowing the poorer students out. But another perspective is that these schools remain far more deprived than average, and an increase in the fraction of more affluent students would be beneficial to students and to the school. It appears that neither of these things has occurred – the intakes remain about the same on average as when the schools joined the programme, and the typical academy does not appear to have experienced a substantial new influx of middle class students.
This week about half a million students are starting their first term in secondary school. For many of their families, the process of choosing that school will have been very stressful. Is that process fair? The system of school admissions is a major topic of policy controversy, with a lot of debate highlighting the differences in access to high-performing schools.
One leading policy proposal is to use lotteries to decide who gets in to over-subscribed schools. Our paper analyses the experience so far of the only Local Authority in England to introduce this system, Brighton and Hove. Understandably, other Local Authorities have been watching the policy experiment very carefully. While the paper attracted a good deal of interest and comment, this post draws out some general lessons for other cities.
First, lotteries can work: they do equalise the chances for everyone in the lottery of getting a place in the high-performing schools. This is the great hope for the system. As long as access to schools is tied to anything that can be bought, the outcome is bound to favour wealthier families. This might be buying an expensive house near a popular school, paying for coaching in grammar school tests, or paying for music or art lessons to help the child get into specialist schools. Lotteries simply offer everyone an equal chance of access to an over-subscribed school and sever the link between access and income.
And our study shows that this worked in Brighton and Hove, within catchment areas. Two of the catchment areas each have two community schools. The lottery worked perfectly within these catchment areas to equalise chances wherever you lived, next door to the school or just within the boundary. As a consequence, the characteristics of these schools’ intakes are converging. This point was missed by some of the coverage.
However, looking across the city as a whole, covering all six catchment areas, schools did not become more similar in terms of the socio-economic characteristics of their intakes. This is chiefly because the catchment areas delineate parts of the city that are different in their degrees of deprivation. Since neighbourhood matters a lot, admissions were still largely local and across catchment areas chances of entering the different schools did not equalise.
This is not to say that nothing much happened after the reform. There were significant winners and losers in terms of the academic quality of school attended. These were predictable: under the old system, proximity to an over-subscribed school got you in; under the new system if you’re close to the school but just beyond the catchment boundary, your chance of admission is much reduced. Conversely, some families living further away from the popular school but nevertheless within the catchment area were now able to access much more highly performing schools than previously. So there has been some rebalancing of intakes in terms of access to high performing schools, despite little rebalancing in terms of the fraction of poor students in each school.
So the second broad lesson is that the design of the catchment areas is key. To a degree any Local Authority is constrained by the geography it faces – the location of schools and the clustering of deprived and affluent neighbourhoods. But there are general points that can be made. An open city-wide lottery would be globally fair: it would indeed equalise chances of access to the high-performing schools for everyone in the city. This is what we have seen within catchment areas in Brighton. But in many places a city-wide lottery would be very impractical. Apart from transport issues, it would also complicate the transition from primary to secondary school, and reduce the sense of a ‘neighbourhood’ school. We do have to acknowledge, however, that a system of neighbourhood schools almost inevitably means a segregated system.
But there are compromises between these two extremes, and these perhaps offer the best lessons for the use of lotteries to help achieve fair admissions. It is important for catchment areas to contain multiple schools, and the lottery will then act to equalise the intakes of all the schools in that area. It is important that catchment zones enclose socially mixed communities, so that all of the families in those communities will have equal chances of accessing the popular schools regardless of the location of their house. If the catchment boundaries can be set so that they cover different neighbourhood demographics, and each catchment is similar, this will yield much of the benefit of city-wide lotteries in terms of fair access.
Welcome to the CMPO Public Service Reform blog, CMPO Viewpoint.
There has always been intense and passionate argument about how best to deliver public services. Working out how to provide effective and responsive services within a reasonable budget has been described as the “holy grail” of politics. That was in the good times. The current debates on how to reform public services take place in a context of severe fiscal austerity. This is very evident in the UK with the newly-elected Conservative-LibDem Coalition producing radical new plans across the public sector, alongside major budget cuts. But it is true worldwide too, with many governments struggling to get their public services producing more with less.
There are many unanswered questions: can very significant budget cuts be implemented without a deterioration in the quality of service? What will be the effects of the new institutional reforms in schools, health care and welfare provision? Can GPs essentially manage the NHS? Will free schools revolutionise education in this country? Who will budget cuts hurt the most? Has the time come for a truly radical reform of welfare? How do these and past reforms affect social mobility and access to the best jobs in society?
We at CMPO will play our part in addressing these questions, bringing evidence and insight to the issues. This new blog is a way of providing timely and informed contributions to the debates. This is where CMPO members and associates can offer commentary on current issues, a summary of the scientific evidence on particular topics, plus new research results. We will obviously continue with the day job, producing the lengthy scientific papers that are the backbone of our research, but we also have a duty and a wish to communicate the results of that research as widely as we can.
We hope that this new venture adds an extra dimension to our contribution to policy-making.