On the benefits of competition in healthcare

Carol Propper

Governments faced with rising costs and growing demand are constantly searching for methods of delivering higher productivity in healthcare, or put more simply, ways of getting higher quality without increasing expenditure. The Health and Social Care Bill currently being voted on in the House of Lords has placed considerable weight on the encouragement of choice and competition.  Critics of the Bill are vociferous in arguing that a focus on choice and competition is, at best, misguided and, at worst, will lead to the whole-scale privatisation of the NHS.

In fact, a cool look at both the evidence gives a more positive picture.

First, there is the evidence from the ‘Choose and Book’ reforms of the last Labour administration. Implemented in 2006, these mandated that patients be allowed to choice from up to 5 hospitals for their treatment, and so introduced competition between healthcare providers. The evidence from these reforms broadly suggests the following.

It is clear that not all patients were offered choice, wanted it or took it up when offered. But it also appears that by 2009 around half of patients recalled being offered a choice. Hospitals rated as better – both in terms of some measures of clinical quality and in terms of having lower waiting times – before the policy reform attracted more patients and patient from further away after the reform. This suggests that the choice agenda had some effect on the selection of hospitals. More patients chose – with the help of their GPs – to go to better hospitals. Fears that patients would only choose on the basis of car parking or factors unrelated to clinical quality also appear to be ungrounded.

Did this movement of patients have any effect on outcomes? There is no systematic evidence that the choice agenda harmed patients. A study of equity post reform did not find that patients from more deprived local areas feared worse.  And recent studies have found positive news. Hospitals located in areas where patients had more choice had greater improvements in clinical quality (measured by lower death rates following admissions) and greater reductions in lengths of stay post policy than hospitals located in less competitive areas. What’s more, the hospitals in competitive markets increased their quality without increasing total operating costs or shedding staff. While reductions in death rates are a pretty crude indicator of quality and are contested, they are also used by health care regulators in many countries as a measure of hospital performance.

Second, there is evidence from the wave of mergers that the Blair administration undertook when it first came to power. Around half the acute hospitals in England were involved in a merger between 1997 and 2003. A recent study of these mergers has shown that, just as in the private sector, most of these did not realise the gains that were promised before the merger.  As mergers tend to reduce the potential for competition in a local market, these findings too suggests that there are benefits from competition in an NHS type system.

Third, findings from a recent study of management in the NHS shows that better management is associated with better outcomes in NHS hospitals and that management tends to be better where hospitals compete with each other.

Finally, from elsewhere in Europe there is also evidence which broadly supports competition. The Netherlands has had a mixed system of provision for many years and has slowly introduced competition. There is no evidence that this has massively harmed equity and is thought to have led to improvements in service delivery. In Germany and Switzerland, where providers are both public and private, the government has sought to increase competition between them.

In sum, the arguments may be more nuanced than many politicians (and perhaps health commentators) would like.  But there is no evidence from recent studies of the UK that allowing patients more choice and exposing poorly performing hospitals to the threat of their patients choosing another provider is going to lead to the whole-scale destruction of the NHS and large equity issues. On the contrary, the evidence we have to suggests that it has the power to improve outcomes for patients.

For further reading

Martin Gaynor, Mauro Laudicella and Carol Propper Can governments do it better? Merger mania and hospital outcomes in the English NHS University of Bristol CMPO working paper 12/281. http://www.bristol.ac.uk/cmpo/publications/papers/2012/wp281.pdf

Nicholas Bloom, Carol Propper, Stephan Seiler and John van Reenan

The Impact of Competition on Management Quality: Evidence from Public Hospitals University of Bristol CMPO working paper 12/281; also NBER Working Paper Series number 16032 (May 2010) http://www.bristol.ac.uk/cmpo/publications/papers/2010/wp237.pdf

Martin Gaynor, Rodrigo Moreno-Serra and Carol Propper Death by Market Power. Reform, Competition and Patient Outcomes in the National Health Service University of Bristol CMPO working paper 12/242.  Also published as NBER Working Paper number 16164 (July 2010) http://www.bristol.ac.uk/cmpo/publications/papers/2010/wp242.pdf

Nicholas Mays, Anna Dixon, Lorelei Jones (2011). Understanding New Labour’s market reforms of the English NHS Sept 2011. London: Kings Fund