NHS: Healthy competition - part 2

Hospitals - Map AFirst, the policy seems to have led to differences in patient flows between hospitals, even only two years after the reforms. Map A shows how exposed hospitals were to potential competition in their local markets just before the time of the policy introduction. Map B shows the change in exposure after the policy.

In Map A, hospitals are represented by dots and the lightest shade of blue shows those hospitals most exposed to potential competition, while black indicates hospitals least exposed to potential competition. Not surprisingly, hospitals located in major conurbations (London, Birmingham, Manchester, Newcastle) are most exposed to competition, while those in rural areas are least exposed.

Hospitals - Map BIn Map B, hospitals with the biggest increase in potential competition are shown in dark red, those with the least in yellow. There is a clear set of hospitals located around urban areas that have experienced increases in potential competition, particularly in the South East outside London, but also around Merseyside, Bristol and Newcastle. This suggests that the policy might have an effect on a larger set of hospitals than just the set located in highly urban areas.

Second, the research finds that hospitals rated as better by the health quality regulator before the policy reform attracted more patients and from further away post-reform. This suggests that patient choice is having some effect on their selection of hospitals and that more patients are choosing (with their GP's help) to go to better hospitals.

Third, the research finds that hospitals located in areas where patients have had more choice since the NHS reforms have had higher clinical quality (as measured by lower death rates following admissions) and shorter lengths of stay than hospitals in less competitive areas. What's more, the hospitals in competitive markets increased their quality without increasing total operating costs or shedding staff, suggesting that the policy of choice and competition in healthcare can have benefits.

Market forces in healthcare

One reason that the policy may be having this impact is the fact that prices are externally fixed. Research for Britain showed that when competition was introduced in the early 1990s, in an NHS regime that allowed hospitals to negotiate prices as well as quality, there was a fall in clinical quality in more competitive areas. This is confirmed by research in the US healthcare market, where prices are set as part of the bargaining process between hospitals and buyers of healthcare, and competition tends to be associated with poorer quality. These results also suggest that the details of policy matter, or, more generally, that the rules by which competition takes place matter for outcomes. Competition under fixed prices appears to be beneficial, while competition where hospitals bargain over price and quality does not.

This, in turn, has policy implications for governments – such as the present one – that are keen on market forces in healthcare. If competition is to be extended, price regulation can be useful. A free-for-all in prices risks a return to the 'internal market' of the 1990s, when hospitals competed vigorously on waiting times and ignored aspects of quality that are trickier to measure.

From the ESRC magazine Britain in 2012

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