Competition and choice

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Part of Time to Think Differently

Greater competition and choice was one of the main approaches used by successive governments from the early 2000s to deliver improvements in the NHS.

What did it involve?

Key elements of the approach included:

  • offering patients a wider choice of provider
  • introducing the Payment by Results (PbR) funding system to reward hospitals for the work they did
  • encouraging much greater plurality of provision through independent sector treatment centres and NHS foundation trusts.

These reforms were designed to create stronger incentives to improve performance within the NHS and to reduce reliance on top-down targets and intervention by regulators and inspectors – the philosophy being to enable the NHS to become a ‘self-improving system’.

What does the evidence say?

The evidence on what greater competition and choice achieved is contested. Studies of the internal market in the 1990s concluded that their impact was limited because the incentives were too weak and the constraints too strong. Foremost among these constraints was politicians’ unwillingness to follow through on the logic of the reforms and allow NHS providers who failed to compete successfully to exit the market. An evaluation found that New Labour’s market reforms had only limited impact, while also noting that the adverse consequences predicted by opponents of competition and choice had not materialised either.

The strongest evidence that competition in the English NHS delivered improvements in performance comes from two econometric studies of the relationship between provider competition and patient outcomes, focusing on death rates in hospitals after heart attack and other causes. A review of these studies noted that while death rates fell for all hospitals, they fell more rapidly in hospitals located in more competitive markets. What is not clear is whether competition caused this improvement in quality.

What impact did more patient choice have?

Greater patient choice was judged to have had only limited impact – partly because of patients’ loyalty to local NHS providers, and partly because of the reluctance of GPs to routinely offer patients a choice when making referrals. In deciding where to receive treatment, patients relied heavily on their personal experience, the advice of a trusted professional, and the reputation of a hospital; convenience and distance were more important considerations than quality of care. Studies have found no evidence that patient choice had any impact on efficiency or provider responsiveness.

There are two other considerations to bear in mind when assessing the impact of greater competition and choice. The first relates to the transaction costs involved in the market, such as those that arise from contract negotiations between commissioners and providers of care. Even assuming that in some circumstances competition may have a positive impact on quality of care, the costs associated with achieving this may be substantial. The second consideration is the difficulty of designing a market in health care. This encompasses putting in place effective arrangements for market regulation and dealing with provider failure, as well as the political consequences associated with failure.

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