By Richard Lewis | 1 October 2011
The revised Health & Social Care Bill has made it through its third Commons reading. But many issues remain unresolved – not least the role of competition and price regulation in the NHS, says Richard Lewis
Despite the passing of the amended Health & Social Care Bill in the Commons, competition in the NHS will certainly continue to be controversial.
The Bill debated by MPs early in September was significantly different to the version published in January, not least in its seeming retreat from a competitive landscape. The original provoked strong opposition on many fronts – political, professional and trade union – as well as growing public disquiet.
To address these concerns, the government introduced a ‘pause’ in the legislative timetable to consult further. It established a committee of interested parties to make recommendations to the government – the NHS Future Forum, chaired by the respected past chair of the Royal College of General Practitioners, Professor Steve Field.
The original Bill championed greater competition. At its heart was a proposal to establish free competition as the default position for the NHS, known as competition between ‘any willing provider’. This would have reversed existing policy, which limits such potentially dynamic competition to designated services such as planned hospital care. To oversee the new system, the foundation trust regulator Monitor was to morph into a broader and far more powerful economic regulator, with a duty to promote competition and to police abuses by providers and commissioners.
The NHS Future Forum took a rather more measured view of competition policy in its report this summer. It did not turn its face against the use of competitive markets in the health service. Indeed, it advocated more choice for patients and welcomed competition as long as it was well regulated. However, it emphasised that a market red in tooth and claw would have the potential to disrupt the provision of complex care, most particularly for people with long-term conditions. It highlighted the need for ‘integration’ in these cases – that is, for providers to work together.
The dust had barely settled on the forum’s long-awaited report before the government issued its response. At first blush, it seemed as though ministers had climbed down on competition in quite a spectacular way, with Monitor’s wings clipped and a new duty to promote integration.
However, a closer look reveals a more subtle set of changes, which alter the tone rather more than the substance of the reforms. Certainly, there has been a stepping back from the bullish pro-competition rhetoric that imbued previous government policy statements. There have also been a number of changes to the proposed architecture. Price competition is dead for the foreseeable future. Monitor will no longer promote competition but police specific abuses of competition. The watchdog will also have fewer powers to challenge commissioners that might be soft-pedalling on competition and will no longer be able to require providers to open up their facilities for use by rivals.
Despite these changes, it would be quite wrong to see the government’s response as a denial of the competition creed. The Principles and Rules of Co-operation and Competition (the code of practice that kick-started the march to competition under the previous government) will not only remain, but will gain a statutory footing. The Co-operation and Competition Panel, the body that oversees the Department of Health’s competition policy, will survive, being lodged within the new Monitor. Moreover, the ‘any qualified provider regime’ – the subject of so much debate and, in some quarters, concern – will be implemented from April next year (although it will initially focus on community services and hospital services already subject to choice).
As recommended by the forum, the health secretary will enshrine the duty of the NHS to allow patients choice and control over their care, by giving a ‘choice mandate’ to the NHS Commissioning Board. This will be backed up with a citizens’ panel reporting to Parliament and a plan to give people a right to challenge poor services and lack of choice.
Much has been made of the transformation of Monitor’s proposed duty from promoting competition to promoting integration. However, this duty is only to be exercised where integration will improve quality or efficiency; caveats that Monitor – even in pre-pause mode – would surely have taken into account in determining the public interest case in any competition dispute.
While the political battle over the NHS looks set to continue in Parliament and outside, it is hard not to conclude that competition has survived relatively unscathed. There is broad political agreement that it has a role to play in England’s health service. The main parties’ prescriptions for the NHS all included more power for patients to choose from competing providers. The question at issue, for policy makers at least, is what shape that competition should take.
In answering this question, policy makers can draw on growing empirical evidence on the impact of competition on health care. Until recently, much of this economic research came from more established health care markets, in particular, the US. Unsurprisingly, given the variable nature of market conditions across the states, this research produced mixed results. In particular, it seems that outcomes for patients might depend on whether the prices paid for care are fixed in advance or subject to negotiation between providers and the commissioner.
In broad terms, the weight of evidence suggests that in fixed-price markets more competition between providers can lead to higher quality care. In markets where prices are negotiated, this might not be true – with some research showing that more competition can lead to lower quality care. This is the so-called ‘race to the bottom’, where providers skimp on quality to compete on price.
However, there are doubts about how well this US research can be applied to the English NHS. After all, the systems of care are so very different. Some form of co-payment is common for US consumers but, prescription charges aside, unknown for patients in the UK. Until recently, the main study of NHS markets, carried out by Professor Carol Propper and colleagues, suggested that increased levels of competition were associated with lower quality care.
However, the study focused on the ‘internal market’ of the 1990s (the first experiment with marketisation, introduced by Margaret Thatcher’s Conservative administration). Under the internal market, commissioners and providers negotiated both the price and the quality of care. In this sense, the findings of this study mirrored those of some of the US studies.
The health care markets introduced by the Labour government were markedly different to those that went before. They are characterised by prices that are fixed in advance by the Department of Health through a national tariff system. Therefore, in theory at least, providers are motivated to maximise the quality of care possible within the tariff price available to win more patients.
This theory has been tested by two large academic studies published last year that focused on the impact of competition since the introduction of the Patient Choice policy in 2006. Carried out by academics at the London School of Economics and the University of Bristol, these studies found that increased competition was associated with better quality. The LSE research also looked at the impact of fixed-price competition on efficiency and concluded that providers in highly competitive markets delivered more efficient care.
The impact of these studies has been significant and has been used by proponents of NHS competition, including Prime Minister David Cameron, to substantiate their case. This research also contributed to the government’s decision earlier this year to rule out the introduction of price competition, despite a previous commitment.
However, a deeper analysis suggests that the case for fixed-price competition might not (yet, at least) be open and shut, while the validity of the research has been subject to criticism from some quarters. The most obvious question presented by the research is whether the measure of quality used by both sets of researchers – death from heart attack within 30 days of hospitalisation – is a good proxy for the overall quality of care.
This particular indicator is often used in academic studies, so its choice by the researchers is not surprising. However, it is less clear whether it is a good way of judging the impact of competition for planned hospital activity (emergency treatment was not part of the ‘Patient Choice’ menu during the period of study). The market incentives that choice and competition are intended to provide – greater rewards flowing to hospitals chosen by patients on the grounds of their higher quality care – simply do not apply to emergency care for heart attacks.
The researchers’ hypothesis was that this care highlighted elements of hospital service that are common to many conditions. In addition, such a quality indicator might act as a ‘canary in the mineshaft’, and as a proxy for quality more generally. While these might be reasonable assumptions, they are unproven. In addition, it should be noted that the quality gains noted by the researchers were modest. These benefits might grow in the longer term, as the researchers suggest. However, this, too, is an as yet unproven assertion.
But, modest or otherwise, there appear to be some benefits associated with fixed-price competition between health care providers. According to the researchers, competition actually saves lives.
However, there are a number of challenges for policy makers to overcome if they are to realise these benefits in full and increase their scale beyond the current modest levels. The first are technical.
Fixed-price competition will be efficient only if the price that is determined is the ‘right’ one. Too low and providers will be forced to compromise on quality; too high and providers might ‘overinvest’ in quality to attract patients (for example, they might spend too much on a ‘gold-plated’ patient experience). Both positions are inefficient from the taxpayer’s point of view. Getting (and keeping) the price ‘just right’ is a task that should not be underestimated.
A further challenge will be to ensure that the tariff price for particular treatments takes account of the different medical needs of patients. The danger to be avoided is that the fixed price becomes a blunt instrument, insensitive to those who will inevitably require more intensive services (for example, patients with other health problems that complicate the underlying condition). Get this wrong and equity can suffer, with some providers skimping on quality for sicker patients or avoiding them altogether.
Getting patients to use their ability to choose so that it stimulates better quality care might also be easier in theory than it is in practice. It is notoriously difficult to provide information about health care services simply and accurately. Patients can make ‘rational’ choices about their preferred provider only if they have at their fingertips accurate information about the relevant things in a format that they can understand. Even then, there is some evidence that patients might resist moving away from local providers despite quality being superior elsewhere.
Finally, the government’s intended reforms will rely on significant changes in the behaviour of both commissioners and providers. Notwithstanding the stronger market incentives proposed by the government, these new ways of working could prove difficult to bring about as health care organisations might prefer ‘business as usual’. The Co-operation and Competition Panel found evidence of this in its recent report on ‘any willing provider’ NHS markets, which showed primary care trusts imposed substantial restrictions on the operation of markets.
Ultimately, the case for more competition in health care has yet to be made conclusively, but early evidence from the English NHS is at least promising. However, more work is needed to understand precisely how markets might be made to work effectively and, in particular, how the associated risks might successfully be avoided. This is the role of effective market regulation. If this is to be developed with proper consultation and public involvement, the debate will need to move beyond the ideological polarisation that has characterised it so far.
Richard Lewis is a health care partner at Ernst & Young and a former fellow in the King’s Fund health policy team
The revised Health & Social Care Bill has made it through its third Commons reading. But many issues remain unresolved – not least the role of competition and price regulation in the NHS, says Richard Lewis
Despite the passing of the amended Health & Social Care Bill in the Commons, competition in the NHS will certainly continue to be controversial. The Bill debated by MPs early in September was significantly different to the version published in January, not least in its seeming retreat from a competitive landscape. The original provoked strong opposition on many fronts – political, professional and trade union – as well as growing public disquiet.
To address these concerns, the government introduced a ‘pause’ in the legislative timetable to consult further. It established a committee of interested parties to make recommendations to the government – the NHS Future Forum, chaired by the respected past chair of the Royal College of General Practitioners, Professor Steve Field.
The original Bill championed greater competition. At its heart was a proposal to establish free competition as the default position for the NHS, known as competition between ‘any willing provider’. This would have reversed existing policy, which limits such potentially dynamic competition to designated services such as planned hospital care. To oversee the new system, the foundation trust regulator Monitor was to morph into a broader and far more powerful economic regulator, with a duty to promote competition and to police abuses by providers and commissioners.
The NHS Future Forum took a rather more measured view of competition policy in its report this summer. It did not turn its face against the use of competitive markets in the health service. Indeed, it advocated more choice for patients and welcomed competition as long as it was well regulated. However, it emphasised that a market red in tooth and claw would have the potential to disrupt the provision of complex care, most particularly for people with long-term conditions. It highlighted the need for ‘integration’ in these cases – that is, for providers to work together.
The dust had barely settled on the forum’s long-awaited report before the government issued its response. At first blush, it seemed as though ministers had climbed down on competition in quite a spectacular way, with Monitor’s wings clipped and a new duty to promote integration.
However, a closer look reveals a more subtle set of changes, which alter the tone rather more than the substance of the reforms. Certainly, there has been a stepping back from the bullish pro-competition rhetoric that imbued previous government policy statements. There have also been a number of changes to the proposed architecture. Price competition is dead for the foreseeable future. Monitor will no longer promote competition but police specific abuses of competition. The watchdog will also have fewer powers to challenge commissioners that might be soft-pedalling on competition and will no longer be able to require providers to open up their facilities for use by rivals.
Despite these changes, it would be quite wrong to see the government’s response as a denial of the competition creed. The Principles and Rules of Co-operation and Competition (the code of practice that kick-started the march to competition under the previous government) will not only remain, but will gain a statutory footing. The Co-operation and Competition Panel, the body that oversees the Department of Health’s competition policy, will survive, being lodged within the new Monitor. Moreover, the ‘any qualified provider regime’ – the subject of so much debate and, in some quarters, concern – will be implemented from April next year (although it will initially focus on community services and hospital services already subject to choice).
As recommended by the forum, the health secretary will enshrine the duty of the NHS to allow patients choice and control over their care, by giving a ‘choice mandate’ to the NHS Commissioning Board. This will be backed up with a citizens’ panel reporting to Parliament and a plan to give people a right to challenge poor services and lack of choice.
Much has been made of the transformation of Monitor’s proposed duty from promoting competition to promoting integration. However, this duty is only to be exercised where integration will improve quality or efficiency; caveats that Monitor – even in pre-pause mode – would surely have taken into account in determining the public interest case in any competition dispute.
While the political battle over the NHS looks set to continue in Parliament and outside, it is hard not to conclude that competition has survived relatively unscathed. There is broad political agreement that it has a role to play in England’s health service. The main parties’ prescriptions for the NHS all included more power for patients to choose from competing providers. The question at issue, for policy makers at least, is what shape that competition should take.
In answering this question, policy makers can draw on growing empirical evidence on the impact of competition on health care. Until recently, much of this economic research came from more established health care markets, in particular, the US. Unsurprisingly, given the variable nature of market conditions across the states, this research produced mixed results. In particular, it seems that outcomes for patients might depend on whether the prices paid for care are fixed in advance or subject to negotiation between providers and the commissioner.
In broad terms, the weight of evidence suggests that in fixed-price markets more competition between providers can lead to higher quality care. In markets where prices are negotiated, this might not be true – with some research showing that more competition can lead to lower quality care. This is the so-called ‘race to the bottom’, where providers skimp on quality to compete on price.
However, there are doubts about how well this US research can be applied to the English NHS. After all, the systems of care are so very different. Some form of co-payment is common for US consumers but, prescription charges aside, unknown for patients in the UK. Until recently, the main study of NHS markets, carried out by Professor Carol Propper and colleagues, suggested that increased levels of competition were associated with lower quality care.
However, the study focused on the ‘internal market’ of the 1990s (the first experiment with marketisation, introduced by Margaret Thatcher’s Conservative administration). Under the internal market, commissioners and providers negotiated both the price and the quality of care. In this sense, the findings of this study mirrored those of some of the US studies.
The health care markets introduced by the Labour government were markedly different to those that went before. They are characterised by prices that are fixed in advance by the Department of Health through a national tariff system. Therefore, in theory at least, providers are motivated to maximise the quality of care possible within the tariff price available to win more patients.
This theory has been tested by two large academic studies published last year that focused on the impact of competition since the introduction of the Patient Choice policy in 2006. Carried out by academics at the London School of Economics and the University of Bristol, these studies found that increased competition was associated with better quality. The LSE research also looked at the impact of fixed-price competition on efficiency and concluded that providers in highly competitive markets delivered more efficient care.
The impact of these studies has been significant and has been used by proponents of NHS competition, including Prime Minister David Cameron, to substantiate their case. This research also contributed to the government’s decision earlier this year to rule out the introduction of price competition, despite a previous commitment.
However, a deeper analysis suggests that the case for fixed-price competition might not (yet, at least) be open and shut, while the validity of the research has been subject to criticism from some quarters. The most obvious question presented by the research is whether the measure of quality used by both sets of researchers – death from heart attack within 30 days of hospitalisation – is a good proxy for the overall quality of care.
This particular indicator is often used in academic studies, so its choice by the researchers is not surprising. However, it is less clear whether it is a good way of judging the impact of competition for planned hospital activity (emergency treatment was not part of the ‘Patient Choice’ menu during the period of study). The market incentives that choice and competition are intended to provide – greater rewards flowing to hospitals chosen by patients on the grounds of their higher quality care – simply do not apply to emergency care for heart attacks.
The researchers’ hypothesis was that this care highlighted elements of hospital service that are common to many conditions. In addition, such a quality indicator might act as a ‘canary in the mineshaft’, and as a proxy for quality more generally. While these might be reasonable assumptions, they are unproven. In addition, it should be noted that the quality gains noted by the researchers were modest. These benefits might grow in the longer term, as the researchers suggest. However, this, too, is an as yet unproven assertion.
But, modest or otherwise, there appear to be some benefits associated with fixed-price competition between health care providers. According to the researchers, competition actually saves lives.
However, there are a number of challenges for policy makers to overcome if they are to realise these benefits in full and increase their scale beyond the current modest levels. The first are technical.
Fixed-price competition will be efficient only if the price that is determined is the ‘right’ one. Too low and providers will be forced to compromise on quality; too high and providers might ‘overinvest’ in quality to attract patients (for example, they might spend too much on a ‘gold-plated’ patient experience). Both positions are inefficient from the taxpayer’s point of view. Getting (and keeping) the price ‘just right’ is a task that should not be underestimated.
A further challenge will be to ensure that the tariff price for particular treatments takes account of the different medical needs of patients. The danger to be avoided is that the fixed price becomes a blunt instrument, insensitive to those who will inevitably require more intensive services (for example, patients with other health problems that complicate the underlying condition). Get this wrong and equity can suffer, with some providers skimping on quality for sicker patients or avoiding them altogether.
Getting patients to use their ability to choose so that it stimulates better quality care might also be easier in theory than it is in practice. It is notoriously difficult to provide information about health care services simply and accurately. Patients can make ‘rational’ choices about their preferred provider only if they have at their fingertips accurate information about the relevant things in a format that they can understand. Even then, there is some evidence that patients might resist moving away from local providers despite quality being superior elsewhere.
Finally, the government’s intended reforms will rely on significant changes in the behaviour of both commissioners and providers. Notwithstanding the stronger market incentives proposed by the government, these new ways of working could prove difficult to bring about as health care organisations might prefer ‘business as usual’. The Co-operation and Competition Panel found evidence of this in its recent report on ‘any willing provider’ NHS markets, which showed primary care trusts imposed substantial restrictions on the operation of markets.
Ultimately, the case for more competition in health care has yet to be made conclusively, but early evidence from the English NHS is at least promising. However, more work is needed to understand precisely how markets might be made to work effectively and, in particular, how the associated risks might successfully be avoided. This is the role of effective market regulation. If this is to be developed with proper consultation and public involvement, the debate will need to move beyond the ideological polarisation that has characterised it so far.
Richard Lewis is a health care partner at Ernst & Young and a former fellow in the King’s Fund health policy team
