Unhealthy competition, by Carol Propper

7 Jan 11
Price competition could be returning to the NHS. The problem is that we have been here before and it doesn't work. In health care, prices are easy to observe while quality is not.

The government has announced that it is to permit hospitals to compete on price. This dramatic shift towards a more commercial market in the NHS was announced in a single paragraph in the NHS Operating Framework for 2011-12 published last week.

Paragraph 5.43 says: ‘One new flexibility being introduced in 2011-12 is the opportunity for providers to offer services to commissioners at less than the published mandatory tariff price, where both commissioner and provider agree.’  It adds: ‘Commissioners will want to be sure that there is no detrimental impact on quality, choice or competition as a result of any such agreement.’

This problem with this innocuous sounding paragraph is that we have been here before and it doesn’t work.  The reason is that in health care, prices are easy to observe, whilst quality is not.  In these circumstances, health care commissioners and sellers, despite the hopes of the Operating Framework, end up focusing on price, raising the prospect of two-for-one deals on surgery and cut-rate consultations for certain specialties. At the same time, in order to provide services at these prices, quality suffers.

Research from the CMPO showed this is precisely what happened in the internal market of the 1990s, where price competition was allowed. Hospitals facing more competition focused on bringing down costs and lowering waiting list in order to provide what their commissioners wanted. But this was at the expense of quality, and the consequence was that patients in hospitals located in competitive markets were more likely to die after an admission following a heart attack.

These kind of unforeseen consequences are likely to happen again – especially now when budgets are tight.

In making this move, health secretary Andrew Lansley is ignoring all the evidence on the impact of price competition in the hospital sector and is potentially endangering patients’ lives.

Carol Propper is professor of the economics of public policy at Bristol University’s Centre for Market and Public Organisation. This post first appeared on the CMPO blog

Did you enjoy this article?