Some of the conclusions in my 2005 BMJ article (N Edwards.  Using markets to reform health care  BMJ 2005; 331 : 1464 doi: 10.1136 ) need updating, further suggestions please.  I think I still conclude:

1)      The theoretic basis for market mechanisms in healthcare remains contested but both the sceptics and enthusiasts overstate the difference / similarity of healthcare to conventional markets

2)      Competition is often / generally a useful way of improving responsiveness and efficiency at a macro level

3)      The economic benefits of competition may be outweighed by the costs of additional capacity required but this varies by type of service, market etc but the evidence is equivocal

4)      Competition on price will tend to reduce quality

5)      As  quality has many dimensions there may be overproduction of those that are   most easily measured – especially if prices are fixed

6)      The design of the pricing system to avoid cream skimming, dumping, DRG creep etc is difficult and the price setters generally fail to keep up with provider innovation in this area

Some new resources in this area:

Zack Cooper, Stephen Gibbons, Simon Jones and Alistair McGuire

Does Hospital Competition Save Lives? Evidence From The English NHS Patient Choice Reforms

Working paper No: 16/2010 January 2010 LSE Health

 http://www2.lse.ac.uk/LSEHealthAndSocialCare/LSEHealth/pdf/Workingpapers/WP16.pdf 

Abstract:

This paper examines whether or not hospital competition in a market with fixed reimbursement prices can prompt improvements in clinical quality. In January 2006, the British Government introduced a major extension of their market-based reforms to the English National Health Service. From January 2006 onwards, every patient in England could choose their hospital for secondary care and hospitals had to compete with each other to attract patients to secure their revenue. One of the central aims of this policy was to create financial incentives for providers to improve their clinical performance. This paper assesses whether this aim has been achieved and competition led to improvements in quality. For our estimation, we exploit the fact that choice-based reforms will create  sharper financial incentives for hospitals in markets where choice is geographically feasible and that prior to 2006, in the absence of patient choice, hospitals had no direct financial incentive to improve performance in order to attract more patients. We use a modified difference-in-difference estimator to analyze whether quality improved more quickly in more competitive markets after the government introduced its new wave of market-based reforms. Using AMI mortality as a quality indicator, we find that mortality fell more quickly (i.e. quality improved) for patients living in more competitive markets after the introduction of hospital competition in January 2006. Our results suggest that hospital competition in markets with fixed prices can lead to improvements in clinical quality.

Martin Gaynor, Rodrigo Moreno‐Serra and Carol Propper.

Death by Market Power.  Centre for Market and Public Organisation.  Working Paper No. 10/242 July 2010

 www.bristol.ac.uk/cmpo/publications/papers/2010/wp242.pdf 

Abstract

The effect of competition on the quality of health care remains a contested issue. Most empirical estimates rely on inference from non experimental data. In contrast, this paper exploits a pro‐competitive policy reform to provide estimates of the impact of competition on hospital outcomes. The English government introduced a policy in 2006 to promote competition between hospitals. Patients were given choice of location for hospital care and provided information on the quality and timeliness of care. Prices, previously negotiated between buyer and seller, were set centrally under a DRG type system. Using this policy to implement a difference‐indifferences research design we estimate the impact of the introduction of competition on not only clinical outcomes but also productivity and expenditure. Our data set is large, containing information on approximately 68,000 discharges per year per hospital from 160 hospitals. We find that the effect of competition is to save lives without raising costs. Patients discharged from hospitals located in markets where competition was more feasible were less likely to die, had shorter length of stay and were treated at the same cost.

This is different from Carol’s findings in the price competition based market of the 1990s: 

Propper C, Burgess S, Green K.Does competition between hospitals improve the quality of care? Hospital death rates and the NHS internal market.J Public Econ2004;88:1247–72

Penny Dash and David Meredith

When and how provider competition can improve healthcare delivery?

Mckinsey Q Nov 2010

This article  from McKinsey looks at whether increased provider competition can improve the quality of care and control costs.  After assessing the evidence available and arguments in support of and against provider competition, McKinsey alter their question from whether ‘provider competition is intrinsically good or bad’, to whether it is ‘possible to identify specific circumstances’ where competition can produce better results? 

They argue that there are five questions that need to be asked to identify ‘how much provider competition is appropriate’:

1. What is the relevant market-segment size?
2. What is the minimum economic scale?
3. What is the minimum clinical scale?
4. Are there significant barriers to market entry or exit?
5. Are there significant barriers preventing patients from switching providers?

Highlighted arguments in support of provider competition:

·         It can be designed to ‘create potent incentives’ for providers to innovate and deliver higher quality care at a lower cost. 

·         There is evidence that more competition amongst corporations can result in higher productivity, with some arguing that this is transferrable to a healthcare setting.

Highlighted arguments in opposition to provider competition:

·         Increased competition can result in duplicated services and an excess of capacity.

·         Markets for some health services are ‘natural monopolies’ which could drive down quality.

·         Some have concerns that competition could lead to a focus on ‘profit making and market success’ rather than patient care.

·         Successful markets in other industries operate differently to healthcare, for example issues with ‘information asymmetry’.

Evidence to date:

·         Some reports detail evidence that increased competition among hospitals in England has improved quality and outcomes, with one study concluding that competition with fixed prices improves clinical quality.  There is similar evidence from the US with regard to increased competition with fixed pricing and higher quality care.

·         However, a study conducted in 2002 found that although competition did reduce waiting times in the NHS, ‘it also appeared to reduce care quality’.

·         Through their own research, McKinsey report seeing examples where provider competition has ‘resulted in poor outcomes, duplicate costs and inefficient allocation of resources’, but also seeing examples where it has improved outcomes and choice when ‘managed effectively’.

To conclude McKinsey argue that health systems can use provider competition to improve the quality of care and effectively manage costs.  However, this must be done by matching the level of competition to the clinical service appropriately, with different strategies needed for different types of care.  They also ‘prescribe’ a number of other important factors to take account of, including removing the barriers to competition, removing barriers to market exit and entry and removing barriers to patients changing between providers.  They also argue it is important to ensure information is both available and effective.

As a next step they suggest there should be more focus on how to ‘unleash’ competition in primary care and the out of the hospital setting, they argue this is where ‘competition is likely to make the biggest difference’.

Two useful contributions from Civitas

The impact of the NHS market: An overview of the literature
- Laura Brereton and Vilashiny Vasoodaven, 1 March 2010

The NHS has operated on the basis of a market since 2002, with a split between purchasers and providers of health care. In the first comprehensive review of the evidence thus far, the authors show market forces have contributed to: improved access for patients; reduced waiting times and increased efficiency; and improved financial management in providers. However, benefits are not widespread. The NHS appears to be in the unfortunate position of taking on the extra costs of competition without realising the benefits.

 Healthcare economist blog post - links to short FT piece