John Appleby speaks at our press breakfast event on competition, 'Will competition be a help or a hindrance?'

1. Competition in the NHS: Good
or bad (or something else)?
John Appleby
Chief Economist
The King’s Fund
September 2013
Improving health care in London: who will take the lead?Improving health care in London: who will take the lead?

2. • Ever since Adam Smith developed the concept of the invisible hand, many
people have assumed that the discipline of economics is synonymous with
the study of competition and markets, and that economists promote the
notion of competition as the principal mechanism for improving social
welfare.
• However, only a few zealots now adhere absolutely to the belief that
competition offers an unalloyed solution to society’s more intractable
problems.
Prof Pete Smith
Market mechanisms and the use
of health care resources, OECD, 2009
Markets and competition are not (always) the answer

3. Non-market allocation systems are not (always) the answer
• Alternatives to markets/competition do not always and everywhere
inexorably lead to the best use of scarce resources or services responsive
to patients. The interests of ‘the system’, its bureaucrats and professional
providers, may dominate over those of the patient.
• But if – amongst other things - we want to improve efficiency, patient
responsiveness and promote innovation, as well as ensure the effective
delivery of public goods such as R&D and medical education and ensure
an acceptable degree of equity in a complex system of imperfect
information, what allocation mechanisms should we use?
• The difficult policy question is not ‘what works?’ but as Pete Smith has
noted, ‘what works in what situation?’

4. Competition, help or hindrance? What’s the evidence?
• Thinking without data can be useful. It’s pretty clear without the need for
much evidence for instance that markets are probably poor at delivering
some of the things we want from health care – such as universal access.
• But economics is dominated by empirical analysis which tries to find out
how/why things work, to (sometimes) make forecasts and predictions, to
evaluate one policy action against another and so on.
• A big problem is getting hold of the data and conducting rigorous
experiments – not economists’ unwillingness to do so.
• Over the last near-quarter of a century
there have been many efforts to
evaluate the use of market mechanisms
in the English NHS…..

5. Study Subject/Title Main findings
Glennerster,
Matsaganis,
Owens (1994)
GP Fundholding
Implementing Fundholding:
WildCard or Winning Hand?
‘Fundholders provided more outreach services than
non-fundholders did. Also, fundholders, obtained
quicker admission for their patients and, generally,
better response from providers. (Le Grand, 1999)
Harris and
Scrivener (1996)
GP Fundholding
Fundholders’ Prescribing Costs:
The First FiveYear
Fundholders on average had lower prescribing costs.
Söderlund et al,
1997
1991 reforms and productivity
Impact of the NHS
reforms on English hospital
productivity: an analysis of the
first three years
‘..greater competition was associated with lower
costs.’ (Propper, Wilson, Burgess (2005))
Propper
et al, 1998;
GP Fundholding
The effects of regulation and
competition in the NHS internal
market: the case of general
practice fundholder prices
‘..hospitals that had greater business from
fundholders had lower posted prices.’ (Propper,
Wilson, Burgess (2005))
Le Grand, 1999 Review
Competition, Cooperation, or
Control? Tales From The British
National Health Service
‘Perhaps the most striking conclusion
to arise from the evidence is how little overall
measurable change there seems to have been.’
Croxson et al,
2001
GP Fundholding
Do doctors respond to financial
incentives? UK family doctors and
the GP fundholder scheme
‘Fundholders were able to secure shorter waiting
times for their patients.’ Propper, Wilson, Burgess
(2005)
Propper, Croxson
and Shearer, 2002
GP Fundholding
Waiting times for hospital
admissions: the impact of GP
fundholding
‘Fundholders were able to secure shorter waiting
times for their patients.’ Propper, Wilson, Burgess
(2005)
Propper, Burgess
and Abraham,
(2002)
Review
Competition and quality: evidence
from the NHS internal market
1991-1999
‘..quality – as measured by
deaths of patients admitted to hospitals with heart
attacks – fell during the internal
market.’ (Propper, Wilson, Burgess (2005))
Propper, Wilson,
Burgess (2005)
Review
Extending Choice In English Health
Care: The implications of the
Economic Evidence
‘..there is neither strong theoretical nor empirical
support for competition, but that there are cases
where competition has improved outcomes.’
Smith (2009) Review
Market mechanisms and the use
of health care resources.
‘..competition can take many different forms, and
sharpening competitive forces is likely in general to
be an important tool for most health systems. Policy
makers nevertheless need to shape market-type
mechanisms with care, to align other policy levers,
and to monitor vigilantly, in order to maximise the
benefits they secure.’
OHE (2012) Review
Competition in the NHS
‘Competition is potentially useful to stimulate the
provision of better quality and more health care for
the NHS’s budget beyond what is possible in the
absence of competition. But this does not mean that
competition is desirable or feasible for all NHS
services in all locations.’
Study Years studied Main findings
Treatment Control
Propper et al
(2004)
1995/6 -
1997/8
None Increasing competition from 25th to 75th
percentile increased mortality rates by 1%
Propper et al
(2008)
1992/3 -
1996/7
1991/2,
1997/8 -
1999/2000
Hospitals exposed to competition increased
elective admissions and decreased waiting
times but had increased mortality. Overall
effect was to save 1.32 million person months
of waiting and lose around 11,800 life years
due to earlier death. Costs exceeded benefits
on any reasonable valuation.
Cooper et al
(2011)
April 2006 -
December
2008
Jan 2002 -
March 2006
A one standard deviation increase in
competition led to a 0.31% fall in mortality
annually between April 2006 and December
2008 off a 2005 baseline of 13.96%. Overall
effect was about 300 fewer deaths from AMI
per year
Gaynor et al
(2011)
2007/8 2003/4 A 10% fall in the HHI [a measure of market
concentration] decreases AMI mortality rates
by 2.91% and all cause mortality rates by
0.99%. This implies a 0.3% decrease in the
average hospital’s mortality rate, or around
4,800 life years saved.
Bloom et al
(2011)
2005/6 None Adding a rival hospital increases management
quality by 0.4 standard deviations and
decreases mortality rates by 9.5%
Bevan and Skellern Does competition between hospitals
improve clinical quality? A review of evidence from two eras
of competition in the English NHS (2011)
Studies and reviews: 1994-2012

6. 2012
2008
2006
2000
2008
Hospitals
exposed to
competition
increased
elective
admissions
and decreased
waiting
times…
…but had
increased
mortality.
1994
Fund holders
provided more
outreach
services than
non-fund
holders and
obtained
quicker
admission for
their patients
and, generally,
better response
from providers .
1997
Greater
competition
was associated
with lower
costs.
1998
Hospitals that
had greater
business from
fund holders
had lower
posted prices.1996
Fund holders
on average
had lower
prescribing
costs.
1999
Perhaps the
most striking
conclusion is
how little
measureable
change there
seems to have
been
2001
Fund holders
were able to
secure shorter
waiting times
for their
patients.
2002a
Fund holders
were able to
secure shorter
waiting times
for their
patients
2002b
Quality – as
measured by
deaths of
patients
admitted to
hospitals with
heart attacks –
fell during the
internal
market
2005
There is neither
strong
theoretical nor
empirical
support for
competition,
but that there
are cases where
competition has
improved
outcomes
2009
Sharpening
competitive
forces is likely in
general to be an
important tool
for most health
systems. Policy
makers
nevertheless
need to shape
market-type
mechanisms
with care, to
align other
policy levers,
and to monitor
vigilantly, in
order to
maximise the
benefits they
secure
2012
Competition is
potentially
useful to
stimulate the
provision of
better quality
and more
health care for
the NHS’s
budget beyond
what is possible
in the absence
of competition.
But this does
not mean that
competition is
desirable or
feasible for all
NHS services in
all locations.2004
Increasing
competition
from 25th to
75th
percentile
increased
mortality
rates by 1%
2011
Adding a rival
hospital
increases
management
quality by 0.4
standard
deviations and
decreases
mortality rates
by 9.5%
2011
A 10% increase
in competition =
0.3% decrease
in the average
hospital’s
mortality rate,
or around 4,800
life years saved
2011
Overall effect
was about
300 fewer
deaths from
AMI per year
1994
1996
1998
2014
2002
2004
Key findings from
selected studies
and reviews of
competition and
the English NHS 2010

7. What to conclude?
• Some evidence of some benefits under some organisational, contractual,
payment/price and regulatory arrangements.
• Don’t know if competition cost effective or the exact combination and
design of contractual, informational, institutional and payment
arrangements which makes benefits of competition > its costs or that
would imply a policy response to increase competition in areas where
there is currently little competition.
• Julian LeGrand: “Perhaps the most striking conclusion is how little
measureable change there seems to have been”. Smith…perhaps due to
constrained/regulated input markets (for drugs, medical labour, capital
etc)? Or, choice in main market constrained (England has far fewer
hospitals than most other OECD countries per capita)? What are policy
responses – deregulate input markets? Build more, smaller hospitals,
break up big ones?
• Or just don’t expect too much from markets and competition?

8. Finally…
• Markets worth experimenting with - but need careful design, monitoring
and evaluation (and abandoning/modifying where they don’t give us what
we want)
• Markets just one of the levers to get what we want for health care
• More research needed….

9. Thank you
@jappleby123