Tuesday 28^th February 2012

Contact: Dr Lucy Reynolds             (Health Services Researcher:  07905279777)

Ian Willmore  (Media:  07887 641344)

The Importance of Competition

1. Tomorrow (Wednesday 29^th February) the House of Lords will begin discussing Part 3 of the Health Bill, which deals with the attempt to introduce market “competition” into the NHS.  This briefing note examines what is proposed and sets out why the competition provisions of the Bill will damage the NHS.
2. The briefing is set out as follows:

• Paragraphs 3 – 4 look at the policy background
• Paragraphs 5 – 6 look at the relationship between competition and choice
• Paragraphs 7 – 25 look at problems with competition in healthcare: inequality in information between provider and patient (paragraphs 8 – 10); waste of money (paragraphs 11 – 14); the creation of perverse incentives (paragraph 15); the poor evidence base for the alleged benefits of market reform (paragraph 16 – 20); why claims that competition will be based on quality not price are wrong (paragraphs 21 – 23); and how the US model of healthcare offers a warning of how competitive markets will damage health outcomes (paragraphs 24 – 26)

Background

1. On 9^th July 2005, then Shadow Health Secretary Andrew Lansley made a speech to the NHS Confederation, in which he said:

“So the first guiding principle is this: maximise competition. There are, of course, potential benefits from privatisation in terms of access to capital, flexibility, and creating new markets; but private sector ownership is a secondary consideration to competition, which is the primary objective.”

“Government proposals envisage limited competition in supply of elective surgical operations from the end of 2005 and, by 2008, in theory, full competition for those services. However, it is not full competition. There is no right to supply for new and independent providers.”

This makes clear that creating a right to supply for new private sector providers through “full competition” is a critical element of the Health and Social Care Bill.

1. Under competition and trade law private sector market participants have legal rights to maintain that access on equal terms with all other providers, including the public sector. Such rights are enforceable in the UK and EU courts and through World Trade Organisation arbitration.  The Bill as it stands would introduce a system creating such rights for any “qualified” for-profit provider of healthcare services, in a market of providers offered to patients as options for their health provision.

In the 2005 speech, Mr Lansley also said

“Much of what I have described is like the EU’s developing framework for services of a general economic interest. I recognise this and I welcome it. A vital aspect of our relationship with Europe should be to encourage the EU to be concerned with promoting competitive markets.”  

The process of creating such a market in healthcare provision has already begun: the 2012/13 Operating Framework for the NHS set explicit targets for NHS funds to flow to providers outside the public sector. [1]

Choice and Competition

1. Liberal Democrat politicians have claimed that under the Bill competition would not be permitted unless it “is in the interests of patients”. We have looked at UK competition rules, as currently practised in the NHS by the “Cooperation and Competition Panel”, which will merge with Monitor after the Bill passes.  This body has principles that set out the importance of “choice” for patients. Because of this, it acts always to “protect patient interests” through increasing competition, which is assumed to be good for “consumers” of healthcare. The Panel insists that any decrease in competition must be proved to benefit patients, but they merely assume without proof that competition is good for patients.
2. This is not the view of many patients. In a survey by the Future Forum last year, 580 of the 597 respondents who commented on the kind of choice offered by the Bill were opposed to it.  Quotes included:

“Unfortunately, choice and competition are mutually exclusive in the long run. If your local hospital isn’t “chosen” by lots of patients, it will lose income and close down (in the unlikely event of politicians allowing these reforms to reach their logical conclusion). It follows that you will no longer be able to “choose” that hospital, any more than you can choose to watch Premiership football live on the BBC.”

“I don’t want choice. I want a good hospital within reasonable distance from my home. Nationally, hospitals sharing best practice rather than competing with each other.”

“For the majority of people, in the most cases ‘choice’ is a myth. The main difference is between the rich and the relatively wealthy that choose private health and the rest who cannot afford to do this. Competition within the NHS may drive down costs for a temporary period but in the long term costs more and delivers a poorer service – ask any NHS manager or politician to be honest about this.”

“The problem with “choice and competition” is that private sector providers will compete for the choice services; the services that will generate the most profit. Typically, this means they’ll choose the kind of services like hip replacement or cataracts, that are quick and profitable to deliver, leaving the NHS saddled with the complex, difficult services which are difficult to turn into revenue, thus exacerbating the NHS’s financial difficulties and creating a two-tier system.”

“Choice & Competition is a means to having services provided by third parties, leading to privatisation with massive cost increases as with British Rail. More effort should be given to retaining NHS as a public run non-private/non-mutual/non-partnership organisation run by NHS employees not ‘carpet baggers’”.

Problems with Market Competition in Healthcare

1. There are a number of critical reasons why market competition in healthcare will not produce the beneficial effects that characterise other markets.
2. There is an obvious inequality in information and expertise between the “buyer” (the patient) and the “seller” (the doctor or other healthcare provider). Patients commonly have no medical training and simply may not know enough to judge whether a healthcare professional’s recommended course of treatment is in their interests, or is influenced by the need for the provider to make money or balance its books.
3. As in other countries where healthcare is subject to market competition (for example the United States) the new system would give a direct financial incentive to health care providers to exploit their superior medical knowledge to over-provide and also to overcharge. This is known as “supplier-induced demand”: the treatments given to a patient may be more extensive than the patient’s medical condition warrants, and the charges per item also get pushed as high as the market will bear. The NHS budget, already facing a severe financial squeeze, would have to meet this unnecessary cost.
4. There is also the severe danger that the relationship of trust between doctor and patient will be damaged. This is a particular problem, for example, if GPs are to be both primary healthcare providers and commissioners.
5. The competitive market model requires that there always be a choice of provider offered.  The new NHS operating framework sets targets for the proportion of non-NHS providers, in order to provide this choice.  Before the Bill, waiting lists were both relatively stable and short, suggesting that the health system had sufficient capacity to meet demand.  Extra providers add unneeded capacity: this is required if patients are always to be offered the required choice of at least three providers.
6. The existence of unused capacity in a market system will leave many providers cash-starved, with persistent difficulty in covering their overheads and paying their staff. This will give them a strong incentive to create supplier-induced demand, which tends to damage rather than heal patients. The NHS budget must cover such costs of having this redundant capacity provided only so that the market model may function.
7. A competitive market model would require that every transaction involving a patient must be billed, a heavy and unnecessary cost burden on the NHS. Research shows that extra costs attributable to marketisation in the English NHS already amount to around 14% [2], This figure can only rise if further market reforms are introduced in order to create opportunities for the private sector to provide NHS care.
8. Economic competition also requires advertising and marketing. This is expensive – it requires the use of agencies, purchase of media space etc. These costs will also have to be met by the NHS.
9. When competition-based management and fee-for-service payment (payment by results: PBR) is used, there are financial incentives for overstating the severity of cases on admission, known as upcoding. Allocating codes indicating more serious conditions than are in fact present will raise the hospital’s income, and where bonus-linked targets are in place as part of a competition-based management policy, may also increase the doctor’s income. In 2006, when PBR was introduced, the Audit Commission found 11% of codes were incorrect, with some undercoding, but also “evidence of trusts actively working to optimise their income” [3]. In 2010, again 11% of codes were found to be wrong [4]. A GP practice in London found that patients choosing one particular PFI-burdened hospital were resulting in PBR bills overall 30% in excess of what they should have been[5]. In the USA, a study by Silverman and Skinner found twice as much upcoding in for-profit hospitals as in non-profits, with upcoding by non-profits increasing with the intensity of competition [6].
10. In 2010 and 2011, three UK-based studies were published which purport to the benefits of competition, of which two are authored by economists from the Cooperation and Competition Panel. Advocates of the Health Bill have relied on them to make the case for the competitive “advantages” of the Bill. But all three have serious weaknesses, making them unsuitable evidence on which to base such a major change.
11. All used standard outcome data for heart attack mortality (30-day survival figures) as the measure of service quality, and all overlooked the possibility of upcoding.  All treat geographical density of hospitals as a proxy for the level of competition from other NHS hospitals.
12. This gives rise to fundamental problems. First, the hospitals were not in fact competing to treat heart attack patients at all, since the accident and emergency departments were not part of the competition-based incentive scheme, which at the time only applied to planned surgery. Secondly, the choice of hospital was generally made not by the afflicted patient but by the ambulance driver, on the basis of proximity to the patient. The ambulance drivers were not part of any competition-based incentive system run by the hospitals
13. Many other studies have not found a positive association (as explained in a review by the Canadian Health care Association[7]).
14. In conclusion, none of these three papers provide good evidence that the market competition reform proposed will improve the NHS. The fact that they are persistently cited as the best proof available (even after their over-claims have been exposed in the BMJ and the Lancet) is significant.
15. Although the Government has declared that competition is to be on quality rather than price, in fact either a pure cost-based procedure, or the “Most Economically Advantageous Tender” (MEAT) arrangement is to be used^[8]. MEAT is recommended as combining quality and price, with contracts chosen at lowest price for some acceptable pre-declared level of quality. In other words despite repeated Government assurances that the Bill would not mean cost-based competition, no purely quality-based procedure would be allowed.
16. There is clear evidence to show that in healthcare, price-based competition produces a race to the bottom on quality of provision. [9] Competition to cut overall bid prices to win tenders pushes the amount that can be spent on services down to levels which inevitably compromise their quality.
17. In 2011, medical negligence QC John Whitting [10] has written that he expects negligence cases to soar as a result of the roll-out of competitive commissioning. He stated that in a competitive model: “fewer doctors and fewer nurses will have to work longer shifts: in other words, the very environment in which mistakes are most likely to happen……  These proposals are patently driven by commercial imperatives rather than by consideration of patient wellbeing.”
18. Internationally, the healthcare system with the most developed competitive market is in the United States.
19. According to the World Health Organisation, in 2008 the United States spent 15.2% of GDP on healthcare, the highest spend per head of any country, while the UK spent 8.7%, ranking it 19^th. [11] Studies ranking quality of care and efficiency across different national health systems always list the UK system as giving better outcomes at under half the cost of the US system; they routinely find that the NHS is top or near the top on outcomes and is near unbeatable for value for money. [12]
20. The British Medical Journal recently published “Competition in a publicly funded healthcare system: are the UK and other countries right to adopt a market based model for improving their health services?”  Harvard academics Steffie Woolhandler and David Himmelstein concluded that the appropriate response to the US experience with such policies is “quarantine, not replication”. [13]
21. The competition-based reform of the NHS constitutes a reckless and dangerous gamble with the NHS, and with the health of this nation. The Bill is a chaotic muddle, based on a model that the evidence shows to be more expensive than the current system while producing inferior outcomes. It should be dropped.

Information and Power

Waste of Money

Perverse Incentives

Studies Showing Market Benefits are Weak or Misleading

Competition on Quality or Price?

Heading Down the American Road

Conclusion