This document summarizes a presentation on provider competition in the NHS. It discusses the theory and evidence on competition, outlines NHS policy history on competition, and assesses the feasibility of competition across different health services and markets. Key points include that competition can reduce costs and waiting times but also quality if not monitored, and the appropriateness of competition depends on market characteristics like demand stability and ability to assess quality.
Provider Competition in the NHS -- Economics and Policy
1. Provider Competition in the NHS –
Economics and Policy
Jon Sussex
Office of Health Economics
2012 Centre for Health Economics Seminars
University of York, York
4 October 2012
1
3. Policy on Provider Competition in the NHS
1991-> Purchaser/provider split
1991-1997 GP fundholders “shop around”
2002 First “patient choice” pilots
2003 Activity-based funding begins
2008-> “Any willing/qualified provider”
2009-2013 NHS Cooperation & Competition Panel
2013-> Monitor as competition regulator
3
4. Current Guidance to Commissioners
Competition IN the Competition FOR the
market market
July 2011 – Any July 2010 – Competitive
Qualified Provider Procurement
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5. NHS Competition: Neither Disaster nor Panacea
• NHS provides a whole variety of services
• with many different characteristics
• no reason for competition to work the same for all
• When does competition serve public interest?
• economics has studied characteristics that are
problematic for competition
• some health services have such characteristics
• which ones?
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6. • Arrow pointed out that many health services have characteristics
under which competition works imperfectly
• He suggested that aspects of the US health care system (private
insurance and licensing of doctors) may be a response to this
• He did not argue that a healthcare system without competition
would be better than one with competition
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7. Competition when Prices Are Flexible
Evidence:
• Greater competition reduces costs and waiting
times:
• Pete Smith summarises: “There is quite strong evidence
that competition for business from collective health care
purchasers has led to cost reductions.” (OECD, 2009)
• But may also result in lower quality care for patients:
• Carol Propper et al: “*NHS+ hospitals in competitive
markets reduced unmeasured and unobserved quality in
order to improved measured and observed waiting times”
(The Economic Journal, 2008)
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8. Competition with Flexible Prices (cont’d)
• Empirical findings unsurprising in light of economic
theory
• particular danger where quality of care not visible to
patients / GPs / NHS commissioners
• Not appropriate to recommend wholesale price
competition
• But where commissioning one or a few providers for
an area, with quality monitored directly, it makes
sense to take cost of provision into account
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9. Competition with Regulated Prices –
Quality Competition
• Recent studies of heart attack NHS admissions
(Gaynor et al, 2010; Cooper et al, 2011):
• find increased competition from activity based
funding and patient choice reduced mortality
• have weaknesses
• but critics have not done better statistical analysis
reaching opposite conclusions
• so still best evidence available
• Evidence that can be beneficial without increased
inequity in access to care (Cookson et al, 2011)
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10. Common Objections to Competition (in the NHS)
1. Privatization – Competition does not require
privatization
• NHS trusts can and do compete
• even in countries with much more competition in
health care than England – NL, US – most providers
are not-for-profit
2. Waste – Depends on minimum efficient scale
and scope relative to size of market
3. Higher transactions costs – Cooperation and
competition both have transactions costs.
Evidence needed
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11. Common Objections to Competition (in the NHS)
4. Competition may crowd out intrinsic
motivation – An empirical question but
evidence so far suggests not a problem
5. Provider failure – A problem with or without
competition
6. Quality skimping and patient selection – A
problem with all prospective payment
arrangements, but likely to be worse with
competition
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12. 7. Integrated Care
• Areas outside health care where services need
to be effectively co-ordinated – and
competition does not appear to hinder that
• No evidence. Anecdotally, NHS commissioners
gave examples where credible threat of
competition helped in getting integration,
specifically between hospital and community
• Degree of service integration can be a
procurement criterion
12
13. The OHE Commission Recommended
• Where current providers’ performance
suggests health care could be improved,
competition should be given serious
consideration
• Assess the likely effectiveness of competition
before trying it (see the framework “tool”)
• “Any qualified provider” arrangements are
suitable in some cases
• In other cases competitive procurement by
local NHS commissioners may be appropriate
• Routine collection and publication of patient
outcome measures should be expanded to
enable evaluation of the effects of competition
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14. Assessing Feasibility – 8 Main Dimensions
(of 23)
1. Density and stability of demand High Medium Low
2. Willingness/ability to travel High Medium Low
3. Ease of acquiring information about output
Easy Medium Difficult
quality
4. Economies of scale Small Medium Large
5. Economies of scope None Medium Large
6. Scope for cherry picking and/or dumping None Minor Major
7. Asymmetric competitive constraints None Modest Substantial
8. Politics: too important too fail No Maybe Yes
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15. 1. Density and Stability of Demand
Competition is more feasible….
• The greater is the demand for a service in a
given area relative to the minimum efficient
scale of production of that service
• The more stable and predictable is demand,
and hence the more attractive is the market
Elective hip Major trauma Tertiary
Density and stability of demand
replacement services hospital care
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16. 2. Willingness/Ability to Travel
Competition is more feasible the greater the
extent of the potential market and hence….
• The more willing patients are to travel to
receive the (non-emergency) service
• The less damaging to their health is the travel
time to the (emergency) service
Cardiac Elective hip GP
Willingness/ability to travel
surgery replacement consultations
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17. 3. Ease of Acquiring Information about
Output Quality
• Competition is more feasible the easier it is for the
“customer” to determine the quality of the service,
i.e. where….
- likely quality of output is visible in advance
- quality of output can be defined and monitored
- costs of switching between providers are low
• “Customer” can effectively be the patient, their GP
or the commissioning agency (PCT/CCG), depending
on the service
Community
Ease of acquiring information about output Cancer
IVF based mental
quality chemotherapy
health care
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18. 4. Economies of Scale
Competition is more feasible where economies
of scale are small or non-existent, i.e. where….
• Fixed costs are small
• Sunk costs / highly specific assets are few or
none
• Learning-by-doing conveys little advantage
GP Cardiac
Economies of scale Radiotherapy
consultations surgery
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19. 5. Economies of Scope
Competition is more feasible where there are
few or no economies of scope, i.e. it is not
significantly lower cost (for a given quality) to
produce services separately rather than
together
Flu Elective hip Major trauma
Economies of scope
vaccination replacement services
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20. 6. Scope for Cherry Picking and/or Dumping
• Competition is more feasible if service
providers would find it difficult to select low
cost patients and exclude high cost patients
• Which arises when the provider can predict
patient cost before treatment and the payer
cannot detect that selection is occurring
End of life Cardiac GP
Scope for cherry picking and/or dumping
palliative care surgery consultations?
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21. 7. Asymmetric Competitive Constraints
Existing providers may have different capacities to
compete with one another -- e.g. a hospital-based
provider might be able readily to expand into
community provision, but a community-based provider
would not be able to match the hospital-based
providers’ back-up facilities. This imbalance could
render the weaker party unwilling to try to compete
Community
Elective hip Cancer
Asymmetric competitive constraints based mental
replacement chemotherapy?
health care
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22. 8. Politics: Too Important to Fail
• Say no more....
Flu Elective hip Major trauma
Politics: too important too fail
vaccination replacement services
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23. Assessing Feasibility
Elective hip Major trauma Flu
replacement services vaccination
1. Density and stability of demand High Medium High
2. Willingness/ability to travel Medium Medium Low
3. Ease of acquiring information about output
Easy Difficult Easy
quality
4. Economies of scale Medium Large Small
5. Economies of scope Medium Large None
6. Scope for cherry picking and/or dumping Minor Minor None
7. Asymmetric competitive constraints None None None
8. Politics: too important too fail No Yes No
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24. NHS Supply2Health Adverts 22/9/08 to 3/8/12
Not AWP AWP Total
Not awarded 1,534 78 1,612
Awarded 647 25 672
Total 2,181 103 2,284
Spread across the majority of PCTs
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25. Any Qualified Provider (“AQP”)
• Aka “Any Willing Provider (AWP)”
• Covers all non-emergency tariffed services (i.e.
price fixed)
• Being extended to other services – mainly
community based
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26. 647 Competitive Procurements (non-AWP)
Reached Contract Award in <4 Years
Wide range of “service sectors”
Service sector Frequency (first Frequency (listed
named services only) anywhere)
Mental Health 76 137
Dental Services & General Dental Services 74
General Medical Practice 52
Public Health 27
Screening 24
:
Dermatology 13
Physiotherapy 13
:
Total 647 647
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27. Many Contracts Awarded to Non-NHS Providers
Provider type Number of Procurements % of Procurements
NHS only 170 26%
NHS + non-NHS 63 10%
Non-NHS only 382 59%
n/a 32 5%
Total 647 100%
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28. (Maximum) Values for Awarded Contracts
434/647 records with plausible maximum values (>£10k)
[15 state implausibly small values; 198 state no value]
Sum of 434 max values = £2.24bn, mean = £5.2m, median = £925k
Max value in range: Number of Awards % of Awards (n=434)
> £100m & ≤ £300m 5 1%
> £20m & ≤ £100m 7 2%
> £10m & ≤ £20m 22 5%
> £5m & ≤ £10m 39 9%
> £1m & ≤ £5m 130 30%
> £0.1m & ≤ £1m 167 38%
> £0.01m & ≤ £0.1m 64 15%
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29. 52% of Contracts are for 3 Years,
76% are for ≤ 3 Years
Percentage of contracts by contract duration
60.00%
50.00%
40.00%
Percentage
30.00%
20.00%
10.00%
0.00%
0 1 2 3 4 5 7 10 12 20 30
Contract duration (years)
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Recent studies of heart attacks: Critics have argued that studies have not:shown why heart attacks (for which patients do not normally choose where to be treated) affected by competitioncountered by argument that competition affects the whole hospital and heart attacks are a particularly good condition to measure its effects because there are good measures of outcomes (survival) that are really important in that caseadequately controlled for the introduction of new proceduresadequately controlled for such things as urban/rural differencesAuthors of studies have responded to each of these and there is an on-going debate about complicated statistical issuesFundamental point is that critics have not done statistical analyses controlling appropriately for factors they think neglected that actually come up with opposite conclusions.