Postcode Lotteries and More Competition : Should we be worried about the English NHS reforms?

(by Bruce Lyons) The UK government is seeking to boost competition in the English National Health Service.  GPs are being given the power to commission most treatments and services, while hospitals and other secondary providers will have to compete to attract patients.  Media comment has ranged from the reform’s revolutionary nature to the management burden on GPs.  Two more specific issues have also been prominent in the media.  Fears have been expressed about: price competition driving down standards; and the so-called ‘postcode lottery’ whereby one person may not have access to a service or treatment that is accessible to their near neighbour.  For any other product subject to competition, we are not generally worried about competition providing suboptimal quality (though economic theory gives us mixed results).  Nor are we normally concerned about one person getting a different deal from their local shops. So why should we be concerned about these issues in health care?

Price competition in a ‘free’ health service works very differently from ‘normal’ markets because the user (patient) and chooser (GP or patient) of a product (treatment) differ from the payer (taxpayer). We should certainly be worried if GP consortia were incentivised to induce hospitals to compete fundamentally on price.  We have been there before in earlier reforms, and quality of healthcare was soon eroded.  However, the proposals in the White Paper are for a new regulator, Monitor, to set prices.  If done appropriately, this should channel competition into quality improvement.  Of course, a huge number of prices need to be set at an appropriate level if this is to be achieved and there is plenty of room to get it wrong.  It also leaves frightening open the way in which expenditure will be brought within budget.  I set out further regulatory problems in my evidence in response to the White Paper .  Competition can be made to work positively to improve health outcomes, but it will require very careful regulation to get the incentives right.  Otherwise it could go horribly wrong.

The second headline issue has been the ‘postcode lottery’.  This worries me a lot less.  As compared with any other system across the globe, the NHS is fundamentally egalitarian.  It provides not only a minimum of health care but the actual level of care for the vast majority of the population.  Any local differences will be marginal against that background.  However, this is not my main point because local differences are positively beneficial in a decentralised system.  A significant benefit of a competitive system is that different ideas and innovations can be tried.  Some will be more successful than others, and the better ideas can be copied.  This experimentation is much harder in a more centralised system.  Furthermore, an important part of the reform package is that patients will be allowed to choose any GP practice, regardless of its location.  This may be little use for the less mobile, but others will be able to move practice (taking their capitation fees with them) if their original consortium gets things wrong.  This means that GP incomes will suffer if their consortium is not satisfying their customers, and they will act to ensure this does not happen.

The bottom line is this.  Given the reforms are going to happen, we need to focus on the details of regulation if competition is to be made to work positively for patients.

One Response to Postcode Lotteries and More Competition : Should we be worried about the English NHS reforms?

  1. Hugh Gracey says:

    The political point is quality control suffers when agencies become part of front line treatment.

    I agree that a postcode lottery requires resources that are constant, as micro conditions change they will match treatment, the difficulty is treatments vary in effectiveness, and do not match the location.

    The macro point is competition creates resources, and should remedy lower spending. But as requirement by the surgery climbs up, spending by the surgery and needs for the patients decrease. The market is rarely egalitarian. This puts central government in the driving seat.

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