Competition: where does the evidence take us?

The Health Foundation's Chief Economist, Anita Charlesworth, reflects upon the history and importance of choice and competition in health care.

Patient choice and competition are some of the most consistent and yet contested features of health policy over the last 25 years. Our new policy navigator website charts the twists and turns of choice and competition policy since the inception of the NHS and focuses in particular on the developments over the last quarter of a century.

There was a drive to introduce competition for the provision of clinical care in the NHS from the early 1990s onwards. The NHS has made use of non-NHS providers such as general practitioners since its inception, but it is only really during the last 15 years that non-NHS providers have been able to compete directly with NHS providers to provide NHS-funded clinical services. While there has been an evolution of policy on competition, new proposals have often met with opposition. However, you may be interested to know that there has been more consensus than the political parties might lead you to believe. But as the recent general election debate reminds us, the passage of time has not dimmed the potential for competition policy to cause controversy. And if anything, some of the consensus which had evolved appears to be breaking down.

But beyond the debate, 25 years of policy evolution provides important lessons and evidence which can help to inform future policy development. So what have we learnt?

The first important lesson is that – in common with most policies in health care – the impact of choice and competition policy is not clear, as it is neither universally nor unambiguously, positive or negative. The context in which these policies are implemented is critical. The detailed design is of fundamental importance, as is the extent to which they are aligned with other policies.

Competition can be categorised into that which is driven by patient choice of provider or alternatively what economists call 'competition for the market'. Competition for the market typically involves some form of competitive tendering for the right to a contract to provide what is usually a monopoly service for the patient or user. Whilst both are types of competition their potential benefits and risks are very different.

Choice based competition has received more political profile over the last decade, offering as it does an obvious, tangible potential benefit for patients. It has also been subject to a fair amount of evaluation. Through that experience we've learnt at least four critical lessons.

First, if the goal of policy is to secure or improve the quality of patient care competition between providers should not be based on price but quality, with fixed, regulated prices. Fixed price competition emerged in the NHS after the introduction of payment by results under the last Labour government.  It is one of the key reasons why studies of the impact of competition after these reforms are generally more positive than studies of early competition policy reforms.

Second, there is no point offering choice if it follows the Henry Ford 'any colour as long as it's black' principle. So alongside choice, there needs to be plurality and diversity of provision. But, this may be more expensive. As Ford knew, only painting cars black was probably cheaper than having a varied colour palette.

Third, choice needs to be underpinned by high quality, meaningful information on the differences between providers and service options.

Forth, overall the impact of choice based competition on quality and efficiency looks pretty modest but largely benign. That may be because despite the fact that one in five hip operations are now performed in an independent sector provider  as a result of patient choice, the impact of competition has been pretty marginal for hospitals.

The best overall summary of choice based competition’s impact is shown in the following quote from an article written by Bevan and Skellern in 2011.

‘There are strong grounds for introducing patient choice into the NHS as an end in itself, given its potential to empower patients and give them greater control over the conditions of their care. Gaynor et al show that, when patients were offered choice, they exercised it, and hence provide evidence of the desirability of patient choice as part of the policy mix on these grounds. Nevertheless, how patient choice has affected outcomes in elective surgery remains an open question; the exact role it should play in the policy mix is therefore unclear.’

Competition for the market seems to be growing in importance as commissioners tender for a wider range of services at greater volumes. As a result, there has been an increase in the number of NHS-funded services provided by non-NHS providers. This is most noticeable in community nursing, where by 2012/13 over 20% of spending was with independent sector providers. Despite its growing importance, there has been much less evaluation of competition for the market within the NHS over the last 25 years. But there are reasons to be much more concerned. Firstly, one of the clear lessons from the last 25 years is that commissioning and contracting turns out to be a much more complex and costly exercise than policy-makers ever envisaged. The Policy Navigator timeline for commissioning shows that policy makers have repeatedly reformed commissioning structures by trying to deal with the asymmetry of power and information between providers and purchasers of care, but have struggled to find an effective model.

Also, for many of the services which are subject to competition for the market the basic elements to support effective contracting are not in place. Most critically, the NHS lacks robust real-time compatible data on the cost, volumes and quality of care. Without these data we simply cannot know if competition is improving productivity and quality, or whether in straightened financial times competition represents a race to low cost care. Whatever direction policy takes over the next 5 years fixing these fundamental gaps in information about the quality, volume and cost of care can only do good.