Dropping out of the postcode lottery: do competition and choice improve healthcare?

Professor Carol Propper, Associate Dean of Faculty & Research and Chair in Economics at Imperial College Business School, argues the benefits of a healthcare system that lets patients choose

All healthcare systems around the world are grappling with the same problem: how to meet public expectations and deliver high quality care amid rising demand and costs.

Making better use of markets to deliver healthcare is one of the biggest challenges of our age. Can we reform systems that have traditionally been heavily controlled and regulated, and which offer patients and users little choice?

Modernising healthcare has obvious appeal: competition in the rest of the economy is generally beneficial. One approach is to make it easier for people to choose where they receive treatment. Reforms such as these are often viewed with suspicion – as covert attempts to privatise healthcare.

But I believe competition brings many benefits. Healthcare markets are no more complex than others – financial markets or insurance, for instance. People may need help and guidance in making choices, such as picking the right pension or policy, but the market doesn’t benefit from being locked by a top-down authority. The same logic can be applied – with caution – to the healthcare industry.

Policies that introduce choice and competition become politicised very quickly

In some countries, insurers compete against each other to offer healthcare. In others, the health system is funded by the public purse and all citizens are entitled to healthcare services. Private insurance is limited, so there’s little competition between insurers to cover patients. But such a system can bring about competition between healthcare suppliers for consumers – the patients themselves.

Reforms in England have sought to increase competition between hospitals for public funds. The bottom line is that these improvements have benefitted patients, but introducing more choice and competition also means the rules of the game need to be carefully designed and monitored.

Over 10 years ago, patients in England were allowed to choose where they could be treated as part of market reforms. As a result, they began to move towards hospitals that provided better quality care: those with better survival results, lower rates of infection, and shorter waiting lists. Patients, with the aid of their family doctor, broke free of the ‘postcode lottery’ that had tied them to whatever was offered locally.

At the same time, hospitals that performed well gained greater autonomy. This led to tangible increases in quality for no extra cost, and patients spending less time in hospital. In contrast to fears raised by many commentators, poorer and sicker patients do not appear to have lost out.

Healthcare markets are no more complex than others

The use of competition and choice in healthcare as a way to improve outcomes is probably a technical issue. The UK is seen as a leader in the way we have addressed issues of choice within a strongly taxed finance system and state provision. But policies that introduce choice and competition become politicised very quickly. Competition is seen as privatisation, rather than harnessing forces to improve delivery.

I’m not suggesting we dismantle our tax-financed system or our strong commitment to equity in delivery of care. What I am proposing is that we allow providers of care to have more autonomy at the margins, and freedom to make decisions unfettered by bureaucratic control.

We know this is important. The Mid Staffordshire NHS Foundation Trust in England, where many patients died unnecessarily, failed because it was trying to meet unrealistically high targets set centrally. Managers were so focused on meeting performance goals that they didn’t pay sufficient attention to the quality of care that was being delivered. Yet their local population still supported them, because they felt they had no choice.

Reform in Britain has become a political football, and initiatives to fund private suppliers – with public finance – have become confused with privatising the whole service – which is simply not the case. This creates substantial political pushback, even though the private sector has a role to play in most areas of healthcare.

In the US, about half the cases brought to the Federal Trade Commission are to do with healthcare

However, there’s never a free lunch in this game. If you are going to promote competition, you need to beware of monopolies, which are seldom in the public good and tend to entrench vested interests.

Just as mergers in the wider economy tend not to benefit the general public, neither do they in healthcare. In the US, for instance, about half the cases brought to the Federal Trade Commission, which protects consumers, are to do with healthcare. Given that healthcare represents 15 per cent of the economy, this is a substantial number. Therefore we need an authority that looks very carefully at mergers to assess whether or not they are in the public good.

In Europe, we have the Netherlands as an example to follow. Healthcare there isn’t such a politically charged topic, and for 20 years the Dutch have encouraged competition and choice in health insurance. They now also have 10 years’ experience of competition in delivery of healthcare.

In the UK, however, while there’s no evidence competition hasn’t been beneficial, we don’t yet know what the costs are. We need to promote competition more actively – even allowing patients to choose their own doctors, just as you’d choose your own financial advisor – and allow reforms to bed in and run in the background before we can reap the long-term benefits.

This article draws on findings from “Free to Choose? Reform, choice and consideration sets in the English National Health Service (NHS)” by Carol Propper, Martin Gaynor and Stephan Seiler, which was judged the best health economics paper published in 2016.