The role of market mechanisms in health care

^{Professor Alan Garber, Harvard University, on the factors policy-makers must consider if they want to build a competitive environment in the NHS.}

The Government’s Health and Social Care Act 2012 marks a major milestone for the NHS in England’s 20-year journey from a planned system to a competitive market for the supply of health care services.

This began with the development of the internal market in the 1990s and the Labour Government extended it with the introduction of patient choice, foundation trusts, payment by results (the system used to pay hospitals for the episodes of care they provide to patients) and independent sector treatment centres.

While the reforms do not propose to introduce a fully competitive market for health care, they do seek to strengthen the role of competition and choice for the provision of health services, based on quality.

They give providers greater independence through the completion of the programme to establish all hospitals as foundation trusts, and make them more independent through lighter touch financial and governance oversight by Monitor.

Working with the IFS, we are establishing a long term expertise in the use of competition and market mechanisms in health care

They reduce restrictions on the amount of private income each NHS Trust can earn; end the prudential borrowing code which limits the total amount of borrowing by NHS foundation trusts; and plan the extension of payment by results to cover mental and community health services.

The 2012 Act also enables commissioners to refer patients to ‘any qualified provider’; establishes Monitor as an independent economic regulator for health; and sees the application of the 1998 Competition Act and 2002 Enterprise Act to the supply of health care services.

The Act also signals changes to the payment by results system to allow commissioners and providers to agree prices below tariff under some circumstances.

Our research programme with the IFS

Against this backdrop, we have formed a partnership with the Institute for Fiscal Studies to take forward a wide-ranging research programme, which will result in a series of publications and debates that seek to address specific questions around the use of competition and market mechanisms in health.

Our aim is to gather evidence which will help to influence the development of regulatory policy by the Department of Health and Monitor.

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Project 1:  Where are patients treated?

Since 2006, NHS policy has stated that patients referred for specialist treatment should be offered a choice as to where they attend their first outpatient appointment.

This replaced a regime of undisclosed or implicit choice, where patients could state a preference but that option was not made explicit. A large majority of patients attended their nearest NHS Trust or default hospital.

There is now a body of evidence that the extension of patient choice, under fixed prices, has been associated with improvements in hospital quality - see Cooper et al, 2011 and Gaynor et al, 2010.

However, there is very little information on the mechanisms driving these results. In particular, there is a lack of evidence on how patients responded to increases in choice, and the extent to which any changes are consistent with the level of observed quality improvements.

This project will consider how patterns of outpatient attendances and inpatient admissions have changed since 2005/6. The results will be important for understanding the effectiveness of expanding patient choice as a way of improving quality and efficiency.

We expect to publish this report in autumn 2012.

Project 2:  Variations in responses to increased patient choice

The second project aims to understand whether increased choice has had a greater impact on patterns of referral for certain types of patients or in certain types of GP practice, and the consequent implications for the equity of NHS health care provision.

More specifically, it will:

• Describe how changes in distribution of patients across hospitals vary between areas, across patient characteristics, and by GP;
• Test for differences in referral patterns across primary care trusts (PCTs) or GP practices with very similar characteristics;
• Seek to understand what types of patients have responded more to increased choice, and why.

We expect to publish this report in autumn 2012.

Project  3: Treatment Pathways

The first two projects consider outpatient and inpatient records in isolation. However, these records represent two points on much longer and more complex treatment pathways. 

Equally, existing published work has tended to focus on the end of a treatment pathway, either in terms of hospital admission or patient outcomes. There is much less evidence on the experiences of patients and the decisions of health care workers along the way.

By understanding how competition affects patient care at different points in the treatment pathway, we aim to gain an insight into the mechanisms behind existing published results; and isolate levers that might prove effective in improving the future quality of care.

Given the overall complexity of treatment pathways, we are focusing on four steps in the referral chain where the potential impacts of competition could be particularly important:

1. The GP’s decision to refer as observed through the presence of outpatient appointments;
2. The volume of intra-trust activity, particularly in areas where trusts are paid per outpatient activity;
3. Consultant to external consultant referrals;
4. The outpatient consultant’s decision to admit for inpatient treatment.

We expect to publish this report in late 2012/early 2013.