Provider Competition in the NHS –      Economics and Policy              Jon Sussex      Office of Health Economics     20...
Agenda1. NHS policy2. Theory and evidence3. Assessing the feasibility of competition                                      ...
Policy on Provider Competition in the NHS1991->    Purchaser/provider split1991-1997 GP fundholders “shop around”2002     ...
Current Guidance to Commissioners   Competition IN the    Competition FOR the       market                 market    July ...
NHS Competition: Neither Disaster nor Panacea• NHS provides a whole variety of services  • with many different characteris...
• Arrow pointed out that many health services have characteristics  under which competition works imperfectly• He suggeste...
Competition when Prices Are FlexibleEvidence:• Greater competition reduces costs and waiting  times:   • Pete Smith summar...
Competition with Flexible Prices (cont’d)• Empirical findings unsurprising in light of economic  theory   • particular dan...
Competition with Regulated Prices –            Quality Competition• Recent studies of heart attack NHS admissions  (Gaynor...
Common Objections to Competition (in the NHS)1. Privatization – Competition does not require   privatization  • NHS trusts...
Common Objections to Competition (in the NHS)4. Competition may crowd out intrinsic   motivation – An empirical question b...
7. Integrated Care• Areas outside health care where services need  to be effectively co-ordinated – and  competition does ...
The OHE Commission Recommended• Where current providers’ performance  suggests health care could be improved,  competition...
Assessing Feasibility – 8 Main Dimensions                                        (of 23)1. Density and stability of demand...
1. Density and Stability of DemandCompetition is more feasible….• The greater is the demand for a service in a  given area...
2. Willingness/Ability to TravelCompetition is more feasible the greater theextent of the potential market and hence….• Th...
3. Ease of Acquiring Information about               Output Quality• Competition is more feasible the easier it is for the...
4. Economies of ScaleCompetition is more feasible where economiesof scale are small or non-existent, i.e. where….• Fixed c...
5. Economies of ScopeCompetition is more feasible where there arefew or no economies of scope, i.e. it is notsignificantly...
6. Scope for Cherry Picking and/or Dumping• Competition is more feasible if service  providers would find it difficult to ...
7. Asymmetric Competitive ConstraintsExisting providers may have different capacities tocompete with one another -- e.g. a...
8. Politics: Too Important to Fail• Say no more....                                   Flu           Elective hip   Major t...
Assessing Feasibility                                                Elective hip   Major trauma Flu                      ...
NHS Supply2Health Adverts 22/9/08 to 3/8/12                    Not AWP           AWP   TotalNot awarded             1,534 ...
Any Qualified Provider (“AQP”)• Aka “Any Willing Provider (AWP)”• Covers all non-emergency tariffed services (i.e.  price ...
647 Competitive Procurements (non-AWP)           Reached Contract Award in <4 Years        Wide range of “service sectors”...
Many Contracts Awarded to Non-NHS ProvidersProvider type   Number of Procurements   % of ProcurementsNHS only             ...
(Maximum) Values for Awarded Contracts434/647 records with plausible maximum values (>£10k)[15 state implausibly small val...
52% of Contracts are for 3 Years,                           76% are for ≤ 3 Years                           Percentage of ...
©Office of Health Economics (OHE)Southside, 7th Floor105 Victoria StreetLondon SW1E 6QTUnited Kingdomwww.ohe.org          ...
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Provider Competition in the NHS -- Economics and Policy

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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.
  • Provider Competition in the NHS -- Economics and Policy

    1. 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
    2. 2. Agenda1. NHS policy2. Theory and evidence3. Assessing the feasibility of competition 2
    3. 3. Policy on Provider Competition in the NHS1991-> Purchaser/provider split1991-1997 GP fundholders “shop around”2002 First “patient choice” pilots2003 Activity-based funding begins2008-> “Any willing/qualified provider”2009-2013 NHS Cooperation & Competition Panel2013-> Monitor as competition regulator 3
    4. 4. Current Guidance to Commissioners Competition IN the Competition FOR the market market July 2011 – Any July 2010 – Competitive Qualified Provider Procurement 4
    5. 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? 5
    6. 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 6
    7. 7. Competition when Prices Are FlexibleEvidence:• 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) 7
    8. 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 8
    9. 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) 9
    10. 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-profit2. Waste – Depends on minimum efficient scale and scope relative to size of market3. Higher transactions costs – Cooperation and competition both have transactions costs. Evidence needed 10
    11. 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 problem5. Provider failure – A problem with or without competition6. Quality skimping and patient selection – A problem with all prospective payment arrangements, but likely to be worse with competition 11
    12. 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. 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 13
    14. 14. Assessing Feasibility – 8 Main Dimensions (of 23)1. Density and stability of demand High Medium Low2. Willingness/ability to travel High Medium Low3. Ease of acquiring information about output Easy Medium Difficultquality4. Economies of scale Small Medium Large5. Economies of scope None Medium Large6. Scope for cherry picking and/or dumping None Minor Major7. Asymmetric competitive constraints None Modest Substantial8. Politics: too important too fail No Maybe Yes 14
    15. 15. 1. Density and Stability of DemandCompetition 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 TertiaryDensity and stability of demand replacement services hospital care 15
    16. 16. 2. Willingness/Ability to TravelCompetition is more feasible the greater theextent 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 GPWillingness/ability to travel surgery replacement consultations 16
    17. 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 17
    18. 18. 4. Economies of ScaleCompetition is more feasible where economiesof 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 CardiacEconomies of scale Radiotherapy consultations surgery 18
    19. 19. 5. Economies of ScopeCompetition is more feasible where there arefew or no economies of scope, i.e. it is notsignificantly lower cost (for a given quality) toproduce services separately rather thantogether Flu Elective hip Major traumaEconomies of scope vaccination replacement services 19
    20. 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? 20
    21. 21. 7. Asymmetric Competitive ConstraintsExisting providers may have different capacities tocompete with one another -- e.g. a hospital-basedprovider might be able readily to expand intocommunity provision, but a community-based providerwould not be able to match the hospital-basedproviders’ back-up facilities. This imbalance couldrender the weaker party unwilling to try to compete Community Elective hip CancerAsymmetric competitive constraints based mental replacement chemotherapy? health care 21
    22. 22. 8. Politics: Too Important to Fail• Say no more.... Flu Elective hip Major traumaPolitics: too important too fail vaccination replacement services 22
    23. 23. Assessing Feasibility Elective hip Major trauma Flu replacement services vaccination1. Density and stability of demand High Medium High2. Willingness/ability to travel Medium Medium Low3. Ease of acquiring information about output Easy Difficult Easyquality4. Economies of scale Medium Large Small5. Economies of scope Medium Large None6. Scope for cherry picking and/or dumping Minor Minor None7. Asymmetric competitive constraints None None None8. Politics: too important too fail No Yes No 23
    24. 24. NHS Supply2Health Adverts 22/9/08 to 3/8/12 Not AWP AWP TotalNot awarded 1,534 78 1,612Awarded 647 25 672Total 2,181 103 2,284 Spread across the majority of PCTs 24
    25. 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 25
    26. 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 137Dental Services & General Dental Services 74General Medical Practice 52Public Health 27Screening 24 :Dermatology 13Physiotherapy 13 :Total 647 647 26
    27. 27. Many Contracts Awarded to Non-NHS ProvidersProvider type Number of Procurements % of ProcurementsNHS only 170 26%NHS + non-NHS 63 10%Non-NHS only 382 59%n/a 32 5%Total 647 100% 27
    28. 28. (Maximum) Values for Awarded Contracts434/647 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% 28
    29. 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) 29
    30. 30. ©Office of Health Economics (OHE)Southside, 7th Floor105 Victoria StreetLondon SW1E 6QTUnited Kingdomwww.ohe.org 30

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