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Paul Johnson & Matthew Bell: The reforms in perspective


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Paul Johnson & Matthew Bell: The reforms in perspective

  1. 1. Annual Health Strategy SummitPaul Johnson, Director, Institute for Fiscal StudiesMatthew Bell, Associate Director, Frontier Economics Twitter: #NTSummit
  2. 2. The reforms in perspective – lessons fromother industriesMarchM h 2011
  3. 3. Healthcare is unique – but … ● Healthcare is: □ large – apprx. £125 billion in government spending (2012) □ complex – number services, difficulty observing quality □ prominent – about 450 newspaper articles on NHS and legislation in last 6 months over 2 per months, day ● But: □ UK has long experience of complex public sector, regulatory and competition reforms □ across a range of sectors – none perfect match but considered together common lessons of relevance do emerge3 Frontier Economics
  4. 4. Economic regulation – where, why and how ● Used in all the former public utilities: □ Electricity, gas, water, telecoms, post, airports, rail ● Price and quality regulation focused on natural monopoly elements □ Gas, electricity, water and rail networks, airport services, postal delivery □ Electricity El t i it generation, much of telecoms subject to lighter t ti h ft l bj t t li ht touch h ● Core issues have been in □ Collection f li bl i f C ll ti of reliable information ti □ Balancing efficient level of cost and right quality □ Price regulation as a means to promote efficient outcomes □ When to use different forms of competition and how to think about horizontal and vertical mergers4 Frontier Economics
  5. 5. Our paper examines the common lessons emerging from telecoms, energy, water, post and transport telecoms energy water Each sector faces challenges in how it approaches the key areas of economic regulation.Ensuring qualityE i lit Fundamental regulatory challenge● What are right metrics Asymmetry of information● What is right level● How to achieve that level Competition regulation ● Horizontal mergers □ Relevant market □ Level of dominance Price regulation ● Vertical mergers ● When is it needed: □ Role of efficiency savings □ Degree of competition □ Impact on switching □ Ability of consumers to decide ● What form should it take: □ Price caps5 Frontier Economics □ Rate of return
  6. 6. Common themes emerge Fundamental regulatory challenge Asymmetry of information Expert advice Financial incentives Benchmarking ● Your experts ● Break link ● Various degrees of versus mine: between cost and sophistication of water, electricity revenue: price pure ● Cost modelling: caps benchmarking, all bottom-up costing, ● Menu regulation: sectors eg telecoms elec and water for ● Yardstick ● Customer opinion: capex competition WTP ● Quality sticks and ● League tables carrots Rigorous pragmatism6 Frontier Economics
  7. 7. The themes resonate with the situation in healthcareInformation ● Monitor and Trusts, GPCs and Trusts, NCB and GPsasymmetry ● Public, patients and clinicians ,p Balance ● At the heart of the QIPP challenge – a reason it is right price struggling? and right quality ● Economic incentives around quality – CQUIN, QOFCompetition ● Different types of competition whereappropriate ● Role of designated services Evidence ● Combine economics with strong understanding of based institutional backgroundpragmatism ● Transition is important but not forever7 Frontier Economics
  8. 8. Many decisions to be made in healthcare reforms – designated services sits at heart ● Designate a service if ceasing to provide it would: □ Have a “significant adverse impact on the health of persons in need of the service” □ Fail to prevent or ameliorate a “significant adverse impact” ● Application made by G Commissioner to Monitor GP C ● Monitor must accept if it meets conditions, decision is appealable ● Designation must be reviewed at least once a decadeDesignated services are protected from closure But not from competition8 Frontier Economics
  9. 9. Creation of designated services implies need to separate them from non-designated services non designated Need to regulate designated and non-designated services separately Accounting separation of designated and non-designated services Right cost base?● Which costs sit where? Quality incentives Competition Price regulation● Future cost base – ● Designation linked ● Limits vertical ● How to set tariffs – what investment is to little real integration? potential for needed? competition (in the ● Would regulator efficiency savings?● Transfer pricing? market) care about ● Is it desirable to ● Balance of carrot horizontal move services out and sticks in mergers? of designation? quality 9 Frontier Economics
  10. 10. It is useful to think through the scenarios All services in a All A&E everywhere (rural?) area are is designated designated. Impact on quality and cost of care Adjoining GP commissioning Most costly services consortia designate are designed different services10 Frontier Economics
  11. 11. Frontier Economics Limited in Europe is a member of the Frontier Economics network, which consists of separate companies p p p based in Europe (Brussels, Cologne, London and Madrid) and Australia (Melbourne & Sydney). The companies are independently owned, and legal commitments entered into by any one company do not impose any obligations on other companies in the network. All views expressed in this document are the views of Frontier Economics Limited.11 Frontier Economics
  12. 12. FRONTIER ECONOMICS EUROPE LTD. BRUSSELS | COLOGNE | LONDON | MADRID Frontier Economics Ltd, 71 High Holborn, London, WC1V 6DA Tel. +44 (0)20 7031 7000 Fax. +44 (0)20 7031 7001 Frontier Economics