Competition in healthcare

Why shouldn’t there be competition between providers of healthcare within the NHS?

After all this is how businesses run so why should healthcare be any different? This is a compelling argument. We are used to the idea of exchanging money for goods and services rendered to us and this largely serves us well in our personal lives. The Health and Social Care Act 2012 was designed to open up more space for just such activity through commissioning frameworks supported by external consultants and we can expect to see this policy trend continue in the near future. Yet all useful tools have their limitations and it is important to appreciate these. This piece was written to examine the strengths and weaknesses of such policies for health systems.

Let’s start at the beginning. What is the purpose of health system? Surely not to improve population health since this has many more important determinants than the work of doctors and nurses. More likely these misnomers exist as social safety nets. That is to say that they help to negate the social and financial consequences of ill health.

In a world without an enlightened approach to healthcare people will suffer illness unexpectedly and this will have far-reaching implications for them. For one thing, illness is a formidable cause of poverty. Without insurance, they face catastrophic costs to access expensive treatments. Their illness may also affect their employment, their ability to contribute to their homes and especially the lives of those they rely upon around them. No single institution can solve all of these problems however by ensuring access to high quality healthcare many of these stresses can be alleviated.

Ensuring such access requires insurance. In the UK this is funded through general taxation though in other countries this is through compulsory insurance via a number of providers. Either way large pools of risk help to ensure that the system is financially solvent. We rely upon the fact that, though some might get ill, not everyone will become ill at once and yet everyone is paying in. For people who turn out not to need much healthcare, there is a degree of altruism inherent in this.

So far this tells us something about how healthcare should be funded but it says very little about how to provide it. A proponent of markets would say that it is perfectly feasible for a state-run insurance to pay privately owned GPs and hospitals to deliver care. We would not choose to rely upon a state supermarket so why a state hospital? Let’s first examine the strength of these arguments before discussing their weaknesses.

The advantages of markets have been clearly articulated by economists. One fundamental line of reasoning is that they help by aligning the incentives of each person taking part. The person selling a service (let’s say a private doctor) must provide a good service and take account of the needs of his patients not only for their welfare but for his own sake. As Adam Smith wrote in The Wealth of Nations “We address ourselves not to their humanity but to their self-love.” By “self-love” he means their self-interest. This is because other doctors may also compete for the same business and patients can shop around for better or cheaper care if they choose. Not only that, but in a competitive environment providers have good reason to innovate and continually improve their practice allowing them to deliver better service for reduced cost over time. 

Another important strength of markets is their ability to guarantee individual freedoms. For a government to support one provider (let’s say NHS hospital trusts) while limiting the ability of other potential providers to enter the system can be seen as coercive as it denies people the ability to choose an alternative (or for some people to set up a business). For a libertarian this is a grave injustice. Using a multiplicity of providers to guarantee such freedoms is also in line with the need to respect patient autonomy in medical ethics. 

One might wonder at this point why Britain ever entertained the idea of a fully nationalised health service. Certainly such a system is seen in only a few other countries. To appreciate this we need to look at some the assumptions in the above two arguments.

To reap the rewards of competition, a market needs to fulfil certain requirements. One requirement is that there will need to be lots and lots of providers (for example hospitals in a given area). If there are not, then it must be very easy to set up new ones. Otherwise the few hospitals in a certain area can exert ‘monopoly power’ and charge what they like for substandard services, free from the need to compete with others. As previous governments have discovered, hospitals are fairly expensive to build!

Another requirement is that there are no asymmetries of information between participants. Essentially this means that doctors and patients need to know the same things so that sellers cannot lie to or trick their customers. In a world where even many doctors struggle to understand areas of specialist practice outside their own, this may be asking too much of patients and families who are often vulnerable by the time they are seen by the healthcare system.

The problem with the libertarians is related to this. The ability to choose between providers isn’t a freedom anyone would choose if they didn’t have the skill to appreciate the differences between them. Making such decisions in healthcare is rather difficult, particularly in scenarios where we are considering two hospitals offering the same service. More than this, such an approach to health policy not only puts the onus on the patient to reform the service, but also to bear responsibility (and the harms and the costs) if they get it wrong.

There are other limitations to markets that are probably peculiar to healthcare. The doctor-patient interaction relies upon trust. The doctor can trust that a patient has presented with a medical problem in good faith as they have no reason to do otherwise. Similarly the patient can trust the doctor to take on such problems and advise them with their best interests in mind as the doctor equally has no reason to do otherwise but works within a system of professional values. In such a scenario, a candid exchange of information can take place not only to illicit the clinical history but to explore the needs and aspirations specific to this patient and to advise them honestly about what can be achieved through the medicines and procedures available. When ulterior motives are introduced to this conversation they carry the potential at best to the waste time and at worst to harm for patients whose wishes are not listened to.   

Introducing other incentives into that interaction has the potential to confuse the relationship.

In a nationalised system the health secretary is very clearly accountable for the service and what happens in it. Parliamentarians have the right to publicly question him or her on behalf of their constituents. As the ongoing outcomes of the Francis Report have shown, the public currently have a clear understanding of whose job it is to take action when failures come to light. Such transparency may become more difficult if such lines of accountability are increasingly the preserve of corporate interests.

At the heart of this lies a question of how public servants behave. Do they act in their own interests or out of benevolence? In the real world there is a mix of both. However it is interesting to consider that a competitive health system presupposes that healthcare providers are self interested while the mechanisms of financing this health system as well as the professional values of medicine itself both presuppose a level of altruism.

Seen through this lens it is easier to clarify the sort of thinking needed for successful competition-based reforms. Market forces can lead to better outcomes given certain things. Conversely they can make things worse in circumstances where such criteria are not met. We should not get distracted merely extolling the inefficiencies of different methods of configuring services (as none are perfect) but actually engage with weighing up where the most good can be done in full awareness of what the health service is for. There are so many further issues to consider once that door is opened. For example, does a national health service create a financial incentive for governments to reduce illness within their nations and, if so, where are the opportunities to do this? Which policies within a health system are amenable to national standards and which should be set locally? Is it possible to outsource a large amount of the administrative and menial work of a health system without losing sight of its purpose? Addressing such questions requires us to focus on the ends of this activity and not only the means of getting there.

Rahul Bahl, FMLM Medical Student Group & UCL Medical School