Competition, commissioning and the quality of healthcare: The evidence on Britain’s NHS reforms

Carol Propper interviewed by Romesh Vaitilingam, 11 February 2011

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<p><em>Romesh Vaitilingam interviews Carol Propper for Vox</em></p>
<p><em>February 2011</em></p>
<p><em>Transcription of a VoxEU audio interview []</em><b>&nbsp;</b></p>
<p><b>Romesh Vaitilingam</b>: &nbsp;Welcome to Vox Talks, a series of audio interviews with leading economists from around the world. My name is Romesh Vaitilingam and today's interview is with Professor Carol Propper from the Centre for Market and Public Organisation at the University of Bristol. Carol and I met at the CMPO in February 2011 where we spoke about the reforms of Britain's healthcare system currently being proposed by the prime minister David Cameron and his senior health minister Andrew Lansley.</p>
<p>Some are calling this the biggest shakeup of the country's National Health Service since it was founded back in the late 1940s. Other see it as a national progression of the healthcare reform agenda that began under the Conservatives in the 1990s and continued under Tony Blair's New Labour government in the 2000s.</p>
<p>I began my conversation with Carol by asking her to outline what's in the coalition government's healthcare bill currently before parliament.</p>
<p><b>Carol Propper</b>: &nbsp;OK, so what the government is proposing to do in their healthcare reforms is to continue the separation between buyers and sellers of healthcare. And they are going to create a new entity to buy the healthcare. That entity will no longer be a group of bureaucrats known as Primary Care Trust, but will be your GP, your family GP organized into consortia. So GPs are going to be given the bulk of the NHS project, up to 80 billion pounds, in order to buy healthcare for us.</p>
<p>That healthcare can be bought from NHS trusts, but it also can be bought from any willing provider. And those willing providers might include voluntary sector or indeed the private sector.</p>
<p>On top of that, the government is going to change the kind of regulatory structure. So they're going to set up an NHS Commissioning Board who are going to essentially oversee the rules and regulations for the GPs as commissioners. And on the other hand, they're going to introduce more economic regulations on the supply side. And have a new regulator who will look after market regulations to ensure that there's fair play in terms of the suppliers.</p>
<p><b>Romesh</b>: &nbsp;As we know it's been a very heated debate already about these proposed reforms, and not a great deal of clarity on both sides of the debate, if there are only two sides of the debate. Can you give us a feel for what the different sides are saying about this, and what kind of evidence they probably want?</p>
<p><b>Carol</b>: &nbsp;It's true. The debate has been extremely heated. On one hand Lansley is saying, &quot;This is a revolution in healthcare.&quot; On the other hand his boss, Cameron, seems to be saying, &quot;It's an evolution in healthcare.&quot; From the other side, the unions, for example Karen Jennings from Unison, are saying, &quot;This is basically going to totally privatize the NHS, and the private sector are circling like sharks.&quot; And finally, MPs in general are just saying, &quot;This is an enormous change, and we don't know what's happening.&quot;</p>
<p>All of those statements are only partially true. Essentially, these reforms are a continuation of the Blair agenda, an agenda to modernize the welfare state, and in particular to modernize the NHS.</p>
<p>Blair sought to increase the plurality of providers, allowing in the private sector as well as the NHS to provide care, and to allow patients greater choice. And essentially these reforms do exactly that. So to that extent it's an evolution. Cameron is right.</p>
<p>The role of the private sector being dominant is very unlikely to happen. Essentially, the private sector will be allowed to contract for work, but they were always allowed to do so under the Blair reforms, the previous administration&rsquo;s reforms as well.</p>
<p>And, whether they contract for work or not, essentially depends on the prices that the commissions are willing to pay for that. And in some cases that maybe profitable for the private sector, and it may not be profitable for the private sector.</p>
<p>But there certainly isn't a wholescale privatization of the NHS. And nor is it a movement from patients-centred care to profit-centred care. The incentives for NHS organization on the supply side remain pretty much the same as they were under the Blair agenda.</p>
<p>I think the final thing to say is that a lot of the debate has been quite evidence-free. But there is evidence on how a market in healthcare operates, and how a market in healthcare operates in the UK. And that evidence can be used I think to say a little bit about the direction of these reforms.</p>
<p><b>Romesh</b>: &nbsp;OK. Well, let's look at that evidence on that particular issue. So as I said, the heart of the reform is you were trying to improve the quality of public services, particularly health, by offering consumers of healthcare more choice. And you do that by creating more competition between providers. Now, there are different ways in which providers can compete in healthcare. They can compete on quality, or they can compete on price. And this where, health economics has some evidence to shed on whether that kind of competition is actually positive for the consumers.</p>
<p><b>Carol</b>: &nbsp;That's right. Essentially what you say is completely right. This is a market in which we're trying to encourage choice and competition. And there is evidence out there. The evidence comes from essentially two places. One is the US, and one interestingly is the UK.</p>
<p>In the US there's more evidence, because obviously they've had more competition on the supply side and for longer. And the evidence there suggests two things: It essentially suggests that what happens under competition depends very much on the rules of the game, and in particular what you do about price regulation. It sounds technical, but it matters in healthcare. The details, as in other bits of welfare reform, matter.</p>
<p>So the literature from the US suggests that if you have regulated prices, prices set by, for example, the government. So an example is that a hip replacement costs the same wherever you have it.</p>
<p>If you have that kind of system, which is very popular in healthcare and used quite a lot, if you have that kind of system, it appears that competition on the supply side tends to lead to lower prices or lower price growth anyway, lower cost growth, and at the same time, either no falling in quality or an improvement in quality.</p>
<p>So essentially, if you have price regulation the literature suggests that competition is a good thing. On the other hand, if you have deregulated prices, the literature suggests that pretty much anything could happen. And one thing that can happen is essentially you kind of get a race to the bottom, in which buyers and sellers focus on price, focus on lowering price. As you lower price, you generally lower quality, because quality tends to cost more.</p>
<p>So there is a scenario where if you have prices that are deregulated, you get lower quality. On the other hand, you get lower prices, so you get a lower cost but lower quality service. Interestingly, we also, despite the fact that nobody seems to have noticed this in the political debate, have evidence from the UK.</p>
<p>And the evidence from the UK is relatively robust, because it was introduced in a policy change that allows economists to evaluate that quite nicely. And we have evidence from the reforms of the Blair era. And that evidence suggests that the competition that was during the Blair era, which was competition with regulated prices, because the Department of Health has set prices, that competition between suppliers appears to have driven up quality of care.</p>
<p>So we've done work here at CMPO, and a completely independent group have done work at the LSE. Both groups found that the impacts of the Blair reforms were to improve quality where there was potential for competition. So hospitals located in more competitive markets seemed to improve their quality more than hospitals located in not competitive markets.</p>
<p>On the other hand, we also have evidence from the internal market reforms of Margret Thatcher, the reforms of the 1990s. Margret Thatcher also tried competition in healthcare but she tried it with deregulated prices. So that buyers and sellers of healthcare could negotiate volumes, prices and quality.</p>
<p>What we saw in those markets, in the 1990s, was that quality fell. Hospitals located in more competitive markets spent a lot of time worrying about waiting lists and got waiting lists down, but at the expense of the quality of medical care. So that we can see that in those markets where buyers and sellers were very concerned about the long waiting lists that existed in the 1990s, they negotiated on waiting times and volumes but did not negotiate on quality, and quality fell.</p>
<p>So the lessons that we have from the UK, from settings that are extremely similar to the Lansley reforms, are essentially that you don't want to deregulate prices. Because it appears that having regulated prices allows people to focus on quality and not to focus on lowering costs.</p>
<p><b>Romesh</b>: &nbsp;Just to be clear, when you're talking about quality and healthcare, the kind of things that you as health economists measure, are number of deaths per hospital over a certain period, for example.</p>
<p><b>Carol</b>: &nbsp;That's right. I mean, it's incredibly difficult to measure quality in healthcare because it has so many dimensions. What researchers who do large scale quantitative studies tend to focus on is measures that are reliable. And ironically, the measures that are most reliable are whether you exited dead or alive from the hospital. So they tend to focus on measures of death rates, adjusted for the type of patient who comes into the hospital, so they're not just crude death rates. But we tend to focus very much on death rates or their absence.</p>
<p>So what we've seen in the recent reforms is that hospitals located in more competitive markets appear to have decreased their death rates faster than hospitals located in less competitive markets. From that we infer that more general measures of quality, that are harder to measure, also improved.</p>
<p>The reason being is that studies have shown that crude measures of quality, like absence of death, are correlated with other more subtle measures of patient safety and patient quality.</p>
<p><b>Romesh</b>: &nbsp;Now the other bit of the reform you mentioned is taking away commissioning from the primary care trust that has been under the Blair reforms and giving them to GPs or to consortia of GPs. What do we know about the potential impact of that, of giving GPs, making GPs the purchasers of healthcare?</p>
<p><b>Carol</b>: &nbsp;OK. So there are kind of arguments for and against doing this. The arguments for putting the budget in the hands of groups of GPs are simply that GPs are the people who know how sick their patients are. GPs are the people who advise patients to go to have secondary care, hospital care. And that it makes sense to have the GPs control the budgets, so that they can decide whether a patient needs treating in a primary care setting or whether they need treating to a hospital. So essentially you can organize more seamless care.</p>
<p>One of the advantages of that, is that actually care in the community, care in a primary care setting, is both cheaper and often argued to be more effective than sending people to a hospital. We've seen, for example, at the moment there's been a large rise of people showing up at accident and emergency services for essentially routine care. And that's very expensive.</p>
<p>By giving the budget to the GP, they have an incentive to keep people out of hospital. And possibly, at best, they also have an incentive to have people do preventative care and organize preventative care clinics, because that means that they won't even need to have even primary care. So around things like coronary heart disease, stroke prevention, it's much better to have prevention than to just have cure.</p>
<p>So that's the argument, really, that makes people argue that we should be giving the power to GPs.</p>
<p>The argument against is that essentially, by giving the money to GPs who are themselves providers of care, you might well distort the decisions that GPs give. If GPs both provide care in a primary setting and will commission care in a secondary care setting, and it might be that if you can't observe quality very easily, because care in a primary care setting is cheaper and because the GP themselves might be providing it through groups of GPs getting together to provide services, they're essentially paying themselves to deliver care. And they have an incentive therefore, to save money by either delivering the care themselves or in fact paying themselves to do the care.</p>
<p>So that means that essentially the buyer of healthcare is muddled up with the supplier of healthcare. And that kind of creates a regulatory problem. Now the NHS is going to have a commissioning board but whether the commissioning board will be able to sort out those quite complicated economic problems seems a little less likely.</p>
<p>So that's in a sense the argument against, even in the long run giving the commissioning role to the GPs. But there's also a short run argument against moving down that direction.</p>
<p>Essentially Lansley has introduced a major shakeup but a major administrative shakeup. He wants to abolish the PCTs and replace them with these GP consortia. Whilst you might argue, if you believe the first set of my arguments that, that's the right direction to go in, it's clearly not the right direction at the moment.</p>
<p>GPs are not ready for this. And the commissioning role is always the weaker role in the NHS because everybody wants to be the manager of a large shiny hospital. Nobody wants to be a faceless bureaucrat buying care.</p>
<p>So really, the commissioning role needs help. Essentially what Lansley has done is thrown a whole pile of problems at them. They all have to reorganize madly in the next two years. So there's going to be masses of chair moving and not much focus really on what we want, which is getting the quality and productivity of healthcare up.</p>
<p>So I think everyone's going to be obsessed by getting new structures in place, rather than being obsessed by both improving the quality of care and the rather tough task of improving productivity with the current NHS settlements.</p>
<p>So you could have had the existing reforms beefed up a little bit, with the direction being that you wanted to go towards GP consortia. But Lansley's desire to introduce GP consortia immediately seems to me extremely disruptive. And possibly rather negative in terms of the kind of quality and productivity that we can expect in the next couple of years, out of the NHS.</p>
<p><b>Romesh</b>: &nbsp;So on balance, do you think that it might be better if the conservative element of the coalition government had delivered on their manifesto pledge on the NHS to say, pretty much leave things as they were, rather than to engage in this major reform?</p>
<p><b>Carol</b>: &nbsp;Yes. I think that would have been a very good idea. And that's where, in a sense, Lansley's saying it's a revolution is correct. He is having a revolution but whether it's a beneficial revolution seems to me a debatable point. He should have stuck to his guns and said, we will minimize the amount of administrative reform, whilst pushing forwards on the very sensible moves, in my view, to introduce competition and to introduce an economic regulator and to try and push forward the competition agenda and the any-willing-supplier agenda.</p>
<p><b>Romesh</b>: &nbsp;Carol Propper, thank you very much.&nbsp;&nbsp;</p>

Topics:  Competition policy Health economics

Tags:  competition, healthcare

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Professor of Economics of Public Policy, CMPO, University of Bristol; Professor of Economics, TBS, Imperial College and CEPR Research Fellow


CEPR Policy Research