“Economic Rent” and Competition in healthcare a UK perspective

The focus of this article is to look at how this idea can be applied to the UK healthcare system dominated by a large public service the NHS (National Health Service) and how this “socialist” public service may act in the same way to stifle competition and create barriers to competition in the provision of healthcare In the U.K.

Dr John Evans is a G.P. in Solva. Such well researched guest contributions are welcome on NHSreality. Stifling of competition is even greater in areas of the country where choice is denied/limited for patients and their doctors.

The consideration of the following principle from a recent article in the Economist magazine could be said to apply to a large organisation like the NHS.

“In technical terms, an economic rent is the difference between what people are paid and what they would have to be paid for their labour, capital, land (or any other inputs into production) to remain in their current use. In a world of perfect competition, rent would not exist. Common examples of rent-seeking (which may or may not be illegal) include forming cartels and lobbying for rules that benefit a firm at the expense of competitors and customers.”[i]

This is taken from a recent article in the Economist focussing on the idea of “Crony capitalism” whereby the rich elite seek to preserve and protect their interests through manipulation of regulations by lobbying governments and thereby pushing up the costs to incoming competition. In terms of its application to the provision of healthcare in the UK it may be that the “economic rent principle plays a role in how the NHS influences the development of competition in the UK healthcare market. It was the debate sparked by this article that led to the idea for an article on this matter.

Competition in healthcare? Benefits for the consumer?

The question that remains largely unanswered in healthcare is whether competition improves outcomes for consumers. The following information would suggest the case for competition in a publicly funded healthcare system like the NHS (National Health Service) remains unproven.

“The strategies that promote competition among HMOs (Health maintenance organizations) in the current market setting may not lead to improved HMO quality. It is possible that price competition dominates, with purchasers and consumers preferring lower premiums at the expense of improved quality, as measured by HEDIS (Healthcare Effectiveness Data and Information Set) and CAHPS (Consumer Assessment of Healthcare Providers and Systems). It is also possible that the fragmentation associated with competition hinders quality improvement.”[ii]

“………considers several interlocking aspects of the current English choice policy: competition between hospitals, the responsiveness of patients to greater choice, the provision of information, and the use of fixed prices. The article concludes that there is neither strong theoretical nor empirical support for competition, but that there are cases where competition has improved outcomes…..”[iii]

The following text is taken from an article published in 1993 regarding the internal market and its role in attempting to introduce competition into the NHS. Despite this successive governments have continued to insist that introducing a “market” will reduce costs and increase efficiency 20 years on there seems to be some evidence that this is occurring. “There was relatively little measurable change that could be related unequivocally to the core mechanisms of the quasi-market.”[iv]

However a review of the available evidence for the short period that fundholding in general practice in the UK was introduced in the early 1990s seems to show some effect.

“……the available quantitative evaluative evidence of the effect of (partial) fundholding on general practice. A total of 17 published quantitative studies evaluating fundholding were found, however, 8 of these were papers relating to 2 studies, therefore only 13 studies were reviewed. These studies examined the impact of fundholding only with regard to prescribing and referral behaviour. The results of these studies indicate that fund holders appeared to: (i) constrain their prescribing and referral costs; (ii) increase their generic prescribing rate; and (iii) not inflate their costs prior to joining the scheme…..”[v]

Further evidence as in terms of the secondary care sector suggests that inter hospital competition may have benefits although its methodology and proxy measures may be flawed.

“Recent substantive reforms to the English National Health Service expanded patient choice and encouraged hospitals to compete within a market with fixed prices. This study investigates whether these reforms led to improvements in hospital quality. We use a difference-in-difference-style estimator to test whether hospital quality (measured using mortality from acute myocardial infarction) improved more quickly in more competitive markets after these reforms came into force in 2006. We find that after the reforms were implemented, mortality fell (i.e. quality improved) for patients living in more competitive markets. Our results suggest that hospital competition can lead to improvements in hospital quality”[vi]

 

The NHS would seem to impose its own “ economic rent” on the provision of healthcare in the UK by lobbying through Trade unions and the imposition of regulatory standards through bodies like NICE (National Institute for Health and Care) and SIGN(Scottish Intercollegiate Guidelines Network). Further research on the effects of these organisations and the lobbying of government by both Private individuals and trade Unions and similar bodies may be of benefit in determining whether they play a positive or negative role in promoting competition and or efficiency in the provision of healthcare in the UK.

“Competition is costly to create, requiring large investments in managerial personnel and information technology, and difficult to sustain because of the propensity of capitalists, through self-interest, to destroy capitalism. Problems such as quality, equity and the closure of excess capacity were well defined prior to the NHS reforms and have not yet been resolved following the reforms. Whether adversarial rather than collaborative relationships are more efficient in the health care sector is unknown. Indeed there remains little evidence to sustain the claims of political rhetoric that competition ‘works’ i.e. increases efficiency, enhances equity and contains costs. Despite this reformers seek to create competition and complete mission impossible.”[vii]

References

[i] Our crony-capitalism index ,Planet Plutocrat from The Economist March 15th 2014 ,The countries where politically connected businessmen are most likely to prosper

[ii] Does Competition Improve Health Care Quality? ,Dennis P. Scanlon,†, Shailender Swaminathan, Woolton Lee and Michael Chernew , Health Services Research Volume 43, Issue 6, pages 1931–1951, December 2008

[iii] Extending Choice in English Health Care: The Implications of the Economic Evidence

CAROL PROPPER a1, DEBORAH WILSON a2 and SIMON BURGESS a3; Journal of Social Policy

Journal of Social Policy / Volume 35 / Issue 04 / October 2006, pp 537-557

[iv] The British Quasi-Market in Health Care: A Balance Sheet of the Evidence , Nicholas Mays, Jo-Ann Mulligan,Nick Goodwin ,Social Policy Branch, The Treasury, Wellington, New Zealand

1 Policy and Development Directorate, King’s Fund, London

2 Health Services Management Centre, University of Birmingham,

[v] The effect of fundholding on prescribing and referral costs: a review of the evidence

Toby Gosden. Health Policy,Volume 40, Issue 2, May 1997, Pages 103–114

[vi] Does Hospital Competition Save Lives? Evidence From The English NHS Patient Choice Reforms*

Zack Cooper, Stephen Gibbons, Simon Jones and Alistair McGuire, The Economic Journal

Volume 121, Issue 554, pages F228–F260, August 2011

[vii] Competition in the UK National Health Service: Mission impossible?

Alan Maynard, Health Policy ,Volume 23, Issue 3, March 1993, Pages 193–204

This entry was posted in A Personal View, Guest, Post Code Lottery, Rationing, Stories in the Media on by .

About Roger Burns - retired GP

I am a retired GP and medical educator. I have supported patient participation throughout my career, and my practice, St Thomas; Surgery, has had a longstanding and active Patient Participation Group (PPG). I support the idea of Community Health Councils, although I feel they should be funded at arms length from government. I have taught GP trainees for 30 years, and been a Programme Director for GP training in Pembrokeshire 20 years. I served on the Pembrokeshire LHG and LHB for a total of 10 years. I completed an MBA in 1996, and I along with most others, never had an exit interview from any job in the NHS! I completed an MBA in 1996, and was a runner up for the Adam Smith prize for economy and efficiency in government in that year. This was owing to a suggestion (St Thomas' Mutual) that practices had incentives for saving by being allowed to buy rationed out services in the following year.

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