Competition in adult social care What do we know, what don't we know, and can it ever improve the quality of care? 11 September Dr Steven Proud

Introduction 2 11 September 2014 Competition has been introduced in public services to try and achieve the aims of reducing costs and improving quality. However, there is currently little evidence in the academic literature of the effectiveness of this competition in social care in the UK. This session will attempt to summarise the evidence in the public services, focusing on healthcare, and will discuss the conditions necessary for competition to be effective, and will ask whether it is feasible for competition alone to lead to improved quality of care.

Personal preferences Different providers will have different characteristics Personal preferences Different providers will have different characteristics Quality Allowing competition between providers may allow price to fall Quality Allowing competition between providers may allow price to fall 3 11 September 2014 Price Allowing competition between providers may allow price to fall Price Allowing competition between providers may allow price to fall

Personal preferences Different providers will have different characteristics Personal preferences Different providers will have different characteristics Quality Allowing competition between providers may allow price to fall Quality Allowing competition between providers may allow price to fall 4 11 September 2014 Price Allowing competition between providers may allow price to fall Price Allowing competition between providers may allow price to fall

Dranove and Satterthwaite (2000) 5 11 September 2014 Quality Allowing competition between providers may allow price to fall Quality Allowing competition between providers may allow price to fall Price Allowing competition between providers may allow price to fall Price Allowing competition between providers may allow price to fall Sensitivity of purchaser’s demand due to a change in quality (Quality elasticity of demand) Sensitivity of purchaser’s demand due to a change in quality (Quality elasticity of demand) Sensitivity of purchaser’s demand due to a change in price (Price elasticity of demand) Sensitivity of purchaser’s demand due to a change in price (Price elasticity of demand)

Depends on who is choosing care provider Can service user identify quality? Depends on who is choosing care provider Does the purchaser care about the price paid? 6 11 September 2014 Sensitivity of purchaser’s demand due to a change in quality (Quality elasticity of demand) Sensitivity of purchaser’s demand due to a change in quality (Quality elasticity of demand) Sensitivity of purchaser’s demand due to a change in price (Price elasticity of demand) Sensitivity of purchaser’s demand due to a change in price (Price elasticity of demand)

Observable quality Capacity Purchaser must care about quality Purchaser’s choice must influence what provider they use. Observable price Capacity Purchaser must care about price Purchaser’s choice must influence what provider they use. Summary 7 11 September 2014 Characteristics that should improve quality Characteristics that lower price

Dranove and Satterthwaite (2000) 8 11 September 2014 Quality Allowing competition between providers may allow price to fall Quality Allowing competition between providers may allow price to fall Price Allowing competition between providers may allow price to fall Price Allowing competition between providers may allow price to fall Sensitivity of purchaser’s demand due to a change in quality (Quality elasticity of demand) Sensitivity of purchaser’s demand due to a change in quality (Quality elasticity of demand) Sensitivity of purchaser’s demand due to a change in price (Price elasticity of demand) Sensitivity of purchaser’s demand due to a change in price (Price elasticity of demand)

Problems with measuring the impact of competition on quality 9 11 September 2014 Quality Demand In order to evaluate the impact of introducing competition on quality, it is important to use a measure of quality that is not directly involved in the competition

10 11 September 2014 A good illustration of the impact of different forms of competition can be seen in the NHS Two major reforms: 1.The internal market 2.Choose and book Two major reforms: 1.The internal market 2.Choose and book

Propper et al (2008) September 2014 The internal market in the NHS Purchasers could purchase hospital treatments from a variety of hospitals. Quality was largely unobserved. (apart from waiting lists) Quality was largely unobserved. (apart from waiting lists) Results The largest effects are observed in the areas with the highest competition Observed prices decreased Exogenous measures of quality also decreased. Waiting times improved marginally. Results The largest effects are observed in the areas with the highest competition Observed prices decreased Exogenous measures of quality also decreased. Waiting times improved marginally.

Gaynor et al (2010), Cooper et al (2010) September 2014 Choose and book Price for treatment is fixed. Patients have the choice of a number of different providers. Information about quality is published, so patients can observe. Results The largest effects are observed in the areas with the highest competition Exogenous measures of quality increased Results The largest effects are observed in the areas with the highest competition Exogenous measures of quality increased

Burgess et al (2010) September 2014 So, information is critical. Further evidence can be considered in the UK education system So, information is critical. Further evidence can be considered in the UK education system Since 1992, school league tables have been published in England and Wales In 2001, the Welsh assembly abolished league tables. Relative to English schools, pupils in Welsh schools performed 1.92 GCSE grades worse than their English counterparts.

Forder and Allan (2014) September 2014 What about social care in England? Uses CQC star ratings to measure quality Increasing competition Decreases price 10 % increase in competition lowers price by 2.2% Decreases price 10 % increase in competition lowers price by 2.2% Lowers quality Increasing competition leads to increased numbers of 0/1* homes Lowers quality Increasing competition leads to increased numbers of 0/1* homes

15 11 September 2014 Conclusions Evidence of impact of competition on quality is mixed Theory and evidence suggests that to improve quality, information is critical. BUT Focussing too much on quality could lead to unintended consequences…

References September 2014 Burgess, S., D. Wilson, and J. Worth "A natural experiment in school accountability: The impact of school performance information on pupil progress." Review of. Journal of Public Economics 106: Cooper, Z., S. Gibbons, S. Jones, and A. McGuire "Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms." Review of. Economic Journal 121 (554):F228-F60. Dranove, D., and M Satterthwaite "The industrial organization of health care markets." In The Handbook of Health Economics, edited by A. Culyer and J.P. Newhouse. Amsterdam, North Holland. Forder, J., and S. Allan "The impact of competition on quality and prices in the English care homes market." Review of. Journal of Health Economics 34: Gaynor, M., R. Moreno-Serra, and C. Propper "Death by Market Power: Reform, Competition, and Patient Outcomes in the National Health Service." Review of. American Economic Journal-Economic Policy 5 (4): Propper, C., S. Burgess, and D. Gossage "Competition and quality: Evidence from the NHS internal market " Review of. Economic Journal 118 (525):