Carol Propper CMPO University of Bristol and Imperial College London Jan 2012 TILEC Evidence on competition in UK health care

Preliminaries Competition on the insurance side and/or on the provision side The UK – unlike the Netherlands – has experience only of the latter My talk covers lessons from UK so will focus on provider competition Imperial College Business School ©

Outline What theory tells us Evidence from policy reforms that promoted competition Evidence from study of management Evidence from analysis of merger activity Imperial College Business School ©

Theory Theory of competition on supply side Focus has been on competition between hospitals Assumption of profit maximisation Some market specific models, others derive from other industries Bottom line Competition will increase quality if prices are regulated (similar to schools) Anything can happen if prices not regulated - depends on relative elasticity of demand for price and quality Imperial College Business School ©

Empirical evidence from USA General consensus that where prices are regulated, competition has increased quality (and lowered growth in expenditure) Imperial College Business School ©

Evidence from UK 1. Blair reforms – choose and book + PbR (2006) Regulated prices similar to DRGs for elective and emergency treatment in acute sector Hospitals had to break even; subset allowed to keep surpluses Intention to give incentives to compete on quality Imperial College Business School ©

Evidence from UK : Blair reforms Has care seeking behaviour changed? Not everyone has exercised choice (Dixon et al Kings Fund) But evidence of changes in demand patterns post policy - hospitals that were better pre policy attracted more patients and drew patients from more neighbourhoods Imperial College Business School ©

Evidence from UK : Blair reforms Evidence on outcomes In hospitals exposed to more competition Quality has risen Length of stay has fallen No increase in expenditure at hospital level No evidence of increase in inequalities in treatment (Cookson and Laudicella 2010) Imperial College Business School ©

Evidence from UK 2.Management in NHS hospitals and competition Study of management practices in NHS hospitals Based on international best practice in management Better management is Associated with a range of better outcomes (quality, financial performance, waiting times, staff satisfaction and regulator ratings) Impact of competition on management Exploits politics of hospital closure to instrument competition Finds management is better in hospitals in competitive areas (Bloom et al 2010) Imperial College Business School ©

3.Evidence from hospital consolidation US experience – consolidations raise prices, have mixed impact on quality, reduce costs only slightly (Vogt 2009) UK experience 1997 onwards - wave of hospital reconfigurations Over half of acute trusts involve in a reconfiguration with another trust Median number of hospitals in a market fell from 7 to 5 Imperial College Business School © Evidence from UK

© Imperial College Business School Location of merged and unmerged hospitals (pre merger)

Evidence from U.K: Hospital consolidation Analysis Examine hospital performance before and after merger are compared Comparison data from same period for ‘control’ group of non merging hospitals Results - consolidation led to Lower growth in admissions and staff numbers but no increase in productivity No evidence of reduction in deficits No evidence of improvement in quality Summary - costly to bring about with few visible gains other than reduction in capacity © Imperial College Business School

Summary of the evidence from the UK Competition has been beneficial in UK under Choose and Book regime + PbR Old style planning (local mergers) does not seem to have brought large gains No evidence of growth of inequalities Many areas not investigated to date (GP competition; networks, mental health) © Imperial College Business School

Summary of the evidence from the UK THANK YOU © Imperial College Business School

References Propper, C, Burgess, S, Gossage, D (2008) Competition and Quality: evidence from the NHS Internal Market Economic Journal 118, Gaynor, M, Moreno Serra, R and Propper, C (2010) Death By Market Power: reforms, competition and the NHS. Nicholas Bloom, Carol Propper, Stephan Seiler and John van Reenan (2010) The Impact of Competition on Management Quality: Evidence from UK Public Hospitals. NBER WP Gaynor, M, Laudicella, M and Propper, C (2012) Can governments do it better? Merger mania and hospital outcomes in the English NHS CMPO Discussion paper 12/281Can governments do it better? Merger mania and hospital outcomes in the English NHS Cooper et al (2011) Does Hospital Competition save lives: Evidence from the NHS. Economic Journal 212, 554 ( August 2001). © Imperial College Business School