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Government’s Faltering Commitment to Competition Will Hurt the NHS

The NHS will not meet its productivity challenge while the government continues to back away from using markets and competition, according to a new report from the independent think tank Civitas, Markets in health care.

In its 2002 command paper, Delivering the NHS Plan, the government adopted a new paradigm that choice and competition was the means to a more efficient and responsive service:

‘If it is to better respond to the needs of patients the NHS can no longer be run as a monolithic, top-down, monopoly provider… Patients will choose hospitals… [and] changes to the funding flows and incentives will enable all providers – public or private – who offer good quality and value for money to more easily provide services for NHS patients…’

With tight financial times ahead, creating the political space for this market to work is more important now than ever before.

But instead, Labour’s five-year strategy for the NHS – NHS 2010-2015: from good to great – and accompanying Operating Framework for 2010/11, released this week, show a government mired in confusion and drawing back on seven years of reform for no apparent reason other than to please the TUC:

  • ‘Competition’ is mentioned only once in NHS 2010-2015: from good to great and does not even feature as a lever of system change in the Operating Framework. Instead, the route to higher productivity is sold as collaboration and ‘more engaging, less polarising ways of making change happen’.
  • The overall approach is best described as one of ‘technocratic rationalism’; a strategy that failed Labour between 1997 and 2002.

    The strongest levers for change identified by the Department of Health are: adjustments to the payment system (tariff); stronger regulation; further ‘goals’ for Primary Care Trusts; and ‘applying models of care systematically across the country’. All of these are centralising and negate the potential for entrepreneurial activity that now exists from the NHS’s more market-based structure.

    In fact, the Operating Framework goes so far as to state: ‘… organisations need to be entirely driven by existing commitments and NHS Vital Signs tiers 1 and 2’ (p.46), set by the DH.

  • Foundation trusts are to be encouraged to integrate with existing community services. This may improve coordination of care, but without reform to the payment system is equally likely to lock services in the expensive hospital setting; shut out alternative options; and create unresponsive local monopolies.
  • Primary Care Trusts (PCTs), that are supposed to be impartial commissioners of care, are now allowed to keep their own provider arms, despite being previously required by the DH to come up with strategies to make them independent. This creates a clear conflict of interest.
  • The ‘NHS first’ approach – that the NHS is the government’s ‘preferred provider’ of services, with tenders only put out if the service is ‘demonstrably underperforming’ after two chances to improve – is inconsistent with the government’s own principle that ‘commissioners (PCTs) have a legal duty to secure the best services, in terms of quality and productivity, for the people they serve’.

What if this these services are not found in NHS providers? Many PCTs, who have found real benefit in using competitive tendering to improve services, will be harmed; and innovative potential new entrants will be discouraged.

James Gubb, director of the health unit at Civitas, said: ‘At a time when real clarity of vision is required for the NHS, the government is in a state of confusion. From 2011 the NHS will need to find at least £ 15 billion savings, which, given rising demand and the changing nature of disease, could well feel like double that.

‘David Nicholson, the NHS Chief Executive, recently conceded to the Financial Times that “there is no doubt we need help [from the private and voluntary sectors] to transform services”. This is the right sentiment, but current actions do not support it. Instead of drawing back from competition, the government should be concentrating its efforts on removing barriers to it.’


In the Civitas report, Markets in health care: the theory behind the policy, published today, authors James Gubb and Oliver Meller-Herbert critically analyse the application of markets in health care, as a backdrop to the current debate. Although never to be placed before the central importance of providing universal coverage, markets deliver significant benefits:

  • Efficiency. The threat of competition alone is an important determinant of a hospital’s efficiency. In many areas where Independent Sector Treatment Centres (ISTCs) were introduced in the NHS, incumbent providers subsequently ‘retooled’ their businesses to the benefit of patients.
  • Innovation. In markets there is always the opportunity for people to come forward with new ideas to provide a better, more efficient, service. The dominance of hospitals in the NHS is currently blocking this, crowding out community-based solutions.
  • Equity. In centrally-planned systems, where there is no formal choice, middle and upper class people typically are better at creating choices and negotiating a better deal. Markets can reverse this by conferring choice on all.

What’s more, the ‘market failure’ opposition may well be over-stated:

  • Market failure is not unique to health care. It is endemic in all markets, yet on the whole they function well:
    • Information is always imperfect. Be it choosing a restaurant or buying a computer, few of us will have a good grasp of how things work and are engineered; and decisions will often be made in collaboration with people who know more about it than us.
    • Markets are not just individualistic, but also both require and generate collaborative behaviour. Five Academic Health Science Centres have recently been formed in the NHS to drive scientific innovation, incorporating organisations that in other fields are competing with each other.
    • Markets require regulation in order to build confidence that transactions will be honoured and to correct for market failure. There is no inconsistency in using markets, while regulating to ensure universal coverage, guarantee minimum standards of care and guard against unscrupulous practice.
  • The alternatives to markets have their own pitfalls:
    • Pure reliance on trust and professionalism carries the risk that the interests of providers and professional groups are put before those of patients. There is no shortage of evidence describing deficiencies in care, which have been linked to such maxims as ‘there can be no questioning the surgeon in his operating theatre’:
      • one in 10 patients admitted to hospital experiences iatrogenic harm;
      • wide variations in quality of care exist;
      • patients do not always experience the level of care that doctors would regard as acceptable for themselves or their families.
    • Targets and performance management may drive change in the short-term, but are demoralising and distortionary. Official NHS statistics show 98 per cent of patients are turned around in under the four-hour target in A&E set by the government, but:
      • academics have used queuing theory – a mathematical analysis of waiting time statistics – to show this can only have been achieved by ‘the employment of dubious management tactics.
      • patients have been moved to ‘clinical decision units’; made to wait in ambulances; been admitted unnecessarily; and discharged too early
      • data has been miscoded.
    • ‘Voice’ – users expressing their dissatisfaction or satisfaction with services – provides no hard sanctions to incentivise the disinterested provider to improve. And middle and upper classes are also likely to be able to negotiate a better deal. Before the introduction of choice in the NHS:
      • intervention rates for coronary artery bypass grafts following heart attack were 30 per cent lower in the lowest group than the highest;
      • 20 per cent fewer hip replacements were performed on lower income groups despite a 30 per cent higher need.

‘No-one is saying that markets are perfect’, commented James Gubb, ‘but we should not lose sight of the flaws in other models. When operating in the correct framework, the potential of markets to drive innovation and efficiency by empowering those at the ‘coal face’ can deliver change like no other system.

‘The government should be concerned with the health and health care of the nation; whether this is best served by NHS, private or voluntary sector organisations should not matter.’

For more information contact James Gubb on: 020 7799 6677 / 079 3024 3570

Notes for Editors

i. Civitas is an independent social policy think-tank. It receives no state funding either directly or indirectly and has no links to any political party. Civitas’s health policy research seeks to take an objective view of health care in Britain. It aims to offer an improved perspective on how best to deliver equitable and high standards of health care for all.

ii. ‘Markets in health care: the theory behind the policy’ by James Gubb and Oliver Meller-Herbert can be downloaded below.

iii. Civitas is currently conducting an in-depth study into how markets are operating in the NHS, due to be published in March.

Markets in health care: the theory behind the policy

Download Associated PDF


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