NHS choice and competition: what are the rules and how big is the prize?

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Martha Burgess and Mike Birtwistle from the MHP health team write…

Despite months of heated debated on the NHS reforms, the focus has only recently shifted to the role of competition, and even now this has been more about the symbols of competition (such as the role of Monitor or so-called cherry picking) rather than the potential transformative effect that wider competition could have, and the implications of this, good and bad.  Most recently this resulted in the bizarre Observer story that the Liberal Democrats are to demand the removal of a ‘clause’ from the Health and Social Care Bill introducing the principle of Any Qualified Provider (bizarre because the phrase doesn’t even occur in the Bill) 

Competition in the NHS is not new.  Even at the height of command and control in the 1970s, in areas such as sexual health, different providers competed to supply services. As Rachel Rowson recently described, the emphasis on competition escalated rapidly during the later years of the Thatcher era.  Although Labour set about dismantling the internal market, the last Government was rapidly converted to the cause of competition.  Even Andy Burnham’s declaration that the NHS should be the preferred provider failed to have a material impact on the diversity of organisations supplying services to the NHS.  In truth, this probably had more to do with positioning for the Labour leadership than it did with changing the philosophy underpinning Labour’s policy.  So, successive secretaries of state over the past twenty years or so have advocated some degree of competition (with the notable exception of Frank Dobson).  Why then, does the issue continue to attract such controversy, albeit within the confines of a very partial debate, today? 

Choice, which is hardly new either, has tended to create less political debate.  Patients have always been faced with often difficult choices about their healthcare (which GP to register with, what medication to take, when and where to seek help).  If you know your way round the system, these choices will be wider and appear more palatable.  But for many, choice in health has not been a happy experience and is associated with a feeling of lack of support and information.  In this sense, efforts to encourage informed choice have been universally welcomed, although it is easy to see why for many, the emphasis on choice misses the point: most patients simply want a good, safe hospital in a convenient location with a cheap car park.  If this is what many patients want, the debate then becomes about what role choice can play in delivering this. 

What is the purpose of NHS competition? 

Choice and competition are different concepts, though have been closely linked in discussions on health policy. While effective choice demands an element of competition, competition in the NHS can exist without offering choice to individual patients. For example, a commissioner may tender for a particular service or medicine, and award a contract to a particular bidder. Greater use of competitive processes could therefore actually restrict the choices available to patients, particularly at a time of relative economic austerity for the NHS. 

This is of course very different from the Lansley vision, where competition is seen as a mechanism for enabling patients to choose providers and treatments.  It will therefore be important for the debate on the NHS to be clear on what the objectives are for competition: is the purpose to stimulate quality improvements or to deliver cost savings?  Depending on which objective you choose, you either end up with a race to the top (where quality is king) or a race to the bottom line.

What are the rules of the game?

We don’t doubt the sincerity of Andrew Lansley’s intentions: shaped by his own experiences of the NHS, he wants to design a system which will deliver more responsive services to patients as people, rather than simply as a cohort of individuals with the same condition.  He passionately believes that competition and economic incentives are the way to achieve this, driving provider behaviour and stimulating professional action.  

Whether these principles can be translated into reality will depend upon the rules of the game and how well they can be enforced.  There is a danger that, without the right measures and incentives, there could be perverse behaviour.  It is inevitable that, although organisations will play by the rules, they will push them to their limits.  You only have to go back to the early days of the tariff, when entrepreneurial foundation trusts were accused of gaming the system by admitting many patients unecessarily, often for very short periods of time, to trigger higher tariff payments and massage up compliance with A&E waiting time standards. 

So what are the rules? Despite the recent level of debate, Monitor’s proposed role as a competition regulator is probably the least important in making competition based on quality work: put simply, by the time Monitor have to get involved on competition, failure will have already occurred. We have written elsewhere about how the proposals for competition regulation could be improved.

Although Monitor may be the ultimate arbiter of competition, commissioners will be the day-to-day referee.  Using a combination of prices, quality measures and information, it will be their job to ensure that competition is used to drive up outcomes, giving patients a greater range of informed choices. 

Rule 1: prices

Monitor’s duty in setting the level of tariffs will be critical to making the system work, particularly as competition on the basis of price has been ruled out.  If tariffs are set too high, then commissioners will find funding a particular service to be unsustainable.  If, however, they are set too low, then providers will go out of business or quality will suffer.  This is why it is unrealistic to suggest that there should be no economic regulator at all: someone needs to do this very important job. 

People are right to be concerned about cherry-picking.  As in any sector of the economy, any provider – whether public sector or private – will seek to focus on the activities which are more profitable.  The trick will be to design payment systems which encourage them to take on more complex activity by ensuring it attracts a fair price.  In many ways the debate on price competition which took place in the spring entirely missed the point.  Most NHS services are currently not on tariff, creating the risk that the only basis for competition will be price.  Tariffs have been pioneered in secondary care and yet there are many hundreds of exclusions, including for cancer drugs, complex surgery, transplants and burns.  Even where there are tariffs, such as in sexual health, these are often significantly undercut as the tariff covers too broad a range of interventions and so does not represent an accurate or fair costing.  

The political danger is that developing appropriate tariffs for all health interventions is a massive technocratic challenge: ultimately there will be very little that politicians can do to make it work but the fate of the reforms – and certain politicians’ careers – will rest on the success or otherwise of this exercise. 

Ensuring fair prices will also require levelling the playing field in terms of costs.  This sounds easy, but is fraught with difficulty.  For example, the principle has been established that private providers should be exposed to the same costs for medical training as their NHS counterparts, but establishing what these costs are, and adjusting for the benefits which may be accrued by NHS providers who deliver training, will be fraught with complexity.  Equally there may be historic factors which result in an uneven playing field.  NHS providers are the product of many decades of history, all of which will impact upon their costs.  A provider located in an old fashioned hospital may incur different costs to one housed in a modern PFI building. 

Rule 2: quality

As well as creating a common currency for competition, it will be necessary to measure quality, ensuring that there is a counterbalance to the efficiency imperative.  Here the Government has bet the house on NICE quality standards.  These concise statements of what good quality care looks like are meant to be the bible for commissioners and providers.  Yet, as with everything that NICE does, the timeline for their production is painstakingly slow.  Andrew Lansley hopes to reorganise the entire NHS by 2013, yet it will take NICE two further years to complete its library of 150 quality standards.

There is also the question about how performance against quality standards will be measured and the extent to which commissioners and providers will be rewarded – or penalised – for their success or failure in implementing them.  It is worth noting that clinical guidelines – although comprehensive and robust – have largely failed to shape commissioning decisions.  If quality standards are not to suffer the same fate, then the way in which the Commissioning Outcomes Framework operates will be critical.  Without more information on this, sceptics will continue to question how powerful the quality imperative will be.  It is ironic that further progress on the Commissioning Outcomes Framework, which could have helped answer some critics’ questions, has been halted by the pause. 

Rule 3: information

The third rule of the game will be the information provided to patients.  One national clinical director has taken to asking audiences how they would set about choosing where to be treated.  Would they: (i) ask their GP, (ii) go to (or avoid) the hospital they work in, (iii) look up performance statistics or (iv) phone a friend?  The simple truth is that most would rely on word of mouth, which is fine if you are well networked healthcare professional but does not provide a sustainable platform for competition based on rational decision-making.  

There have been improvements in the information available to patients and initiatives such as the National Cancer Patient Experience Survey point towards how patients could be provided with more information which is meaningful and relevant to them in making choices.  The challenge is that gathering the data and developing high quality information is not a cheap exercise.  In an era where money is tight, will the NHS Commissioning Board provide the necessary support and investment to make this work across the health service? 

Are any providers willing?

Once the rules of the game are established, you need different providers to play.  The extent to which they do will depend upon the attractiveness of the game.  With tariffs being deflated and many commissioners likely to be initially conservative in their choices, some providers may well prefer a period of retrenchment to gambling on expansion.  An explosion of competition is far from certain.  Indeed you may initially struggle to notice the difference. 

The competition that does emerge is likely to develop as much from within the NHS as it is from the private sector.  Some foundation trusts will look to expand their geographical reach, as well as offering greater community services, investing some of the surpluses that they have accumulated in recent years.  The situation will of course be somewhat different for weaker NHS providers.  Saddled with large PFI contracts and struggling to achieve foundation trust status, competition will seem a much less enticing game for them. 

The size of the prize…and the political consequences

Those close to Andrew Lansley fervently believe that competition will be transformative and they may have a point.  The question is, what sort of transformation will this be and will the political consequences of it be tolerable? 

Irrespective of the number of patients who actually vote with their feet, the theoretical threat this poses to providers is significant.  Services are run on very low margins and the fixed costs (buildings, staff etc) associated with delivering healthcare are high.  A small shift in patient flows will have a significant effect.  Few providers will be willing to gamble on competition proving to be a damp squib, so the imperative to improve will be a strong one. 

Yet the risks are also apparent.  As we wrote on the day Equity and excellence was published, these are reforms with many moving parts which will all need to function correctly if the vision is to become reality.  Providing that quality and efficiency imperatives are in equilibrium, then the transformative effect of competition should be positive.  However, if the balance shifts, then quality could be penalised in a race to the bottom line or costs could spiral out of control as quality trumps efficiency.  In this sense, the role of the new quality system will be critical.  Given its untested nature, it is also a gamble. 

Finally, the logical conclusion of competition is that some providers will fail.  In the NHS, there is a clear candidate list of hospitals that struggled to achieve financial balance in the good times and are now floundering towards foundation trust status, often burdened by expensive PFI contracts which teeter on the brink of unaffordability.  The political challenge is that many of these hospitals are in marginal constituencies and so have been propped up by successive generations of politicians.  It remains to be seen whether this generation of ministers will be any braver than their predecessors when it comes to accepting that some hospitals will fail.  Unless they do, then the transformative effect of choice and competition will be limited.