Competition in healthcare: the risks.

“It is so appropriate that this meeting for Keep Our NHS Public is in Somers Town community hall, where people matter more than corporate appearances” Professor Allyson Pollock, KONP AGM June 25th 2011

How different it was from conferences held by commercial healthcare providers and think tanks like the Kings Fund who seem to be endlessly talking about how to extend the use of competition in the NHS. Their uncritical enthusiasm for competition is encapsulated in this report from Lord Carter, Chair of the Competition and Cooperation Panel. There is a world of difference between them and Keep Our NHS Public. It is not just the venue and the lunch, but also the language that contrasts. Instead of words like ‘innovation, choice and efficiency‘, the words we used most often to describe the health service we wanted were ‘fair and comprehensive‘.

Fairness means fair rationing.

The NHS was introduced not simply to deliver free care, but to distribute it according to clinical need, rather than by ability to pay. Rationing was always part of the NHS, even Bevan said that the NHS should provide a floor below which no-one can fall. Rationing not only determines the level of the floor, but who should get a share of the available resources, so that we distribute what we have according to who needs it most. For example, we screen people who are at risk of disease, instead of wasting our tests on people who are not.

Fairness and efficiency.

Nobody at the KONP AGM was against ‘efficiency’, but all were aware that markets are one of many ways to achieve efficiency and in health there are significant risks. Key to understanding the risks is the fact that neither patients nor health professionals are acting as market consumers, but instead they are co-producers of health gain. The consequence of this is that any market failure is due not only to institutions, but also to patients who are integral to them, and if the institutions suffer, so do patients.

There is an enormous amount of research demonstrating the risks of market-driven healthcare efficiency. I have summarised them as follows.

  • Baumol’s Cost Disease This is an economic phenomenon whereby certain sectors like health care do not see the same productivity gains as other parts of the economy because healthcare depends to a large extent on human interactions, so you cannot get more for less the way you can in manufacturing. Baumol’s original example was that it still took four people to play a string quartet. In healthcare it still takes a nurse to wash and feed a patient and the most important part of a diagnosis still depends on the clinical interview between a patient and a doctor. It means that markets are severely limited in their scope for driving up productivity. It is important to remember this when KPMG or the government come up with suggestions for ‘efficiency savings’  that involve cutting nurses or reducing the time doctors spend with their patients. For as long as anyone in my practice can remember the accountants have told us that we have too many doctors and too few patients. Every year our patients complain that from their perspective the opposite is true. We could earn more by seeing more patients with fewer doctors. We would probably be ‘more efficient’ but our patients already complain that they have to wait too long for appointments. This tension is inevitable. The pressure to replace doctors with nurses is increasing, but it  overlooks the complexity of the doctor-patient relationship. An investigation into care for people with diabetes in the New York Times showed that it was more profitable to pay for treating the complications of poor diabetic control with amputations and kidney dialysis than to prevent them with labour intensive education. Another example is the use of drugs instead of psychology for patients with mental illnesses. It is cheaper to use sedative drugs than to provide psychological therapies, even though the drugs used are very expensive. There has been a lot written about this, including this review in the NY review of Books. Among my patients seeing psychiatrists I have noticed a significant rise in the use of anti-psychotic drugs for patients with personality disorders and anxiety, but with no history of psychotic illness. There are 30% cuts to psychology services locally. Seeking productivity gains in health care by cutting staff leads to unwashed, unfed elderly patients in hospitals and care homes, people with mental illness without access to psychology and patients without access to their own GP.
  • Risk selection. This is the most obvious danger. Healthcare can be made more efficient if you limit your service to people whose care is straightforward. Ways to do this range from sterilising people with inherited conditions or aborting damaged fetuses to refusing to register or provide care for drug addicts or smokers, refusing to operate on high risk patients and refusing to insure people with complex conditions or increasing their insurance premiums to an unaffordable level. This is also known as cherry-picking and lemon-dumping. This is why there are so many uninsured people in America. It is the Inverse Care Law. Patient selection on the basis of risk has no place in the NHS. A fair and rational health service should select patients according to need, not risk so that the most vulnerable, sick and complex patients are prioritised. This is the whole point of a publicly funded and provided NHS. Sadly the structures of the NHS have already changed risking the selection of patients and providers according to risk. A practice in Kingston, run by Dr Charles Alessi, refrom enthusiast and member of the Future Forum, dumped 48 vulnerable patients on the PCT so that they had to be registered with other practices without notice.
  • Conflicts of interests. These are impossible to avoid in healthcare market. Fraud costs in the US levied on health insurers including UnitedHealth run into hundreds of millions of dollars. UnitedHealth in the UK have been working with the department of health since 2002 and are running GP commissioning services in west London.I have written more about COI and NHS reforms here.
  • Fraud is an enormous problem that seems inseperable from healthcare insurance, as described in this article from the Center for Health and the Public Interest: Healthcare fraud in the new NHS market, a threat to patient care.
  • Perverse incentives. Healthcare markets lead to excessive healthcare procedures being performed because each procedure earns a fee/ profit. There are wide variations in numbers of procedures between different hospitals. Atul Gawande’s now famous investigation compared different models of care in the US. He showed that linking profits to procedures raised healthcare costs substantially and had no effect on outcomes. It resulted in patients having many more unnecessary invasive medical procedures. Since the internal market was introduced to the NHS in 1991 it has started happening here. Data, now available on the NHSCA report (page 19) comparing England with Scotland where they have eschewed the purchaser-provider split shows that in the last decade English inpatient and day cases increased 26 times more than Scotland; outpatient referrals 13 times and A+E attendances 4 times.
  • Disease mongering. A part of perverse incentives, this is the trend of lowering diagnostic, screening and treatment thresholds and promoting public awareness in order to expand the markets for those who sell and deliver treatments, which may include pharmaceutical companies, physicians, and other professional or consumer organizations. A small reduction in definition of high blood pressure can lead to millions of new people being diagnosed. See the PLOS medicine collection and Ray Moynihan for many more examples.
  • Industrial medicine. The cheapest, most efficient care can be the most inhumane. Sterilising people with genetic disorders would be very efficient, but is prohibited. Industrial childbirth is becoming a reality. It is more ‘efficient’ to have women booked in for elective caesarian sections than to allow natural deliveries, especially home deliveries, as another report from Atul Gawande reveals.
  • The ‘bureaucratic absurdity’. The costs of administration in the NHS have risen from about 5% to 14% due to a large extent to the introduction of the internal market in the early 90s. In the US the costs vary from 20% to about 35%. The reasons for the costs include billing, risk adjustment, accounting, and so on. The problems of risk selection, perverse incentives and conflicts of interests are so serious that very expensive bureaucratic regulatory systems have to be put in place. At a recent antenatal appointment in hospital a patient had 5 separate interactions, each with a different set of costs and bills to be sent to the referring PCT to be presented to the GP, examined, challenged if necessary and so on.
  • Excess capacity. For markets to operate there has to excess capacity. Most NHS hospitals have been over capacity for years. I do not know how it can be efficient to pay for hospitals to have excess capacity.
  • Market failure. The average life of a European company is only 12.5 years. In that time there may be takeovers mergers and restructuring. Diabetes is for life. For a patient with a chronic disease a long-term relationship with their doctor matters. Continuity is much more important than choice. If a hospital of GP surgery goes bust it may not matter much for young, mobile occasional users, but it can be catastrophic for the seriously sick, the housebound, elderly and disabled. Thousands of elderly people and their families are anxiously waiting the fate of care homes owned by Southern Cross.
  • Indication creep and prevention creep. Technology has made surgery to remove gallbladders much safer and cheaper to perform. The overall cost however has increased as the threshold for performing these operations has significantly fallen and people who would previously lived with their gallbladders intact have them removed by enthusiastic surgeons. There is a longer discussion of this phenomenon in the Journal of the Americal Medical Association
  • The costs. See this article from the Washington Post: Why an MRI scan costs $1080 in America and $280 in France “Providers largely charge what they can get away with, often offering different prices to different insurers, and an even higher price to the uninsured”

The consequence of all of these market failings is that healthcare driven by markets and competition is inequitable and unaffordable.

The Cooper controversy.

Zack Cooper is an economist at the London School of Economics whose research has been cited as evidence that competition between hospitals improves care and reduces costs. The research makes a lot of assumptions which undermine its credibility. I have summarised the controversy below.

The evidence and justification for markets appears to be that they can, with sufficient money and in certain circumstances, for certain conditions … lead to improvements in quality. There are some papers supporting this written by economists Zack Cooper from LSE and Carol Propper. They are a drop in the ocean of evidence about market risks. Allyson Pollock criticised Cooper’s paper in the Guardian recently and Cooper has replied. Their arguments about quality will go on, but say almost nothing of the risks.

A new paper by Cooper was published at the end of February 2012 here. It showed that in hospitals assumed to be behaving more competitively, length of stay (LOS) before and after elective surgery was lower than in hospitals assumed not to be so competitive. That is all. Nevertheless they make a lot of assumptions including,

1. that reduced LOS was the same as either greater productivity or efficiency. They confuse the terms. To provide evidence of greater productivity they would have to show that one consequence of reduced LOS was that more operations were being performed. To prove greater efficiency they would have to show that the operations were being performed at a lower cost. They chose not to do this but assumed it instead.

2. “we assume that the impact of competition on pre-surgery LOS captured overall improvements in hospital efficiency” That is a big assumption. There is no reason why reduced LOS before elective surgery should mean that, for example patients were being rehabilitated after strokes more efficiently or receiving their chemotherapy more efficiently. They chose not to do this but assumed it instead.

3. They asssume GPs are making choices about where to refer their patients and that hospitals are responding competitively. As a GP, I do not choose hospitals as a result of performance data. The data is not easily available or reliable enough. If Cooper et al. wanted to show that there was competition driven by GP choice, you would have to interview some GPs to find out about their behaviour. They chose not to do this but assumed it instead.

Response to Cooper by Allyson Pollock, Ian Greener and Alison McFarlane: Bad science concerning NHS competition. LSE blog. Response from LSE: Bad science or bad blogging.

What seems clear from international experience is that markets lead to ‘islands of excellence in a sea of misery’. America and South Africa give good, if extreme examples*. They have the best possible care for those who can afford it and the bare minimum for many who cannot.

*There are always people who object to comparing the NHS with the US. The US does not have a health service, it has many different systems. That is one reason it is useful to learn from, as Paul Corrigan (a health advisor to Tony Blair) has explained today. I would respond that US health insurers like UnitedHealth and Humana have been trying to influence reform of the NHS for the last 20 years. European insurers have had nothing like the same influence. Secondly, an advisor to a Tory MP told me via twitter recently that his party were reforming the NHS to be like the French or German system. It goes to show how little MPs know of the health bill. The reason for these comparisons is that historically France and Germany have led Europe on international comparisons of outcomes, not because our reforms have anything to do with either the French or German systems. Critics rarely mention that France and Germany have spent about 20% more than the UK for the last 2oy or more. The NHS Wanless report in 2001 said that given the £267bn shortfall in funding, it was a wonder the gaps between performance in the UK and Europe were not wider.

The Dutch healthcare reforms.

The Dutch system appears to be the favoured comparison at the moment, especially since the recent French fall from the podium because of unsustainable costs. In the Netherlands they have experimented with market oriented reforms. Unfortunately the Dutch system is failing the people who really need it for almost all the reasons I have outlined above. Qualitative interviews with 27 surgeons and 28 general practitioners in The Netherlands, held 2–3 years after a major overhaul of the Dutch health care system involving several market reforms. Surgeons now regularly advertise their work (while this was forbidden in the past) and pay more attention to patients with relatively minor afflictions, thus deviating from codes of ethics that oblige physicians to treat each other as brothers and to treat patients according to medical need. Dutch GPs have abandoned their traditional reticence and their fear of medicalization. They now seem to treat more in accordance with patients’ preferences and less in accordance with medical need. Health Care Anal 2011

The second criticism people make of organisations like Keep Our NHS Public is, ‘well what would you do instead?‘ I have some suggestions here and Allyson Pollock’s suggested amendments to the health bill are here.

Perhaps the reason our political leaders of all parties, wedded to the hegenomic politics of neoliberalism cannot come up with an alternative to markets is best summarised by Nye Bevan.

The National Health service and the Welfare State have come to be used as interchangeable terms, and in the mouths of some people as terms of reproach. Why this is so it is not difficult to understand, if you view everything from the angle of a strictly individualistic competitive society. A free health service is pure Socialism and as such it is opposed to the hedonism of capitalist society.
—Aneurin Bevan, In Place of Fear, p106
—————————————————————–

If you want to help keep the NHS fair, comprehensive and affordable please join Keep Our NHS Public today and write to your MP to let them know the implications of accelerating the transformation of the NHS from a public service into a series of competitive markets.

See also:

Why privatising the NHS would be A Very Bad Idea by Andy Cowper/ HPI Policy Insight 04/02/2014

NHS in England: market competition and health care | The NHS used to be based on collaboration and co-operation; and now it is a partly marketised service. David Lawrence explains why this is really not good for our health. David Lawrence NHS Managers 03/01/2014

What the NHS can learn from the introduction of markets in social care. LSE Blog.s December 2013

The High Costs of American Health Care: Forbes 09/01/2014

As Hospital Prices Soar, a Stitch Tops $500 NY Times 02/12/13

The misuse of competition law is undermining care and integration. Richard Vize, Guardian 28/11/2013

John Appleby: Competition in the NHS, Good, Bad (or something else) Kings Fund.

Competition is killing the NHS, for no good reason but ideology. Guardian 15th November 2013

The future of England’s healthcare lies in the hands of competition lawyers. BMJ 15th March 2013

Competition Regulations issued under Section 75 of the Health and Social Care Act (2012) will lock CCGs into arranging all purchasing through competitive markets  Soc. Health Jan 2013

Public sector paid big four outsourcing firms £4bn last year, NAO reveals

Scale of outsourcing to Serco, Capita, Atos and G4S prompts fears that firms are becoming too big to fail. Guardian November 2013

Does competition to provide insurance for Medicare recipients reduce costs? Or does competition simply increase the tab picked up by taxpayers? Physicians for a National Health Program. June 2013

Bitter Pill: Why Medical Bills are killing us Time Magazine. ” … you see nothing rational — no rhyme or reason — about the costs they faced in a marketplace they enter through no choice of their own. The only constant is the sticker shock for the patients who are asked to pay.”

A Hospital War Reflects a Bind for Doctors in the U.S NY Times Nov 2012. Excellent article about what happens when hospitals compete with eachother.

How a competitive healthcare model fall short. The Atlantic Sept.2012

No evidence that patient choice in the NHS saves lives. Allyson Pollock et. al. Lancet

What would the NHS have to look like for competition to work? Ian Greener

Competition hasn’t worked in healthcare. Washington Post.

Competition in Healthcare Nigel Edwards

Going for gold: The redistributive agenda behind market-based health care reform. Nuffield Trust

Competitive tendering will be as importantss as ‘Any Qualified Provider’ HSJ

“So the first guiding principle is this: maximise competition. There are, of course, potential benefits from privatisation in terms of access to capital, flexibility, and creating new markets; but private sector ownership is a secondary consideration to competition, which is the primary objective.” Andrew Lansley.

Update 02.07.2013

Competition in the NHS, is the toothpaste out of the tube? NHS competition blog.

Competition and Collaboration in the New NHS. Center for Health and the Public Interest.

Update 08.02.2012

Earl Howe letter 22 December 2011 Letter about evidence for competition with comments by Lucy Reynolds

Update 19.02.2012

Lessons from public healthcare privatisation in Sweden. Open Democracy

Sobering lessons from the Netherlands. New England Journal of Medicine

Update 03.03.2012

Market Failure in Healthcare. Part 1 Market failure in theory. Clive Peedell

Market Failure in Healthcare. Part 2. Market failure in practice. Clive Peedell

Competition in healthcare and the NHS. Lucy Reynolds

Thank God for the NHS. A British ex-pat’s impression of German Healthcare

6 responses to “Competition in healthcare: the risks.

  1. Bravo!

    (Can I register with your practice? I promise I won’t visit often, just occasionally to enable you to get your PBR etc…)

  2. Great post, Jonathon. Really good summary of why a healthcare market doesn’t work.

    Germany is in trouble just now. The government allowed people to ‘opt out’ of paying employee based contributions in favour of cheaper private insurance. The top 10% of earners took this option, leaving the health organisations short of money. Merkel did hike up VAT to try and make up the difference. In addition to that, those who have opted for the private insurance will probably find that they are underinsured. I don’t know why Germany keeps getting held up as an example.

  3. I fail to understand why those people who are “business-minded” do not sing the praises of the NHS. A healthy workforce is crucial to the productivity of industry. As we move towards an insurance system businesses will find themselves more responsible for the healthcare of their employees, and the costs that entails. In the US (yeah, yeah, I know the UK is not the US…) healthcare insurance cripples business and makes employee expensive to employ. In some cases US business screen job applicants – not to ensure that they are safe to perform the job (you do not want people with heart conditions flying a p[lane…) but to limit their insurance costs. On the other hand, health insurance are important benefits of employment for employees and consequently some employees cannot afford to move jobs if the new job does not have as good benefits. This can restrict job mobility which some people regard as important drivers in innovation.

    The advantages of a free-at-the-point-of-use, care according to need, paid from taxation, healthcare system should be trumpeted by business leaders. It amazes me that they do not understand that if the NHS is marketised the only businesses that will benefit will be the private healthcare companies (and, it seems, mostly foreign ones) and the rest of UK businesses will suffer.

    • What prompted me to write this was the obsession that economists have with efficiency. The first question Stephen Dorrell asked me at the Health Committee meeting was how would I make the NHS more efficient. I told him it was the wrong question and everyone there gave me a look that said I’d given the wrong answer. Efficiency is a by product of quality, not the other way around. If you improve the quality of care, so that there are less inappropriate referrals, investigations and procedures, as a consequence of closer working relationships between different specialities including general practice and hospitals, then you will make the NHS more efficient. But if you make efficiency your aim, you will cause a lot of harm.

  4. Simon Hackwell

    Hi Jonathan. A set of strong arguments. As you say it is about quality and putting the patient first. The problem I have is why we must accept that only the state run NHS can provide this. I can’t subscribe to this binary view that public = good and other = bad. We can all find examples of where the market has failed and equally where the market has succeeded in healthcare, so I am struggling to see how we can generalise that private sector (or third sector) intervention must always lead to a reduction in the value of healthcare.

    As someone who is trying to lead change in the NHS I can’t afford to close my mind to the fact that A.N.Other might be able to do some things better, quicker and improve the patient experience. And yes sometimes you have to run a competition to see if this is the case.

    I work in and love the NHS and I can see it does most things extremely well. But not everything. After all if the NHS was that universally good surely all the GPs would be clamoring to join it as employees!

    • Hi Simon,
      The NHS doesn’t do everything, for example I have referred patients to third sector alcohol, rape and advocacy services in the last few days. I don’t think the arguments are about good and bad, but about the balance of risks, much like clinical decision making, for example, the state sector has advantages over the private sector including transparency and public accountability and the assurance that it won’t go bust or pack up leaving patients without necessary care. My post is about the risks of competition, including cherry picking and lemon-dumping which remain grave concerns.

      As you know, GPs are no longer allowed to be employed by the NHS. Up until a few years ago PCTs were running GP surgeries with NHS salaried doctors, but these have almost all been tendered out at the insistence of the department of health. As a GP I am proud to work entirely within the NHS, I don’t see private patients and I am able to prioritise care according to need and can spend more time with my vulnerable patients because that is what they need. If the NHS was radically reformed to bring GP pay in line with consultants and to bring general practice within the employment of the NHS I might be happy to join. But that isn’t going to happen, except as a means to hand the whole damn lot of us over to G4S or Serco.

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