How competition in the NHS may push up healthcare costs

It is often repeated that more competition should be introduced into the NHS to keep costs down - but it may in fact increase them.

Growth in total health expenditure per capita, US and selected=

It is often repeated that more competition should be introduced into the NHS to keep costs down. No doubt the prime minister will repeat the talking point in his much-trailed speech today. As leader of the opposition in 2009, claiming his plans for the NHS were in the spirit of Labour ministers who have since criticised the current policy, he said:

“The argument for more competition in the NHS seemed to have been won a long time ago. Blairites like Alan Milburn were evangelists for market mechanisms to drive up standards and drive down costs.”

However, there is evidence to suggest that choice and competition in healthcare will, in fact, increase the UK’s spending on health. Take this chart from Kaiser Permanente, who provide healthcare in the United States, on health spends in developed countries:

In fact, the United Kingdom, with its comparitively statist system, keeps costs down. Why might this be? It may be that in systems based on competition and choice, the lack of expertise on behalf of consumers means that providers can overcharge or charge for treatments which, in all honesty, probably do not have that much chance of working.

That the government are proposing a two-step choice – consumers choose thier GPs, who in turn help choose the treatment – may help with this; but then again, the consumer will always be at some information disadvantage.

How an information disadvantage can work in practice can be seen in the energy market, where the regulator OfGem has criticised providers for offering bamboozling products that means time-pressed consumers can’t make an informed choice, therby pushing up prices.

As it happens, it is the market in energy that the chief executive of Monitor, the body who will be responsible for competition in the NHS under the government’s plans, sees the NHS reforms as emulating.

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  • Anon E Mouse

    Labour introduced private providers in the NHS in 2004.

    Why weren’t you complaining then?

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  • Ash

    “It may be that in systems based on competition and choice, the lack of expertise on behalf of consumers means that providers can overcharge or charge for treatments which, in all honesty, probably do not have that much chance of working.”

    This looks frighteningly plausible to me.

    As you say, the fact that GPs play a role in ‘choosing’ appropriate treatments should help; but it certainly doesn’t solve the problem. We could find that patients start ‘choosing’ one GP over another partly on the basis of their perceived willingness to give patients the treatment they’d ‘choose’ for themselves – antibiotics for colds, homeopathic remedies for migraines, etc. – leading to a situation in which GPs could only successfully ‘compete’ for patients by being prepared to waste money on in-demand but inappropriate treatments.

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  • Richard Blogger

    @1 Competition was not introduced in 2004. It was re-introduced. The 1997 election was carried on a pledge to stop the internal market, but as you point out, it was re-introduced after a few years.

    Lots of us did complain, then, and before, and we are complaining now. We got a referendum on a pointless and ineffectual change in the constitution but we are denied a referendum on vast changes to the NHS. Our political overlords know how far to trust us.

    To the OP. I am not convinced from those figures. The US is a *totally* different system to ours. What we need is information about UK providers. The government keeps saying that the NHS has declining productivity and quote ONS figures that show a decline of a mere 4% over a decade. (That is neither here nor there.) There are no public productivity figures for the private sector. It should be a requirement that for any private company given an NHS contract they must provide information comparable to the NHS: productivity, HAI data and be fully open to FOI.

  • Ed

    What about Germany? They now have a majority private provider system. Their costs have reduced at the same time paitent satisfaction has gone up.

  • Prateek Buch

    This is one of the many salient reasons why Liberal Democrats are pressing hard for substantial changes to be made to Lansley’s misguided reforms, without which they will not pass through Parliament.

  • Ed’s Talking Balls


    Lib Dems cannot disentangle themselves from this mess that easily. Paul Burstow was and is heavily involved, while Nick Clegg himself signed it off. It’s not simply that the Tories put forward a terrible idea and the Lib Dems ride in on white horses to save the day!

    Like most of the population, I imagine, I don’t understand the full implications of the Bill. Lansley’s communication has been poor and the media has been interested solely in lambasting a private sector bogeyman rather than elucidating the key aspects. It can’t simply be ‘public good, private bad’ (or vice versa, for that matter). I don’t care who’s providing the service so long as it is high quality and the government (i.e. the taxpayer) can afford it.

    I just hope that the government gets this one right. It’s too important to mess up.

  • Anon E Mouse

    Richard Blogger – OK fair enough…

  • scandalousbill


    You say,

    “What about Germany? They now have a majority private provider system. Their costs have reduced at the same time paitent satisfaction has gone up”

    The issue is not one of public vs. private healthcare. Both Germany and France, arguably, have demonstrated much better performance than the NHS and both are predominantly private sector oriented. However, Holland has a virtually exclusive public healthcare system, and consistently has outperformed the former three. The primary distinction between these nations and the UK relates more to a larger investment in healthcare which all three continental nations have committed when compared with the UK investment in the NHS.

  • P Spence

    Let’s be clear. The Tory elite have never and do not today like the NHS. It stands outside their economic dogma in which the Market and exchange value determine resource allocation. The NHS is founded on collectivist values that they hold in disdain. Allied with the drive to generate large profit for their sponsors, they aim to break the NHS. This is the opportunity they have waited many years to grasp.

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  • John77

    Richard Blogger says NHS productivity has fallen a “mere” 4% over 10 years during which productivity should have risen by 28% according to the theories fed into ONS by New Labour. So that is underperformance of 25%! Can you name any private sector company that would still be in business if its productivity had underperformed by 25%? No, I didn’t think so.
    I do believe, and have done done since I was in short trousers when the concept was first explained to me, that we should have a taxpayer-funded NHS. My objection is to the utter mess that we now have [one example under New Labour is that I am summoned to my son’s school to take him to hospital because he has been injured by one of their thugs and, oh no, a teacher cannot take him (health and safety rules – where were they when the thug picked him up and threw him on the floor as a joke?); when I get there and need to carry him into A&E, I cannot park in the hospital car park because it demands more coins than I have in my purse. At 15 he still weighed less than 8 stone so I could carry him from the nearest residential street (but more often it’s the mother who has to pick up the child and sometimes the child weighs more than the mother). Then we had more than a two-hour wait before he was seen by a doctor, so that’s four hours. A cold compress applied immediately (and the thug thrown out on his ear) would have resulted in less damage and quicker healing.]
    The advantage of competition is that it will show up where some NHS Trusts are performing abominably (see above – access to hospital should not be denied on how many coins you have in your purse when emergencies strike or any other totally irrelevant factor).

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