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.

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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