The coalition’s NHS reforms: do they really bring ‘more competition’?

One of the most important skills in the political tug-of-war is the ability of those involved in debate to convey the impression that their personal interests are really the interests of society at large. Often, of course, the policies being promoted are in the personal interests of the promoters but not in the interests of society more generally. In this sense, it is probably not a bad sign that the coalition’s healthcare reform plans face widespread opposition from within the NHS. 

Unfortunately, however, the fact that the reforms are opposed by the vested interests, does not make them commendable. Neither the status quo desired by the medical profession nor the reforms proposed by the government are in the general interest.

The proposed reforms essentially involve abolishing Primary Care Trusts – which currently commission specialist and in-patient care – and transferring these tasks to GP-led consortia. GPs will thus become specialised purchasers of healthcare services who will be able to choose from a range of competing providers.

The reforms, then, introduce a notion of competition into healthcare. But unfortunately, perhaps the most important function of competition, which is what Hayek referred to as Entdeckungsverfahren (discovery process), will still be suppressed. Much of the debate has focused on whether doctors are necessarily good commissioners. The answer is that we cannot really know – this is something which should itself be discovered in the competitive process, instead of being introduced from above. Instead of replacing one model of healthcare commissioning with another one, we should move towards having a variety of competing ways to purchase and finance healthcare services.  

What does this mean in concrete terms? In some settings, the most obvious candidates for the role of institutional healthcare purchasers are health insurance companies. This is largely the way healthcare works in the Netherlands. People choose among competing insurers, which, in turn, choose among competing providers. Alternatively, there is the model of the integrated provider-insurer organisation, where healthcare is not commissioned from outsiders but provided in-house, in facilities run and staffed by the organisation. This is largely the way Health Maintenance Organizations (HMOs), which are common in the US and in Switzerland, work. And then there is the model of Medical Savings Accounts (MSAs), most notably in Singapore, where there is no third party purchaser for most medical services. Instead, individual patients choose providers on a case-by-case basis. In their Singaporean version, MSAs would surely have no chance of popular acceptance in the UK. But MSAs could easily be coupled with more comprehensive insurance protection, and with the government topping up poor people’s accounts more generously.

It is laudable that the coalition wants to apply competitive principles to healthcare. However, competition can take place on several levels, with competition between hospital X and hospital Y being only the most basic one. What broke the market power of English seaside resorts was not the opening of other English seaside resorts. It is the fact that nowadays, most people can hop on a low-budget flight and spend a week in Spain.

It is difficult to see how competition can work effectively if customers continue to be shielded from information about price. I don't want 'free' health care: I know that I'll have to pay one way or another. I would rather pay myself as a consumer, either directly (as for most services) or indirectly (e.g. via insurance). Being forced to pay as a taxpayer gives me virtually no leverage whatever. As Kristian writes, imposing one particular form of 'competition' is making the same kind of assumption of central omniscience that has dogged the NHS from the beginning (and many of the privatisations too). My experience of governments is that, almost to a man, they don't really understand how markets work -- nor what the great advantages of markets over government interference are, especially over time.
This is very perceptive because it is similar to the arguments regarding the railways (though in that case they were privatised). A structure was imposed upon the railway network (separation of track and train) which a priori looked like a good idea and probably was a bad one. However, we needed the process of competition to disover the best structure for the railways.

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