Can market forces make

the NHS more efficient?

SHA conference 30.11.10

Wendy Savage MBBCh FRCOG

MSc (Public Health) Hon DSc

Co-Chair Keep Our NHS Public

The definition of efficient

Effective, producing the desired result with the minimum wasted effort (OED)

In health efficiency is „the most effective use of available resources to meet health needs‟ Creeze & Curzin 1995

Now used to mean „cost efficiency‟

What are market forces?

The essence of a market system is that “free agents” try to maximise their own “utility” or wellbeing by comparing market prices for goods and services with what they are worth to them. Provided prices are free to move, they will adjust to the forces of supply and demand.

Price signals enable the market to wring out the most of an economic situation

Driven by self-interest and competition, and relies on information symmetry between buyers and sellers

How efficient is the NHS?

Still spend less of our GDP than many OECD

countries

Universal coverage

Recent Commonwealth Fund (US) rated UK as

highest on equitable access

UK public think their health care system needs

changing less than any of the other countries

surveyed

How is efficiency measured?

Many studies compare the number of staff

employed and the volume of patients treated

This is a very crude approach to medical practice

It may take much longer to explore the reasons

for not performing a surgical operation for

example than immediately doing one

Quick throughput which does not uncover the

real disease issue may be less efficient eventually

Wanless Report 2006

Compared „productivity‟ 5 years after looking at

the NHS in 2001 after the NHS reforms of 2000

Lamented the fact that Agenda for Change had

consumed about 70% of the increased money

put into the NHS.

Considered that „productivity‟ had not increased

commensurately with increased investment.

Quality of care was not measured

Management costs 2003

Government funded study showed, by analysing

published figures of workforce that :

France spent 10% of health budget on

administrative costs

Canada spent 10% but possibly 17%

UK spent 14% (was 5% before 1984 Griffiths)

USA spent 17% but possibly 31% depending on

how you interpreted the figures.

Global experience

Structural adjustment programmes forced on countries as part of IMF loans have used market mechanisms which have:

Used user fees which have

Increased inequitable provision of care

Forced people to avoid using health care

Increased mortality

Eastern Europe including Russia, Sub Saharan Africa, Latin America and Asia affected

Health care unsuitable for a market

There is assymmetry of information between patient (consumer) and provider (seller) of services.

Economic theory predicts that price competition is likely to lead to declining quality where (as in healthcare) quality is harder to measure than price. Evidence from the 1990s internal market and cost-constrained markets in the US confirms this with falling prices and reduced quality……

NHS Confederation

Higher cost of private care in US

Medicare HMOs admin costs 15% compared with 3%

in traditional Medicare

Medicare dialysis centres cost 9% more than non-profit

centres.

Mortality is 2% higher and costs 19% higher in

investor-owned hospitals compared to private hospitals

(Woolhandler and Himmelstein 2007)

Veteran‟s administration hospitals less expensnve but

have higher quality than other hospitals

Market failure in healthcare

Market failure in healthcare is a well recognised problem in theory and practice (Arrow, Brown)

1. “Information asymmetry”. Patients are not well enough informed to make choices. Patient vulnerability. Need for “Choice advisors”. Also primary and secondary care

2. Healthcare is difficult to commodify. Contracts are complex. Contracts are based on mistrust

3. Risk of supplier induced demand

4. Excess capacity is needed for market choice to work i.e a plurality of providers

5. Exit is very difficult ie Hospital closures are a political hot potato

6. Expensive to enter market – e.g ISTCs (given 11% extra tariff)

Market failure

7. Insurance systems will give the cheapest and best coverage to the well, and the most expensive and least coverage to the sick

8. Doctors control access to the healthcare market. Professionalism is a problem

9. Markets provide for wants rather than needs.

10. Price signals don't work. Payment occurs after care. Healthcare costs are prohibitive. Pooling of risks

11. Need for specialty clusters and high volume workload

12. First duty of investor owned firms is to their shareholders, not patients – “cream skimming”

13. The market is a blind power without any social orientation: it cannot solve social problems

14. Need to plan for local population needs

Can market forces make

the NHS more efficient?

The answer is NO

Further Reading

Colin Leys Market-driven politics (2001) Verso

Allyson Pollock NHS-plc (2005) Verso

John Lister Health Policy Reform (2005) The NHS after 60:for patients or profits? (2008)

Stewart Player & Colin Leys Confuse and Conceal

Merlin Press 2008

House of Commons Health Committee (2010) Commissioning. Fourth Report of session 2009-10

An alternative to the market: report of a roundtable discusssion July 2010 available free from BMA website www.bma.org