The Effect of Competition on Health Care in England

The National Bureau of Economic Research is a somewhat obscure agency which sponsors excellent work, including health care studies.  A recent working paper examined the effect of competition on hospital performance in England.    (NBER Paper) England introduced a policy in 2006 to encourage patients to choose hospitals on the quality and timeliness of care.  Price was not a factor, since England has a national health system that pays for all services, but hospitals could lose or gain revenue if patients did or did not choose to use the hospital.  Altogether, data from 162 hospitals was examined, with about 68,000 discharges a year per hospital.  The primary endpoints were mortality, length of stay and hospital spending on care.  The research examined the degree of correlation between market concentration and quality changes in hospitals following the reform.

Theoretically hospitals in less concentrated markets should face more competition and should show more improvement on quality.  One result of the study was a finding that higher quality hospitals gained more patient volume than did lower quality ones during the time the reform was put in place.  The primary finding was that lack of hospital concentration, i.e. more competition, was associated with lower mortality rates.  In addition, hospitals in less concentrated, more competitive markets had lower lengths of stay and did not utilize more resources to achieve the higher quality as measured by mortality.  This suggests that hospitals can improve quality without spending more money on care.

The most useful aspect of this research is the showing that even when price is regulated, other aspects of medical treatment can be used to create competition that leads to better quality.  More competition obviously exists where there are more providers in a geographic market, so one goal of policymakers should be to increase the number of hospitals, in particular, in many markets, including by forcing divestitures by multi-hospital systems.  Imagine also what could be done on the basis of real price competition that affects consumers, particularly when combined with usable quality data.  We might actually get that lower cost, better quality health care the experts always talk about.