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The JAMA Forum
August 11, 2015

Learning About Competition From the UK’s National Health Service

Author Affiliations
  • 1health economist with the Department of Veterans Affairs and an associate professor at Boston University’s School of Medicine and School of Public Health. He blogs about health economics and policy at The Incidental Economist and tweets at @afrakt. The views expressed in this post are that of the author and do not necessarily reflect the position of the Department of Veterans Affairs or Boston University
JAMA. 2015;314(6):547-548. doi:10.1001/jama.2015.9195

The United Kingdom’s National Health Service (NHS) is a nationalized health care system—meaning its physicians are employed by the government. From that familiar fact, many conclude that the United States—with its competitive, private market-based delivery system—has nothing to learn from the NHS. That’s wrong.

Austin B. Frakt, PhD

Doug Levy

What’s wrong with this thought is that it equates “competition” with “private.” In fact, competition can exist even in a nationalized health system, and it does among NHS hospitals. Moreover, studies of NHS hospital competition illustrate just how important it is, leading to better management, higher quality, and lower mortality.

Since 2006, NHS general practitioners have been required and paid to ensure that their patients are aware of 5 choices of hospital. Hospital quality data are available to patients to help them make this choice. Those choices affect hospital revenue because the government’s diagnosis-based payments follow the patient. This encourages hospitals to compete for patients on quality. The only way for a hospital to thrive is to improve its attractiveness to patients. Hospital managers who do so can receive higher pay. Those who don’t might be fired. And failing hospitals are at heightened risk of closure.

In a study published in the American Economic Journal: Economic Policy in 2013 (http://bit.ly/1CBEckG), researchers found that this 2006 policy increased competition among hospitals, changed where patients chose to receive care, and decreased length of stay and mortality. They estimated that a 10% decrease in hospital market concentration would result in a 2.3% reduction in length of stay (the baseline mean length of stay was 1.2 days) and a decrease of 2.9% in 30-day mortality after myocardial infarction (a reduction in the baseline of 6.9% of patients who were hospitalized for a myocardial infarction dying within 30 days). The authors calculated that the net benefit of the policy change was just less than a half-billion dollars per year, for which they valued the additional life-years gained at $100 000 per year.

These are not isolated findings. They are consistent with earlier work by Daniel Kessler, JD, PhD, and Mark McClellan, MD, PhD (http://bit.ly/1Sjw8Hj), and findings by Zack Cooper, PhD, and colleagues (http://bit.ly/1IVP7a0) that also show that lower mortality rates stem from greater hospital competition.

A more recent study suggests the mechanism by which greater competition improves outcomes: management. Earlier this year, in a study published in The Review of Economic Studies, Nicholas Bloom, PhD, and colleagues examined the effect of UK hospital competition on management performance and quality (http://bit.ly/1fD9uO8). In a sample of 61% of UK hospitals, they posed questions to managers and physicians in cardiology and orthopedics about operations and quality monitoring, as well as performance targets and incentives used to achieve them. These formed the basis of their measure of hospital management performance.

Relating hospital competition to this measure of management performance and clinical outcomes, and controlling for many other potentially confounding factors, the authors found that greater competition is associated with better management. In turn, better management is associated with better outcomes, including lower rates of myocardial infarction and emergency surgery mortality. In addition, better management is associated with lower staff turnover, higher composite quality scores, lower lengths of stay, lower methicillin-resistant staphylococcus aureus (MRSA) infection rates, shorter waiting times, and better financial performance.

According to the study by Bloom et al, adding another hospital in competition with existing ones in a region would have substantial effects. It could reduce myocardial infarction mortality by nearly 10% and length of stay by nearly 12%.

Again, these findings are consistent with prior work. K. John McConnell, PhD, and colleagues also found that US hospitals facing greater competitive pressure have better management practices (http://bit.ly/1SjwsWs). A comprehensive literature review by Martin Gaynor, PhD, and Robert Town, PhD (http://bit.ly/1gxmVPK), found that quality diminishes when US hospitals consolidate, reducing competition (http://bit.ly/1HY3jAz).

The conclusion is clear. Hospital competition is an important and significant driver of quality and outcomes improvement. That’s true both for a nationalized health system like the NHS and the private system in the United States. Management is an important mechanism in these relationships. Where management improves in response to competition—better streamlining operations, setting targets, and establishing incentives to obtain them—outcomes do as well.

To be sure, one can attempt to improve management and outcomes without competition. Perhaps better training and payment incentives could move the needle. But nothing focuses the mind like an existential threat from a competitor. Today US health care markets are going the other way—they’re consolidating, reducing competition (http://bit.ly/1Je43fA). Perhaps the United States has something to learn from the UK’s nationalized health system after all.

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Article Information

Corresponding Author: Austin B. Frakt, PhD (afrakt@gmail.com).

Published online: July 8, 2015, at http://newsatjama.jama.com/category/the-jama-forum/.

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