Competition doesn’t save lives – responding to Cooper

Last week there was a lot of discussion of Zack Cooper (et al)’s paper asserting that competition saves lives. The paper has been cited by the government in terms of their reforms, and is prominent on the web page of the Economic and Social Research Council. It is not, as some commentators have suggested, just more evidence – it’s take-up has meant that it is now far more than that. This is because it has become central to the debate around whether we should continue down the road of using competitive forces to reform the NHS.
Cooper has now responded to the criticisms made of his work. I’ve included the full response below, but it seems to be based on four assertions:
1. Comparing before and after 2006 is sensible because that’s when competition proper started in the NHS.
2. Competition since 2006 has become so strong in the NHS that it affects AMI, which is not even subject to competitive pressures.
3. There is no more competition in urban areas than there is in rural areas, as competition is not about how urban an area is.
4. The work is backup up by research from Propper (and others), which comes to similar findings
Now I’m trying to be sensible here, and have included Cooper’s response in full below (making this a bit of a long one), along with a link to the Guardian web-site – one of the places where it was published. Equally, I don’t want to be appear to be an ideologue – if it is the case that using competitive forces really does save lives, that would be great. It would provide a neat solution to NHS reform, and we could get on with driving improvements. But I really don’t buy it – healthcare is messy, and complicated, and presuming any one-size-fits-all model seems incredibly unlikely to me.
The key question then, is do Cooper’s assertions make sense? I
The first one, that competition started proper in 2006, is based on the implementation (as I understand it) of patient choice policies at that time. The thing is, I can’t find any consensus among NHS clinicians or managers that they started doing things differently at that point, or even later, as a result of patient choice. So either the effect Cooper has found is so profound that it works on people without them knowing it, or the 2006 date is not a valid one.
The second assertion is that competitive pressures have affected AMI (the clinical area they look at), even though AMI is not itself subject to competitive forces. The argument is that competition in NHS settings has driven improvements in areas which aren’t even subject to competition. Does this seem likely to you? Economists talk a great deal about incentives (including Cooper in the paper). What Cooper seems to be saying is that, even in areas where there are no incentives, competition drives improvements because of a knock-on effect of some kind. Again, I’d have to ask how credible this seems to you – it’s an extended version of the effect above where competition not only works on people without them knowing it, but also when the competition isn’t actually applying to them. Pretty remarkable stuff.
The third argument is that competition isn’t related to how urban provision is. That’s a big surprise. I characterised Cooper’s argument last week as being a measure of urbanity, not of competition. In the paper itself there is a great deal of time and effort discussion how the proxy to measure markets was conducted, but the end result is intriguing. Are Cooper and his collaborators really saying that the degree of urbanity is not related to how much competition a patient or GP might experience in their choice? That would suggest either that the measure is faulty, or GP referrals have some extremely unlikely patterns.
The fourth argument is that Cooper’s work is backed up by other research that comes to similar findings. There is some research that supports Cooper’s view, but there is also some that does not. As Nick May’s very balanced summary in the BMJ suggests (http://bit.ly/ojVaio ), there is work that doesn’t support Cooper’s view which sadly he doesn’t explore in any depth at all.
So I’m sorry, but I still can’t see any basis for accepting this research as offering us anything we can base policy on. If you are going to make the case that an expensive and complex reform to a health system is going to work, then you need extremely strong evidence. I don’t think this fits that bill.

Zack Cooper’s response – included on a comment at:
http://bit.ly/ruy2aN

It has been interesting to watch the work we’ve produced in the Economic Journal be hyped up in some quarters, played down in others and just be generally mischaracterized inside and outside of academia. I thought I’d simply attach the paper and encourage folks to read it. They may be surprised that my co-authors and I have already addressed, in the paper, almost all of the criticisms that have been raised. The paper happens to have a fairly clear-cut implication (fixed price hospital competition improves quality), which, for better or worse, dovetails with the current toxic political debate in England. Much of the response to the paper has been swept up with frustration of politics in the UK. The fact that the paper is fairly technical has not made this any easier. Long term, it would be a shame to ignore the evidence from this paper, dismiss the findings as marginal etc when the results we find are non-trivial (a 7% relative reduction in AMI over three years) and the results have been confirmed by further work by Marty Gaynor and Carol Propper. 
Per our work, the paper uses a difference-in-difference style estimator. Difference-in-difference is as close as you can get in a policy setting to a randomized control trial. Is it perfect? No, but the timing of the reforms in England were a real asset to our estimation strategy. The general diff-in-diff idea is to compare two groups, one exposed to a policy, another not, before and after the policy was introduced. 

In our paper, we compare patient outcomes in hospital markets with varying levels of hospital concentration before and after patient choice and provider competition was introduced in England by the Labour government in 2006. Crucially, contrary to what Evan Harris and others have suggested, this is not a ‘London market thing’€™. I would encourage him to examine page 249 of the paper, where we write, €œTable 7 presents robustness checks to illustrate that the effect we identify in our interactions between our post-2006 time trend and our measure of market structure are not simply spurious associations with urban density’€. The paper uses approximately 20 measures of market structure. Further, we go out of our way to show that this is not an issue related to urban/rural splits or population density. The effort we put in to show this has somehow gotten lost in the analysis of our paper.

First, we measure hospital market structure in the paper almost 20 different ways, and then illustrate that our results are robust across each measure. Further, we show that our preferred measure of market structure is only correlated by 3% with population density, suggesting that this isn’t an urban thing. Then, we test whether urban areas in England did better after the reforms; they did not. What’€™s more, we test whether London did better after the 2006 reforms; it did not. Finally, we run a placebo test to determine whether school market structure was associated with improved performance; it was not. This collection of robustness checks is pretty strong evidence that it was indeed the degree of hospital competition in England that was associated with improvements in hospital performance.

There has also been criticism for our strategy of using AMI as a quality indicator. This was a deliberate choice, not an oversight. In the paper, we used an emergency outcome as our quality indicator because there’s a real concern about endogeneity if you’re examining the relationship between elective competition and elective outcomes. Our rationale for using AMI mortality (which we discuss in detail of pg 237 of the paper) is that AMI mortality is correlated with overall hospital performance (which we demonstrate empirically). However, it is unrelated to the market for elective care, since AMI patients don’€™t really have choice. The explanation then is that competition leads to improvements in hospital performance, which we capture using AMI mortality. AMI mortality is appealing because there’€™s a substantial mortality rate and good care is generally associated with good outcomes.
There’s also been concern about whether there has been any meaningful choices€ being made. First, Anna Dixon’€™s work at the King’€™s Fund illustrates that about fifty percent of patients in the NHS are aware of their ability to choose. Second, the work that just came out from the Cooperation and Competition Panel finds that patients are readily making choices and going non-local (when PCTs oblige). Finally, Carol Propper is finishing up work with Stephen Seiler and Marty Gaynor which has found that after the reforms, there were changes in patient flows and that sicker patients tended to be more sensitive to hospital quality. Given that during this period in the NHS, hospitals were under substantial pressure to maintain surpluses, these observable swings in market share are certainly enough to create incentives (when the IO literature suggests that a 5-10% change in market share is generally enough to do so).
Finally, important to note that this paper is co-authored with Ali McGuire, Stephen Gibbons and Simon Jones. They all also put in a great deal of work, and should be acknowledged too.

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Why healthcare reform and reorganisation is so hard

Successful public reorganisation and reform is difficult for a number of reasons – I wrote a book about this in relation to healthcare Policy Press published in 2009 (advert over), but a central issue is working out exactly what we want our public services to achieve.

When we think of goals for public services we ask for many things. We want our services to be efficient, but also user-focused (or customer-focused if you prefer, although whether we are customers is a matter for another day), and we get cross when things aren’t fair (in the UK, think of arguments about ‘postcode lotteries’ for example). The problem these things are often pretty contradictory.

For one thing, it’s extremely difficult to define exactly what we mean by ‘efficiency’ – there are tomes out there that go through so many different versions that it can be hard to know what to think. I prefer to keep things simple, as in the old business aphorism that efficiency is doing things well, effectiveness is doing the right things, and economy is dong them at lowest reasonable cost. Lots of definitions of efficiency roll economy in with them, and that seems to me to have some merit. So when we’re talking about doing things efficiency we tend to mean something along the lines of doing things well and not wasting resources. Something about linking inputs and outputs together in cost-effective way, but also delivering a good service at the same time.

One way of solving achieving greater efficiency is to organise production or service delivery according to the scarce resource. In the NHS, this is clinical (especially doctor) time. And that’s kind of what the NHS has always done. At the extreme, it means booking blocks of patients in to see a doctor all at the same time (as in bad practice in outpatient appointments) because the patients can work around the doctor’s limited resource. In some respects, this is really efficient, but it’s not really doing the job ‘well’, at least as far as any sensible independent observer of the service would conclude.

It’s also, of course, not terribly user-focused. If we were organising appointments around users, we’d be allowing them to choose when they saw clinicians. But that isn’t terribly efficient (or very fair, which we’ll come to in a moment). It’s not terribly efficient because it means that patients will want to see doctors at their own convenience rather than the doctor’s. This may result in doctors having periods of activity (probably in the morning, evenings and weekends, when patients would prefer to see them), and other times when few people want to make appointments (typically, at the moment, when the appointments are usually offered to them). It would probably also mean that we need doctors ‘spare’ so that we can see them at short notice. This would mean that user-focused healthcare requires highly-qualified doctors to work unsociable hours (which is going to cost lots, jeopardising efficiency), or to have spare doctor resources available to see us at short notice (which again means slack, jeopardising efficiency again).

Then there is fairness. Many of us think that fairness is very important, but of course, there’s many kinds of fairness as well. We might want to define fairness in terms of equality of access to services, but that is pretty fraught in terms of healthcare – it would mean that we all get to see the doctor we want on a first-come, first-served basis, so it would be independent of clinical need. At present we use GPs as gatekeepers to decide who has access who should access to specialist and community care, and who should not, justified on the grounds that GPs can better understand what is fair – on the basis of clinical need. If you have a significant health need, you should be seen earlier. But one view of widening patient choice would suggest that patients be allowed to decide who they get to see and when – by-passing the gatekeeper function. So it depends what you mean by fair – do you want equality of access, or access on the basis of clinical need?

Then of course there is the idea that the NHS should be fair by providing equality of outcome or equality of service. By equality of outcome I mean fairness on the basis of those with equal needs (as near as possible) having the same result wherever they are treated. That’s a very big ask – doctors’ skills vary, as do preferred treatments. Equality of service would mean that patients with the same needs are treated the same way (including the time they have to wait). That’s not quite the same thing as equally of outcome, as it is possible that different treatments could lead to the same outcomes (and so still achieve equality of outcome), but that would not be equality of service. We often get very cross when some services are available in some parts of the country but not others (‘postcode lotteries’ again), even if representatives of each health area argue they provide appropriate treatments.

Still with me?

Then we get the muddle of putting all this together – trying to simultaneously achieve efficiency, user-focus, and fairness. We want a health service that does all three, but it may well be we have to decide which is the most important, and accept that the others take some kind of a hit. That doesn’t mean we should accept getting the same outpatient appointment time as ten other people (even if we are prioritising efficiency) or that patients should be able to access health services more quickly than others who need them more (even if we prioritise user-focus), or that we we shouldn’t expect care to meet our needs as individuals (even if we prioritise fairness).

But it does mean that we have to be clear that there are no magic answers to health reform – not from top-down reorganisation, or from competition (don’t get me started on that), or from greater local democracy (but we do need more of that). Improving our health services is hard work. We need to stop messing about with costly and ineffective organisations and get on with that work.

Competition doesn’t save lives

In today’s media (28th July) it has been widely reported that a team of academics from the London School of Economics have done research showing that ‘competition saves lives’. Quoted in the telegraph, the lead author Zack Cooper says ‘“We find that competition between hospitals in a market with fixed prices led to very strong improvements in patient outcomes. Going forward, if the NHS is going to be successful, it can’t shy away from competition.”

Wouldn’t it be great if this were the case? If we’d found a simple solution to drive improvements in the NHS and save lives? We’ve been looking for over 60 years now to find the best way of organising things. And there is was all the time – competition. And we missed it. Sadly though, the research doesn’t show this.

What Cooper’s team have shown is that people who live in urban areas have better 30-day outcomes from Acute Myocardial Infarction (AMI) than those who live more rurally. That’s really about it. So how does he make the claim that he does?

First, the work presumes that the greater the density of provision, the more competition there is. That simply isn’t the case. The more dense the provision the more trained staff services can draw from, the more likely it is areas will include substantial medical training facilities, the more specialist services are likely to be. Of course, it may well also be that services are simply collaborating better to get people with AMI to those who can care for them more quickly. Who knows?

We don’t, because the research doesn’t really check that there has been an increase in competition since 2006. It assumes that the difference in improvement between urban and rural outcomes it finds is down to the fact that, at the beginning of the period under study, the government tried to launch its extending patient choice policy. The research didn’t check that this had led to more choice or more competition (in face, the National Patient Choice survey suggests that neither was the case).

Next we have to ask if 30 day AMI is a good proxy for overall care improvement, and that differences between hospitals are down to patient choice rather than treatment choices. Why would either be the case? One measure of clinical care does not reflect what is going on in an entire hospital, and there is high quality clinical research from the US suggesting that AMI mortality differences are about differences in treatment regimes. To prove their point, the LSE team would have to show that treatment regimes are changing as a result of choice and competition. But again, they don’t. There are other obvious problems with the data, but I hope to go into those in other work I’ll publish later.

Finally, there are confounding factors. There were treatment changes in AMI that were more likely to feed through to urban areas during the period, as they were more likely to have specialist care. No attempt was made to disaggregate those from the data.

So if the paper is so flawed, how come it is being published in the Economic Journal? I can only guess that it has got through peer review because it provides the ideologically correct answer (markets save lives) and that its regressions have been done correctly. However, as the economic historian Diedre McCloskey reminds us, there is a difference between statistical and substantive significance – just because you’ve found what looks like a statistical relationship it doesn’t mean you’ve found something important. In other terms, there is a difference between correlation and causation. I’m afraid this work looks rather more like the first than the second.

Failure in public organisations – especially healthcare

Failure is important in any organisation – without failing you don’t adapt or innovate, as it means you’re probably doing the same thing over and over. And even if you do the same thing, chances are the world is going to change so it won’t work any more. Failure is the heart of Tim Harford’s book ‘adapt’, as well as in Austrian economics (I wonder if Harford is an Austrian?).

The problem is that many public services deal in areas, where, if they fail, there are pretty large consequences. We don’t want surgeons getting too experimental with ourselves and our loved ones, even if it might lead to societal good if they find a breakthrough. We need what we might call experimentation within limits – trying new things in environments where it safe to do so. In terms of individual organisations we want to encourage our health services to experiment, but those experiments are more likely to be about their organisation rather than the substance of the service itself. We have a word for experiments in the substance of healthcare – trials – and they are tightly regulated.

Outside of individual organisations there are also big problems with failure. In a market context, failure is important because without it, you don’t really have a market. Failure is necessary in market mechanisms because it drives out poor provision and reallocates the staff and capital to more productive enterprises. But we still haven’t worked out a way for public providers of services (especially in healthcare) to be allowed fail because they are unfavoured in marketplaces.

The problem isn’t just restricted to market environments. Even where we have evidence that the performance of a public hospital or service provider is poor, it is often near-impossible to close them. We can’t just close comprehensive providers of healthcare – they are too important for local economies in terms of employment, and will often be the only providers of a range of treatments and services that the private sector isn’t interested in providing – typically the complex and difficult care. And we’ve seen repeatedly how attached local people are to their local hospitals – no matter how bad they are.

What all this means is that public hospitals (and many public organisations for that matter) are ‘too treasured to fail’. It’s politically just about impossible to close them, and even if it were, it would be extremely difficult to replace them with the large number of non-public providers that would be necessary to take up their slack.

I think what this shows is that market-based models of public reform presume that it is possible for failure to occur – and for failure to occur the market would have to be made up of lots of small providers. But that simply isn’t the case in healthcare, where we need public hospitals to provide comprehensive care, to provide clinical education, and to give some stability of employment, especially in areas which are deprived.

So another way of saying this is that one of the hidden assumptions about competition and markets in healthcare – that organisations have to be able to fail – simply doesn’t stand up. Another reason why markets won’t work in healthcare.

Talk of markets in the NHS is a failure of clinicians and managers – a provocation

Another question which proposals for market-based reform raise is often not deal with, but is certainly worth airing. What are these reforms meant to achieve that can’t be done through other means? For me, they represent the failure of senior clinicians and NHS managers to do their jobs well.

The logic of the market is that, only by the threat of resources being taken away, will clinicians and managers get their act together, look after their patients, and so innovate and work well together. This is a pretty scary idea. It suggests that, at the moment, those working in our health service aren’t giving us their best, and that they have to be threatened with their organisations losing resources, and possibly even closing, to do so. Is this really the case?

Well there is certainly some evidence pointing this way. Only yesterday (25th July) I read a short response by a GP who complained that he would love to engage in more private practice from his surgery in order to serve his patients better, but was prevented from doing so by ‘NHS red tape’. That would certainly equate with a logic of, ‘if you pay me, I’ll work harder.’ Now I guess we all have an element of this in our lives – we like getting paid more. However, I’m not really convinced that paying people more to do the same job is going to lead to much in the way of improvement. Even if I’m working at, say, 80% of my potential at the moment (no sniggering at the back), then pretty soon paying me more is going to get me pretty close to 100%. Unless we enter the language the professional footballing world where it is possible to give more than 100%, I’m not sure where we go from there. It seems to me that paying me more makes me happy for a short while, but to be honest, I quickly forget about it and I can’t say paying me more makes me work any harder for any longer. Of course, if I think you’re paying me too little I’m likely to get resentful, but it doesn’t seem likely that markets are going to deal with that problem – it’s a managerial one.

We might argue, on a different tack, that only when our backs are against the wall will we be forced to innovate. This is also a pretty sad state of affairs – our clinicians are well-educated and (usually) pretty committed people. Do we really have to threaten them for them to try new things? I find that hard to believe. Surely innovation occurs in environments where experimentation and trust are high, and is more likely to lead to improvements than threat? It will always be the case that some organisations will be statically the lowest-performing, but is the threat of closure from the market the only way we can galvanise staff to work together? Really?

What all this points to, for me, is that the use of market-type mechanisms are primarily there as a threat to drive improvements. But that sort of threat is likely to lead to an environment less likely to generate innovation – which is more likely to thrive when combined with trust and experimentation. But it is the job of senior clinicians and managers to create such an environment – there is little that government or policymakers can do about that. We might argue that continual attempts at reform undermine trust and experimentation, and I think they probably do. But at the local trust level, it is for senior clinicians and managers to create an environment where things can get better, and it is their failing if this isn’t occurring. Introducing markets isn’t going to deal with the problem that, in the end, the quality of our NHS depends upon the staff we encounter there. Usually they are doing a pretty good job. But where they are not, it is down to senior clinicians and managers to deal with their problems more forcefully than perhaps they have often been prepared to in the past.

The five ages of NHS management

NHS managers get a bad press. In the newspapers they are often simply ‘overhead’, and in our popular hospital dramas, they are the interfering, money-grabbing blocks to good clinical care from heroic doctors and nurses. We blame them when things to wrong and accuse them of being un-necessary when things go right. It’s interesting to think back as to how much their jobs have changed. Looking back over the last sixty years, there have been five ages of NHS management (please don’t treat this entirely seriously!)

Age 1- 1948-1982. This is pre-management era. That doesn’t mean there were no managers, or that the work being done wasn’t valuable, but it does mean that roles were less about management as we would understand it today. In the academic literature this is referred to ‘old public administration’. The key roles at this time were supporting and mediating between doctors (who really ran things), but there are also some breath-taking accounts of committee work concerning the purchase of curtains (no, I’m not kidding).

Age 2 – 1983-1989 – General Managers. In the 1980s Roy Griffiths’ management inquiry asked who exactly was in charge of hospitals, and found no-one (for some reason he didn’t notice it was the doctors). And so, NHS management was created, or more exactly, NHS General Managers, who were meant to be responsible for the running of their hospitals. The key role of General Managers then, was being in charge, but this didn’t really work out in practice – research suggests that they held little power, especially over those pesky doctors. They were, howeve, required to find efficiency savings and contract-out ancillary services such as cleaning (and didn’t that go well). They also had to try and stop doctors from assuming they were there to look after them, as they had been in Age 1.

Age 3 – Chief Executives (1990s). In the 1990s hospitals became NHS Trusts, and General Managers became Chief Executives as they were now participating in an internal market. Except they weren’t really – there wasn’t much of a market, but a great deal of time was spent organising contracts with purchasers and attending meetings. However, Chief Executives had to pretend to be nice to purchasers, and make decision about which franchisees to set up in their hospital foyers. They also had to continue to find efficiency savings and, given their importance, work out how to stop doctors leaving their cars in their parking spaces.

Age 4 – Oppressed Chief Executives (2000s). In the 2000s things turned serious. After the NHS Plan performance management became the defining feature of managers’ lives. Managers were threatened with removal if they fell into low performing categories, and some targets became associated particularly with P45s. Managers therefore became the fall-guys, the scapegoats. Chief Executives moved between jobs more, and we might cynically suggest a key role became working out how to move on before things turned bad, and how to show innovation without destroying your organisation in the process. Ambitious Chief Executives got their Trusts to apply to become Foundation Trusts, but some regretted it later when Monitor, the new regulator, jumped all over them. Older hospitals applied to get PFI builds, and then worried about how to cover the extraordinary capital costs they imposed upon them, especially after the government refused to tolerate budget deficits any more. Without really telling anyone, the government re-introduced a marketplace with non-public providers, and Chief Executives found themselves having to compete for contracts. For the first time, Chief Executives began to find ways of attaching blame to doctors when manifest clinical failure was obvious – but it was time-consuming and difficult to actually do anything about it.

Age 5 – Dynamic Market Executives (2010s). Finally then, we come to the 2010s. Confusion reigns. We have had an election where we were promised no more top-down reform, but a change in government led to a new NHS Bill Key and an extension of the marketplace. However, the government rather bodged the Bill and it is being revised. It seems likely though, that the marketplace introduced in Age 4 will become more dominant. The key challenge will therefore be winning contracts and being competitive in the local health economy, and so working out how to stop the private sector stealing all the routine work. Doctors who under perform will have to sacked. New contracts will have to be won. Working out who to market the hospital’s services to (is it the public? is it GPs?) will become an increasing concern.

So there we are – a flippant journey through 60 years. Haven’t things changed?

If markets aren’t the answer to NHS reform, what is?

I’ve been very critical of attempts to introduce competition and markets into the NHS. I don’t think competition can work, and I’m not sure we should be treating healthcare as just another thing for sale. But if we aren’t going to use competition to improve healthcare, then what should we do instead?

In the academic world we tend to talk about markets, hierarchies and networks as if they are the only three possibilities. Strictly speaking, none of them are even possible as they are meant to be ideal types rather than describing anything in reality. It is perhaps more sensible to talk about ‘top-down’ ways of improving healthcare, versus ‘bottom-up’.

Top-down reforms are attempts by some central body to impose an idea of how healthcare should work. In the whole history of the NHS there has been surprisingly little of this type of reform as, frankly, the Department of Health or government had very little idea what was going on in local health systems – we had no information, no computers, very little comparison – if anyone tells you, as policymakers often try to, that the NHS used to be ‘command and control’, they are talking nonsense. There was simply no way of issuing commands and no way of achieving control because we had very little idea of what was going on.

Top-down reforms reached their peak in the 2000s. We had performance management systems introduced and far strong means of measuring and trying to control what went on in the NHS. The problem with this approach though, is that it tends to lead to a great deal of ‘gaming’ – or organising provision not so it leads to improvement, but rather so it meets targets. Now it might well be that by meeting targets, improvement does occur, but it isn’t always that case – hence all the stories about managerial priorities conflicting with clinical ones. Christopher Hood wrote what is perhaps the best account of the problems his leads to in a piece call ‘Gaming in Targetworld’.

Bottom-up reforms attempt to reform by creating self-improvement systems. Rather than central authorities telling health providers how to get better, you create mechanisms so that they do it for themselves. Competition is meant to be the main means by which this happens in the present NHS reforms, but I really don’t think there is much chance of it happening – as I’ve explained in other entries, there is such as simplistic notion of how competition works embedded in the reforms that improvements seem unlikely.

So that does mean the only answer is top-down reform? No, I don’t think so. To see why this is the case we need to think about what is arguably the most successful reform (in its own terms) in the history of the NHS – the QOF.

The QOF (quality and outcomes framework) is really interesting because it is a combination of top-down and bottom-up reform. It imposed a framework on GPs by which they would be awarded points, and financial awards, for a range of activities designed to improve their patients’ health. Whether these activities are evidence-based is something of a contentious issue – but the important thing is that GPs appear to believe that they are, and so were far more accepting of the targets than were hospital consultants. And let’s be honest – it helped that the targets came with incentives to comply with them (even if GPs tend to suggest it is teaching the targets themselves that is most important).

But the key thing about the QOF is that GP practices were largely left to their own devices as to how exactly they achieved the QOF goals. GPs could try and do them all themselves, or (more likely) practice nurses could take additional roles on. It acted as a stimulus for GP practices rethinking the way they delivered care to hit their targets – and GPs were extremely good at hitting the targets.

We all want the NHS to get better, and what the QOF suggests is that it is possible to generate bottom-up improvement by giving clinicians and managers discretion in how they achieve them. I think this is translatable, through good management into hospital settings. Clinical teams can be given targets to achieve, even if they are locally set, but decide together how they are going to achieve them. In the 1950s Drucker called this ‘Management by objectives’ – there’s nothing new in it. It offers a means of securing improvements by driving forward improvements locally, through good management, and clinical teams working better together.

Better still, how about we achieve a far closer democratic link between our health organisations and our local communities, who they are meant to be serving? Goals and targets can be agreed in collaboration with local people, and be made accountable to them.

The danger of all of this is that it will lead to different NHS organisations doing things differently. But that’s the price we have to pay for trying to make things better. Higher level NHS bodies can be looking for providers that are doing extremely well (and badly) and taking action to spread best practice or intervene where it is too low. But improvement can only really come through local innovations – we have to be grown-up enough to ignore shouts of ‘postcode lottery’ as the only way to achieve identical care everywhere is for it all to be poor.

Why public markets can’t work

The claims made about the use of markets in the public sector make a great deal of common sense. They are based on the idea that competition will lead to providers driving up their standards to either bring in more customers, or face losing resources.

However, this view of the use of markets in the public sector is deeply flawed. To understand this, you need to take a different perspective on markets than the rather simplified markets=competition view expressed above. Such a few comes from, perhaps oddly, Austrian economics, which can prescribe far more clearly the problems of using markets in the public sector, even if I might wish to part company with the approach when considering their solutions.

Austrian economics incorporates competition into its view of markets, but more importantly also includes failure, creative destruction, freedom and entry and exit, and an emergent and dynamic view of markets based on the use of price signals to co-ordinate activity. It s a more complicated view than the simplistic markets=competition view that dominates public discourse, but more valuable as a result.

In the Austrian view competition is one element that makes a market. But for competition to work, there must be the creative and destructive process that allows firms (or service providers) that are unsuccessful to fail. If providers can’t fail, then there is little risk in being inadequate in the market, and more importantly, the resources tied up in the failing organisation are not redeployed in potentially more successful enterprises. From a market perspective, where we tolerate failure, we don’t allow markets to do their job.

Equally, Austrians (or at least those following Hayek) don’t make the heroic assumptions public market reformers make about the choosers of service being maximising or making decisions under perfect information. This is because the price the market sets for a service is not just an outcome of the market process, it is the means by which market activity is co-ordinated. Providers decide whether to enter or exit based on the prevailing price, and choosers whether or not they will buy or consumer the product or service. Without the price system doing its magic, moving about in a dynamic way, the whole thing breaks down.

The problem with all this is, that public markets can’t possibly work in this framework. They fail even in their own terms – they don’t allow much in the way of competition, and as any economics textbook will tell you, if you don’t have much in the way of competition, you don’t have much of a market as the opportunity for providers to collude and keep prices up is too great. But if we adopt the Austrian perspective we see even more problems. Public markets don’t allow providers to fail, and so they undermine the creative and destructive powers of the market. Second, they don’t allow a price to move in a dynamic way, and so it is unable to be a signal to the market.

This means there are three catastrophic failures in using market mechanisms in public organisations – too little competition, no creative destruction, and no price mechanism. What we are left with is not a market, but a mess.

What we do with this information is where I probably differ from most Austrians, who would advocate the use of a free market in public service – removing barriers to entry and exit to allow the market mechanism to do its magic, and allowing price to determine supply and demand. This is because I simply don’t think it is fair to use markets in areas such as healthcare, where I would suggest, following writers such as Dworkin, that we ought to think of healthcare as an area that access to which is a basic human right. But it is also because there are multiple problems in getting market mechanisms to work in healthcare because we need to restrict entry and exit (do you want to be treated by an unlicensed practitioner, no matter how cheaply?), and that healthcare expertise in short supply, meaning that it is difficult to allow markets to allocate goods without a great deal of societal inefficiency. In short, I can’t see how markets can work in this area.

In sum then, public markets can’t work. We need to be more creative about thinking about we can find alternative means of getting the most efficient and effective delivery of services in areas such as healthcare, but using markets is not going to work to that end.

Healthcare reform and….Hayek?

It is the common sense of healthcare reform that competition is the way to drive up standards. Depending on which version you subscribe to, either patients or GPs or other commissioners will choose the best providers, forcing both public and non-public providers to drive up their standards or face losing funds by not being chosen.

The problem with this, is that it is entirely unclear how exactly these choices are meant to be made. GPs don’t know who the best providers in an area are – how would they? And if GPs don’t know, patients don’t either. There have been various attempts to put together leaflets and present performance statistics in a digestible form, but there is a fundamental problem – it’s extremely difficult to come up with any way of representing a particular health service that represents well how good (or not) it is.

The other thing you need to know to fully understand the problem is that providers don’t set the price for their services in the NHS. Instead they are set by the state, on the basis of average costs for particular treatments (the ‘tariff’). This means that in a given year, prices are effectively fixed. It is meant to provide an incentive for providers who are above average cost to improve or get out, and for those below to generate what might be called an efficiency surplus. Again, like competition, this sounds like a good idea. But again, it isn’t.

The problem with fixed prices is perhaps best illustrated by Hayek (and von Mises before him). Policymakers seem to regard the price as either the output of a market process, or a means of driving who should, and should not be in the market through the tariff. This is an error. The price is fundamentally, the means by which markets co-ordinate themselves not only on the consumer, but also the producer side. Prices provide a single index of a product or service – not a perfect one, as we are not in a perfect world – but one that acts to summarise the information available in a way that allows producers to decide whether or not they should enter, exit or compete, and consumers whether they can afford to buy.

But here’s the really important thing that modern economics always seems to lose sight of – prices allow markets to adapt on both sides because they move about (or at least should, so long as the market is at all competitive). Most recently Tim Harford’s new book ‘Adapt’ gets closest to understanding that the benefit of a market is that it allows both failure and innovation – and these only occur if prices are allowed to move about.

The thing is, it’s hard to see how prices can move about in a state-funded healthcare system like the NHS. That could mean that we can’t receive the benefits of markets in public healthcare and so should abandon attempts to use them (which would be my view), or it could mean that we should abandon public financing, put in place an insurance-based system (or even take away state provision and financing completely) and let markets run. I don’t think the latter is sensible or sustainable – even Kenneth Arrow, one of the candidates for the greatest economist of the twentieth century acknowledged that healthcare markets probably weren’t viable because of the range of information problems that would probably lead to abuse and inefficiency (if I were being uncharitable, I would bring up the US at this point).

So what we are left with is the idea that markets certainly can’t work in the NHS, and probably can’t work in healthcare more generally. But that doesn’t seem to stop the major political parties of the UK, both left and right, from trying.

The Trouble with Healthcare Choice

The trouble with healthcare choice

Introduction

The common-sense of health reform is that offering greater choice is the way forward. The logic is that patients will choose the health services that are most responsive to their needs, and if money follows their choices, that will encourage providers to become even more responsive for fear of patients not choosing them in the future. The NHS will therefore be driven from the bottom-up to improve and providers of care (including GPs) forced to compete for their choices to create a virtuous circle of improvement.

The trouble is that this may work in an abstract, theoretical way (which is perhaps why economists like it so much), but it bears little resemblance to the reality of either the existing NHS or the proposed reforms to it.

How are choices made?

First we need to consider the environment in which most patient choices are made. They usually occur in a time-limited GP consultation or through a call-centre after a doctor appointment with little or no information to support patients in their choices. How patients are therefore meant to make their choice in these circumstances is not at all obvious – so they will tend to either ask their GP or nurse who they should choose, make a choice based on experience of another health service, or choose their provider based on other factors such as parking or accessibility through bus-routes. If a private provider is on offer, they may choose them, especially if they are going to be seen quicker than they would be publically as a result.

What this all means is that patients are effectively stepping into the dark when making choices, either asking their GP to make their choice for them, or making choices on non-clinical grounds. This is important because, if patients choose providers on the basis of them being private (and so perhaps thinking this represents better service for them), or because they have better car-parking (which is what many patients and clinicians tell me is happening) or because an appointment is available more quickly (which may not be an entirely good proxy of clinical quality), then patients are not choosing providers on the basis of what is likely to lead to the best clinical outcome for them, but on bases that may be little or not resemblance to good clinical practice. If this the case, then their choices will not drive clinical improvement.

Healthcare choice only works for patients if they are both willing and able to make choices in the way the government wants. The assumption behind policy is that patient choice is a learned transferrable skill – that we are living in a consumer society, and people want a greater say in decisions about their healthcare. But this assumption isn’t really borne out in reality. Some patients do want to choose both their treatment and who provides it, but there is little to stop them from doing this within the existing structures of the NHS where they can discuss what they would like with their GP and to come to a decision together. If patients are willing and able to choose, then they probably are already working with their GP to do so.

It may well also be that asking patients if they would like more choice before they are ill gives very different results to asking patients to choose when they actually need to – most of us tend to respond positively to the idea of more choice when we don’t actually have to act on it, but when feeling ill, or having to face difficult decisions which could have very serious consequences, we are far less likely to want to do so – this is one of the central observations of Barry Schwarz‘s ‘The Paradox of Choice’. It often turns out we want less choice in practice than we do in theory.

One area where there is the potential for GPs and patients to work more closely together is in the area of long-term disease. We need to respect the fact that patients with long-term diseases often acquire expertise about their reaction to treatments that is a valuable complement to clinical knowledge, and make sure this happens. Patients with long-term diseases acquire expert knowledge through repeated interactions with treatment and health services, but this contrasts directly with those that are making ‘one-off’ choices about secondary referral – and asks the question of how patients are meant to make choices about healthcare without either good information or experience of those health services?

What about GPs choosing instead?

So if many patients might struggle to make choices, can GPs make choices on their behalf to achieve the goals the reforms require? For this to happen GPs need information about potential providers in their local health economies, to be able to understand it, and to be able to find the most appropriate provider for the patient before them. This is a pretty demanding series of requirements. The information about the performance of particular services available to the GP will probably be difficult to come by, and even if directly comparable data is available, picking the best provider may still be difficult. It is far more likely GPs refer on an historical basis – sending patients on to services they have used in the past – as seeking out information about new providers (which may not even be available, by definition) is likely to be time-consuming and, even if the new provider appears to be better than the existing one, it requires the GP to trust a clinical team they probably do not know. Even apparently favourable statistics about waiting times, for example, may be suspicious – why is there a short wait for a service? Does it mean that other GPs know something and so are not referring to it? It is odd the policymakers have pilloried GPs for being reluctant to refer to new healthcare providers – from the perspective of a responsible GP, why would you want to send your patients to a clinical team you don’t know, and for whom you have no data?

The problem of information in healthcare choice

This leads to a bigger problem. Markets, generally speaking, work on the basis of a considerable amount of information being encapsulated by one measure – the price. In healthcare it might be possible (in theory) to create a market where price could capture a complex range of factors including clinical outcome, quality of service, waiting time, infection rate and recover time, but even if it could, we would not want to allocate care on the basis of only a few people being able to afford to see the best doctors with the highest prices. If we cannot use prices, we struggle to find an alternative indicator for high quality care because there are so many potential measures of it. The government has often suggested in the past that what we need is more information on which to make choices – but this isn’t the case. What we need is a reliable indicator of how good a provider is – and it may not be possible to construct one. And without such a measure, it is not clear how either the public or GPs are meant to make informed choices and drive improvements through them.

Could choice undermine public provision?

A further, and potentially even bigger problem is that patient choices have the potential to substantially undermine the entire basis of the NHS. Most public hospitals in the NHS are configured to provide a comprehensive range of services for their local area. Introducing competition is likely to lead to some services (such as orthopaedics, for example) facing greater new entrants. The services that face competition are those that the private and not-for-profit sector can provide, unsurprisingly, competitively. These services tend to be relatively straightforward (comparatively), avoiding high levels of initial investment. However, the public providers will still have to keep providing the complex services, or no-one will.

So would it be fine if the non-public providers did orthopaedics (and other more routine services) and the public sector was left with complex services? There are three big problems with this. First, public providers often depend on remaining comprehensive providers in order to meet their cost bases – they were designed to be big providers, and have to remain so. If they lose contracts beyond a certain threshold they become insolvent – and their closure could lead to a massive gap appearing in the provision of a health economy. This is especially likely to be true if the hospital is PFI, and so has made a commitment stretching off over the next thirty years in order to cover its capital costs.

Second, public sector provision is needed so that trainee clinicians can receive experience across clinical specialities while training. It is possible non-public providers can provide education as well, but whether it is likely to be of the standard that our teaching hospitals can give is debateable at least. Forging relationships between Universities and a range of private providers would be extremely difficult.

Third, where public care provision leaves an area entirely, we effectively lose the provider of last resort. Public care effectively comes with a guarantee – you may have to wait, but the hospital is unlikely to close without notice or without alternative care being made available. Private care comes with no such underwriting – and if the public sector has to underwrite it, which is surely the case where only private provision exists in an area, then this undermines the point of making use of the private sector in the first place.

Conclusion

In all then, the trouble with patient choice is that the messy reality of trying to make it work is often entirely lost in the abstract models that policymakers and economists appear to hold for it. It is not clear whether it is patients or GPs that are meant to be making choices, whether it is even possible to create a measure of provider performance that can be used to make choices, and what the cost of losing public provision of care in an area might be.

Healthcare choice sound like a great idea – but in practice it may come with a range of costs and problems that abstract analysis from policymakers and economists simply fail to take into account.