Can markets help the NHS?

Prof Tony Beddow

I noticed that the Civitas report was, somewhat provocatively I thought, entitled Refusing Treatment: the NHS and market reforms. Well, in a civilised health system patients are supposed to refuse treatment if it is inappropriate and ill advised; it’s called informed choice.

So perhaps I can start by telling you what I am for and what I am against when it comes to using competitive forces and choice in health care. From that opening declaration I will explore in more detail some of the issues that affect the use of market forces in health, whether in the way that health insurance is provided, how health care providers operate, and the place of regulation.

I am FOR the following:

Different parts of the provider system striving to achieve the best standards in as many aspects of their care giving as possible and appropriate; although not a golfer I use – I hope correctly – a golf analogy where the aim is to beat your last score without cheating, not to beat your opponent
Different providers striving to be the first to bring about (and share) new and sensible innovations that benefit patients and other service users
Patients having an informed choice about many aspects of their treatment – date of admission, type of anaesthetic, choice of which partner to see in primary care, and a choice of treatment mode where there are different possibilities with different trade offs. In this regard I adhere to Julian Tudor Hart’s notion of the “co-production of health” by patient and practitioner.

using market- style mechanisms to attempt to reduce complex clinical relationships between clinicians and between clinicians and their patients to crudely costed procedures that are then even more crudely applied to shift financial, human and capital resources between care providers over the short – and, possibly, the longer, term
using “choice” as a means of enabling “good” providers to expand and “bad” providers to wither.
This is not because I favour having lots of poorly performing providers – or insurers/ commissioners – I don’t. It’s because I want all providers of health care to offer a competent service. It’s also because I believe that other drivers exist that are more suited to a human organisation seeking to increase health gain for the many, rather than profit for the few – and also more able achieve the high standards I seek.

These drivers include:

for all major conditions, clear evidence based standards of care which are constantly updated as new evidence emerges that set out the inputs, processes, outputs and outcomes that are expected
clear professional standards that are known, published and audited
transparent reporting mechanisms that place the audit outcomes and information in the public domain
agreed performance standards in terms of the efficient use of staff and estate resources
a public service ethos that lauds high quality care but seeks to deliver it in a supportive, “no-blame” culture.
In any discussion about the role of markets in health care we need to recognise the essential characteristics of both health care and markets that should put us on our guard when the heirs of Milton Friedman offer the use of market forces as the best means of allocating scarce resources.

Characteristics of Health Care

We can set two benchmarks as the test of a good health care system; first it should year on year increase the amount of health gain – defined as the length of life and the quality of life – and second it should ensure a “good” birth and a “good” death. There is not time today to go into great detail about how these can be described and measured; suffice it to say that they can be and should be.

In most modern economies health care, however provided, is a large part of the economy and using a significant share of the available labour market – 5% in Wales. The UK and Europe devote about 8-9% of GDP to health care – approaching one fifth of all Government expenditure where Government is the major player. In the US this rises to nearly 20% of GDP.

Yet the U.S. delivers health outcomes that are, on any measure, greatly inferior to those of Europe. As an allocative system, one such as the US that relies heavily upon a consumerist approach and market mechanisms is clearly not as effective as those in the European tradition when it comes to serving the needs of society.

We must remember that, when the need to access health care arises, an individual’s ability to pay for such care is often lessened. Illness makes us less able to work or earn high incomes. This is especially marked in the case of the very young and the very old, and we know that these two groups make the heaviest demands upon our own NHS.

If you accept this simple fact, it follows that making provision for access to health care becomes a matter of organising some form of insurance, both on a personal and societal basis. Few people enter this world already able to meet the costs of complicated obstetric deliveries and the diseases of childhood. Thus the consumption of health care, and the making of financial provision for it, occur at two very different points in time.

This in turn leads on to a debate about two aspects of the insurance process.

First, what kind of body is best placed to provide transparent and efficient insurance over the 100 years of life that is fast becoming typical. Second, what should be the place of the insurer (s) in allocating health care resources between its clients – and between itself in the form of profits and the many providers of health care. Time does not permit a lengthy discourse on this facet, except to say that if I had the choice between being part of a large risk pool that was insured through a publicly accountable agency answerable through the political process, or being insured (today) by AIG or a branch of RBS, I know who I would expect to still be around in 2099.

There is one other fact that now complicates the place of insurance in the care system. In the past, commercial insurers tried to assess risk and make their profits from getting the assessment right. When Lloyd George brought in his 1911 Health Insurance Bill he was opposed by the door to door salesman of the Pearl and other such companies because he threatened their business – a business where 20% of the premiums went to pay the salesman’s salaries. With the coming of genetics and screening, predicting risk becomes somewhat easier – to the point where some individuals, if screened, will not be insurable on a commercial basis as high premiums and exclusions on cover will make it unworkable.

When we talk about the use of competition in the NHS, we tend to talk of it in relation to providers; I’ve not heard much praise for competitor insurers – but if competitive theory and markets work so well, why not?

Health care provision

Having looked at the insurance side of the care system , let’s now turn to service provision.

In health care terms, consumers often know more about their wants than their needs, and commercial providers are more than happy to pander to people’s wants than to meet their needs. But that is only one complication.

A more major problem is that for many users of the health care system, the essential pre-requisites for efficient markets do not exist.

In terms of acute in patient hospital care for example about 50% of its customers come as urgent or emergency admissions. If you are sitting in the wreckage of your BMW near junction 32 of the M4 I can tell you that you are not going to be working out the relative merits of the UHW or the Princess of Wales Hospital as the smoke fills the cabin and you speak into the mobile that probably caused the crash in the first place. You are going to hope and pray that the (universal) Wales Ambulance service, and the Fire and Rescue service are going to get there within 8 minutes and get you to UHW within the golden hour where the trauma unit and ITU will be available if needed.

Equally, in terms of persuading individuals to access services geared at preventing disease or detecting it early, often patients are reluctant to seek help. Health care bodies have to proactively and opportunistically take every chance they can to look out for the warning signs of ill health.

A further problem is that the health care process is a finely balanced system comprising four parts, prevention, diagnosis, treatment, and aftercare. Its aim is to prevent what can be prevented, diagnose early what hasn’t been prevented, treat quickly and effectively that which has been detected, and, if it must, care for those for who cure has not been possible.

Trying to manage this kind of system through contract type mechanisms is simply seeking to use a mechanism that isn’t designed to simultaneously manage a number of interlocking relationships over time. Even if the contract for all services in the four stages of care is held by one body, it is asking a lot of any purchaser to devise and apply contracts that can deliver coherent services. Civitas talk of using market forces to “improve” elective treatment. Why is it just this part of the NHS that always attracts market solutions? Is it snouts smelling profit?

Let us for a moment think about what a contract for health care needs to look like. How far should it set out the inputs that should go into a particular health care procedure – for example the number and type of staff who should conduct tricky day case surgery? Should it describe the processes that must be followed, for example the combination of drugs, radiotherapy or surgery to be used in different types of cancer treatment? How will it define the expected outputs or outcomes – for example does the customer pay if the cancer treatment “fails” and the patient dies when the evidence on survival predicts an alternative outcome?

And over what time period is your contract to run? Is you all knowing commissioner going to let a service – changing 10 year contract that requires futuristically, for example, a hospital to move certain in patient procedures to a day case, or home treatment setting?

I turn now to look at the characteristics of markets for whilst theoretically market mechanisms can operate to link service users to part of the health care system, it is by no means certain that market mechanisms can help make the system as a whole, as I have described it, efficient.


Theories of competition upon which the supporters of free markets rely, assume some form of free market. Service users (consumers) have some knowledge of their needs and an ability to exercise choice based in part upon their assessment of how well prospective suppliers will meet these. Different providers will change their behaviour to get the business of informed customers.

So let us turn for a moment to markets and remind ourselves of their attributes.

They assume buyers and sellers, both with good if not perfect knowledge.
They assume both have a choice over whether they will do a trade.
They need spare and dynamic capacity so that they can function- and such capacity carries a cost
If they handle the present reasonably well they are less successful at managing longer term investments; these days most commercial bodies seem to want a return within 5 years
They are geared to corporate, not community, profit as I described earlier in reference to the US system.
There is also, as Vince Cable reminded us a few weeks ago, the need to guard against Adam Smith’s “conspiracy against the public” as all markets tend to monopoly and price rigging if left to themselves. Only this month BA and 8 other airlines were fined for rigging the air cargo market.

The traditional policy response here – certainly where the service concerned is important – is to insist upon some form of regulation. And we saw how well this operated with regard to the casino banking culture that has brought Western economies to their knees.

When we look at the three functions to be performed – insurer, provider, and regulator – it is often the last that gets overlooked. Debate about health always concentrates upon providers, and sometimes addresses insurers. But the third element, the regulator, is often ignored. Some commentators claim that in any health care system goverment can undertake, if it must, only two of the three tasks I’ve described.

It can insurer and regulate – but not provide, or it can provide and regulate, but not insure. In the UK we still attempt to do all three although many advocates of market forces assume an ideal world in which insurers and providers should be private sector bodies leaving only the role of regulator to government. Again, time does not permit a great analysis of the problems of health care regulation – suffice it to say that if health care was mainly provided by aggressive profit making companies, the regulators would find themselves always on the back foot in terms of skilled staff, knowledge, and financial fire power when it came to fighting the legal teams hired by the big health conglomerates. They would become the Standard and Poor or the “Fundamentally Supine Authority” (Private Eye’s name for the Financial Services Authority.)of the health world.

Finally, what of providers; shouldn’t these be free to come and go at the whim of a market? There are many reasons at least why this is problematic.

First, if the state is the main insurer, would a commercial outfit really want to be dependent upon one main source of funding in such a highly political field?

Second, as I have already indicated, for many health care services the ideal of highly mobile patients with options to take and choices to make just isn’t the reality. Making a reality of competition in a service where speed and continuity of access is still a major factor for patients inevitably requires the availability of unaffordable amounts of spare capacity.

Third, the cost of creating and then shedding the spare capacity needed to make the market work would be passed on in higher costs to everyone. Unless of course we are going to market only the clinical and managerial arrangements of fixed assets, rather than encourage new fixed assets.

Fourth, as indicated earlier, it is not at all clear on what basis the buyers and sellers will do business – what exactly is the provider expected to do? And how do you know if it’s been done?

So, the role of market forces in the provision of health care is fraught with difficulty. The attributes of a free market do not exist, and if they did, they would come at a financial and human cost.


This is why Wales decided to scrap the internal market in health care when the Labour . Plaid Cymru coalition Goverment agreed their “One Wales” programme for government in 2007.

The outcome of wide discussions with professional and public interests was that the 22 Local Health Boards (PCT equivalents) and the NHS Trusts should be merged into seven all purpose planning/commissioning and delivery organisations. These keep the important characteristics of being exactly co-terminous with local government boundaries and merge, at board level, the long terms planning and resource allocating tasks with those of service delivery for primary, secondary and, for some Authorities, tertiary care.

The aim is to ensure that front line staff experience is more easily fed into the planning and performance management process – both in primary and secondary care – and that the performance management/ commissioning function is challenging for, but supportive to, those providing services. It is also intended that previous uncertainty about who is responsible for which decisions is removed; the Minister for Health chairs the main National Board that sets high level policy and each Chief Executive is accountable for how that is delivered – for both priority –setting and service delivery. .

These changes were very much “with the grain” of public and professional opinion in Wales and herald similar changes in local government where the present 22 Councils are increasingly required to work collaboratively.