Markets In Health A Framework For Discussion

Two major changes to the NHS in England were brought about without any real political discussion and had no electoral mandate. This is as true of the move to a quasi market by the last administration as it is of the move to a full market by the current one. Partly for this reason, the debate around markets, marketisation, privatisation and the aims of the NHS is incoherent and fragmented. Some kind of rational framework for the debate, if we are to be permitted one, might be helpful.

There may still be a few who believe that we can fund everything through the NHS and there is no need to make any decisions about priorities or about allocating resources or provider efficiency. The vast majority accept that in any health system demand will exceed supply and so there have to be mechanisms to resolve the issues which arise. Healthcare costs tend to rise far faster than GDP, under any system, and there has to be a constant drive for efficiency, and effectiveness. In our NHS we are at a crossroads faced with the need (?) to cut £20bn of expenditure in 4 years, perhaps the greatest challenge ever faced by any service.

So the issues are important and we need to frame the debate and ensure we all use the same terms.
The debate about use of markets and competition is rooted in the need for efficiency; getting the most health care from the available budgets. Efficiency comes in two types, allocative and technical.
Allocative efficiency is concerned with how resources are allocated; how much is spent on a, b, c as opposed to d, e, f. In our NHS this is achieved through political and bureaucratic means and markets play no part at all.

Technical efficiency is about how providers are made as efficient as possible so the charge they make (or the tariff that is set) is as low as possible – or alternatively the least resources are consumed in achieving the outcome required from the provider. In real markets both allocative and technical efficiency are achieved. The economic reality that poor decisions about allocating resources can totally undermine any benefits through technical efficiency is comprehensively ignored in most discussions of “markets”.
Markets are the mechanism by which supply and demand are brought into balance by some kind of non planned means, the blind operation of the market. For a market to exist there has to be more than one provider (or at least the potential for more than one), competition and choice.

You can have choice without competition – you choose which hospital you go to but your decision does not impact in any way on the economics of the hospital you choose. You can have competition without choice – professionals motivated by the publication of comparable outcome data even though this did not affect which patients they treated.

Economic theory asserts that markets work when both choice and competition are present and that that providers are affected by the operation of both to the extent that they have to respond. And for a market there have to be mechanisms for new providers to enter and for old ones to exit. The argument about whether markets deliver anything at all in the way economists suggest, since the models are a vast oversimplification, is beyond this humble work.

In a real market the price of the commodity (or service) is relevant and the mechanisms reflect some financial evaluation, conscious or unconscious. In a quasi market, the competition is not based on economics –competition between providers when the price is fixed is the best example.

There are also three kinds of market at work in our NHS. The first is the market which operates when the consumer (patient) makes the choice about which provider to use; and this currently applies to some planned care. The second type is when the “commissioner” makes a choice through a procurement process about what provider to award a contract for provision of a whole service, usually on a time limited basis. Type one is competition within a market, type two is competition for a market – once you have it there is no choice for patients. The two market types are inextricably and confusingly intertwined in the NHS. The third type is when a provider (either appointed or commissioned) of a service subcontracts all or part of it through a tendering process.

The role of the commissioners is to gain the best health outcomes for the population it serves, within the resources available. They are strongly influenced by a needs assessment. They are a combination of planner, regulator and performance manager. They make the allocation decisions bureaucratically and to use contracting to get efficiency of provision. This is type 2 market territory. However if there are also type 1 markets in operation with, for example, many patients choosing to get their treatment from providers outside the area, then the commissioning model will not work. If there were a full market then there is no role for a commissioner, although most markets have some form of regulator. Like the “allocation” issue this is something else that discussions avoid.

Marketisation is what we have seen and are seeing; which is a drive to introduce market mechanisms into the NHS, in stages, so far as this is logical to do. The markets will mostly be financial ones but might also be quasi, based on quality. This kind of market could operate within a wholly public sector system where all the various planners, commissioners and providers were all public sector bodies.

Privatisation is a process where public assets and services that were delivered by public sector organisations are transferred to the private sector. For most purposes the private sector means anything not public sector, so it includes any kind of voluntary organisation or social enterprise. We could have privatisation without a market, and we could have a market without privatisation.

In order to manage the NHS there has to be some system, or systems at work. The usual segmentation formulated by Julian LeGrande, is between four mechanisms – voice, trust, targets and market forces.
The importance of “voice” is growing because recent generations are less passive, more ready to gather information and express their views even to the trusted professionals. More importantly there is evidence that involvement of patients in their treatment, and involvement of communities in local health projects are both beneficial. Voice also coves the need for elements of democratic control and accountability over a public service.

Trusting the professional to do what is best was the original organisational principle for the NHS and there is still a strong tendency within the NHS and outside to regard this as the best approach: an NHS made up of “knights” striving only to do good. The reality is that the introduction of “management” into the NHS is irreversible, and the idea of just “leaving it to the doctors” would probably be laughed at. There are those nostalgic for some golden age when the NHS ran smoothly and patients prospered without nasty managers interfering; this is an illusion.

Both voice and trust have a part to play but neither, nor both, on their own can be enough to deliver an effective and efficient system – neither is powerful enough to change the behaviour of providers. The centre ground of discussion is the extent to which a top down, planned, hierarchical system with targets and performance management, can be replaced by a market system where competition operates to drive innovation, efficiency and improved quality. It is partly a debate informed by assertion and limited evidence but also by ideology and politics.

Looking then at the spectrum of views about the issue then we can see the main camps:-
Those who believe that the NHS is a public service and that it is morally wrong for any such service to have any elements of markets within it. Performance management and targets distort the essential character of the service. A variation would be that there is some tolerance of “management” and “planning” of some sort; but still with the “trust” model predominant.

Those who argue that there is good evidence to show markets do not work in a health system. They have a rational case to argue both in economic theory terms (around market failure) and evidence from the acknowledged failure of market reforms to work so far within the NHS. They would accept planning within the system and so implicitly targets and performance management of some kind.

Those who accept there can be a role for market and see competition as a genuinely beneficial thing, but only under tight regulation. They accept a role for private providers but strictly regulated. They see the NHS as more than a logo and so have reservations about the extent of private provision and may set clear boundaries and operate preferred provider models for type 2 competition (for contracts). Allowing choice for some service with a wide range of competing providers from all sectors is accepted (the eyes and teeth model) so long as providers meet stringent quality base entry requirements. Accepting the limitations of markets there is still an overall managed system with powers for intervention to protect vital services.

Those who take the third way – that what works is best. And markets work elsewhere so long as the conditions are right, so just ensure this is the case. Regulation is necessary but needs to be there to encourage markets. The major problem is that the evidence about what works is contested, and generally just tells us we don’t know enough. Still they accept in principle greater competition and would encourage new entrants from the private sector which they see as more flexible, more innovative and efficient. They favour type one competition (for a service with patients choosing). But they still see an NHS as a managed system at some level with some type 2 competition and even non contested public provision for some services.

Those who accept a rationale for markets as the only mechanism powerful enough to resolve the long standing issues within the NHS and are motivated to use markets wherever possible, using incentives for new private entrants. They only like type one competition and would go further so that patients actually had the resources through direct payments so they could choose and buy the care they required. They favour privatisation to break the state monopolies and so give a more genuine market. They do accept however we still have a system free at the point of need and funded out of general taxation.
Those who see no future for the NHS as any kind of publicly delivered service and would have a full market system with all that implies. Various models for this do exist in other heath systems.

These are not strict boundaries and you can mix and match amongst various views but the central argument appears to be the issue of what limitations are placed on the operation of markets?