COMPETITION IN HEALTHCARE NOT A ‘MAGIC BULLET’: New research finds mixed effects of patient choice on hospital quality for elective patients in England

15 Apr 2019

Competition among hospitals in England led to an increase in hospital readmissions following some types of elective (non-emergency) surgery, according to new research by Dr Giuseppe Moscelli (University of Surrey) and Professors Hugh Gravelle and Luigi Siciliani (University of York).

The study, which Dr Moscelli will present at the Royal Economic Society’s annual conference at the University of Warwick in April 2019, finds that:

  • The increase in competition due to the relaxation of constraints on patient choice of hospital in 2006 and 2008 increased the risk of emergency readmission after hip replacement by 0.57% compared with a baseline risk of 5.72%.
  • The risk of emergency readmission after knee replacement increased by 0.30% compared with a baseline risk of 1.9%.
  • Increased competition had no effect on the risk of emergency readmission for a third type of elective surgery – coronary bypass.
  • The increase in emergency readmissions increased NHS costs by £45 million between 2006/07 and 2010/11.

The authors investigate whether the surprisingly negative effect of competition on quality was due to a shorter length of in-hospital stay; or to the entry of private providers in the market to treat NHS-funded patients; or to diversion of effort from elective to emergency care within a speciality. They find no evidence that these mechanisms were the explanation.

Instead, they suggest, the reduction in quality for hospitals facing more competitors is likely to be due to the cost of treating additional patients being greater than the extra revenue they generate. This will reduce the incentive to attract extra patients by increasing quality.

Hospitals facing more competitors are usually the ones treating a larger volume of patients, so they are also those likely to suffer the largest financial losses from additional patients. Moreover, the treatment with the highest loss per patient (knee replacement) had the steepest decrease in quality; and the one with the smallest loss (coronary bypass) had no significant change in quality.

These findings may seem surprising but they can be supported by the economic theory of competition in healthcare markets, the authors explain: when hospitals face increasing marginal costs of treating patients and have altruistic concerns towards patients, they are induced into working at a negative profit margin.

Dr Moscelli concludes:

‘Both economic theory and empirical studies in the UK and elsewhere suggest that increases in competition in healthcare may improve some outcomes, worsen others or have no effect, depending on the fine details of the market and the condition studied.’

‘Our research shows that the English choice reforms had either negative or no effects on hospital quality for three important elective treatments.’

‘Competition in healthcare markets is not a “magic bullet”.’

‘Effects of Market Structure and Patient Choice on Hospital Quality for Elective Patients’ by Dr Giuseppe Moscelli (University of Surrey) and Professors Hugh Gravelle and Luigi Siciliani (University of York).

The research was funded by the NIHR Policy Research Unit in the Economics of Health and Social Care Systems. The National Institute for Health Research (NIHR) is the nation's largest funder of health and care research. The NIHR was established in 2006 to improve the health and wealth of the nation through research, and is funded by the Department of Health and Social Care. In addition to its national role, the NIHR commissions applied health research to benefit the poorest people in low- and middle-income countries, using Official Development Assistance funding.

For any further media information, please contact Laura Butler in the University of Surrey Press Office: 01483 683075 l.s.butler@surrey.ac.uk

Dr Giuseppe Moscelli

Lecturer in Economics | University of Surrey | g.moscelli@surrey.ac.uk