Competition between NHS hospitals improves efficiency

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Competition between NHS hospitals improves their efficiency and can save significant amounts of money. However, allowing NHS hospitals to compete against private providers has not produced the same positive outcomes for the public sector hospitals.

These are among the findings of a study published by the Centre for Economic Performance (CEP) at the London School of Economics and Political Science (LSE). The research team finds that in NHS hospitals located in parts of the country where there is a great deal of choice among public sector hospitals, patients spend less time in hospital both before and after their surgery.

In contrast, NHS hospitals located in places where there are more private NHS providers have not seen the same benefits after they were allowed to compete. Indeed, there has actually been a rise in patients’ length of stay in hospital. What’s more, NHS hospitals competing in markets with more private providers tend to treat older and less well-off patients.

These findings suggest that competition can create real value and significant savings for the health service. But they also indicate that strong regulation is vital to guard against providers ‘cherry-picking’ the patients who are easiest to treat.

In short, the researchers conclude, their results suggest that the NHS needs a regulatory and payment system in which avoiding costly patients is not more profitable than delivering excellent care.

Zack Cooper, one of the authors, says:

“Competition creates very clear incentives for hospitals to become more efficient. But this is not a ‘one size fits all’ policy where more competition is unambiguously better. Markets in healthcare require strong regulation to get good outcomes.

“Competition has been hotly debated in the NHS over the last year. Our study highlights the benefits that competition can provide but it also underscores the need for a strong active regulator to guard against providers cherry-picking the easiest cases.

“Hospitals need to be competing to offer excellent care and better service. But we need to make sure that it is not more profitable for them to avoid treating certain potentially more costly patients.”