Appraising health reform

Blogging is a fantastic medium for providing a brief statement of your views. Or for building an argument involving a small number of points. Or, perhaps, for giving a high level summary of a more complex argument.

But it’s not a great medium through which to appraise complex arguments or carefully weigh the evidence. Where a blog draws explicitly on evidence it tends to draw on one or two studies to illustrate its point. For some purposes that works just fine. But for others it can be misleading. It can give the impression that there is a robust evidence base to back up the points being made, whereas in fact the evidence is being cherry-picked. The weight of evidence may lie with the other side of the argument. Or, more likely, the evidence does not offer many simple messages.

A couple of weeks ago I made this point in the comment thread on a blog post about competition and choice in public service reform. It wasn’t entirely warmly received by some other commenters.

When public service reforms are discussed in the blogosphere there is a large dollop of ideology. There are those who simply believe that competition is better. Another chunk of comment is based, implicitly, on a rather simplistic textbook understanding of how markets operate.  And some argue with explicit reference to research evidence.

I have little time for the first two approaches. Real world markets are complex social institutions embedded in particular socio-cultural contexts. Any arguments insensitive to this fact shouldn’t, in my view, weigh very heavily in the balance. That doesn’t mean that markets are necessarily bad. But they frequently don’t behave in the way that the simple stories say they will.

Then again, sometimes they do. Some of the problems with the Work Programme, for example, were entirely predictable, once commercial suppliers were presented with the incentives embedded in the payment schedules.

I was reminded of this issue by a piece by Chris Nicholson in today’s Telegraph. The piece makes reference to work on competition in health by colleagues at CMPO.

This is clearly a vital issue for current policy debate. If there were comprehensive and unambiguous evidence on the benefits of competition in health care then that would be an invaluable input into the discussion.

The literature in this area has grown immensely in the last decade. In part this is because the quality and extent of the data available has improved considerably – allowing more sophisticated empirical work.

A thorough appraisal of the current state of knowledge is a major task. There is a new edition of the Handbook of Health Economics appearing this year. The draft of the chapter by Gaynor and Town on competition in health care markets is available online as an NBER working paper (subscription necessary). It runs to over 150 pages. This is the sort of analysis necessary if we are going to get a thorough grip on the state of the literature. Not a 600 word blog post.

There is no denying that the literature shows that under certain conditions marketising health care can induce changes in key output or process measures. And these changes are interpreted as proxies for service improvements. And there are equally studies that show that competition can have a detrimental effect upon service quality. A key difference – setting reforms of the 1990s apart from those of the 2000s – is whether competition is on price, quality, or both. Competition on the basis of fixed prices can drive apparent quality improvements. Competition on price, where quality is unobserved, can lead to quality deterioration. But it may not.

But the empirical literature is, inevitably, constrained by the available data and analytical techniques. This is important. Even if we have robust evidence for competition improving service quality in relation to medical procedure A, we have to be careful in inferring that competition will be equally beneficial in relation to procedure B. Let alone procedure C, D or E. Or drawing the conclusion that competition is desirable in general. Incautious generalisation is one of the fallacies all researchers need constantly to be alert to.

It is important to understand what we have reasonable evidence to support. But it is equally important to understand what we don’t currently know. Here Carol Propper, the UK economist most clearly associated with these issues, has helpfully provided a brief summary in a recent issue of Health Economics*:

The emerging evidence indicates that competition between hospitals can improve outcomes in an NHS setting. But what we know about is only a small part of the picture.

In terms of what we know about competition,

  • The outcomes that have been measured are only a small part of the whole activity of hospitals, and some would argue these are not well enough measured to base strong conclusions upon.
  • The mechanisms by which these improvements have occurred are not well understood or researched. Difference-in-difference designs are essentially black box analyses and do not shed light on exactly how changes in incentives get translated into actions.
  • There are no published costs of the cost of introducing competition.
  • We also know little about competition in primary care in the UK (or indeed elsewhere). It is clear from studies of pay for performance that family doctors do respond to financial incentives … It therefore seems probably that they will respond to competition for patients. However, competition between family practitioners has been muted in the UK by regulatory behaviour to maintain catchment areas. As these regulations are reduced, there is a need to understand the impact of competition on quality on GPs. The UK is an excellent test bed for such studies because all patients are entitled to primary care and measures of quality of care are available.
  • More broadly, the impact of competition in community services, including mental health services, has been a neglected area but is an important area.

There is emerging evidence that competition can improve specific outcomes. But there is also evidence that health care markets have a tendency to consolidation. That is, over time providers merge and industrial concentration increases, reducing competition. That should come as no surprise. It’s what markets do, where the technical conditions are favourable. So we have to be alive to the possibility that the end point for any process of manufacturing health care markets will be markets dominated by a few providers. Of course, regulation can seek to prevent this. But that is a case of perennially battling against the tide.

Embracing competition in health care warmly because it will unambiguously be beneficial for social welfare is not, in my view, a position justified by the available evidence. That doesn’t mean there is no evidence. Just that, as Carol says, we only know about “a small part of the picture”. Politicians can push a marketising agenda. That is their prerogative. But it is an agenda rooted in ideology not in a compelling evidence base.

Just so long as we’re all clear about that.

* Propper, C. (2012) Competition, incentives and the English NHS, Health Economics, vol 21, 33-40.

Images: (i) © Steve Young –    (ii) © blondsteve –

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