Laura Brereton: Market benefits can bring the NHS a healthier future

As we enter a period in which the NHS will no longer receive the increases in funding it is accustomed to, the question of whether and how the Health Service can improve – or even continue to provide the same quality of care under such constraints – is on the minds of the public and policy-makers alike.

For the past 20 years, healthcare policies have aimed to develop a market within the National Health Service. This "quasi" or "internal" market refers to the separation of purchaser (insurer) and provider (treatment) functions, which were both previously managed by central government and its regional subsidiaries.

Market-based policies differed slightly in the 1990s when first implemented by the Conservatives, but the objectives were the same as those introduced by Labour in 2002: the purchaser/provider split was intended to stimulate competition between providers by no longer guaranteeing them patients, and allowing independent providers to enter the market. Money would follow the patient.

The hope was to replicate the benefits markets have been known to bring about in the private sector – primarily, decreases in cost, and increases in efficiency, quality, innovation, and provider responsiveness.

However, a large-scale review of the research carried out to date indicates the NHS now finds itself in a lose-lose situation: taking on the extra costs of competition without experiencing the benefits.

Here is what we know. Market forces have contributed to:

n Improved access for patients (some increase in up-take of patient choice).

n Reduced waiting times.

n Increased efficiency and improved financial management by providers.

However, these improvements are not widespread, and downsides to current policy include:

n Providers (hospital trusts) remain all-powerful and purchasers (primary care trusts and patients) weak.

n Innovation is meagre.

n Payment systems encourage providers to operate at "average" efficiency (instead of striving to improve).

n NHS staff are frustrated and

de-motivated by frequent policy change.

Additionally, some improvements, such as major reductions in waiting times, have more often been linked to "targets and terror" than to competition.

But the question remains – if the current market structure is to be upheld (as both major political parties propose), how can the NHS achieve more for the

same money?

Although many desired outcomes of market policy have not yet been seen, researchers note that a majority of these under-achievements can be attributed to practical manifestations of market failure. These are obstacles to the optimal functioning of a market, which, if corrected, would most probably enable more of the benefits already appearing.

The most commonly cited obstacles are:

n Barriers to market entry. It is currently difficult for new healthcare providers to start

up business. The costs of

building a new hospital or offering a new service are often prohibitively high.

n Barriers to market exit. Taking over or closing NHS services is met with strong public resistance, whereas this is allowed to happen all the time in other industries

to enable supply to fluctuate

with demand.

n Absence of spare capacity. Most commercial markets operate with some spare capacity, enabling businesses to take customers from competitors. NHS providers, however, have spent the past 40 years working to full capacity as district general hospitals and cannot take on large groups

of new patients without years

of planning.

n Absence of price competition. In a true market, providers can alter their prices to mirror changes in demand, but in the post-2002 NHS market, price competition does not yet exist. Competition is theoretically based on quality, and purchasers pay the same prices for varying degrees of quality.

n Underpowered purchasers. The power of purchasers rests on their ability to compare providers and make informed choices, but there has been a system-wide lack of comparable, credible data on provider quality in the NHS, making both primary care trusts and patients weak purchasers.

Research shows that some expected market benefits have come about, but their true potential has been blocked – systematically, environmentally, and culturally.

With the financial constraints ahead for the NHS, it seems the smartest course of action would be to make the best use of the structures and policies we

already have in place. Most markets operate within an environment of finite resources, and so far the NHS market has been attempted only within a system of continually increasing central funding.

We might as well work to remove the obstacles and see if these policies can drive improvement in the NHS after all.