Zack Cooper assesses the coalition government's plans for healthcare reform

Zack Cooper

English

Research Papers in Economics

CentrePiece Autumn 2010
14CentrePiece Autumn 2010
15
F
or those who favour
introducing more
competition into
healthcare, there is quite
a bit to like in the NHS
White Paper published in
July 2010. Health secretary Andrew
Lansley’s first major policy statement
encourages public and private healthcare
providers to compete for care; expands
patient choice; and places a tremendous
premium on publishing transparent
information on a number of dimensions of
clinical performance (DH, 2010). 
These elements of the reforms are
crucial for the health service. Ultimately,
increasing competition in the NHS is vital
to improving quality and efficiency – just
as it is in other sectors of the economy.
Recent CEP research illustrates that
market-based reforms to the NHS in the
mid-2000s, which focused on promoting
patient choice and hospital competition,
saved lives (Cooper et al, 2010a),
improved efficiency (Cooper et al, 2010b)
and boosted management quality (Bloom
et al, 2010).
It is also encouraging that the White
Paper calls for allowing flexible pay across
the country. Giving hospitals the ability to
set wages will allow them to hire the kind
of staff they want and need to run their
organisations efficiently. Adding pay
flexibility should also go a long way
towards reducing the staggering variation
in mortality across the country. Indeed,
widely reported CEP work shows that
current pay regulation, which keeps the
earnings of medical professionals largely
the same wherever they work, has
contributed to higher death rates by
depressing real wage rates in high cost
In the first of a new series of CentrePiece
articles analysing policy innovations by the
coalition government, Zack Cooper assesses the
plans for healthcare reform in the light of
recent CEP research.
The NHS White Paper:
evolution or revolution? CentrePiece Autumn 2010
16
areas (Propper and Van Reenen, 2010).
These aspects of the reforms
constitute a sensible extension of the
successful market-based reforms instituted
by the previous Labour government. But
the problem is that there are other
elements in the reforms that are in tension
with this evolution and which break
Andrew Lansley’s election campaign
pledge to avoid sweeping top-down
shake-ups of the health service. 
In the White Paper, the health
secretary proposes a radical shake-up of
how care gets commissioned in England.
Broadly, he is proposing to shift the
commissioning process from primary care
trusts (PCTs) to general practitioners (GPs)
and in doing so, he is placing an
extraordinary amount of power in the
hands of clinicians. GPs in England are
clearly very capable, but it is not clear that
they want to be the principal
commissioners of care, that they
necessarily have the specific skills to
commission services effectively and,
perhaps most importantly, that they
support the government’s broader
healthcare reform agenda.
Commissioning care has been a
perennial bedbug for the NHS for the last
20 years. Since the purchaser/provider split
was introduced in the 1990s, a range of
organisations have been tasked with
purchasing care on patients’ behalf and
organising care locally for patients. To date,
none of the commissioning bodies have
thrived. A damning recent report from the
House of Commons highlights concerns
that PCTs have been far too passive, have
failed to prompt hospitals to improve the
quality and efficiency and have not been
active enough coordinating highly
specialised services for organ
transplantation and cancer care (Health
Select Committee, 2010). These failures
have raised transaction costs in the NHS,
allowed hospitals to operate virtually
unchecked and hindered efforts to improve
care for complex conditions.
There are a number of root causes of
these failures. Generally, according to the
Health Select Committee, the staff at PCTs
are often under-skilled, lack clinical
knowledge and have not used data
adequately to improve the commissioning
process. In part, this is because PCTs have
had almost no monetary incentives to
improve. Over the last decade, PCTs have
seen their budgets grow annually,
regardless of their performance. 
Under the White Paper proposals, GPs
are to be given the ability to commission
nearly every aspect of care for NHS
patients and they will be collectively
responsible for almost the whole of the
NHS budget. While there is some reason to
believe that this sort of power will increase
care in the community (which is vital to
reining in NHS spending), the proposals are
worrying because having good clinical skills
does not necessarily guarantee that GPs
will be effective commissioners. 
There is some precedent for giving GPs
more purchasing power. The previous
Conservative government did just that in
the 1990s with some positive results.
Published evidence examining the GP
fundholding policy suggests that it reduced
pharmaceutical use, lowered elective
referral rates and allowed GPs to make
some savings by lowering the demand for
clinical services. This kind of check on
demand and built-in incentive to provide
care locally is badly needed in the NHS
right now. 
But the GP fundholding programme
from the 1990s also had very tangible
downsides. In the long term, GP
fundholding led to higher managerial and
transaction costs because GPs had to
spend much more time negotiating with
hospitals, and hospitals had to spend more
time and money negotiating with them.
In addition, what should also worry
David Cameron is that GP fundholding led
to a substantial drop in measured patient
satisfaction during the 1990s. One
explanation for this unhappiness is 
that GPs were spending more time
working as managers and less time 
dealing with patients.
So what are the
implications of giving GPs
expansive commissioning
power more than a 
decade after GP
fundholding was abolished?
NHS reforms 
in the mid-2000s
helped to
increase
competition,
which saved
lives, improved
efficiency and
boosted
management
quality
For those who favour introducing
more competition into healthcare,
there are things to like in 
the NHS White PaperCentrePiece Autumn 2010
17
Zack Cooper is a health economist at 
LSE Health and CEP .
Further reading
Nick Bloom, Carol Propper, Stephan 
Seiler and John Van Reenen (2010) ‘The
Impact of Competition on Management
Quality: Evidence from Public Hospitals’,
CEP Discussion Paper No. 983
(http://cep.lse.ac.uk/pubs/download/
dp0983.pdf).
Zack Cooper, Stephen Gibbons, Simon 
Jones and Alistair McGuire (2010a) ‘Does
Hospital Competition Save Lives? Evidence
from the English NHS Patient Choice
Reforms’, LSE Health Working Paper 
No. 16/2020 (http://www2.lse.ac.uk/
LSEHealthAndSocialCare/LSEHealth/
pdf/Workingpapers/WP16.pdf).
Zack Cooper, Stephen Gibbons, Simon Jones
and Alistair McGuire (2010b) ‘Does Hospital
Competition Improve Efficiency? An Analysis
of the Recent Market-Based Reforms to the
English NHS’, CEP Discussion Paper No. 988
(http://cep.lse.ac.uk/pubs/download/
dp0988.pdf).
Department of Health, DH (2010) Equity and
Excellence: Liberating the NHS, NHS White
Paper (http://www.dh.gov.uk/en/
Publicationsandstatistics/Publications/
PublicationsPolicyAndGuidance/DH_117353).
Anna Dixon, Ruth Robertson, John Appleby,
Peter Burge, Nancy Devlin and Helen Magee
(2010) Patient Choice: How Patients Choose
and How Providers Respond, King’s Fund
(http://www.kingsfund.org.uk/publications/
patient_choice.html).
Health Select Committee (March 2010) Health
Committee Fourth Report – Commissioning,
House of Commons.
Carol Propper and John Van Reenen (2010)
‘Can Pay Regulation Kill? Panel Data
Evidence on the Effect of Labour Markets 
on Hospital Performance’, Journal of 
Political Economy (earlier version 
available as CEP Discussion Paper No. 843
(http://cep.lse.ac.uk/pubs/download/
dp0843.pdf).
On the positive side, there is some
reason to believe that the transaction costs
will be less dramatic than they were 
15 years ago. Right now, hospitals cannot
alter their reimbursement rates, so the
negotiations between GPs and hospitals
will be vastly simpler than they were in the
1990s. This time around, in addition to
their clinical responsibilities, GPs will spend
the bulk of their time purchasing care and
planning care pathways, rather than
negotiating rates with hospitals. 
In addition, the White Paper allows
patients to choose who will commission
their care. This will create incentives 
for the GP consortiums to become 
more efficient if they face a real risk 
that poor performance will reduce their
market share. 
Unfortunately, on balance, these
reforms seem to be a knee-jerk response
to the very real shortcomings of PCTs. The
White Paper places unprecedented power
in the hands of GPs, with little evidence
about whether they are interested in
taking on this new role or if they are
going to be better equipped to
commission than PCTs. To be sure,
involving clinicians in the management of
the health service is important, but
medical knowledge is not wholly akin to
the managerial skills that are vital to
effective commissioning. We just do not
know whether or not GPs will be more or
less capable commissioners than PCTs. 
There is plenty of evidence that 
there are some very entrepreneurial GPs
who will thrive at commissioning. But
what will happen to the commissioning
process for patients registered with GPs
who either have no inclination or capacity
to purchase services? That problem could
prove calamitous. 
Another significant problem with
giving GPs fundholding power is that it is
not clear that they support the
government’s ambition to increase choice
and competition in the NHS. For example,
recent work by the King’s Fund finds that
while over three quarters of patients were
extremely keen to have choice, GPs do not
regard choice as imperative for patients
(Dixon et al, 2010). What is more, GPs are
reluctant to offer patients their private
sector options for care and, in some cases,
they are reluctant to offer patients any
choice whatsoever when specialist
treatment is required.
It is possible therefore that these
reforms will put GPs in a position to throw
the government’s overall policy agenda off
course. In fact, Hamish Meldrum, chairman
of the Council of the British Medical
Association, has explicitly said that GPs
should take over commissioning not to
increase competition but so that their
monopoly power over the process can
blunt the government’s push for it. 
In sum, there are things to like in the
White Paper and it is encouraging that the
coalition government is actively promoting
choice and competition in the NHS. But
with so many unknowns, the wholesale
transfer of purchasing power to GPs is too
much, too fast.
In the long term, giving GPs purchasing
power might very well work, but it needs
to be trialled, tested and piloted. This is a
general rule for policies across all areas of
government. At the moment, when funds
are tight, this big a shift of purchasing
power to an untested system is an
extraordinary gamble given that we know
that large-scale shake-ups typically cost
substantial amounts of money – something
that will be in short supply over the next
few years.
The wholesale
transfer of
purchasing
power to GPs is
too much, too
fast – it
threatens to
increase
spending
dramatically, not
reduce it

The NHS White Paper: evolution or revolution?

http://cep.lse.ac.uk/pubs/download/cp323.pdf

The NHS White Paper: evolution or revolution?

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