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Mark Clarke: Competition Law in the NHS will lead to better services at lower costs

Clarke Mark Mark Clarke was candidate for Tooting at the 2010 General Election.

Imagine an industry in which companies sought to gain ever larger scale, developing effective local monopolies, through vertical or horizontal integration – or both. The companies could argue that the increased efficiency savings from horizontal integration would mean reduced costs – which could be invested into product improvement, price reduction or even profit increase thereby encouraging increased investment by increasing the companies internal rate of return. They could argue that the decreased handovers which would result from vertical integration would mean better service as there were less problems for handovers between different organisations.

But we all know that the disadvantages would outweigh these advantages. You would see less product differentiation offered to consumers, and increase in pricing. That’s why we break up monopolies and have laws against price collusion.

Alas under Labour’s reforms this over-consolidation of the NHS providers is already occurring under the aegis of greater efficiency. Some hospitals like my local hospital, St George’s, are pursuing vertical integration by taking over local community services. On the upside this means fewer problems for patients with handovers from in-patient to out-patient services or vice versa. But under the old system patients could choose whether to have the diagnostic services run in the community by the PCT or in the hospital run by St George’s – now they have no choice but to use a St George’s run service.

Now is this a problem?

Well, St George’s Hospital has invested heavily in recent years in specialist services but hugely neglected its old district general hospital functions of the sort which would provide diagnostic services. Under Labour a diagnostic-focused hospital, the Bolingbroke, was closed, breast screening languished in a dilapidated portacabin and maternity care was amongst the worst in Britain. Now this same hospital is expected to run well all the community services in Wandsworth. One could hardly think of a worse provider basket in which to place all one's eggs. Even worse, with no competitor they will have no incentive to improve.

Some local hospitals are adopting horizontal integration either through direct takeover of hospitals or through so called “Academic Health Science Centres”, which many see as a precursor to a full scale merger. In these cases the hospitals are openly engaging in joint responses to PCT tendering proposals.

So we have scenarios happening up and down the country right now in which PCTs are asking two local hospitals to tender for a service but what actually happens is that the local hospitals get together under the aegis of “co-operation” and come back to the PCT with one proposal. The PCT is left with little option but to accept the proposal. In any other industry such collusion would result in a competition enquiry, potentially leading to the organisations involved being fined 10% of their turnover – it simply could not happen. But in the NHS this is seen as permissible, even beneficial.

Alas such an approach stymies attempts by commissioners to get hospitals to look at more innovative options for delivering services – especially those which see more services provided in the community. Some might argue that this competition model falls down because in the NHS there is a tariff set which means that there can be no price competition. In fact there is the potential for significant price competition because the tariff is applicable only for the exact service which is specifies.

For example, if the tariff relates to provision of a diagnostic service in a hospital setting, then PCTs can negotiate around having a percentage reduction of tariff for diagnostic services in a community setting on the grounds that this may be cheaper to provide. So under the tariff system price competition is allowed with limits and commissioners try to exercise it in order to get best value for the tax payer. However, the operation of the increasingly consolidated provider market is increasingly militating against attempts by commissioners to get best value for the taxpayer.

Now, this is the situation as the NHS was left under Labour. In short, one can see that there has been a desperate need for the principles of a competitive marketplace. The Competition Commission is ideally placed to bring this approach into the NHS working with Monitor – and this is exactly what the Health Bill seeks to achieve. However, the need will only grow under the reforms proposed in the Health Bill. That is because, as PCTs are rightly broken up and replaced by the GP commissioning, the new commissioners will lose even what very limited purchasing scale they had. So we will have a trend in which we see providers, which are already highly consolidated with regard to provision of local services, consolidating even further. This will be supplemented by a trend in which we see commissioners, which are already highly fragmented, fragmenting even further.

Essentially, the Health Bill which is seen as a revolution is, in this respect, actually a continuation of the trends established under the Labour Government. The failures of properly regulating the competitive failures of the existing system need to be addressed by the involvement of the Competition Commission and this need will be all the greater under the proposed changes.

So it is clear that the reform of introducing the Competition Commission is no more clearing up the mess left by the Labour Government and will result in more innovative healthcare solutions at cheaper cost to the taxpayer. Better for less? Must be why Ed Milliband opposes it.


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